1999 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

9-13-1999

In re: O'Brien Environmental Energy, Inc.

Precedential or Non-Precedential:

Docket 98-6331

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Recommended Citation

"In re: O'Brien Environmental Energy, Inc." (1999). 1999 Decisions. Paper 256.

http://digitalcommons.law.villanova.edu/thirdcircuit_1999/256
 In re O'BRIEN ENVIRONMENTAL ENERGY, INC., Debtor 

 Manus Corporation 

 v. 

 NRG Energy, Inc.; NRG Generating (U.S.) Inc.; Official 

Committee of Unsecured 

 Creditors (Newark, New Jersey Civil No. 97-cv-4312) 

 In re O'Brien Environmental Energy, Inc., Debtor 

 Manus Corporation 

 v. 

 Official Committee of Unsecured Creditors (Newark, New Jersey 

Civil No. 97-cv- 

 4992) 

 Manus Corporation, Appellant 

 No. 98-6331. 

 United States Court of Appeals, 

 Third Circuit. 

 Argued: May 18, 1999 

 Filed Sept. 13, 1999 

On Appeal From the United States District Court, For the District of New 

Jersey Appeals. Consolidated Under District 

Court Docket No. 97-cv-4312 District Judge: Honorable Maryanne Trump 

Barry. 

Edgar M. Whiting, III, Esq. (ARGUED), GREINER & LANGER, Parsippany, NJ, 

Counsel for Appellant. 

Douglas E. Ernst, Esq., Troutman Sanders, Esq., Atlanta, GA, Counsel for 

Appellees NRG Energy, Inc. and NRG 

Generating US. Mitchell A. Karlan, Esq., Gibson, Dunn & Crutcher, New 

York, N.Y., 

Counsel for Appellee NRG Energy, Inc. 

Craig J. Donaldson, Esq. (ARGUED), Riker, Danzig, Scherer, Hyland & 

Perretti, Morristown, NJ, 

Counsel for Appellee NRG Generating US. 

Mark N. Parry, Esq., Moses & Singer, New York, N.Y., 

Counsel for Appellee Official Committee of Unsecured Creditors. 

Before: BECKER, Chief Judge, RENDELL, and ROSENN, Circuit Judges 

 OPINION OF THE COURT 

RENDELL, Circuit Judge. 

This case requires us to apply the test for "excusable neglect" outlined 

in Pioneer Investment Services Co. v. Brunswick 

Associates Limited Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 

74 (1993). Appellant, Manus 
Corporation, urges that the Bankruptcy Court erred in refusing to grant 

relief from a judgment entered in the bankruptcy 

proceedings of O'Brien Environmental Energy, Inc.1 under principles of 

excusable neglect. The District Court affirmed the 

Bankruptcy Court's refusal to grant relief. Because we conclude that Manus 

was entitled to relief because of excusable 

neglect on its part, we will reverse. 

_______________________________________________ 

1. O'Brien, the debtor in this case, changed its name to NRG Generating 

(U.S.), Inc. as of April 30, 1996, the effective date of the 

reorganization plan at issue in this case. NRG Energy, Inc., is a 

corporation which, under the successful reorganization plan, acquired 

41.86% of the stock of the reorganized debtor and 100% of the stock of the 

debtor's subsidiaries which operated certain energy projects. 

For the purposes of this opinion, appellees in this case are referred to 

as "O'Brien" or "the debtor" prior to its reorganization, and as 

"NRG" or "the reorganized debtor" after the reorganization. 

_______________________________________________ 

 I. Facts

Manus Corporation and O'Brien Environmental Energy, Inc. were parties to a 

landfill gas purchase and sales agreement 

dated April 2, 1986 (the "Gas Purchase Agreement"). After disputes arose 

concerning the Gas Purchase Agreement, the 

parties entered into a permanent consent decree on August 15, 1994, which 

provided that O'Brien owed Manus 

$124,094.99. 2 

Soon thereafter, on September 28, 1994, O'Brienfiled a petition for relief 

under Chapter 11 of the Bankruptcy Code in 

the District of New Jersey. On Schedule F to the schedules it filed in its 

Chapter 11 proceeding, O'Brien indicated that 

Manus was the holder of an undisputed, unsecured, non-priority claim in 

the amount of $124,095.00 arising out of the 

Gas Purchase Agreement. After several reorganization plans were 

considered, the debtor's Fourth Amended and 

Restated Plan was confirmed on February 13, 1996 ("the Plan"). It is fair 

to characterize the Plan as sophisticated, written 

more in legal and technical terminology rather than layman's parlance. The 

Plan contains numerous definitional sections 

and provisions for dealing with many specific claims. It makes numerous 

references to "cure" payments relating to secured 

claims, has a very detailed system for classifying different types of 

claims, and establishes separate reserves for different 

classes of claims. In the definitional section, the term "Administrative 

Claim" is defined to include, among other things, 

amounts required to be paid under § 365 upon assumption of executory 

contracts. The Plan provides in § 8.2 that all 

executory contracts that were not rejected were to be assumed, and that 

"[a]ll payments required by Bankruptcy Code 

section 365(b)(1)(A) or (B) shall be made by Reorganized O'Brien on the 

Effective Date ... in such amount as may be 
determined, in each instance, by agreement between NRG and the non-debtor 

party to the contract or, in the case of any 

dispute, by Final Order of the Court."3 The Gas Purchase Agreement 

between Manus and the debtor was not rejected 

and, therefore, was to be assumed in the reorganization. Manus voted in 

favor of the Plan, and the effective date of, and 

closing under the Plan, was April 30, 1996. 

_________________________________________________________ 

2. Although Jack Blanton, President of Manus, asserted in his 

Certification that the consent decree provides that O'Brien owed Manus 

$125,586.32 plus interest, this figure does not appear anywhere in the 

consent decree. Instead, the consent decree states at ¶ 6 that 

O'Brien owes Manus $124,094.99. 

3. Section 365(b)(1)(A) of the Bankruptcy Code provides: 

 If there has been a default in an executory contract or unexpired 

lease of the debtor, the trustee may not assume such 

 contract or lease unless, at the time of assumption of such contract 

or lease, the trustee-- 

 (A) cures, or provides adequate assurance that the trustee will 

promptly cure, such default. 

_________________________________________________________ 

Following confirmation of the Plan, on February 20, 1996, debtor filed an 

application with the Bankruptcy Court entitled: 

"Application for Order Establishing (i) Administrative and Priority Claims 

Reserve (ii) Disputed Claims Reserve (iii) Cure 

Amounts with Respect to Claims Arising Pursuant to Bankruptcy Code 

Sections 365(b)(1) and 1124(iv) Reserve for 

Claims Subsequently Asserted with Respect to Executory Contracts or Leases 

to be Rejected and (v) Additional 

Procedures with Respect to Final Fee Applications" (the "Application"). As 

the Application is central to our resolution of 

this case, it is necessary to detail its contents and format. 

The Application is twelve pages long and consists of twenty-four 

paragraphs. It does not mention Manus, nor is it 

directed to any specific respondent. Rather, it is directed to "The 

Honorable Rosemarie Gambardella, United States 

Bankruptcy Court." The first several paragraphs of the Application note 

that under certain sections of the Plan, NRG is 

responsible for funding the payment of Administrative Claims and Priority 

Claims, and provides for the establishment of an 

Administrative and Priority Claims reserve in an amount to be determined 

prior to the effective date of the Plan. It also 

notes that pursuant to § 1.155 of the Plan, the Reserved Administrative 

and Cure Claim Cash Amount is fixed at 

$14,468,000. 

Paragraph 6 of the Application notes that "by this Application, the Debtor 

seeks a determination by the Court, and the 
entry of an appropriate Order, establishing the amount of the 

Administrative and Priority Claims reserve." At paragraph 8, 

the Application states that "by this Application, the Debtor seeks the 

entry of an appropriate Order, determining the 

maximum amount of each Disputed Claim...." In Paragraph 9, the debtor 

speaks to the reader in the second person, 

stating: 

If your claim has been objected to but not resolved by Final Order, is 

objected to prior to the Effective Date of the Plan, 

or is the subject of an amendment to the Debtor's schedule of liabilities 

..., the amount of the Disputed Claims Reserve 

established for your Disputed Claim will at this time be the amount of the 

unsecured claim. 

At paragraph 10, the Application lists certain specific creditors, and the 

amounts to be paid to each on the effective date 

to cure pre-Chapter 11 defaults and, under paragraph 11, notes that "[b]y 

this Application, the Debtor seeks the entry of 

an Order establishing that the above amounts are the amounts required to 

be paid ... on the Effective Date to cure existing 

defaults and reinstate the maturity of these Secured Claims." Similarly, 

at paragraph 12, the Application lists certain 

specific creditors and claim amounts, and at paragraph 13, indicates that 

by the Application, it seeks the entry of an order 

that the amounts stated are the amounts necessary to cure existing 

defaults and reinstate these guarantees as obligations of 

the reorganized debtor, and declaring that the payment of these amounts 

will satisfy the cure requirements of § 1124. 

Paragraph 14 references § 8.2 of the Plan, and states that all executory 

contracts and unexpired leases to which the 

debtor is a party that have not been rejected shall be assumed on the 

effective date. Paragraph 14 also states that all 

payments required by the Bankruptcy Code under § 365(b)(1)(A) or (B) are 

to be made by the reorganized debtor on 

that date. The Application does not reference the name of any party to 

these executory contracts, except that in 

paragraph 15, it states that "the only amount[the debtor] is required to 

pay pursuant to Section 365(b)(1)(A) or (B) to 

cure existing defaults or to compensate lessors for actual pecuniary loss 

resulting from default is the payment of $123,000 

to MDFC Equipment Leasing Corp." 

We quote the next paragraph, paragraph 16, verbatim: 

By this Application, the Debtor seeks an Order establishing that the 

payment of $123,000 to MDFC Equipment Leasing 

Corporation is the only payment required to assume the Assumed Contracts 

and declaring that payment of this amount to 

MDFC Leasing Corporation will satisfy the requirements of Section 

365(b)(1)(A) and (B) with respect to all of the 

Assumed Contracts. Any party to an Assumed Contract that fails in 

connection with this Application to assert a claim 
which arises under such Assumed Contract or with respect to which such 

party could otherwise require payment under 

Bankruptcy Code Section 365 in connection with the assumption of such 

Assumed Contract (an "Assumed Contract 

Claim") shall be deemed to have waived such Assumed Contract Claim and 

shall be precluded from later asserting such 

Assumed Contract Claim. The Debtor has served copies of the Application 

and the Notice of Motion filed herewith on all 

known parties to Assumed Contracts. 

When filing the Application, O'Brien also sought entry of an order 

shortening the time period for notice with respect to the 

Application and setting a hearing. The Bankruptcy Court entered an order 

on February 22 shortening the time for notice 

and setting a hearing on the Application for March 8. 

Mr. Blanton, President of Manus, testified that he received the 

Application, leafed through it to see if there was any 

mention of the Manus claim or claim amount and, seeing none, figured that 

the Application did not affect his rights or 

interests. He continued to assume that, pursuant to the terms of the Plan, 

his claim amount would either be agreed upon or 

would be litigated if agreement could not be reached. As a result of 

Blanton's review of the Application, he did not send it 

to his attorney, nor did anyone from Manus attend the hearing on March 8. 

Mr. Blanton later testified regarding his 

understanding of the Application: 

I looked at it and noted that it was addressed to 200 or so addresses and 

then went through, page by page, looking for 

the name Manus or $125,000. And I saw numerous references to other 

companies and dollars in there but no reference, 

whatsoever, to Manus or to the guarantee [Agreement]. And I concluded that 

it was a routine paperwork process, if you 

will for lack of a better term, of the bankruptcy proceedings. When the 

Judge ruled on January, I think 17th, I breathed a 

sigh of relief and thought the show is over I will get paid. And I dropped 

my defenses rather. I thought O'Brien was a 

large financially sound reasonable company, some kind of corporate 

guidelines of my years of experience for working 

with corporations. Did not work out that way. 

Following the hearing on the Application, the Bankruptcy Court entered an 

order, dated March 8, 1996, which includes a 

declaration that: "With respect to all other Assumed Contracts, other than 

those listed on Exhibit 'G', no amounts are 

required to be paid pursuant to 11 U.S.C. Section 365(b)(1)(A) and (B) in 

order for Reorganized O'Brien to assume 

said Assumed Contracts." Exhibit G listed only MDFC Equipment Leasing 

Corporation, Southern California Edison, and 

County of Montgomery. The order provided for service on "all known parties 

to executory contracts assumed by the 

Debtor pursuant to the NRG Plan," but there is no evidence in the record 

that this order was served upon Manus, and 
Blanton attested that it was not. 

Thereafter, in early April 1996, Manus received a document entitled 

"Second Omnibus Objection of Official Committee 

of Unsecured Creditors to Disallow Certain Claims Scheduled by or Filed 

Against Debtor" (the "objection"). By way of 

this document, the Creditors Committee sought to expunge Manus's claim as 

listed in O'Brien's schedules. The objection 

alerted Manus to the entry of the March 8 order deeming its claim waived. 

Manus forwarded the objection to its counsel, 

Edgar Whiting, III, who immediately reviewed the bankruptcy court docket 

and files "to determine what other pleadings 

and orders had been filed relevant to the motion resulting in the March 8 

Order." Whiting contacted NRG's counsel by 

telephone on April 23, 1996 "to explain Manus's position and to attempt to 

resolve the matter consensually." Following 

this conversation, Whiting faxed a letter to NRG's counsel, as well as its 

in-house counsel, explaining Manus's position 

with regard to its claim and its understanding of the Application. Whiting 

and the Creditor's Committee agreed to adjourn 

the deadline for response to the objection so that Manus had sufficient 

time to respond. On May 17, 1996, Manus filed 

its opposition to the Creditor's Committee objection and a cross-motion 

for relief from the March 8 order under Federal 

Rule of Civil Procedure 60(b), claiming that its failure to respond to the 

Application was the result of excusable neglect. In

the meantime, the Plan took effect on April 30, 1996. 

Following a hearing, the Bankruptcy Court ruled that Manus's failure to 

respond to the Application was not excusable and 

thus, denied Manus's cross- motion. It stated, first, that the court was 

"satisfied that prejudice to the Reorganized Debtor

requires denial of Manus' cross motion." In so finding, the court noted 

that it was undisputed that: 

[N]one of the cash available from the effective date funding of the NRG 

Plan, was allocated to pay the cure claim of 

Manus and there appears to be no mechanism for paying any cure claim, 

except by imposing a new obligation on the 

Reorganized Debtor. This fact constitutes in this court's view prejudice 

to the Reorganized Debtor. 

The court next considered that "the impact of delay on judicial 

proceedings is significant." Citing Trump Taj Mahal

Associates v. Alibraham (In re Trump Taj Mahal Associates), 156 B.R. 928 

(Bankr.D.N.J.1993), it stated that allowing 

relief from the March 8 order after the effective date of the Plan "would 

undermine the stability of the confirmation 

process." 

Referencing paragraphs 14, 15, and 16 of the Application, which stated 

that failure to respond would constitute waiver of 

any potential claims, the court then noted that Manus's "excuse" for not 

responding to the Application was its failure to 
comprehend the significance of the Application; therefore, the delay in 

this case was caused by reasons within its 

reasonable control. The court believed that any deficiencies with regard 

to notice to Manus were different from those 

deficiencies noted in the landmark Supreme Court case regarding excusable 

neglect, Pioneer Investment Services Co. v. 

Brunswick Associates Limited Partnership, 507 U.S. 380, 113 S.Ct. 1489, 

123 L.Ed.2d 74 (1993), and also that, 

although Manus acted in good faith, it must consider the fact that the 

Court in Pioneer stated that the outcome would have

been different if it had found prejudice. The Bankruptcy Court concluded: 

In the instant case, allowing relief from the March 8 order would clearly 

prejudice the Reorganized Debtor. The length of 

delay is significant and would impact adversely on the judicial 

proceeding, and as previously found, it was Manus--in fact, 

it was the actions of Manus itself that caused the delay. Given these 

findings, combined with the Court's finding that 

Manus received adequate notice of the cure claim application, that the 

application was not ambiguous[,] this Court finds 

that Manus has failed to establish excusable neglect. 

The Bankruptcy Court also ruled that the mechanism of filing a motion to 

establish cure claims was consistent with 

Bankruptcy Rules 6006 and 9014. 

On appeal, the District Court affirmed the ruling of the Bankruptcy Court, 

finding that examination of the factors outlined 

in Pioneer supported the decision below. It agreed that requiring NRG to 

pay Manus's untimely claim would prejudice 

NRG "because no funds were set aside for the payment of Manus's claim." 

Such payment, it believed, would deprive 

NRG "of the fresh start to which it is entitled." The District Court 

acknowledged that the length of the delay in this case 

was not great in an absolute sense, but considered significant the timing 

of the delay, namely, that the Rule 60(b) motion 

was filed after the Plan took effect. Finally, the court found most 

convincing the fact that the cause of the delay was in 

Manus's control. It stated that "the language of the [A]pplication and the 

deadline included therein were not so 

'dramatically' ambiguous as to justify Manus's failure to respond." The 

District Court also affirmed the Bankruptcy Court's

decision that determinations of cure claim payments could properly be 

sought by way of motion. 

On appeal, Manus attacks the court's refusal to grant relief as an abuse 

of discretion and argues that this case falls 

squarely under Pioneer, in that it is a case of excusable neglect, where, 

lacking prejudice, its requested relief should have

been granted. Manus also contends that the debtor should have proceeded to 

litigate Manus's claim by way of an 

adversary proceeding, rather than by motion. 

 II. Discussion 
Because the District Court in this case sat as an appellate court 

reviewing a final order of the Bankruptcy Court, our 

review of its determination is plenary. Interface Group-Nevada, Inc. v. 

Trans World Airlines, Inc. (In re Trans World 

Airlines, Inc.), 145 F.3d 124, 130 (3d Cir.1998). In reviewing the 

decision of the Bankruptcy Court, we exercise the 

same standard of review as the District Court, that is, we review the 

Bankruptcy Court's legal determinations de novo, its 

factual findings for clear error, and its exercise of discretion for abuse 

thereof. Id. A bankruptcy court abuses its 

discretion when its ruling is founded on an error of law or a 

misapplication of law to the facts. Marco v. Accent Pub. Co., 

969 F.2d 1547, 1548 (3d Cir.1992). In determining whether an error exists, 

we review de novo the District Court's 

application of the law to the facts. Id. The Bankruptcy Court had subject 

matter jurisdiction pursuant to 28 U.S.C. § 

1334. The District Court had appellate jurisdiction over the final order 

of the Bankruptcy Court pursuant to 28 U.S.C. 

§ 158(a). We have jurisdiction pursuant to 28 U.S.C. §§ 158(d) & 1291. We 

will first address the issue of whether 

determinations of cure claim payments are properly sought by the filing of 

a motion, and will then address the issue of 

excusable neglect. 

A. Form of Proceedings 

Manus argues that the debtor should have sought the relief requested in 

the Application by way of an adversary 

proceeding, commenced by a complaint, pursuant to Bankruptcy Rule 7001.4 

Appellees counter, and the Bankruptcy 

Court and the District Court agreed, that proceeding by way of motion, as 

opposed to a separate adversary proceeding, 

was in accordance with the Bankruptcy Rules. We agree with the reasoning 

of the Bankruptcy Court and District Court 

on this issue and will affirm this aspect of the District Court's order. 

___________________________________________________ 

4. Bankruptcy Rule 7001 states, in pertinent part, the following: 

 An adversary proceeding ... is a proceeding ... (2) to determine the 

validity, priority, or extent of a lien or other interest in 

 property, other than a proceeding under Rule 4003(d), ... (7) to 

obtain an injunction or other equitable relief, ... [or] (9) to 

 obtain a declaratory judgment relating to any of the foregoing. 

___________________________________________________ 

The parties agree that the Federal Rules of Bankruptcy Procedure do not 

explicitly prescribe a procedure for establishing 

cure claim amounts payable upon the assumption of executory contracts. 

They also agree that case law concerning this 

issue is lacking. Appellant argues that the Application sought both 

declaratory and injunctive relief concerning the debtor's 
relationship with Manus and thus requires an adversary proceeding under 

Rule 7001(7) and (9). Appellant also argues 

that the purpose and effect of the Application was to determine the extent 

of Manus's interest in the Gas Purchase 

Agreement and thus falls under Rule 7001(2). 

We do not agree with Manus that the relief sought in the Application falls 

under the auspices of Rule 7001. We do not 

read the Application as seeking "to determine the validity, priority, or 

extent of a lien or other interest in property," since 

the contract had already been assumed and thus, there was no property at 

issue. Further, we do not view the relief as 

equitable in nature, since the basic relief sought by the Application was 

not classic equitable relief, such as specific 

performance, but was the establishment of reserves and cure amounts. See 

In re Robertson, 206 B.R. 826, 829 

(Bankr.E.D.Va.1996) (determining that request for dismissal of bankruptcy 

proceedings was properly made by motion, 

and was not equitable relief, by looking at the essence of the basic 

relief sought). While many court orders in bankruptcy 

proceedings could arguably be considered as providing equitable relief, we 

do not believe that this means that every filing 

seeks "equitable relief" as referenced in Rule 7001(7), as appellant 

suggests. See In re Vance, 120 B.R. 181, 191-92 

(Bankr.N.D.Ok.1990) (stating that the distinction between an order and an 

injunction is often unclear and a matter of 

degree; holding that debtor's request to compel the trustee to conclude 

the creditor's meeting was not equitable relief). 

The reading of Rule 7001(7) appellant urges would render meaningless other 

rules that require certain requests to the 

court to be made by motion and application, contrary to general principles 

of statutory interpretation. The Court of 

Appeals for the Tenth Circuit came to a similar conclusion in State Bank 

v. Gledhill (In re Gledhill), 76 F.3d 1070, 1078 

(10th Cir.1996), where it applied principles of statutory construction to 

reject a broad interpretation of Rule 

7001(7),finding that such an interpretation would negate the specific 

provision for making certain requests by motion in 

Rule 60(b). The court in In re Gledhill held, therefore, that a request to 

vacate relief from an automatic stay, even though 

such a request invoked equity powers to revive a stay, was properly made 

by motion. Id. 

We find appellees' argument that this situation is governed by Rules 6006 

and 9014 to be a more logical and practical 

application of the Bankruptcy Rules. Rule 6006(a) states that "[a] 

proceeding to assume, reject, or assign an executory 

contract or unexpired lease, other than as part of a plan, is governed by 

Rule 9014." Bankruptcy Rule 9014 states, in 

pertinent part, the following: 

In a contested matter in a case under the Code not otherwise governed by 

these rules, relief shall be requested by motion, 
and reasonable notice and opportunity for hearing shall be afforded the 

party against whom relief is sought. 

Technically, the setting of cure claim amounts is "not otherwise governed 

by" the Bankruptcy Rules, and thus falls under 

the auspices of Rule 9014. Further, as stated by the District Court, 

"determining the amount necessary to cure existing 

defaults is necessarily related to the assumption or rejection of 

executory contracts." We conclude that, viewing Rules 

6006 and 9014 together, the Rules anticipate that this type of issue would 

be resolved by motion practice. We view Rules 

6006 and 9014 as suited to the instant situation and as providing a 

betterfit than the procedural characterization urged by 

appellant. 

Aside from the Rules discussed herein, Manus has not referred us to any 

authority stating that the setting of cure claim 

amounts may not proceed by motion and must proceed by way of complaint as 

an adversary proceeding. Manus has not 

convinced us that a party must commence an adversary proceeding to set 

cure claim amounts. We hold, therefore, that 

proceeding by motion in these circumstances was proper.5 

_________________________________________________________ 

5. Although the parties did not raise this point, we note that O'Brien 

actually sought to set the cure claim amounts by neither adversary 

proceeding nor a motion as such, but by application. There is no 

definition of "application" in the current Bankruptcy Rules despite its 

repeated use in the Rules. Prior to the 1983 amendments, however, the 

Bankruptcy Rules contained a definition of "application," which 

included "any request to the court for relief that is not a pleading or a 

proof of claim." Bankr.R. 901(4). The Advisory Committee explained 

that an application was appropriate "[w]hen the bankrupt or trustee or 

other party seeks an order involving no adverse party." Advisory 

Committee Note to former Bankr.R. 901(4). The current Bankruptcy Rules do 

not appear to have disturbed this meaning and usage. The 

Rules generally require a motion when notice to an opposing party is 

necessary, and only allow an application if no such notice is 

required. See 6 Norton Bankr.Law & Practice 2d § 138:14 (West 1999). For 

example, the current rules allow a party to file an application for 

permission to pay a filing fee in installments, Bankruptcy Rule 1006, for 

an order of employment, Bankruptcy Rule 2014, and for a party 

seeking compensation or reimbursement for services rendered, Bankruptcy 

Rule 2016 

_________________________________________________________ 

B. Excusable Neglect 

As a result of the Bankruptcy Court's March 8 order, Manus was deemed to 

have waived its claim in connection with the 

Gas Purchase Agreement and was "barred from asserting it hereafter." It is 

undisputed that Manus failed to assert its claim 

prior to the deadline set in the Application, or prior to April 30, 1996, 

the effective date of the Plan. Manus sought relief
from the March 8 order under Federal Rule of Civil Procedure 60(b), made 

applicable to bankruptcy cases by 

Bankruptcy Rule 9024.6 Rule 60(b) states, in pertinent part, "[o]n motion 

and upon such terms as are just, the court may 

relieve a party or a party's legal representative from a final judgment, 

order, or proceeding for mistake, inadvertence, 

surprise, or excusable neglect." 

______________________________________________________ 

6. Rule 9024 provides: 

 Rule 60 F.R.Civ.P. applies in cases under the Code except that (1) a 

motion to reopen a case under the Code or for the 

 reconsideration of an order allowing or disallowing a claim against 

the estate entered without a contest is not subject to 

 the one year limitation prescribed in Rule 60(b), (2) a complaint to 

revoke a discharge in a chapter 7 liquidation case may be 

 filed only within the time allowed by § 727(e) of the Code, and (3) a 

complaint to revoke an order confirming a plan may be 

 filed only within the time allowed by § 1144, § 1230, or § 1330. 

______________________________________________________ 

. 

Manus asserts that its failure to respond to the Application was the 

result of excusable neglect. Thus, we are to determine 

whether the Bankruptcy Court abused its discretion in failing to find 

excusable neglect. Our discussion of the issue of 

"excusable neglect" must start with a review of Pioneer Investment 

Services Co. v. Brunswick Associates Ltd. 

Partnership. 

In Pioneer, the Supreme Court determined that a Chapter 11 creditor was 

entitled to file its proof of claim after the 

deadline set by the bar date because its failure tofile timely was the 

result of "excusable neglect" within the meaning of Rule 

9006. 507 U.S. at 398-99. In so holding, the Court explicitly rejected the 

argument that excusable neglect applies only to 

those situations where the failure to comply is a result of circumstances 

beyond the creditor's reasonable control. Id. at 

388. It acknowledged that the mere use of the word "neglect" encompassed 

"omissions caused by carelessness," but took 

comfort in the fact that parties would still be deterred from ignoring 

court ordered deadlines since the neglect must be 

"excusable." Id. at 395. It stated that determining whether neglect is 

excusable is an "equitable" determination that "tak[es] 

account of all relevant circumstances surrounding the party's omission." 

Id. Such an equitable determination, it reasoned, 

is consistent with the policies underlying Chapter 11, as "Chapter 11 

provides for reorganization with the aim of 

rehabilitating the debtor and avoiding forfeitures by creditors." Id. at 

389. "In overseeing this ... process, 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. To 

make the excusable neglect determination, the Court

listed four factors for courts to consider: "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." Id. at 395. 

Under the facts of Pioneer, the Court noted that the failure to file on 

time was inadvertent and in good faith, as counsel 

was not aware of the bar date. It found that there was no danger of 

prejudice to the debtor or the administration of 

judicial proceedings, as the claim, though untimely, was accounted for in 

the reorganization plan and was filed prior to the 

plan's effective date. Finally, the Court found relevant that notice of 

the bar date "was outside the ordinary course" in that 

it was not, as it should be, "prominently announced and accompanied by an 

explanation of its significance." Id. at 398. 

Instead, the "inconspicuous placement" of the deadline--a single sentence 

in a boilerplate document, that, according to its 

title, related to a creditor's meeting--"left a 'dramatic ambiguity' in 

the notification." Id. For these reasons, the Court found 

that there was excusable neglect and allowed the late filing. 

Although the Bankruptcy Court engaged in the Pioneer analysis to guide its 

excusable neglect determination,7 we believe 

it erred in its analysis of prejudice, the reason for the delay, and the 

extent of the delay.8 We will analyze each of these 

factors in turn, and start with the issue of prejudice, which seemed 

paramount in the decision of the Bankruptcy Court and 

the District Court. 

________________________________________________________ 

7. The phrase "excusable neglect" appears not only in Rule 9006(b) but in 

Federal Rules of Civil Procedure 6(b), 13(f), and 60(b), Federal 

Rule of Criminal Procedure 45(b), and Federal Rule of Appellate Procedure 

4(a). The Supreme Court referred to each of these rules in 

construing the "excusable neglect" analysis in Pioneer. Pioneer, 

therefore, is commonly understood to provide guidance not just with 

regard to Rule 9006, but in other bankruptcy and non-bankruptcy contexts 

discussing the issue of excusable neglect. See, e.g., Midwest 

Employers Casualty Co. v. Williams, 161 F.3d 877, 880 n. 6 (5th Cir.1998); 

Advanced Estimating Sys., Inc. v. Riney, 130 F.3d 996, 998 (11th 

Cir.1997); Canfield v. Van Atta Buick, 127 F.3d 248, 250 (2d Cir.1997) 

(per curiam); Pratt v. Philbrook, 109 F.3d 18, 19 (1st Cir.1997); Robb v. 

Norfolk & Western Ry. Co., 122 F.3d 354, 359 (7th Cir.1997); Committee for 

Idaho's High Desert, Inc. v. Yost, 92 F.3d 814, 825 n. 4 (9th 

Cir.1996); Thompson v. E.I. DuPont de Nemours & Co., 76 F.3d 530, 533 (4th 

Cir.1996). Thus, the Pioneer analysis applies in the context of 

a Rule 60(b) motion, as in this case. 

8. There is no dispute that Manus acted in good faith. The Bankruptcy 

Court held that it did, and appellees do not argue to the contrary. 

________________________________________________________ 
1. Prejudice 

The Bankruptcy Court held that prejudice to the reorganized debtor 

requires denial of Manus's motion for relief since 

"none of the cash available from the effective date funding of the NRG 

plan, was allocated to pay the cure claim of Manus 

and there appears to be no mechanism for paying any cure claim, except by 

imposing a new obligation on the 

Reorganized Debtor." The Bankruptcy Court's prejudice analysis seemed to 

hinge solely on the fact that by virtue of 

Manus's failure to respond to the Application, its claim was not accounted 

for in the funding of the Plan. We believe that 

Pioneer requires a more detailed analysis of prejudice which would account 

for more than whether the Plan set aside 

money to pay the claim at issue. Otherwise, "virtually all late filings 

would be condemned by this factor." Manousoff v. 

Macy's Northeast, Inc. (In re R.H. Macy & Co.), 166 B.R. 799, 802 

(Bankr.S.D.N.Y.1994) (holding that the depletion 

of resources otherwise available for timely filed claims is not 

prejudice). 

Though Pioneer lists prejudice as a factor in the excusable neglect 

analysis, it gives us little guidance as to what prejudice 

actually is in this context, and we have not had occasion to explore this 

issue. The Court of Appeals for the Fifth Circuit 

and several bankruptcy courts, however, have considered the Pioneer 

analysis and have grappled with what constitutes 

prejudice in the bankruptcy context. In Greyhound Lines, Inc. v. Rogers 

(In re Eagle Bus Mfg., Inc.), 62 F.3d 730 (5th 

Cir.1995), creditors sought leave to file untimely proofs of claims. 

Although these claims were allegedly not accounted for 

in the confirmed plan, the court held that there was no prejudice since 

the "plan was negotiated and approved after [the 

debtor] had notice of these claims." Id. at 737. The court found the fact 

that the debtor believed that the claims would be 

barred as untimely insufficient to constitute prejudice. In In re Keene 

Corp., 188 B.R. 903, 912-13 

(Bankr.S.D.N.Y.1995), the court acknowledged that the determination of 

prejudice involved "a certain amount of crystal 

ball gazing," and then listed several factors to consider in a Pioneer 

prejudice analysis, including: the size of the claim with 

respect to the rest of the estate; whether allowing the late claim would 

have an adverse impact on the judicial 

administration of the case; whether the plan was filed or confirmed with 

knowledge of the existence of the claim; the 

disruptive effect that the late filing would have on the plan or upon the 

economic model upon which the plan was based; 

and whether allowing the claim would open the floodgates to other similar 

claims. In In re Papp International, Inc., 189 

B.R. 939, 945 (Bankr.D.Neb.1995), the court relied on a Webster's 

dictionary definition of prejudice: a claim is 

prejudicial if it will "injure or damage the debtor." The court considered 

damage to other creditors in the form of a 
reduced recovery as a consideration in determining prejudice. The court 

determined in that case, however, that there was 

no prejudice in allowing the late claim, stating: 

If the IRS's proof of claim had been timely filed, the bankruptcy estate 

would have had to either object to the claim or 

provide for the claim in the plan of reorganization. If the claim is 

permitted to befiled late, the debtor and other interested 

parties are in the same position as if the proof of claim had been filed 

on time. 

Id. 

We find In re Pettibone Corp., 162 B.R. 791 (Bankr.N.D.Ill.1994), to be 

especially informative, since, in that case, the 

prejudice determination assessed prejudice to the reorganized debtor after 

confirmation of the plan. In that case, the 

reorganized debtor argued that it would be prejudiced by allowing a late 

claim, since allowing such claims would cause it 

to face increased insurance premiums and expend significant employee time. 

The court rejected this argument, stating: 

Pettibone is now a feisty, stable, publicly-held manufacturer and active 

participant in the competitive commercial world. 

The evidence did not show that rising insurance premiums would force 

Pettibone back into bankruptcy, materially affect 

its solvency, or adversely impact at all on consummation of its confirmed 

Plan (which appears to be fully consummated 

except for the continuing claims litigation). Indeed, it was not even 

shown that a future increase in premiums would 

comprise a significant increase in Pettibone's cost of doing business. 

Moreover, the evidence did not establish that any 

premium increase would materially differ from the usual impact that other 

injury claims will have on its premiums for 

liability insurance under normal business conditions. Nor did Pettibone 

establish that the impact on employee time for 

helping defend the ... claims would differ from the burden on any company 

of its size to aid in defense of insured claims. 

Id. at 805. The court was not concerned with the reorganized debtor being 

saddled with costs from the bankruptcy since 

the "fresh start" concept does not apply to corporate debtors. Id. at 804. 

The court concluded that Pettibone had suffered 

no "material prejudice," such as loss of the ability to defend against the 

late claims. Id. at 805. 

Determinations regarding prejudice in other contexts also shed light on 

the prejudice analysis. In Feliciano v. Reliant 

Tooling Co., 691 F.2d 653, 656- 57 (3d Cir.1982), in a Rule 60(b) nonbankruptcy context, we stated that the cost of 

enforcing a judgment later vacated and the delay in realizing satisfaction 

on a claim "rarely serves to establish the degree of 

prejudice sufficient to prevent the opening of a default judgment." 

Instead, one must assert "loss of available evidence, 

increased potential for fraud or collusion, or substantial reliance upon 

the judgment." Id. at 657. Other circuits too have 
held that prejudice is not merely the loss of an advantageous position, 

but must be something more closely tied to the 

merits of the issue. In Pratt v. Philbrook, 109 F.3d 18 (1st Cir.1997), 

three weeks after a settlement order of dismissal 

became final, plaintiff sought to have the dismissal vacated and the case 

reopened. With regard to the issue of prejudice, 

the court stated: 

From our vantage point it is difficult to see what cognizable prejudice, 

in the sense, for example, of lost evidence, would 

come to the defendant from reopening the case. Of course, it is always 

prejudicial for a party to have a case reopened 

after it has been closed advantageously by an opponent's default. But we 

do not think that is the sense in which the term 

"prejudice" is used in Pioneer. 

Id. at 22. 

We note that, in the case before us, the opinions of the Bankruptcy Court 

and the District Court contain no discussion of 

a factual basis to support the finding of prejudice. As the cases we 

reference demonstrate, prejudice is not an imagined or 

hypothetical harm; a finding of prejudice should be a conclusion based on 

facts in evidence. In assessing whether there 

was prejudice in this case, certain facts of record are indeed relevant: 

the debtor listed Manus's claim as an undisputed, 

unsecured claim in the amount of $124,095.00 in its schedules; O'Brien's 

contract with Manus was to be assumed, and 

the Plan stated with regard to such contracts that all payments required 

by § 365(b)(1)(A) or (B) were to be made on the 

effective date; NRG's counsel was contacted prior to the effective date of 

the Plan and advised of the nature of Manus's 

claim and Manus's intent to pursue such claim. Thus, there is no question 

that O'Brien and NRG were aware of Manus's 

claim, and its amount, and that O'Brien had not contested its existence. 

This is not a case where the debtor was surprised 

or caught unaware by the assertion of a claim that it had not anticipated. 

See Greyhound Lines, Inc., 62 F.3d at 738 

(stating that whether debtor had a reason to expect the claim was relevant 

to the prejudice inquiry). To the contrary, since 

the Plan obligated NRG to pay all past-due amounts under the Gas Purchase 

Agreement, we can fairly assume that it 

actually planned to pay this claim. 

Also relevant are the fact that the debtor's operations--admittedly 

healthy at the time of confirmation--were to continue 

under the auspices of NRG, and the Plan's establishment of reserves was 

merely a designation of sources of funds rather 

than finite "pots" for payments to other creditors. Appellees have 

acknowledged, both in oral argument and in a letter

submission to the court, that payment of Manus's claim would not force the 

return of the amounts already paid out under 

the confirmed Plan, or affect the distribution to creditors and equity 

holders. The reorganized debtor is a large, successful 
company with annual revenues and earnings in the millions and the payment 

of this claim would not jeopardize the success 

of the reorganization. Cf. In re Pennsylvania Truck Lines, Inc., 189 B.R. 

331, 336 (Bankr.E.D.Pa.1995) (finding 

prejudice where payment of the late claim could jeopardize the reorganized 

debtor's survival). There has been no 

allegation, let alone evidence in the record, that payment of the cure 

claim of Manus by NRG would pose any problem, 

actually or legally, or would adversely impact any of appellees. Finally, 

to the extent NRG argues that allowance of this 

claim would open the floodgates to other future claims against them, NRG 

has not alleged that any other creditor 

promptly sought to be excused from the March 8 order so as to now be 

entitled to relief on the basis of excusable 

neglect. 

Considering all of these facts, we cannot see how any of the appellees 

before us would be prejudiced, in the legal sense, 

by NRG's having to pay Manus's claim--a claim which the debtor had already 

planned to pay by the terms of its own 

Plan.9 It seems instead that the only prejudice that would result from 

allowing the reorganized debtor to assume the 

contract with Manus without curing this claim as required by the 

Bankruptcy Court would be the reorganized debtor's 

loss of a windfall. Thus, wefind no real prejudice in this fact pattern. 

______________________________________________________ 

9. We note, however, that our ruling is limited to the issue before us 

regarding the court's refusal to grant relief from the order of deemed 

waiver of Manus's claim. We do not rule as to the nature or amount of 

Manus's cure claim. 

______________________________________________________ 

2. Reason for Delay 

The Bankruptcy Court was also influenced because the cause for delay was 

within Manus's control, since it admittedly 

received the Application advising of the hearing and Manus's need to 

assert its claim, but chose not to read it carefully or 

to ask counsel for guidance. While it is certainly relevant that the delay 

in this case was due in part to this lack of care on 

the part of Manus, the concept of excusable neglect clearly anticipates 

this, i.e., neglect on the part of the one seeking to 

be excused. See Pioneer, 507 U.S. at 388. Thus, this is not determinative 

to the inquiry. The Bankruptcy Court should 

not have limited its focus to Manus's conduct. An examination of O'Brien's 

role in the mishap is also essential to a 

determination of whether Manus's neglect was excusable. See Chemetron 

Corp. v. Jones, 72 F.3d 341, 350 (3d 

Cir.1995) (stating that the district court erred in failing to consider 

the debtor's role in the creditor's delay); Atlantic 

Richfield Co. v. Sharon Steel Corp. (In re Sharon Steel Corp.), 110 B.R. 

205, 206 (Bankr.W.D.Pa.1990) (stating that 

the debtor was just as much at fault as the creditor for failing to 

consider its claim and thus was equally at fault for the 
delay). As in Pioneer, the delay in this case resulted from a creditor's 

lack of notice of a deadline. Having reviewed the 

record, including the Application and the circumstances surrounding its 

service upon Manus, we conclude that O'Brien's 

modus operandi does not leave it blameless regarding Manus's failure to 

appreciate the significance of the Application. 

Before it sent out the Application, O'Brien knew that Manus's claim would 

be impacted by it, and yet, in choosing the 

format of the Application and in noticing the March 8 hearing, never 

addressed a notice to it or referenced its claim. The 

Application was addressed to the Bankruptcy Judge and sought a court order 

establishing reserves and cure amounts.10 

____________________________________________________ 

10. We note that, as discussed in footnote 5, an application is to be used 

when there is no party to whom the pleading is directed. While 

Manus does not rely on this as an excuse for its inadvertence, it would 

have been entirely understandable if the debtor's proceeding by 

way of application had caused it to assume that the Application would not 

include an objection to its claim. 

____________________________________________________ 

While it was not improper for the Bankruptcy Court to distinguish this 

case from Pioneer, since, as opposed to the one 

inconspicuous sentence announcing the bar date in Pioneer, the Application 

addressed executory contracts in three 

paragraphs, the Bankruptcy Court should have also considered that these 

three paragraphs were paragraphs fourteen, 

fifteen, and sixteen, that they were buried in the middle of a twelve page 

document, and that neither the document nor any 

attachment listed the relevant contracting parties' names or claims. The 

title of the Application did not call attention to the 

fact that it contained information critical to Manus's interests. Thus, 

although three paragraphs of the Application 

addressed the assumed executory contracts, we conclude that NRG did not 

provide sufficient notice to Manus that the 

Application was either an objection to Manus's claim or was seeking to 

determine Manus's claim once and for all. One 

would not normally assume that an "application" directed to the court 

seeking to "establish reserves" would be the vehicle 

by which the debtor would be seeking, as it said it would in the Plan, to 

have the court resolve a dispute relating to a 

claim. 

Thus, although Blanton was careless in not reading the Application 

carefully, and, specifically, paragraphs fourteen 

through sixteen, his neglect is excusable since it was caused at least in 

part by O'Brien's own failure to properly alert 

Manus that this "application" was really an objection to its claim. At the 

very least, the Application should have listed 

those who obviously had executory contract cure claims that would be 

affected, as it did in other paragraphs naming 

creditors and amounts. Instead, with respect to executory contracts, it 

listed only the one contract for which the debtor 
was willing to concede the cure claim. We find that Manus's failure to 

realize the impact of the Application on its claims

was the result, at least in part, of O'Brien's failure to properly alert 

and notify Manus that O'Brien was objecting to 

Manus's claim, and that Manus's claim would be waived if it did not act. 

3. Length of Delay 

Finally, we consider the length of the delay and its impact on the 

judicial proceedings. The Bankruptcy Court declared the 

delay and its impact "significant," because the requested relief in this 

case occurred after the effective date of the Plan and 

thus "would undermine the stability of the confirmation process." The 

Bankruptcy Court, however, did not really address 

the length of the delay. The actual delay was approximately two months, 

and takes on significance mainly because of the 

intervening occurrence of the effective date of the Plan on April 30, 

1996. As the District Court noted, the delay 

associated with Manus's requesting relief from the March 8 order--which 

occurred approximately ten weeks after the 

March 8 hearing, approximately four weeks after Manus was aware that its 

claim was waived, and approximately two 

weeks after the effective date of the Plan--is not significant in an 

absolute sense. Further, it would have been only seven 

weeks' delay if O'Brien or NRG had reacted to the problem immediately when 

notified by Manus's attorney on April 23, 

before the Plan became effective. In addition, the detrimental impact of 

this delay is as much due to O'Brien's strategic 

decision to not object to or litigate Manus's claim until the fairly tight 

time frame between confirmation and the effective 

date of the Plan. Here, the delay factor in the excusable neglect inquiry 

should not be held to turn entirely on the urgency 

created by the debtor's time line. Such an approach makes the two month 

delay seem significant, whereas a similar delay, 

or even a much longer delay in a case where the debtor proceeds more 

expeditiously to resolve outstanding claims under 

its contracts, or allows itself more time between confirmation and closing 

under its plan, would be insignificant. See 

Chemetron Corp., 72 F.3d at 350 (remanding to determine excusable neglect 

where motion to file late claim occurred 

two years after plan was confirmed); Greyhound Lines, Inc., 62 F.3d at 740 

(finding excusable neglect where delay was 

six to eight months). Thus, although it is proper to consider the delay's 

effect on the judicial proceedings, Pioneer teaches

that we should consider the length of the delay in absolute terms, which 

the Bankruptcy Court did not do in this case. 

We conclude that, considering the legal parameters of the applicable 

tests--namely, prejudice, the reason for the delay,

and the extent of the delay--as well as the facts of this case and the 

equitable nature of the determination as outlined in 

Pioneer, the Bankruptcy Court erred in determining that Manus was not 

entitled to relief from the March 8 order based 

upon excusable neglect. 
We will affirm the District Court's ruling that the debtor's request for 

the establishment of a cure amount could properly 

proceed by way of motion practice, but will reverse the District Court's 

ruling denying Manus relief from the March 8 

order. We will remand this case to the Bankruptcy Court for proceedings 

consistent with this opinion.