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|
In re
J.H. MONEYMAKER CONSTRUCTION, INC., Debtor(s) |
Case No. 4-85-00009-HAR
Chapter 7
MEMORANDUM DECISION GRANTING |
A hearing was held on December 11, 1995, on the objection of the trustee to Proof of Claim No. 31 filed by Cook & Haugeberg. The court rules that the claim cannot be allowed on a parity with general unsecured claims, but must be subordinated as an untimely filed claim.
The claim was for $26,036.05, and was filed on March 25, 1993. This was after the bar date for filing claims in the chapter 7 case, which expired on January 5, 1993. The U.S. Trustee indicated at oral argument that Cook & Haugeberg would receive a dividend of $8,000± if its claim is allowed.
The case was originally filed as a chapter 11 proceeding on February 5, 1985. A plan was confirmed in October of 1990. The original claim of Cook & Haugeberg's predecessor was listed as undisputed, liquidated, and uncontested on the schedules, and was thus deemed allowed pursuant to 11 USC § 1111(a), but no proof of claim was filed at that time. Upon conversion, an actual proof of claim was required to be filed by FRBP 1019(2),(3), unless one was previously filed in the chapter 11 case.
Cook & Haugeberg was employed by the chapter 11 estate and so was aware of the proceeding. Unfortunately, between the time the case was originally filed and the bar date for filing claims in the chapter 7 converted case, Cook & Haugeberg's address had changed and notice of the conversion and the requirement to file a proof of claim did not reach Cook & Haugeberg.
11 USC § 726(a)(2)(C) provides that the second priority in payment
in a chapter 7 liquidation is, after paying the administrative expenses,
for payment of both timely filed claims and tardily filed claims under
§ 501(a), if the creditor holding a tardily filed claim: (1) did not have
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notice or actual knowledge of the case in time to timely file the proof
of claim, and (2) the proof of claim is filed in time to permit payment
of such claim.
Since the trustee has not disbursed dividends in this case yet, Cook & Haugeberg meet the second part of the tardily filed claim test. However, they do not meet the first part of the test. They did know about the case in time to file a timely proof of claim.
This is an admittedly harsh result. Cook & Haugeberg might have fared better in chapter 11. In chapter 11, a late claim may be allowed if the court finds "excusable neglect." See, Pioneer Investment Services Co. v Brunswick Assocs. Limited Partnership, 113 SCt 1489 (1993); FRBP 3003(c). However, the time limits for filing a proof of claim in chapter 7 are not so forgiving. FRBP 9006(c)(2) provides that the court may not reduce the time for taking action under FRBP 3002(c) except as provided in the Rule. Rule FRBP 3002(c) provides that a proof of claim must be filed within 90 days of the first meeting of creditors, with some exceptions which do not help Cook & Haugeberg.
FRBP 1019(2) provides for a new time limitation for filing proofs of claim under FRBP 3002. FRBP 1019(3) provides that all claims actually filed in the superseded chapter case shall be deemed filed in the chapter 7 case. This excludes the claims which were deemed filed in the chapter 11 case, but for which no proof of claim was filed.
With this background, the court feels bound by the case of In re Coastal Alaska Lines, Inc., 920 F2d 1428, 1433 (9th Cir. 1990) and Pioneer Inv. Services at 1495, fn 4. See, also, In re Cole, ____ BR ____, 1995 WL 669530 (Bankr SDNY 1995) (involving a late filed claim in a case converted from chapter 11 to chapter 7; claim allowed only under 11 USC § 723(a)(3)).
In Coastal Alaska Lines, the creditor was not listed on the matrix, but knew of the case. The court held that the creditor could have filed a timely proof of claim and was therefore not entitled to the benefit of 11 USC § 726(a)(2)(C). Therefore, I feel obliged to grant the trustee's motion and deny Cook & Haugeberg's claim, except to the extent it would be entitled to recover under a lower priority, 11 USC § 726(a)(3) (tardily filed § 501(a) claims which do not qualify for treatment under § 726(a)(2)(C)).
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In making this ruling, I have taken into account the fact that this
case was filed in 1985 when a different version of FRBP 1019 was in
effect. The rule was amended, effective August 1, 1987. The 1987
amendment added a provision to Bankruptcy Rule 1019(2), and modified Rule
1019(3) (numbered FRBP 1019(3),(4) in the present version):The Advisory Notes to this 1987 addition to the rules state:(2) New Filing Periods. A new time period for filing claims, a complaint objecting to discharge, or a complaint to obtain a determination of dischargeability of any debt shall commence pursuant to Rules 3002, 4004, or 4007, provided that a new time period shall not commence if a chapter 7 case has been converted to a chapter 11, 12, or 13 case and thereafter reconverted to a chapter 7 case and the time for filing claims, a complaint objecting to discharge, or a complaint to obtain a determination of the dischargeability of any debt, or any extension thereof, expired in the original chapter 7 case.
(3) Claims Filed in Superseded Case. All claims actually filed by a creditor in the superseded case shall be deemed filed in the chapter 7 case. [emphasis supplied to show word "actually" was added by amendment to the version which was in effect in 1985]
The order of the Supreme Court implementing the 1987 amendments to the Bankruptcy Rules provided that Rule 1019 was amended and:Paragraph (3) of the rule is expanded to include the effect of conversion of a chapter 11 or 13 case to a chapter 7 case. On conversion of a case from chapter 11 or 13 to a chapter 7 case, parties have a new period within which to file claims or complaints relating to the granting of the discharge or the dischargeability of a debt. This amendment is consistent with the holding and reasoning of the court in F&M Marquette Nat'l Bank v. Richards, 780 F2d 24 (8th Cir 1985).
Paragraph (4) is amended to deal directly with the status of claims which are properly listed on the schedules filed in a chapter 11 case and deemed filed pursuant to § 1111(a) of the Code. Section 1111(a) is only applicable to the chapter 11 case. On conversion of the chapter 11 case to a chapter 7 case, paragraph (4) governs the status of claims filed in the chapter 11 case. The Third Circuit properly construed paragraph (4) as applicable to claims deemed filed in the superseded chapter 11 case. In re Crouthamel Potato Chip Co., 786 F2d 141 (3d Cir 1986).
The amendment to paragraph (4) changes that result by providing that only claims that are actually filed in the chapter 11 case are treated as filed in the superseding chapter 7 case. When chapter 11 cases are converted to chapter 7 cases, difficulties in obtaining and verifying the debtors' records are common. It is unfair to the chapter 7 trustee and creditors to require that they be bound by schedules which may not be subject to verification.
2. That the foregoing changes in the Bankruptcy Rules shall take effect on August 1, 1987 and shall govern all proceedings in bankruptcy cases thereafter commenced and, insofar as just and practicable, all proceedings in bankruptcy cases then pending.
Since the amendment had been in effect about five years at the time of the conversion to chapter 7, it is neither unjust nor impracticable to apply it to the Cook & Haugeberg claim.
DATED: December 12, 1995