National Energy & Gas Transmission, Inc.

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Greenbelt
In Re: 	* 	Case Nos. 03-30459PM & 03-30461PM
through 03-30464PM & 03-30686PM
through 03-30687PM
Chapter 11 (Jointly Administered under
Case No. 03-30459PM)
National Energy & Gas Transmission, Inc.
(f/k/a PG&E National Energy Group, Inc.), et
al.
*
*
*
Debtors. 	*
*
*************************************** 	*
MEMORANDUM OF DECISION
The City of Seattle moves pursuant to Federal Rule of Bankruptcy Procedure 9006(b)(2)
for an extension of time to file an untimely proof of claim. Debtors oppose the motion. The
matter came on for hearing before the court on June 16, 2004.
These widely-noticed bankruptcy cases were filed on July 8, 2003. By letter of July 18,
2003, signed by Michael L. Sinowitz, Deputy Superintendent of the Power Management Branch
of the City of Seattle (hereafter “Seattle”) acknowledged the filing of the bankruptcy case as well
as public statements made after the filing by the Debtor, then-known-as PG & E Energy Trading-
Power L.P. (hereafter “ET”), that it had ceased all transactions under the Western Systems
Power Pool Agreement (hereafter “Agreement”). This followed an exchange of e-mail
correspondence one week before the filing of these bankruptcy cases between representatives of
Date signed June 29, 2004
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ET and Seattle wherein ET acknowledged that it had purchased $502,500.00 of energy delivered
by Seattle under the Agreement in the month of June and requested an invoice in that amount.
The invoice was sent out as requested. It was not paid and forms the basis for the proof of claim
sought to be filed.
Following that electronic communication, ET listed the debt to Seattle as an unsecured
creditor without priority on its Amended Schedule F of creditors holding unsecured claims as
“contingent, unliquidated and disputed.” Every other unsecured creditor, save one, was
scheduled as contingent or unliquidated or disputed or a combination of these. Scheduling claims
as either contingent, unliquidated or disputed, Federal Rule of Bankruptcy Procedure
3003(c)(2), implementing 11 U.S.C. § 1111(a) causes creditors holding such claims to file timely
proofs of claim or have their claims disallowed. The legislative history of this section points out
that this section was created because, in general, the chapter 11 debtor’s schedules are accurate
enough that they will suffice to determine the claims allowable in the case. HR REP NO . 595,
95th Cong, 1st Sess 405 (1977); S REP NO . 989, 95th Cong, 2d Sess 117 (1978). This section of
the Bankruptcy Code was not designed by Congress to ensnare unwitting creditors, especially
those whose bills were never disputed by the debtor, but rather to limit the filing of unnecessary
claims with the clerk. 	This listing is problematic as to Seattle, because whatever defect may be
alleged to exist in its claim, the claim is anything but unliquidated. Because the court has
encountered debtors who have in the past attempted to use Rule 3003(c)(2) as a sword, the
judges of this bankruptcy court enacted Local Bankruptcy Rule 2081-1 that provides:
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1A Notice to Creditors with Disputed, Contingent, Unliquidated and/or Unfixed Claims
dated November 13, 2003, and characterized by the sender as “the CUD Notice” was said to
have been mailed to various parties. While assuming that such a motion was sent out, the court
has been unable to find the text of the Notice in this file.
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Chapter 11 - Scheduled Claims
The debtor in a Chapter 11 case must serve on each creditor whose claim is listed
on a schedule as disputed, contingent, or unliquidated, notice of that listing within
fifteen (15) days after filing the schedule or within fifteen (15) days after adding a
disputed creditor to a previously filed schedule. The notice must state that such
creditor has the right to file a proof of claim and the failure to do so timely may
prevent the creditor from voting on a plan or participating in any distribution.
The debtor must file a certificate of service of the notice within five (5) days of
service.
This local rule works especially well for creditors whose places of business are located far from
this bankruptcy court, saving them the expense of hiring local counsel to check the court’s
docket.
Seattle presented testimony and affidavits to the effect that it did not receive notice of
either the court’s Order of November 10, 2003, establishing a bar date of January 9, 2004, for
filing claims not deemed allowed under §1111(a), did not see the notices of the same in the
national editions of the Wall Street Journal or Washington Post, and did not receive any notice
required by the Local Rule that its claim was disputed, contingent or unliquidated. 1 Were the
court to deny the motion on account of Seattle’s failure to file a timely proof of claim, it would
not receive any distribution by the estate.
The notices required to be mailed to Seattle and similarly situated creditors were not
mailed by the Bankruptcy Noticing Center associated with the court but were sent out by a
private entity, Bankruptcy Services, LLC of New York City. No competent evidence was
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offered to enable the Debtors to avail themselves of the presumption of delivery and receipt of
mail properly mailed. Benner v. Nationwide Mutual Ins. Co., 93 F.3d 1228, 1234 (CA4 1996).
It is admitted that Seattle had actual notice of the filing of the bankruptcy case soon after
filing. Its principal witness, Mr. Sinowitz, testified that the reason that he did not file a proof of
claim promptly was that he anticipated that he would receive an official notice of the need to file
claims. This evidence was not contradicted. Bankruptcy Rules 4004(a) and 4007(c) set bar
dates for filing complaints to object to an individual debtor’s discharge or to the discharge of a
particular debt. Courts generally hold that creditors who have actual notice of the filing of the
bankruptcy case but have not received notice of the bar dates are nevertheless on inquiry notice
of the administrative requirement. GAC Enter., Inc. v. Medaglia (In re Medaglia), 52 F.3d 451,
457 (CA2 1995); Ramos v. Compton (In re Compton), 891 F.2d 1180, 1184 (CA5 1990); Byrd v.
Alton (In re Alton), 837 F.2d 457, 458-459 (CA11 1988); In re Duncan, 125 B.R. 247, 250 (BC
W.D. MO 1991); MSI Fin. Group, Inc. v. Mullins (In re Mullins), 172 B.R. 1015 (BC N.D. GA
1994). But in the circumstances of this case, Seattle is subject to no such imposition of a duty to
make inquiry. Having received verification of the amount owed to it from ET in the week of the
bankruptcy filing, it had not the slightest reason to suspect that its claim would be scheduled as
disputed, unliquidated or contingent, thus requiring the filing of a timely proof of claim. Nor did
it receive the protective notice required by Local Bankruptcy Rule 2081-1.
But it did not file a timely proof of claim. It urges that its failure to do so was
attributable to excusable neglect. The court is fortunate to have the decision of the Supreme
Court in Pioneer Inv. Serv. Co. v. Brunswick Assoc. Ltd. P’ship, 507 U.S. 380 (1993) as a beacon
light to assist in interpreting Bankruptcy Rule 9006(b)(1). In its opinion, the Court looked to
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Federal Rule of Civil Procedure 60(b)(1) as a point of reference. Pioneer notes “for purposes of
Rule 60(b), ‘excusable neglect’ is understood to encompass situations in which the failure to
comply with a filing deadline is attributable to negligence.” Pioneer, 507 U S at 394. The Court
goes on to instruct lower courts that:
This leaves, of course, the Rule’s requirement that the party’s neglect of the bar
date be “excusable.” It is this requirement that we believe will deter creditors or
other parties from freely ignoring court-ordered deadlines in the hopes of winning
a permissive reprieve under Rule 9006(b)(1). With regard to determining whether
a party’s neglect of a deadline is excusable, we are in substantial agreement with
the factors identified by the Court of Appeals. Because Congress has provided no
other guideposts for determining what sorts of neglect will be considered
“excusable,” we conclude that the determination is at bottom an equitable one,
taking account of all relevant circumstances surrounding the party’s omission.
(footnote omitted) These include, as the Court of Appeals found, 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.
(citation omitted)
Pioneer, 507 U. S. at 395.
The court will grant the motion. It finds that the failure of Seattle to have ET’s schedules
checked to verify the correct listing of its claim was negligent. Because the rapid change of
position of ET regarding the status of the Seattle claim that was accomplished sub rosa, the court
finds Seattle’s neglect to be excusable. The court finds no prejudice to ET. There could be no
change of position on account of Seattle’s failure to file a proof of claim. While the court is
troubled by Seattle’s delay in filing this motion, the court is not sufficiently disturbed to make a
finding that the delay had any meaningful impact upon this bankruptcy case. The court finds that
Seattle acted in good faith. An appropriate order will be entered.
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cc: 	David C. Roseman - counsel for City of Seattle
Steven Wilamowsky - counsel for Debtors
Martin T. Fletcher - co-counsel for Debtors
All parties requesting notice
End of Memorandum Decision
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