In Re: M.J. Waterman & Associates, Inc., Debtor. Duane H. Barlow v. M.J. Waterman & Associates, Inc.

& In re M.J. WATERMAN INC.,

ASSOCIATES, Debtor. Barlow, Appellee, H. Duane Associates, & M.J. Waterman Inc., Appellant.

No. 99-1446. Appeals, States Court of United Sixth Circuit. 22, 2000 Argued: June Sept. and Filed: Decided Rehearing Suggestion Rehearing Banc Denied Nov. En

Brian (argued), Joseph H. Rolfe Falcone (briefed), P.C., Rolfe, Falcone & South- field, for Michigan, Plaintiff-Appellee. briefed), (argued Thomas B. Radom Mi- Long, Birmingham, Michigan, Butzel (briefed), Long, chael F. Smith Butzel De- troit, Michigan, Defendanb-Appellant. KEITH, MERRITT, Before: COLE, Judges. Circuit KEITH, J., opinion delivered the COLE, J., joined. in which MERRITT, 612-13), (pp. J. delivered separate dissenting opinion.

OPINION

KEITH, Judge. Circuit Debtor-Appellant, M.J. & Waterman (“Waterman”), Associates, appeals Inc. from a of the United States Dis- trict for the Eastern District of Court reversed a decision of the Michigan which United States Court for the filed February Waterman in which the Michigan District of Eastern Reorganization Plan of its combined pre- to treat the refused bankruptcy court (“Plan”), Statement Disclosure Creditor-Appellee filings of bar date in- per the (“Barlow”) amended as an infor- Duane H. Barlow and re-submitted on March structions objection to claim and mal Plan, it to Waterman’s According Bankruptcy Reorganization Waterman’s non-priority credi- pay its unsecured would the follow- ballot. For Plan as their percent of the value of tors 100 reasons, REVERSE ing fixed term. This term would claims over a judg- AFFIRM the and court’s decision if claim years and a half be two bankruptcy court. ment of the years five if his claim disallowed and were 31, 1998, March were allowed. On I. granting an order bankruptcy court issued trial, 13, 1997, jury after a August On Plan, approval of the amended preliminary (“Barlow”) obtained a Barlow Duane H. 8,May 1998 as the deadline establishing from a Michi- against Waterman judgment were to file ballots and by which creditors $136,- in the amount of state court gan Plan, ordering and objections to the $25,000 345.31, attorney’s plus in fees plus parties in to serve all interest Waterman 1997, 16, Waterman interest. On October a for copies of the Plan and ballot with Chapter under reorganization filed for rejecting the Plan. The bank- accepting or Code, pri- Bankruptcy listing eleven of the May 1998 as the date ruptcy court set with claims creditors ority and unsecured Plan. a on confirmation of the hearing for $686,000. Barlow was in of totaling excess 2, 1998, court April On disputed a holding a creditor listed as evidentiary hearing on the motions held an prin- non-priority claim1 unsecured receiving filed after Barlow Waterman’s $161,891.91. of On October cipal amount At the sever- Chapter hearing, Notice. 22,1996, the Clerk objected to the al of the other creditors of of Commencement issued a Notice Barlow had failed to proceedings because Chapter 11 case. This Notice Waterman’s of the motion to copies them with serve (hereafter date”) of “bar set deadline dismiss, applicable contravention 16, 1998, filing proofs of February for ac- attorneys Rules. Barlow’s All of Water- of claim Waterman. comply with knowledged their failure to Notice, in- received this man’s creditors Bankruptcy Rules and the cluding Barlow. adjourned evidentiary hearing 22, 1998, months, day as the May until the same next several Barlow During the confirmation of the Plan. hearing on the motions with the filed several 2, 1998, an April Barlow filed protect his Also on ostensibly an effort to Proof of Claim the amount Mistaken- Amended interest in Waterman’s assets.2 (1) $161,345.31. objec- He further filed: believing filing that the of these motions ly (2) creditors; claim, the claims of two to file a tions to obviated the need Plan; proposed objections to Waterman’s not file a of claim the Barlow did (3) the Motion date, recovery a Notice of Withdrawal of calling right bar to place and in its a Motion question. to Dismiss into against Waterman and to Set Aside "disputed” plaint to Avoid Preference was listed as because 1. The claim (3) appeal Conveyance; was on to Dis- the state court Michigan Motion Fraudulent Appeals. Stay; Court of the Alternative Lift Automatic miss or in (4) Em- Enjoin to Former [Debtor’s a Motion (1) of: a Motion 2. Barlow’s consisted Directly Paying ployer] from Commissions Compensation of Officers of to Fix or Limit Debtor; (5) Request for Inclusion Operations to Order the Business Debtor and Statement. Information in Disclosure Cease; (2) Appoint- a Motion for of Debtor Purpose Filing Com- ment of a Trustee for Chapter Chapter Appeal. 11 Case to a March the dis- Convert (4) Case; and a Motion to Allow the trict court issued a Memorandum and Or- Amended Claim. der vacating remanding the bank- decisions, finding court’s that the By May filing 1998 deadline bankruptcy court had abused its discre- approving Waterman’s ballots tion in failing treat Barlow’s Plan, seven creditors had filed ballots vot- date filings as an informal of claim accept Plan none of ing to with in failing objections to treat his casting reject creditors a vote to the Plan. Waterman’s Plan as informal ballot. Barlow failed to file a ballot at all. On Waterman filed a timely Appeal Notice of August request he filed that his with this Court. objection to the Plan previously filed considered as an informal ballot

the Plan. III. 8, 1998, September bankruptcy jurisdiction This pursu Court has hearing held a court heard §§ ant to 28 U.S.C. 158 and 1291. We argument addressing Barlow’s motions note that our process slightly review is Among and confirmation of the Plan. different from our normal standard of re (1)

issues before the court were: whether view reviewing appeals when which origi Barlow’s date motions should con- First, bankruptcy nated courts. proof stitute an “informal of claim” which directly bankruptcy review the court’s de could be amended so as to allow his claim cision rather than the district court’s re Waterman; (2) Bar- whether bankruptcy view of the court’s decision. objection low’s to the Plan should be treat- See In re Trident Assocs. Ltd. Partner hearing ed as an informal ballot. After (6th 127, Cir.1995). ship, 52 F.3d 130 As argument, found Inc., explained in Omegas Group, In re Barlow’s failure to file a formal this Court in reviewing accords discretion claim inexcusable and denied his Motion to only original bankruptcy court find Allow Amendment of the Informal Proof of ings, not those included in the decision Claim as a Formal Proof of Claim. The “[tjhis rendered since bankruptcy court further declined to con- good position court is ‘in as to review the objections sider Barlow’s to Waterman’s bankruptcy court’s decision as is the dis Plan as “informal ballot” and denied all ” (6th 1443, trict court.’ 16 F.3d 1447 Cir. of his motions. The court’s 1994) Restaurants, In re (quoting Sambo’s findings meant claim was Inc., (9th Cir.1985)). 811, 754 F.2d 814 longer disallowed he was no consid- right ered interest with a always, As we review the bank recovery against Waterman. At the con- novo, ruptcy court’s conclusions of law de clusion of the hearing, Bankruptcy while we findings review its factual for approved Court Waterman’s Plan of Reor- Rembert, clear error. In re 141 See F.3d 1129(a) pursuant § ganization (6th Cir.1998). 277, 280 Whether an infor Bankruptcy Code. Barlow filed a Notice of mal of claim should be allowed is an Appeal with the States District United determination for Court the Eastern District of Michi- Houbigant, court. See Inc. 190 B.R. gan, and Waterman filed a Motion to Dis- 185, (Bankr.S.D.N.Y.1995). 187 Equitable Appeal. miss the are within the determinations sound dis bankruptcy judge cretion of the and will

II. not be disturbed absent abuse of discre Zick, 1124, The district court received briefs and tion. See In re 931 F.2d 1126 (6th Cir.1991). argument heard oral on ap- both Barlow’s An abuse of is discretion peal and Waterman’s Motion to Dismiss defined as a “definite and firm conviction

608 any supporting documents 6.Copies committed a clear below] that the [court the claim. Soberay Mach. & judgment.” error Ltd., Inc., 181 F.3d v. MRF Equip. Co. failure to file a Form 10. The Official (6th Cir.1999); 759, Bowling Pfizer, v. 770 for disallowance grounds claim is (6th Cir.1996). Inc., 777, The 102 F.3d 11 U.S.C. under the Code. reviewing court how the question is not 502(b)(9). § The ruled, whether a but rather would have filing proof of claim extend the time for agree with the person could reasonable shown” or “excusable ne- good “for cause decision; if reasonable 3303(c)(3) §§ R. Bankr.P. glect.” Fed. issue, then could differ as persons 9006(b). However, is Barlow’s claim See Wash abuse of discretion. there is no claims; rath- of these not based on either Estate, Inc., 694 Real ington Sherwin er, to invoke the common law he seeks (7th Cir.1982); see also F.2d “informal of claims.”3 doctrine of (Bankr.D.Me. Carter, B.R. re proof of notion of informal 1989). nearly claims has been existence Otis, 190 century.4 Hutchinson v. See IV. 47 L.Ed. 1179 23 S.Ct. U.S. Rules of of the Federal Under Rule 3003 Green, (1903); see also J.B. Orcutt Co. Procedure, whose a creditor Bankruptcy 195, 96, 102, 27 51 L.Ed. 390 204 U.S. S.Ct. disputed file a as must claim is scheduled (1907). permits It A claim is a proof claim. proof of pre-bar treat the date of a creditor forth a credi- which sets written statement be proof of claim which can as “con- claim a debtor must tor’s that it is in amended after the bar date so offi- substantially appropriate form of Fed. conformity requirements with the 3001(a). A cial Fed. R. Bankr.P. form.” 3001(a). R. Bankr.P. include: proper proof of claim must who have failed to ad Creditors Creditor; 1. Name and address of Bank strict formalities of the here to the claim; 2. Basis for the taken some ruptcy Code but who have incurred; that debt was 3. Date in the protect their interests measures claim; the 4. Classification of may preserve bankruptcy estate be able claim; by showing they that have those interests Amount of 5. Bankruptcy by Reform Act of argues should be invalidated that our focus The Dissent (the Act”), proof summarily failure to file we dis- on whether Barlow's 1994 "1994 reorganization plan is vote on claim or pense with this claim. Waterman contends meaning neglect” “excusable within 502(b)(9) away § of the 1994 Act does that However, 9006(b)(1). Bankruptcy Bar Rule entirely proof of claims with the informal provision this low contended that has never by requiring proofs be doctrine all of claim to presented applies, the issue as but rather has argument timely This fails for two rea- filed. require Appellee met the "whether Barlow First, by district sons. as noted Assuming, ar of an informal claim.” ments throughout there are numerous cases properly guendo, claim was before that this country have allowed informal claims which Court, review the this would timely proof even after the enact- as of claims neglect finding was Court’s that Barlow's Leis, See, e.g., Act. In re 198 ment of the 1994 under an abuse of discretion stan inexcusable 1996); (Bankr.N.D.Ohio see also B.R. 257 parallels inquiry that ne dard. Because our Ltd., (Bankr. B.R. 1007 re Michelex 195 actually raised and cessitated the claim Second, W.D.Mich.1996). Waterman has addressed, the same. The the conclusion is single cite a case in failed to which reasonable minds outcome is one over 502(b)(9) § Act has been em- 1994 differ, an abuse could and cannot be deemed that ployed claims. We find to bar informal of discretion. proof doctrine is still the informal of claims Waterman maintains that the 4. To the extent very alive. much been informal of claims doctrine has complied spirit with the of the rules. As writing 2. The contain must a demand by. one court has stated: the creditor on the .debtor’s es- tate; The intent of the informal Proof of concept problems Claim is to alleviate writing express 3. The must an intent substance; is, equi- with form over to hold the debtor liable for the tably potentially preventing the devas- debt; and tating effect of the failure of a creditor 4. The of claim must filed with be formally comply require- with the court. filing ments of the Code in the of a Vaughn, In re 160 B.R. at (citing In re when, Claim, fact, Proof of pleadings Servs., Inc., McCoy Management 44 B.R. filed asserting the claim (Bankr.W.D.Ky.1984)). during filing period the claims in a bank- Vaughn court went on to state that if a puts parties case all on sufficient considerations, filing meets above notice that a claim is asserted aby fifth .examine factor —whether particular creditor. would to allow the amend- WPRV-TV, Inc., 102 B.R. proof. ment of the informal Id. n. 2. We at (Bankr.E.D.Okla.1989). note at the outset that the first four fac- ignore Creditors who the formalis Vaughn tors under only are indicative requirements tic so at Code do their proposed validity, claim’s while the however, peril, they own run as the risk of fifth factor deals with question being denied the informal use of of whether the amendment should be allowed claims doctrine if their date ac once the informal of claim is deter- imposed tions do not standards meet mined to They separate be valid. Id. are jurisdiction. their These standards are inquiries, as will be discussed below. designed protect the interests of the debtor as well as the other creditors who V. fit saw to follow the Code’s rules and In applying Vaughn test to Barlow’s may directly whose interests affected it filings, date is obvious that he by the delinquent creditor’s failure to file prongs meets the first and fourth of the in timely a fashion. It is a delicate bal test. The were pleadings certainly writ- ance. On the one hand not we do wish to ings they were filed with the bank- heavy-handed enact too a pun measure to ruptcy court. The second and third a strictly ish creditor who not have obvious, prongs are of this test less filing adhered to the formalities of the although pleadings referenced Bar- requirements, but whose actions were suf claim, they low’s contained some inaccura- put ficient to the court and the debtor on respect cies and inconsistencies with of notice his her intention to seek to amount of the claim -and the date that the hand, hold the debtor liable. On the other However, bearing debt was incurred. in protect rights we must and interests of applying mind that we are standards parties diligence at interest whose en a designed doctrine the technical lower them to a timely titles distribution of the claim, ultimately barriers to we filing are estate. persuaded that the substance of Barlow’s The standards used courts var to both motions made clear throughout ies country, juris but this court and- that Barlow was Waterman diction has settled on a four element test making a demand —albeit a rather uncer- Chevrolet, in In Vaughn articulated re 160 tain one—on the estate. We (Bankr.E.D.Tenn.1993): B.R. 316 conclude, that Barlow’s motions likewise express 1.The of claim must be writ- were sufficient to hold intent to ing; that demand. estate liable for called Reorganization Plan for that the four Waterman’s

Having determined its credi- met, of all of for the reimbursement have been Vaughn test of the prongs if Barlow’s years a half tors over two and in a valid Barlow submitted find that disallowed, years five and over claim were does inquiry Our proof of claim. formal allowed. if his claim were however, turn next to there, as we not end critical ele most arguably the fifth and the bank- The district court reversed allowance analysis ment of the —whether that Bar- judgment, finding ruptcy court’s claim would be the informal were mere “technical de- low’s omissions the circumstances. equitable under equity salvageable were fects” which (5th pointing out that distribution Nikoloutsos, 199 F.3d 233 In In re Plan has not been sub- estate under the Cir.2000), Circuit reversed the Fifth consummated, as would stantially such complaint did finding district court’s in the event Barlow complicate matters of claims re- the informal not meet in interest. was reinstated as identical five-part test under quirement un- position is the district court’s While The district Vaughn. to the one one, give it fails to doubtedly a reasonable creditor’s com- although the found that deference to the four, proper through one prongs met plaint how the question is not judgment. The balancing of the fifth factor—-the failed the ruled, but reviewing court would have reversed the Fifth Circuit equities. The person could a reasonable rather whether finding that of the district court’s decision. agree with placed empha- undue court had persons could differ as to If reasonable not have a direct which did sis on factors issue, of discretion. matter, then there is no abuse equitability bearing on Carter, 126. 100 B.R. at of the circumstances light and that proof of of the informal the case denial bankruptcy law built practice of is The “extremely harsh.” Id. at claim would be proper notice providing on a foundation of debtors, creditors, and it and the court pitfalls fraught perils with the is VI. practitioners. The missed deadlines for its process of claims is ex- court in the in informal Bankrupt- the ception that it consid to the formalities of very made it clear stant case Code, operate it is one which must attempt rely pre cy on his but Barlow’s to ered system a whose ulti- impermissible within the confines of pleadings to be bar date timely wit, is the and dis- bankruptcy goal the mate shifting. To burden bankruptcy estates. We cer- relying on his tribution of pointed by out that bankruptcy the court’s motions, requiring tainly understand Barlow was in essence allow Barlow to state his parties unwillingness in interest to the court and the other that imprecision the demands with such through pleadings categorized to sift his — through parties the must wade “voluminous”— court and by bankruptcy court as multiple lengthy pleadings Barlow’s exact his in an effort to ascertain bankruptcy result, his exact demands. The bankruptcy frame demands. As a expressed its belief that to not court further that Barlow’s were court found his go back and formalize an informal allow Barlow to constitute sufficient delay in undue to find that the claim would result The court went on claim. debtor, primary to the whose improper filing prejudice delay by caused Waterman, the debts of the bank- interest is to settle which was prejudicial was that further note pay Plan to its estate. We proceed with its trying to creditors, ad- who have Waterman’s other ruling equity, In on an action creditors. also procedural requirements, the interests of all the hered we must balance of this in the outcome have an interest further note parties involved. We

6H allowed, matter, if Barlow’s claim is comply procedural he failed to with re- quirements. long take twice as for Waterman to will to them. discharge its debt Fed. R. Bankr.P. provides that a in Chapter creditor 11 bankruptcy case recognize po- We the merits of Barlow’s proposed must vote on Reorganization sition, adhering but to our strict standard by Plans submitting a ballot. Barlow review, simply cannot find that the failed to submit despite his ballot having bankruptcy by court abused its discretion one, received attorney because his was un- refusing pleadings to allow his to serve as impression der the previously-sent that his of claim in this matter. objections to the Plan were sufficient and short, In we find no abuse of discretion in constituted an “informal vote.” bankruptcy court’s refusal to allow go Barlow to back and formalize his claim by As noted there are where the only published was motivated two opinions which address judicial in large part by economy question and the objection whether an to a Plan protecting interest the debtor and credi- deemed informal vote Plan, tors, rejecting all of whom had adhered to the bank- these two cases rules, opposite reach ruptcy procedural conclusions. against further West wood, delay in distribution court for the East estate. This is ern District of Texas found that question on which the credi reasonable minds objection tor’s differ, should suffice as a vote might uphold and as such we objection put because the the debtor on ruling. court’s notice that the creditor was dissatisfied Westwood, with the terms of Plan. VII. (Bankr.E.D.Tex.1992), B.R. aff'd appeals bankrupt Barlow also part, rev’d in part, and remanded cy court’s decision that his failure file (E.D.Tex.1996). contrast, By B.R. 693 rejecting precluded ballot the Plan him Southern District of Florida’s voting from on the Plan. Barlow filed Ob court determined that a creditor who had jections Chapter to Debtor’s 11 Plan of objections, filed written but not formal Reorganization April on well be ballot, against had not cast a vote the Plan. May parties fore the 8 deadline Co., In re Miami Tricolor Service Offset required ap were to submit their ballots (Bankr.S.D.Fla.1995). 187 B.R. 767 More proving the Plan. Due to his over, the Miami Trucolor court declined objec counsel’s mistaken belief that these to follow Westwood because “cit Westwood preserve tions were sufficient to rights, ed no direct authority support of its Barlow did not submit a ballot objection conclusion that an to confirma He a request deadline. later filed that his tion should be considered a vote objection to the Plan be an considered as the Plan.” Id. at 770 n. 8. comparing After informal ballot the Plan. The cases, the two aforementioned bankruptcy court took a dim of Bar view by court was convinced Westwood’s func procedur low’s second failure to adhere to approach tion-over-form and determined al requirements request and denied his to position that the taken Westwood was objections treat the as an informal ballot. appropriate “the more circum review, the district court determined stances of this case” because Barlow’s fil bankruptcy that the court’s decision consti objections ing of the indicated at least tuted an abuse of discretion. disagree. We diligence part. some measure of on his presents

This question conflicting issue the same the face of on this caselaw bankruptcy topic, agree bankruptcy discussed above—whether the we cannot that the court abused its discretion in refusing abused its discretion under these give Barlow the benefit of the doubt after circumstances. the district court’s While 9006(b) interpreting ruled preme saves his Court vigilance that Barlow’s

conclusion one, permitted accept on believe it is that courts are plausible claim is a inadvertence, by motion late caused judg- its own substituting impermissibly carelessness, mistake, as well as place of that of ment in par- posi- beyond circumstances intervening court’s And while the district court. one, not follow The Court found that ty’s it does control. tion is a reasonable neglect conclusion to is excusable bankruptcy court’s determination whether that the as to be and that large unreasonable one contrary was so is with a “defi- surrounding to leave us all circumstances unsupportable or relevant the [bank- firm conviction that ac- party’s nite and omission should be taken into of a clear error preju- committed example, danger court] count—for Co., Equip. & Soberay debtor; Mach. judgment.” length delay dice to the must to Adhering as we 181 F.3d at 770. proceed- potential impact and its on the standard, we find abuse of discretion whether ings; delay; the reason for the refusal to al- that the delay was within reasonable control circumvent well-established low Barlow to party late party; the late and whether the rules was well bankruptcy procedural at good acted in faith. Id. S.Ct. It is an outcome within its discretion. could certain- which reasonable minds over factors, it is clear that Considering these an abuse of

ly differ and cannot be deemed prejudice there would be no to the debtor. discretion. motions, Based on Barlow’s various debtor full of Barlow’s intention to was on notice yin. that it was owed. In collect the treat bankruptcy court’s refusal to fact, pursuit of his it was the Barlow’s pleadings as Barlow’s the debtor into judgment award drove Plan as an objections to the claim and his bankruptcy. Allowing the late Chapter hereby AFFIRMED. informal ballot are impact on the filing would also cause little proceeding All of the itself. MERRITT, dissenting. Judge, Circuit other creditors were aware of Barlow’s and its disagree panel’s I with the result debtor, desire to collect from the and the analysis in focus should be this case. Our debtor had in an earlier version of its Barlow’s failure to file whether reorganization plan accounted for the debt reorganization plan is claim or vote on Furthermore, Barlow was owed. neglect,” not whether “excusable important, and his counsel most Barlow to an informal actions amounted complete faith. No one ar- good acted Bankruptcy Rule claim or vote. See to file gues intentionally that Barlow failed 9006(b). gone have on Whatever of claim. Barlow filed a number of below, clearly this is bankruptcy court which motions with the applied applying it in the rule to be full gave established Barlow’s claim and Bankrupt- call for me. easy this case is an in- notice to the court and all 9006(b) allows a court cy specifically Rule parties. terested to file a late enlarge the time for reasons, I allow Barlow where the re- For these would claim in two circumstances: neglect. of excusable prior expiration to file on the basis quest is made harm, period “No no foul” is the maxim we should period, original or if the has original here, pro- technical rigid, to act was the follow not some expired, where the failure that makes little sense as In Pioneer cedural rule neglect.” result of “excusable simply I applied to this case. would not v. Brunswick Associates Inv. Services Co. bankruptcy judge defer to the here. Our Partnership, 507 U.S. 113 Ltd. novo, (1993), is de and the District Court’s the Su- review S.Ct. 123 L.Ed.2d reasoning per- is much more balanced and

suasive. WEST, Plaintiff-Appellee,

Robert ENTERPRISES, INC., MIDLAND Company, Ohio River and Motor Ves Dickhoner, -Ap sel W.H. Defendant s pellants.

No. 99-5982. of Appeals, United States Court Sixth Circuit. Argued: Aug. Sept. Decided and Filed:

Case Details

Case Name: In Re: M.J. Waterman & Associates, Inc., Debtor. Duane H. Barlow v. M.J. Waterman & Associates, Inc.

Court Name: Court of Appeals for the Sixth Circuit

Date Published: Sep 15, 2000

Citation: 227 F.3d 604

Docket Number: 16-1034

Court Abbreviation: 6th Cir.