Greater Southeast Community Hospital Cor and Doctors Community Healthcare Corporation

1 For ease of discussion, the court will refer to both
the debtors that commenced these cases and the reorganized
debtors as “the debtors,” and the court will refer to the
positions, which are essentially the same, of the debtors and
the trustee under the liquidating trust as simply the debtors’
positions.
2 The court notes that Haines' reply (DE No. 2441)
indicates that an Exhibit A is attached, but the court's file
does not include that exhibit.
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
GREATER SOUTHEAST COMMUNITY
HOSPITAL CORPORATION I, et
al.,
Debtors.
)
)
)
)
)
)
)
Case No. 02-02250
(Chapter 11)
(Jointly Administered)
PROCEDURAL ORDER REGARDING MOTION OF
LINDA HAINES TO ALLOW LATE FILING OF CLAIM
This order addresses the Motion to Allow Late Filing of
Claim (Docket Entry (“DE”) No. 2429) filed by Linda Haines as
the personal representative of the estate of Beatrice
Phillips, and the oppositions thereto by the reorganized
debtors1 under the confirmed plan in this case and by the
trustee under the liquidating trust established by that plan.2
It is hereby
ORDERED that the Order set forth below is
hereby signed as an order of the court to be entered
by the clerk.
Signed: February 17, 2005.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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2
Haines urges that as a matter of due process she is entitled
to file a late claim and that, alternatively, she is entitled
to an enlargement of time to do so based on excusable neglect.
I
The court assumes that the parties, except as noted,
would stipulate to the following background gleaned from their
papers as facts that are of a kind likely not in dispute.
On or about May 21, 2002, Haines filed a complaint
commencing a medical malpractice/survival/wrongful death
action in the Superior Court of the District Columbia against
the debtor Greater Southeast Community Hospital Corporation I
(“Greater Southeast”) and other defendants. On November 20,
2002, the debtors filed petitions commencing these jointly
administered cases. On December 17, 2002, Greater Southeast
filed a Suggestion of Bankruptcy and Notice of Stay in the
Superior Court action.
On March 3, 2003, this court entered its order fixing May
20, 2003 (“the bar date”) as the last date by which non-
governmental creditors were required to file proofs of claim.
On April 11, 2003, Bankruptcy Management Corporation (“BMC”),
the debtors' claims and noticing agent, sent out a copy of a
notice of the bar date to 17,529 creditors. (Haines disputes
this, raising issues as to whether notices were properly
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3 The debtors also published notice of the bar date in
newspapers, but the debtors have not suggested that Haines or
her attorneys saw the notice in any newspaper.
3
addressed, proper postage paid, and so forth.) BMC's
declaration of service of the bar date notice recites that the
notice was mailed to Paulson & Nace, the law firm that was
representing Haines, at its address of record in the Superior
Court action.3 Haines disputes that her law firm received
the notice and the attorney in the law firm who was
representing her specifically denies having received it.
On April 2, 2004, the court entered an order confirming
the debtors' plan which became effective on April 5, 2004.
The transactions contemplated by the plan have been carried
out and the plan has been substantially consummated within the
meaning of 11 U.S.C. § 1101. Confirmation of the plan was
preceded by approval and dissemination of a disclosure
statement and was followed by dissemination of notice of
confirmation of the plan, but the debtors have not addressed
whether they mailed those papers to Haines.
On April 16, 2004, the Superior Court held a status
conference at which Greater Southeast's attorneys raised no
issue regarding Haines' failure to file a proof of claim.
In September 2004, counsel for Greater Southeast informed
the Superior Court that Greater Southeast had emerged from
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4
bankruptcy, at which time the Superior Court action was
restored to that court's active calendar. As a result of a
September 10, 2004, scheduling conference, the Superior Court
issued a new scheduling order. On September 16, 2004, Greater
Southeast sent Haines' attorneys a copy of the bar date order
by facsimile transmission, but did not assert that the order
barred any further pursuit of the claim. Haines continued to
pursue her claim in the Superior Court action, making Greater
Southeast aware that she was continuing to assert the claim.
The debtors do not contend that Haines led them to believe
that she was giving up pursuit of her claims.
On December 17, 2004, Greater Southeast filed a motion to
dismiss the Superior Court action based on Haines' failure to
file a proof of claim in Greater Southeast's bankruptcy case.
The motion included a transcript of a ruling by this court
regarding another creditor's claim in which the court noted
its exclusive jurisdiction to consider requests for relief
from the bar date order. On January 13, 2005, Haines filed
her motion to late file her proof of claim.
II
Haines urges that due process requirements were not met
here because no notice was mailed to her. The argument may
more accurately be that the debtors did not comply with notice
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4 As discussed later, decisions make clear that due
process is not offended by a statute that discharges claims of
creditors with actual knowledge of the case in sufficient time
to file a timely proof of claim.
5 The statutory obligation of inquiry has been held not
to offend due process. See GAC Enterprises v. Medaglia (In re
Medaglia), 52 F.3d 451, 455 (2d Cir. 1995); Grossie v. Sam (In
re Sam), 894 F.2d 778, 781-82 (5th Cir. 1990); Yukon Self
Storage Fund v. Green (In re Green), 876 F.2d 854, 856 (10th
Cir. 1989); Lompa v. Price (In re Price), 871 F.2d 97, 99 (9th
Cir. 1989); Byrd v. Alton (In re Alton), 837 F.2d 457, 460
(11th Cir. 1988).
5
provisions of the Bankruptcy Code and Federal Rules of
Bankruptcy Procedure, and no statute substituted actual
knowledge of the case (in time to file a proof of claim) in
place of an entitlement to be given notice.4
A.
The debtors urge, first, that even if Haines had not been
given written notice of the bar date for filing claims, due
process was satisfied by way of Haines having been aware of
the bankruptcy case, citing decisions involving individual
debtors as opposed to corporate debtors. Those decisions turn
on 11 U.S.C. § 523(a)(3) (discharging certain claims against
an individual debtor held by creditors who knew of the case in
time to file a claim), a provision which puts creditors to an
obligation of inquiry to protect their interests.5 However,
in a corporate chapter 11 case, § 523(a)(3)(B) does not apply
to alter the ordinary rule of City of New York v. New York, N
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6
.H. & H.R. Co., 344 U.S. 293 (1953), that when notice of a bar
date is required, creditors may assume that notice will be
sent before they are required to act. The Eleventh Circuit
has accordingly held that in the case of a corporate debtor,
actual notice of the bankruptcy case does not satisfy due
process: a known creditor, at least if it has no actual
knowledge of the bar date, must be given written notice under
Rule 2002(a)(7) of the claims bar date in order for its claim
to be discharged by confirmation of a corporate debtor's plan,
and notice by publication does not suffice. In re Spring
Valley, 863 F.2d 832 (11th Cir. 1989), distinguishing Alton,
837 F.2d at 457. See also Fogel v. Zell, 221 F.3d 955, 963
(7th Cir. 2000) (corporate case). The court's limited
research discovered no case which rejects the analysis of
Spring Valley on this point.
B.
The debtors assert, alternatively, that due process and
the procedural requirements in the case were affirmatively
satisfied here by a mailed notice. They have submitted a
certificate of service, signed under penalty of perjury,
demonstrating that it mailed a notice of the bar date to the
law firm that was representing Haines in the Superior Court,
the notice being addressed to “Paulson & Nace, 1814 N Street,
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7
NW, Washington, DC 20036.” The notice does not list Haines as
a creditor but only gives notice of the bar date for filing
claims, and the notice was not addressed to a specific
attorney at the law firm, or to Haines care of the law firm.
In Maldonado v. Ramirez, 757 F.2d 48, 51 (3d Cir. 1985), the
court of appeals observed:
Notice sent to an authorized attorney or agent must
at least signify the client for whom it is intended
so that the attorney can know whom to advise to
assert a claim in the bankruptcy.
See also In re Osman, 164 B.R. 709, 715 (Bankr. S.D. Ga.
1993).
In Maldonado, the notice was addressed as regarding a
specific client, and was held insufficient as notice to
another client of the lawyer. Nevertheless, the debtors
should be prepared to advance reasons why I ought not follow
Maldonado here.
C.
If the record establishes that Haines' attorney in the
Superior Court action had actual knowledge of the bar date
from sources other than the mailed notice, that might suffice
to make the bar date applicable to Haines (see Spring Valley,
863 F.2d at 835 n.2; In re Namusyule, 300 B.R. 100 (Bankr.
D.D.C. 2003)), but the court does not express a view on that
issue or on whether, as the moving party, Haines would have
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6 The court notes that Haines' attorneys should review
D.C. Rules of Professional Conduct, Rule 3.7 and the Comments
thereto in the event that any of those attorneys will be
called to testify by either Haines or the debtors at the trial
of this matter.
8
the burden of proof on that issue, or, whether, instead, the
debtors have the burden of proof by way of avoidance of the
consequences of any failure properly to mail notice to
Haines.6
D.
If Haines was not given adequate notice of the bar date
as required by F.R. Bankr. P. 2002(a)(7), and she had no
knowledge of the bar date, then Spring Valley, 863 F.2d at
835, if followed, would require a holding that her claims were
not discharged. Although the issue here is one of allowing
late filing of a claim, not discharge, the rule in a corporate
chapter 11 case has been held to be that "[a] creditor's claim
can be barred for untimeliness only upon a showing that it
received reasonable notice." Oppenheim, Appel, Dixon & Co. v.
Bullock (In re Robintech, Inc.), 863 F.2d 393, 396 (5th Cir.),
cert. denied, 493 U.S. 811 (1989). The debtors have cited no
case law to the contrary.
E.
If the alleged mailing to the law firm representing
Haines would have satisfied the debtors' procedural
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9
obligations despite Maldonado, two factual issues arise: did
the mailing actually occur and, if so, did the law firm
receive the notice (an issue bearing on relief from the bar
date under F.R. Bankr. P. 9006). The debtors urge that if
the notice was given, a presumption of receipt arises and that
it cannot be overcome by a mere denial of receipt. Haines
urges that given the sheer volume of notices and the fact that
other claimants did not receive notice, the certificate of
mailing may be inaccurate, and she denies receipt of the
notice by the law firm. The court has only made limited
research regarding these issues, and expresses no views on
presumptions and the character of evidence the opposing
parties are required to adduce to prevail on these issues. It
may be advisable to address the Maldonado issue first before
the parties go to the expense of litigating these issues.
III
As indicated in one of the decisions cited by Haines, a
known creditor who was not notified of the claims bar date,
although perhaps not barred by the claims filing deadline from
filing a claim based on lack of having made inquiry, may
nevertheless be estopped from asserting that claim. Typically
based on the nonbankruptcy law doctrine of laches, but
occasionally without specific invocation of that doctrine,
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7 See also In re Lee Way Holding Co., 178 B.R. 976, 986
(Bankr. S.D. Ohio 1995) (dictum because creditor deemed to
have had proper notice); Indian Motorcycle Assoc., Inc. v.
Drexel Burnham Lambert Group, Inc. (In re Drexel Burnham
Lambert Group, Inc.), 157 B.R. 532, 538 (S.D.N.Y. 1993) (late
assertion of claim would substantially prejudice payment of
claims according to terms of confirmed plan by substantially
affecting reserve for other disputed claims, and delay of six
months after completion and consummation of reorganization
plan was unreasonable); Walters v. Hunt (In re Hunt), 146
B.R. 178 (Bankr. N.D. Tex. 1992) (creditors learned of non-
individual debtor's chapter 11 case after plan was confirmed
but waited over two years to seek to file claim out of time);
10
decisions hold that the debtor may be barred from asserting
its claim if the creditor, to the prejudice of other parties,
waited unreasonably long in pursuing the claim after, for
example, learning of the bar date or of confirmation of the
debtor's plan. Levin v. Maya Constr. (In re Maya Constr.
Co.), 78 F.3d 1395, 1400 (9th Cir.), cert. denied, 519 U.S.
862 (1996) (acted only after confirmation of plan); In re
Coastal Alaska Lines, Inc., 920 F.2d 1428 (9th Cir. 1990)
(creditor was aware of a bankruptcy case, was aware that it
was not included on the mailing matrix, and was aware of a
notice that if assets were found, the court would notify
listed creditors of an opportunity to file claims); In re
Remington Rand Corp., 836 F.2d 825, 833 (3d Cir. 1988) ; In re
Chicago, Rock Island & Pac. R.R. Co., 788 F.2d 1280, 1282,
1284-85 (7th Cir. 1986) (dictum, in reorganization case under
Bankruptcy Act, because notice satisfied due process).7
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In re Pagan, 59 B.R. 394 (Bankr. D.P.R. 1986) (in case under
chapter XI of Bankruptcy Act, creditors waited until almost
four years after learning of entry of discharge order, entered
pursuant to confirmed plan, to seek to file a late claim);
Morgan v. Barsky (In re Barsky), 85 B.R. 550, 554 (C.D. Cal.
1988), aff'd, 933 F.2d 1013 (9th Cir. 1991) (creditor did not
receive notice of bar date to file claim in chapter 13 case,
but after learning of case and receiving a copy of the
debtor's proposed chapter 13 plan she waited more than two
years to file a claim, depriving debtor who had completed her
chapter 13 plan, trustee, and other creditors of finality,
with other claims in the case–-according to the court of
appeals' unpublished decision available at 1991 WL 88170–-
having already been fully paid); In re Concord Coal Corp., 81
B.R. 863, 867 (S.D. W.Va. 1988) (facts did not justify
application of doctrine); In re Decko Products, Inc., 73 B.R.
275, 276 (Bankr. N.D. Ohio 1987); In re Arnold Print Works,
Inc., 47 B.R. 288, 290 (Bankr. D. Mass. 1985); In re Cmehil,
43 B.R. 404 (Bankr. N.D. Ohio 1984).
8 Haines' claims presumably arose under District of
Columbia law as Greater Southeast is located in the District
of Columbia and as the claims do not appear to arise under
federal law. The court assumes that it is District of
Columbia law, not federal bankruptcy law, under which any
11
The debtors have urged that Haines' long-standing
knowledge of the pendency of the bankruptcy case makes the bar
date applicable to her, but Spring Valley would require
rejection of that argument, and the debtors have not raised a
defense of estoppel or laches. Moreover, if the bar date is
held inapplicable to Haines by reason of lack of proper
notice, the court's limited research suggests, based on the
preliminary analysis set forth below, that the debtors have
not alleged any facts which would suffice to establish such a
defense of estoppel or laches.8 Haines' procedural right to
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estoppel or laches defense would exist with respect to the
District of Columbia claim. With some explicit statutory
exceptions, bankruptcy ordinarily would not alter a state law
claim or the defenses thereto.
9 In this regard, the parties have not briefed the
question whether knowledge that should have put Haines'
attorneys on notice that something was amiss can be attributed
to Haines herself for purposes of the defense of laches.
12
assume that she would be given notice of the bar date ought to
trump any assertion of estoppel or laches with respect to any
delay occurring before Haines was on notice that something was
amiss regarding receiving notice of the bar date.9 Haines'
attorneys received a copy of the bar date notice via facsimile
transmission on September 16, 2004. However, on September 10,
2004, the parties had attended a scheduling conference in the
Superior Court at which a new scheduling order was issued, and
the bar date and the order of confirmation order were not
raised as an impediment to the action's proceeding. There is
no indication that Greater Southeast articulated a position
that the bar date order and confirmation of the plan barred
Haines from pursuing her claim, or that Haines stopped
pressing the claim. Accordingly, the debtors cannot claim
that Haines waited unreasonably long in pressing the claim.
Recall that under Spring Valley, Haines' claim would not
be discharged if she was not given proper notice of the bar
date. Accordingly, assertion of the claim in this court would
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13
not have been necessary: it sufficed to pursue the claim in
the Superior Court in order not to be guilty of laches. The
delay between September 16, 2004, and January 13, 2005, in
filing the motion to late file a proof of claim is thus not a
delay of any consequence.
In any event, the debtors have not articulated any
prejudice based on Haines' failure to file a proof of claim
immediately after the September 16, 2004, filing versus
seeking to file a proof of claim in January 2005. Although
the debtors entered into and funded on January 18, 2005, a
Takeout and Restructuring Agreement that refinanced
obligations owed to the liquidating trust under the confirmed
plan, they were well aware of the claim and had it within
their control to seek an earlier determination regarding its
being barred. Moreover, they have not articulated how the
existence of this claim would have altered the decision to
enter into the takeout agreement.
III
Haines urges that she should be granted an enlargement of
time based on excusable neglect. This inquiry will be moot if
the bar date does not apply to her based on a failure of the
debtors to meet their procedural obligations. Nevertheless,
the court will address it for the sake of completeness, and
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14
because the considerations the courts have applied regarding
“excusable neglect” may be pertinent to an estoppel or laches
defense. Under F.R. Bankr. P. 9006(b)(1), a bankruptcy court
may permit a creditor to file a late claim if the creditor's
failure to comply with the deadline for filing claims "was the
result of excusable neglect." See Pioneer Inv. Serv. Co. v.
Brunswick Assocs. Ltd. Partnership, 507 U.S. 380, 382-84
(1993). Rule 9006(b)(1) contemplates that courts will "be
permitted, where appropriate, to accept late filings caused by
inadvertence, mistake or carelessness, as well as by
intervening circumstances beyond the party's control."
Pioneer, 507 U.S. at 388. With respect to this determination,
"the bankruptcy courts are necessarily entrusted with broad
equitable powers to balance the interests of the affected
parties, guided by the overriding goal of ensuring the success
of the reorganization." Id. at 389. The inquiry into
"excusable neglect" is essentially an equitable one, in which
courts are to take into account all relevant circumstances
surrounding a party's failure to file. Pioneer, 507 U.S. at
394. These circumstances include:
the danger of prejudice to the debtor, the length of
the delay and its potential impact on judicial
proceedings, the reason for the delay, including
whether it was within the reasonable control of the
movant, and whether the movant acted in good faith.
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10 In this regard, was the existence of the claim
acknowledged in the disclosure statement or in materials
provided to prospective purchasers?
15
Id. The court does not have a complete picture of what
occurred here, and what would be the impact of a late filing.
The court makes observations regarding two of the issues.
A.
As to the issue of the reason for the delay, if Haines'
attorney received the notice, there is no explanation for why
Haines delayed in filing a proof of claim.
B.
As to the issue of prejudice, the court does not have a
representation whether the debtors' proposal to assume
responsibility for medical malpractice claims was based on a
claims analysis which did not include Haines' pending claim in
the Superior Court of the District of Columbia,10 and the
debtors have not fully addressed whether the debtors' obvious
knowledge that the claim was being pressed by reason of its
assertion in the Superior Court ought to weigh against them.
See Greyhound Lines, Inc. v. Rogers (In re Eagle Bus Mfg.,
Inc.), 62 F.3d 730, 737-38 (5th Cir. 1995) (claim was being
addressed via alternative dispute resolution procedures
outside bankruptcy court). Nor does the court have any
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16
indication of the number of claims that had been asserted
against the debtors but for which no proof of claim was timely
filed, a matter pertinent to the debtors’ contention that
allowing this claim will open the floodgates. See In re Keene
Corp., 188 B.R. 903, 912 (Bankr. S.D.N.Y. 1995). Finally, the
court does not have an accurate picture regarding insurance
that relates to Haines' claim.
IV
In light of the foregoing, it is
ORDERED that the parties shall confer to attempt to
arrive at an agreed stipulation of facts and, if necessary, a
schedule (including discovery deadlines and so forth) for
disposing of this matter. It is further
ORDERED that the parties shall appear before this court
on March 9, 2005, at 9:30 a.m. for a scheduling conference or,
if the parties request, a trial on the merits of the instant
Motion. It is further
ORDERED that with respect to any trial, the parties shall
comply with LBR 9070-1 regarding pre-numbering, pre-marking,
and pre-listing exhibits, listing witnesses, and submitting of
two copies of the exhibits.
[Signed and dated above.]
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17	O:\JUDGEFIL\Due Process\Greater Southeast Community Hospital Corp. I (Order re Motion to Late File Claim).wpd
Copies to:
Andrew M. Troop
Weil, Gotshal & Manges LLP
100 Federal Street
34th Floor
Boston, MA 02110
Deryck A. Palmer
Weil, Gotshal & Manges LLP
767 Fifth Ave.
New York, NY 10153
Holly E. Loiseau
Peter D. Isakoff
Cleveland Lawrence III
Douglas Southard
1501 K Street NW Suite 100
Washington, DC 20005
Ted A. Berkowitz
Patrick Collins
Farrell Fritz, PC
EAB Plaza
Uniondale, NY 11556-0120
Sam J. Alberts
White & Case LLP
601 Thirteenth Street, N.W. Suite 600
Washington, DC 20005
Barry J. Nace
Gabriel A. Assaad
Paulson & Nace
1814 N Street, NW
Washington, DC 20036
Office of United States Trustee
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