Warren E. Burger: We will hear arguments next in Lyng against Castillo. Mr. Minear, I think you may proceed whenever you are ready.
Jeffrey P. Minear: Thank you, Mr. Chief Justice, and may it please the Court, the government defends the constitutionality of Section 3(i) of the Food Stamp Act, which provides that parents and children or siblings who live together shall be treated as a single household for food stamp entitlement purposes. This case is here on the government's direct appeal from the United States District Court for the Southern District of Texas. The District Court ruled that Section 3(i) violates equal protection principles by discriminating against families and by impermissibly burdening family decisions to live together. After briefly describing the food stamp program and the facts of this case, I will explain why the District Court's decision should be reversed. The Food Stamp Act establishes a social welfare program funded by the Department of Agriculture and administered by state agencies. It supplements the food purchasing power of low income households. Under this program state agencies distribute food stamps to needy households on the basis of standard allotments that take into account household size. The food stamp program has grown rapidly since its creation in 1964. It is now the nation's second most costly needs-based public assistance program. In 1983, program outlays were over $11 billion, providing assistance to over 21 million program participants. The huge cost and dramatic growth of the food stamp program have produced public concern over reports of widespread waste and fraud. In 1981 and again in 1982 Congress amended the Food Stamp Act to improve program efficiency and to curtail certain types of frequently encountered recipient abuse. Congress gave particular attention to the Food Stamp Act's definition of the term "household". Prior to 1981, persons who lived together but purchased and prepared their meals separately could claim separate household status, and thereby receive higher per capita benefits. As a result families frequently mischaracterized their members as separate households to obtain additional food stamps. Congress in response amended the household definition to provide that parents and children or siblings who live together shall be treated as one household for food stamp entitlement purposes regardless of their actual meal purchase and preparation habits. Congress also provided a special exception, permitting elderly and disabled parents and siblings to qualify as a separate household if they in fact did separately prepare their meals. These amendments to the household definition were specifically designed to assure the nation's limited welfare resources were efficiently distributed to those in greatest need. Appellee Natividad Castillo and his family challenged the constitutionality of the revised household definition. They claimed that the new definition violated equal protection principles by denying certain family members the opportunity to claim separate household status. The District Court consolidated their action with three other suits raising similar equal protection claims. The District Court ultimately held that the household definition is unconstitutional, and enjoined its application against the appellees. The court acknowledged that Section 3(i)'s treatment of family members had a rational basis, therefore it meets the generally applicable equal protection requirements. The court concluded, however, that family-based classifications are subject to heightened scrutiny. It then held without further analysis that Section 3(i) violated the appellees' Fifth Amendment rights.
William J. Brennan, Jr.: Is there anything in the record, Mr. Minear, which shows the difference in cost between the two programs?
Jeffrey P. Minear: It is not clear from the record, but it is clear from the regulations themselves, and the regulations provide, for instance, that an eight-member household would receive 75 percent of the benefits that would be given to eight separate households, and that two four-member households receive 110 percent of the benefits of the eight-member household. We submit that the District Court erred in concluding that Section 3(i) violates equal protection principles. Instead, Section 3(i)'s household definition represents a rational legislative intent to improve the efficiency of the food stamp program by adopting standards that as a general matter direct the nation's limited welfare resources to those with the greatest need. We note first, as the District Court agreed, that Section 3(i)'s household definition meets the rational basis test. Congress enacted the revised household definition in response to serious public concern over the size, effectiveness, and integrity of the food stamp program. The 1981 and 1982 Congressional hearings revealed that from 11 to 20 percent of food stamp benefits were issued in error, amounting to a program loss of from $1 to $2 billion per year. Those hearings also revealed that the practice of family members falsely claiming separate household status was one of the most serious forms of abuse. Finally, the hearings revealed that in light of the large number of families that participate in the food stamp program, there is no effective and efficient means for verifying family household status. Congress therefore elected to redefine the term "household" as a workable solution to this serious and costly problem. The refined definition represents the rational Congressional judgment based on thorough investigation and deliberation that food stamp abuses can be reduced and benefits preserved for those most in need by treating family members who live together as a single household. Furthermore, this definition is carefully tailored to provide special relief for elderly and disabled parents and siblings, those family members that Congress determined were most in need of special treatment. In short, Section 3(i)'s revised "household" definition represents the type of reasonable classification that is routinely employed in social welfare programs. The revised definition plainly withstands rational basis scrutiny, the type of scrutiny this Court applies to these types of classifications. Indeed, the District Court as well as all other courts that considered this issue agree that the "household" definition meets the rational basis test. The District Court went astray in applying heightened scrutiny to the Food Stamp Act's "household" definition because plainly family members, the class affected by the "household definition", do not represent a suspect or quasi-suspect class. Furthermore, the "household" definition does not result in any constitutionally significant limitation on individual choice in family matters. Heightened scrutiny has been applied to laws affecting family-based decision only when the government's action directly and substantially interferes with important family choices. Here, the household definition does not prevent any group of persons, related or unrelated, from living together, and if they live together, from dining apart. It simply allocates food stamp benefits to families in light of the cooperative arrangements that families generally employ. The revised definition may provide financial incentive for closely related family members who live together to purchase and prepare their meals together as well, but it neither compels nor prohibits any family-based decision. Family members retain the full range of choice in structuring their living and meal preparation habits.
William J. Brennan, Jr.: Well, Mr. Minear, were these amendments' principal purpose to prevent fraud?
Jeffrey P. Minear: They were designed both to prevent fraud and also to improve program efficiency.
William J. Brennan, Jr.: As far as they were designed to prevent fraud, is it rational to assume that families are more likely to defraud the government than unrelated individuals?
Jeffrey P. Minear: I think it is clear that families are better situation in fact to falsely claim separate household status, and it also seems that family members are more likely to purchase and prepare their meals together. In terms of actual intent, are family members more likely to create fraud? I don't think you can really draw that inference, but I do think it is true that they are best situation in fact to conduct fraudulent activities. It is also true that family members are the largest component of the food stamp program. They represent almost three-quarters of food stamp participants. Therefore by eliminating this potential for abuse from family members, we have significantly reduced the potential possibility for fraud in the program.
Byron R. White: That carries with it then the suggestion that it would just be impossible to prove that there is fraud or collusion.
Jeffrey P. Minear: I think that that's true, Your Honor. The problem here--
Byron R. White: That certainly wouldn't be true in all the cases I don't suppose.
Jeffrey P. Minear: --But it would be difficult, and it would be rather intrusive as well. If the test depends on whether or not family members are in fact dining together, there is no readily available method to in fact prove whether or not they are dining together or dining separately.
Byron R. White: How about unrelated people?
Jeffrey P. Minear: It is also true that it is difficult in those cases, but--
Byron R. White: But you certainly take all of those cases on.
Jeffrey P. Minear: --Yes, but it is also a more limited number of cases. It also seems more likely--
Byron R. White: But a growing number.
Jeffrey P. Minear: --Yes, it might be a growing number as well, and it might be, too, that Congress will eventually determine that in fact no one should be able to claim separate household status when they live together. Congress has considered that possibility. That has been suggested by the various federal and state food stamp administrators. But Congress at present is content to retain the special exception for elderly and disabled persons and also for unrelated persons. The "household" definition's impact on family living arrangements is no different from that of a broad variety of other legislative provisions that consider family status in allocating public burdens and benefits. In sum, the revised definition of the term "household" represents a permissible classification designed to promote the efficiency and preserve the integrity of the food stamp program. Appellees defend the District Court's decision on two additional grounds not relied upon by the District Court. Appellees first contend that the "household" definition creates an unconstitutional irrebuttable presumption. That contention is mistaken. The "household" definition creates a legitimate legislative classification like that upheld in Weinberger versus Salfi. As in Salfi, that provides for distribution of benefits based on objective criteria that Congress has determined relevant to its legitimate welfare policy roles. Appellees also contend that food stamp recipients have a special right to increased benefits because of the importance of a health diet. This contention, not raised below, is also mistaken. Appellees do not have an inherent, fundamental right to federal food purchasing assistance. Congress may impose limitations on food stamp benefits as on other forms of social welfare benefits, to promote efficiency and to prevent abuse. At bottom, appellees urge this Court to declare the Food Stamp Act "household" definition unconstitutional on public policy grounds. However, as this Court has repeatedly stated, the judgement of Congress on questions of social welfare policy is entitled to special deference. Courts do not sit to pass on policy or the wisdom of the course that Congress has chosen. In this case, Congress has determined that the refined definition of "household" is necessary to reduce serious fraud in the food stamp program, and to preserve the nation's limited benefits for those with greatest need. We submit that the judgment of Congress on this quintessential legislative question should be respected, and we therefore urge this Court to reverse the decision below. If there are no further questions, I would like to reserve the remainder of my time.
Warren E. Burger: Very well. Ms. Martinez.
Maria Norma Martinez: Chief Justice Burger, and may it please the Court, 7 USC 2012 (i), the family... unconstitutional--
Warren E. Burger: Would you raise your voice a little? We are having difficulty hearing you. Perhaps lower the lectern a little bit.
Maria Norma Martinez: --Seven USC 2012(i), the family rule, unconstitutionally interferes with the appellees' family choices of... family choices of living together. Not only does it interfere with the right to live together. The harm caused the appellees outweighs the state's interests. The District Court found that the family rule, the food stamp family rule put families at a distinct disadvantage. Unrelated individuals could obtain separate household status simply by purchasing and preparing food separately. Families, no matter what, could never go in and show that it was impossible for them to prepare food together and show that they could not possibly function as a single economic unit. The only exception was for elderly and for disabled parents and siblings. The appellees are eight families, eight guest families and eight host families that live together. There are more than 30 children involved with these families. All of the appellees have children, young children of their own to support. All but one of them had maintained a separate household before economic necessity forced them to move in with their relatives. There was no question that they were eligible for food stamps as a separate household but for the family... Natividad Castillo and his wife and eight children were migrant workers. They went up north to Michigan to work in seasonal labor. When they returned home, they had no income, they had no assets but one old car. They had to move in with Mrs. Castillo's daughter from a previous marriage. Theresa Barrera was receiving food stamps. She had two children of her own, and was receiving welfare. The food stamp office denied the Castillo family's application for food stamps. Not only did they deny the application for food stamps, they refused to supplement Mrs. Barrera's food stamp allotment for that first month, so the Castillo family would have been left without any food stamps that first month. After that they would have received a reduced amount based on both households' income, which in this case was Theresa Barrera's welfare income, even though Ms. Barrera's income was not available to the Castillos. A similar thing happened to the Cody family, also migrant workers, also went up to Michigan, and went home and had no income. They were unemployed. They had two young children. They moved in with Robert Cody's mother. She had five children to support off her Veterans Administration check, and she was receiving food stamps. Robert and Jerry Cody's food stamp application was denied, and the food stamp office refused to supplement Robert's mother's allotment so that Robert and Jerry and two children, the two young children could have food stamps for the first month. Three of the appellees' families are headed by women who are little more lucky. They received aid to families with dependent children after they separated from their husbands and moved in with relatives. Two of them moved in with their parents. They had lived separately. They had maintained a separate home all that time, but due to the family rule they could not receive food stamps separately, even though they purchased and prepared separately, even though their host family's income was not available to them. One of the appellees' families, Cecilia Villafranca, moved in with her brother. She had been receiving food stamps, but due to the family rule, she would not have received anything because of her brother's income because both families were deemed to be one household. Two of the families were headed by men. Elias Ruiz, his wife, and two children moved in with Elias's mother and her son. They didn't need any help other than a place to live until Mr. Ruiz became unemployed and his wife became too ill to work and was hospitalized. They then applied for food stamps and could not get them because of the family rules. Gregorio Alvarado and his wife and three young children moved in with Gregorio's sister and brother-in-law and their children. Gregorio was unemployed. His wife was also too ill to work. They couldn't get food stamps as a separate household. And finally, Sylvia Nieto, the only one who had not maintained a separate household. Sylvia Nieto was an adult woman with a child to support. She was disabled, received supplemental security income benefits. The benefits she used to support herself and her son. She had been receiving food stamps as a separate household until the family rule came into effect. The family rule, whereas it might be reasonable to believe that families are more likely to purchase and prepare food together, it is not reasonable to believe that these families would commit fraud, would like so they could obtain separate household status. That is why, that is one of the reasons why the family rule is irrational. When people like the appellees, people who have no place to go, have no money, have children to support, show up at their relatives' home, the relative, who is slightly better off because they have a place to live, who may not be that much better off, because they may also be on welfare, as Theresa Barrera was, has a hard choice to make. Do they allow their relatives in and deprive their own spouse and children? Even someone who is better off will have to think about that. And if they do allow them in and then find out that they cannot support, either partially or completely, their relatives, they will have to decide whether to deprive their own family so that the relatives can stay with them. That would be a hard choice for anyone, but a lot harder for somebody who is barely existing, for somebody who is on welfare. And the guest families, the guest family is the one that of course will suffer the most. They will have no control over their situation. They will have children to support. If their host, if their relatives allow them in, the guest family will have to... mercy. If the host family refuses to do more, the guest will only have a place to stay. If the host family refuses to apply for food stamps, the guest family cannot obtain food stamps on their own. And it isn't that unlikely that someone would refuse to apply for food stamps. Disclosures about employment, wages, all other resources such as life insurance and death insurance, burial insurance, everything is required to be reported for food stamp eligibility, and this information is routinely verified by the food stamp office, employees, neighbors, anyone who knows the circumstances of the applicants can be used to verify the information. The food stamp office also uses announced home visits to determine if the information is correct. If the family is slightly better off and has a car worth $6,001, the aggregation of resources would make them ineligible for food stamps. Even if this family owed $5,900 on that car, the fair market value of the car is what is used. A first family vehicle will receive a $4,500 exemption. It would still make them ineligible for food stamps. The joining of resources such as two cars would cause these people to be ineligible for food stamps also. A car in places like rural Texas is a necessity. It is not a luxury. It could not be considered a luxury as it would be in a city. Farm workers need their cars so they can get to and from the fields. Places like Harlingen, Texas, where Robert Cody lives, does not have mass public transportation. You need a car so you can work. The government justifies the family rule as necessary to prevent fraud and abuse. It is the same justification that was used for the unrelated persons provision in United States Department of Agriculture versus Moreno. In that case, the government said that Congress reasonably believed that unrelated persons were more likely to commit fraud so that they could obtain household status so they could obtain food stamps, so that they could participate in the food stamp program, and that it was administratively inefficient for the food stamp agency to determine when the unrelated people were committing fraud. They argued that college students live together and were voluntarily poor. They didn't report the income they received from the outside, and it was extremely difficult, maybe impossible for that determination of fraud to be made. The Court found in Moreno that the unrelated persons provision served not to exclude those that were intent, those that were most likely to abuse the food stamp program, but only those who were so destitute that they could not alter their living conditions so they could retain the eligibility for food stamps. The same thing happens here. The family rule causes people that have no place to go to become ineligible for food stamps or receive the reduced amount, an amount that is not based on their resources. And alternatives, alternative provisions can be made if it were to be conceded that there is a problem with fraud by families, the burden could be placed on the family to show why they could not function as a single economic unit or why they could not purchase and prepare food together. Problems like health problems, contagious diseases, where they could not purchase and prepare food together, are things that can be determined from the initial application and initial food stamp interview. Differential work schedules. Presently from the food stamp application and from the initial interview. Questions about where a person works, their employer, the hours worked, and verification of that is made. From that they could find out about differential work schedules that make it impossible for people to purchase and prepare food together. Inadequate kitchen facilities where, because of the inadequacies of a poor family kitchen they cannot purchase and prepare together. That determination can be made from questions. And it isn't unlikely that a poor family will have an inadequate kitchen, will have a stove that is two burners instead of what is considered the usual stove with four burners with an oven. That they will not have refrigeration. That they will not have other than a small table, if they have a table at all, with two chairs, if they have two chairs at all. These people cannot purchase and prepare, they certainly cannot prepare food together.
John Paul Stevens: Ms. Martinez, could I ask you one question? Do you think the statute would be constitutional if it established a presumption that the related families did purchase and prepare food together, but that unrelated families did not, and then there would be a burden on the particular family to show that on a regular basis they acted contrary to the presumption?
Maria Norma Martinez: Yes, I believe so. At least that the family be given an opportunity that they do not purchase and prepare food together.
John Paul Stevens: How does the agency follow up on determining... say they have an initial interview, and they describe their living arrangements, and they take it at face value. How is this normally checked later on to see if... for example, an unrelated family, that they really are separate?
Maria Norma Martinez: It is not in the record, but for unrelated families, they generally take the statement of the unrelated person.
John Paul Stevens: And that is the end of the inquiry?
Maria Norma Martinez: And that is generally the end of it.
John Paul Stevens: And of course in the related family situation there just wouldn't be any followup at all under the rules now because they are just presumed to always share their food together.
Maria Norma Martinez: That is right. The harm done to the children. The majority of food stamp recipients are families with children. Children in this case would suffer from hunger. In Plyler versus Doe, this Court looked at the hard cost to children after saying, after repeating that education is not a fundamental right, and that alien status is not a suspect classification. The Court looked at the harm done to the children. The denial of an education caused them such a hardship that the state's interest in conserving money, the state's interest in keeping the legal immigrants out did not outweigh the harm done to the children. Yes, the Court said that education is not a mere welfare benefit. But food stamps... and in reality for a lot of these people if you don't get food stamps you don't get food. You don't eat. Food stamps are crucial to life. Food stamps are a necessity. Other welfare benefits you may be able to do without for a while. Without food, you won't be able to do without. The children in this case, if deprived, or when deprived of the necessary food during the years of development of their minds and bodies, can end up in the worst situation, can be harmed a lot more than the children in Plyler were. The children in Plyler perhaps could receive remedial education. Children in this case, once they are harmed lack of food, malnutrition, stunting of their growth, mental and physical, can become permanently disabled. They may never be able... they may be educationally disabled. They will become a burden on society, economically dependent for the rest of their life. This regulation, this limitation is not only substantial, because deprivation of food is substantial, although families are not prohibited from living together, the effect of this rule will cause them not to live together. Once the host family finds they cannot eat if the guest comes in, the effect is, they cannot live together. For all of these reasons, the appellees ask that the Court affirm the District Court's decision. If there are no questions, I have nothing else to say.
Warren E. Burger: Do you have anything further, Mr. Minear?
Jeffrey P. Minear: Just a few minutes, Mr. Chief Justice, and may it please the Court. The regrettable problem here is, the government's resources for welfare are limited, and in order to provide maximum use of those limited resources, certain broad categories and general characteristics must be used in order to distribute these social welfare benefits, and it simply is not effective to expend those limited resources on case by case determinations when in fact those resources can be directed to the persons themselves who need them.
Byron R. White: What about the unrelated families? You would be saving a lot of money if you didn't do those case by case.
Jeffrey P. Minear: That might be right, Your Honor. However, those are a much smaller portion of the total number of food stamp recipients in the program. Therefore what Congress in fact is doing is directing its limited resources to those areas where there is the greatest possible need for special exceptions, and that was in fact Congress's thinking, in fact, preserving this separate household status for unrelated persons and the elderly and the disabled.
Lewis F. Powell, Jr.: Mr. Minear, what about aid based on indigent children, aid to dependent children?
Jeffrey P. Minear: Yes, sir.
Lewis F. Powell, Jr.: Are food stamps also being given to families who receive that sort of aid?
Jeffrey P. Minear: Yes, Your Honor. Food stamps are available under both programs.
Lewis F. Powell, Jr.: What about the program with respect to disabled persons?
Jeffrey P. Minear: That is correct also. Supplemental social security--
Lewis F. Powell, Jr.: If you add all three together and they gave them to a family, you would come to some limit? I suppose you do.
Jeffrey P. Minear: --I am not certain about the regulations here, but I believe it might be... some of those sources of income might be treated as income for the food stamp program itself.
Lewis F. Powell, Jr.: But the greater the number of children and the greater the number of disabled people, of course, the greater the aid. Is that correct?
Jeffrey P. Minear: Yes, that's right, Your Honor. In fact, this was the subject of a 1981 hearing. One of the things that the GAC pointed out was that in fact in larger family groups families often receive aid from a number of... food aid from a number of different sources, including the school lunch program and also the breakfast program that is provided in a number of schools, and as a result of this, in fact, some food stamp families did receive more aid than the average family spent on food purchases. Now, I think this is probably the exceptional case, but nevertheless this was one of the concerns that went into Congress's determination in amending the "household" definition.
John Paul Stevens: May I just ask another question just to get it straight in my mind? If you have, say, a married couple that live together, and they qualify on an income basis, they presumably... in fact, they definitely are held to be one household, and yet they get the same amount of--
Jeffrey P. Minear: Yes.
John Paul Stevens: --whereas if two unrelated persons lived together and they came in and filed the appropriate applications and made a representation that one worked a night shift and the other a day shift, so they purchased their food and prepared it separately, they would then get a somewhat larger benefit.
Jeffrey P. Minear: That is generally true. To be slightly more accurate about this, since 1978, the regulations provided that husbands and wives in fact would be treated as a single household. That was a regulatory provision that has been in force for almost ten years. In addition, the definition of a spouse provided that persons who are unrelated who are living together, who hold themselves out as a spouse even though they are not married, in fact would be treated as a single household.
John Paul Stevens: Say they come in and say they don't do that, they just happen to live in the same facility, and they work different hours and so forth. So they then would qualify as unrelated persons. Say they were the same sex.
Jeffrey P. Minear: They would be eligible--
John Paul Stevens: Make it simple. Say they are the same sex.
Jeffrey P. Minear: --Sure. They would be eligible to in fact apply for food stamps on that basis.
John Paul Stevens: And then after they apply and they are granted initial, what kind of followup is there to find out, well, maybe their hours changed and they now have decided they could eat at the same time?
Jeffrey P. Minear: The regulations provide for three types of documentation in these matters, first documentary evidence which might in fact indicate that two persons worked different shifts. They can provide their work schedules to the food stamp office.
John Paul Stevens: You say they qualify initially. I am asking what happens, say, 30 days later. Is there any periodic followup to be sure they--
Jeffrey P. Minear: Yes. Yes, Your Honor, there is. There is a periodic rechecking of the qualifications to make sure that these people continue to apply. I am not sure if it is done on a monthly or a quarterly basis, but it is--
John Paul Stevens: --And so that only has to be done for the unrelated persons.
Jeffrey P. Minear: --Yes, Your Honor.
Thurgood Marshall: I think I missed your first point. What is the interest of the government in deciding whether people should live together or not?
Jeffrey P. Minear: Well, the government has no interest in whether they should live together or not. It is simply a question of how food stamps should be allocated once they make that decision.
Thurgood Marshall: Doesn't that depend on whether they live together or not?
Jeffrey P. Minear: Well, yes, Your Honor.
Thurgood Marshall: And what interest does the federal government have in whether people live together or not?
Jeffrey P. Minear: Well, Your Honor, this is--
Thurgood Marshall: Does the federal government have the right to say that you must get rid of your children?
Jeffrey P. Minear: --No, Your Honor, it does not. This is similar to the Califano v. Jobst case, where in fact this is an indirect burden on the family living arrangements. In Califano v. Jobst--
Thurgood Marshall: Well, what are they going to do next?
Maria Norma Martinez: Well, Your Honor, I simply can't answer that question. If there are no further questions.
Warren E. Burger: Thank you, counsel. The case is submitted.


William H. Rehnquist: We'll hear argument next in number 91-1695, Pioneer Investment Services Company v. Brunswick Associates Limited Partnership. Mr. Donaldson, you may proceed when you're ready.
Craig J. Donaldson: Mr. Chief Justice, and may it please the Court: This case comes to the Court from a decision of the United States Court of Appeals for the Sixth Circuit, which allowed the respondents who were claimants in Pioneer's chapter 11 case to file their proofs of claim out of time based upon a finding by the Sixth Circuit that their failure to file within the originally prescribed deadline was the result of excusable neglect. To reach that result, the Sixth Circuit adopted a test that was first enunciated in the Ninth Circuit in the case of In re Dix and has been referred to frequently as the liberal interpretation of excusable neglect focusing on five factors set forth in that opinion. The Sixth Circuit also, to reach the result that it did, had to consider an equitable factor which was, in its opinion, there was no prejudice to the debtor to allow these proofs of claim to be filed under the excusable neglect standard. And finally, what it had to do, contrary to the decision of this Court in Link v. the Wabash Railroad decided some 30 years ago, said that it was inappropriate for the courts below to punish the respondents for the neglect of their counsel. We suggest to the Court that this opinion clearly is wrong on all three counts and must be reversed. The first error is in the adoption of the test itself. Petitioner submits to the Court that the test adopted by the Sixth Circuit and followed by the Ninth does violence to and runs plainly contrary to the plain language of rule 9006(b)(1) itself, which states that where, as here, a motion for an extension of time was filed after the deadline has expired, the court has to find that the failure to act was the result of excusable neglect. As the Eleventh Circuit stated, and we contend properly so, in the South Atlantic case, the words failure to act in the plain language of the rule limit the focus of the inquiry to the actions or inactions of the movant and to the reasons for their failure to act within the time provided, and that they do not permit, as the Ninth Circuit has done and the Sixth Circuit has done in this case, consideration of factors other than why didn't they do what they were supposed to do within the time they were supposed to do it, and what were the reasons for that. The concept that there is no prejudice to the debtor we submit under the authorities, not only the Eleventh Circuit, but in the decisions of the Second, Third, Fourth, Fifth, and Eleventh Circuits that we have cited in our briefs, all hold uniformly that there is no room for consideration of so-called equitable factors in determining whether the failure to act under rule 9006 is a result of excusable neglect. The bankruptcy code quite clearly in section 1111(a) dictates who must in a chapter 11 case file a proof of claim, and it says that if your claim is listed as disputed, contingent, or unliquidated, you must file a proof of claim. Bankruptcy rule 3003 supplementing the code section goes on to say also that if your claim is not listed or you do not agree with the amount listed on the debtor's schedule, you must file a proof of claim. And the facts here clearly show that three of the respondents were listed as disputed and unliquidated, and one was not listed at all. We submit to the Court that the congressional intent that underlies section 1111 in the bankruptcy rules is to clearly place an affirmative duty on creditors who fall within the definition of the code and rules to file their proofs of claim if they want to be able to participate in the debtor's chapter 11 reorganization in three very important respects: one, to have their claim allowed; two, to have a right to vote on the plan of reorganization; and three, and probably most importantly, to receive a distribution from the debtor's estate. And as the decisions of the other courts of appeals that we have cited in our brief recognize, there was a congressional intent underlying this section requiring these creditors to file these claims to promote certainty and finality in chapter 11 proceedings. And these courts, contrary to the Sixth Circuit in this case and the Ninth Circuit in the Dix case, say that this congressional intent precludes courts from finding exceptions based on equitable considerations or equitable factors.
Sandra Day O'Connor: Well, Mr. Donaldson, I guess this case may turn on what we mean by excusable neglect under the statute. Would you agree?
Craig J. Donaldson: I would agree wholeheartedly, Justice O'Connor.
Sandra Day O'Connor: And what's our test for excusable neglect? What does that mean, do you suppose?
Craig J. Donaldson: Excusable neglect, as I'm sure the Court knows, is nowhere defined in the bankruptcy code or the rules and, for that matter, is nowhere defined in the similar rule 6 of the Federal Rules. The Eleventh Circuit in the South Atlantic case defined excusable neglect as follows: the failure to timely perform a duty that was due to circumstances which were beyond the reasonable control of the person whose duty it was to perform.
William H. Rehnquist: Well, why is that definition any improvement on the statutory language? It doesn't seem to say anything more than excusable neglect.
Craig J. Donaldson: I think it is an improvement, Mr. Chief Justice, for this reason. When the statute talks about excusable neglect in this definition which says... the essential part being beyond the reasonable control, granted it is somewhat nebulous, but I think it clearly implies that when you come into court saying excusable neglect, you have to come in and present circumstances that are unique or extraordinary, that are beyond--
William H. Rehnquist: Doesn't the provision of the... what does the Federal... provision in the Federal Rules that talks about default judgments say? Doesn't it use the term excusable neglect?
Craig J. Donaldson: --If Your Honor please, rule 55(c) that talks about the entry of default only is for cause shown. Rule 60(b), where you would come in to ask to set aside a default judgment entered by the court, talks about excusable neglect.
William H. Rehnquist: Why do we need a definition of excusable neglect? Why not leave it largely to... don't you think Congress may have intended to leave it largely to the discretion of the initial court, the bankruptcy court?
Craig J. Donaldson: I think the answer is yes, Mr. Chief Justice. If I may expound, though. I think Congress, by using the term excusable neglect, certainly left it to the courts to exercise their discretion. However, as this Court said not too many years ago in United States v. Boyle, what elements constitute excusable neglect is a question of law that clearly is unsettled, and we are asking the Court here today in this case to settle it.
Byron R. White: Well, don't you think it's rather strange to talk about events beyond somebody's control when you're trying to define excusable neglect? I mean, neglect is always... is never beyond your control, is it? That's just sort of... negligence. Is that ever beyond your control?
Craig J. Donaldson: Justice White, the answer to your question--
Speaker: I would think--
Craig J. Donaldson: --is no, as phrased, because neglect, obviously, means that something has to be within your control and you failed to do it. But the test, as enunciated by the Eleventh Circuit and followed by the substantial--
Byron R. White: --I would think the Eleventh Circuit definition would just... how could you ever prove that neglect was beyond your control?
Craig J. Donaldson: --Well, if Your Honor please, they're not saying it's beyond your control. They qualify it by saying it's beyond your reasonable control. They don't say it's... they don't say you have to come in and prove something was totally beyond your control before you show excusable neglect.
David H. Souter: That still doesn't sound like a disregard or carelessness of any kind, and that's the meaning of neglect, is it not? It seems to me that the Eleventh Circuit reads the neglect word out of the statutory phrase, out of the rule.
Craig J. Donaldson: I don't believe so. They--
David H. Souter: Because if you say reasonable, well, then it's not carelessness.
Craig J. Donaldson: --Well, they say beyond the reasonable control, and I think what they mean by that is... and I think the case authority supports it... is that mere ordinary, garden variety neglect of counsel, simple inadvertence if you will, is not going to suffice to let someone be relieved from a deadline that is imposed by other rules of the court, that that discretion that's vested in the court has to be circumscribed by something that shows that the reason you failed to act is due to something unique or extraordinary.
Byron R. White: Well, but you just say it isn't excusable. You just... what's wrong with that? And let the courts decide whether it's excusable or not.
Craig J. Donaldson: I think that... I think that's--
Speaker: That's not enough? Isn't that enough?
Craig J. Donaldson: --I think that's proper, Justice White, but I think someone... and I respectfully suggest it falls to the duty of this Court... is to tell the courts below how they determine whether it's going to be excusable.
Byron R. White: Well, did the... the court below didn't even ever get around to determining whether the attorney's error was excusable or not, did it? I mean, they just... it seemed to me they said that the client, the creditor, wasn't neglectful, it was his lawyer.
Craig J. Donaldson: That's correct.
Byron R. White: And yet, the question should have been whether the neglect of the lawyer was excusable.
Craig J. Donaldson: That's correct.
Byron R. White: Is that one of the three errors they made?
Craig J. Donaldson: Yes, Justice White. I suggest it--
Byron R. White: You've only talked about one so far.
Craig J. Donaldson: --That is the other error, and you're absolutely correct. They said, well, the client didn't do anything wrong, and we're not going to punish the client because the lawyer was neglectful. And that is the other part of our argument. Going back to 1962 and the decision of this case in Link v. the Wabash Railroad, this Court clearly laid down the proposition that a party cannot escape the consequences of the acts and omissions of his attorney, and that is precisely what the Sixth Circuit allowed these respondents--
Byron R. White: Well, it would be hard... I suppose it would be... have been hard for the court of appeals to get to the issue of whether this is excusable neglect when the attorney just up... right out says there's no hurry.
Craig J. Donaldson: --I think--
Byron R. White: That was just wrong.
Craig J. Donaldson: --I think what they said was--
Byron R. White: Maybe he ought to... he should know the law.
Craig J. Donaldson: --Well, I would think any attorney is certainly charged with knowledge of the rules and the statute and--
Byron R. White: It certainly hadn't been changed lately, had it?
Craig J. Donaldson: --No, not since... in substance as far as who was supposed to file their claims and within what time, it had been the same since the enactment in 1978. Although the rules of procedure had changed by number, by substance, they really hadn't. So, really--
Antonin Scalia: Mr. Donaldson, I don't know why you concede. It seems... maybe I misunderstood, but you appear to concede that neglect always has an element of negligence or blameworthiness about it. Why do you concede that? I don't think that it does invariably.
Craig J. Donaldson: --I think by--
Antonin Scalia: You can talk about a neglected house. Maybe the person doesn't care about or doesn't... the person doesn't want to spend any more money on it. It doesn't mean that there's any blame involved. It's just a failure to do something that could be done is neglect. He neglected to do it.
Craig J. Donaldson: --I agree.
Antonin Scalia: He failed to do it. It's the same as failed. That's one meaning of it. It can have the other meaning, but it doesn't invariably have that meaning of negligence or blameworthiness, does it?
Craig J. Donaldson: No. I think--
Antonin Scalia: Well, but you didn't say that in response to the questions. If that's your position, I wish you would say it.
Craig J. Donaldson: --No. I agree, Justice Scalia. An accepted definition of neglect certainly is very simply the failure to do an act.
Byron R. White: He just neglected his legal training. That's all. You just neglected to say that. [Laughter]
Craig J. Donaldson: I failed to do it. That is correct.
Antonin Scalia: Mr. Donaldson-- --I was using it there in the second sense, Mr. Donaldson. May I ask this question, Mr. Donaldson? Having had the benefit of that suggestion, can you give us an example of excusable neglect as either you or Justice Scalia would interpret it?
Craig J. Donaldson: What would be acceptable--
John Paul Stevens: What would... when should a judge ever excuse neglect either the way you define it or the way Justice Scalia does it?
Craig J. Donaldson: --If... one that comes right away to mind, Justice Stevens, is if the attorney or the counsel never received notice of the bar date.
John Paul Stevens: And you'd say that was neglect in that... and you think that's the way in which they meant the neglect.
Craig J. Donaldson: I think that's a unique or extraordinary... I don't go by so much the word neglect as I do the word excusable.
William H. Rehnquist: What if you had a tickler system set up in your office that worked regularly where you were given a note the day before something was due that it's due tomorrow, and it just failed on this one occasion? Would that be an example of, A, neglect and, B, of excusable neglect?
Craig J. Donaldson: No, Your Honor, it would not.
William H. Rehnquist: Which... it would be... it would not be neglect or it would not be excusable?
Craig J. Donaldson: It would be neglect, but it would not be excusable because--
John Paul Stevens: That's what happened in this case.
Craig J. Donaldson: --Well, Justice Stevens, I would say based on the record here, Mr. Richards went far beyond the grounds of neglect or concurrent findings by the bankruptcy court and the district court that not only was he negligent, he was totally indifferent to the bar date.
William H. Rehnquist: But why in the case, the hypothetical I put to you is that neglect not excusable?
Craig J. Donaldson: The failure in your office of the tickler system?
Speaker: Yes.
Craig J. Donaldson: I think because the cases hold and the way the statute is construed, that mere neglect of counsel or counsel's staff will not rise to the dignity of being excusable.
William H. Rehnquist: Well, but by... mere... but by hypothesis the statute says some neglect is excusable, and to say that mere neglect is never excusable simply defies the statutory language.
Craig J. Donaldson: Well, I think where that gets perilously close to, Mr. Chief Justice, is this. Maybe something like if you did have a tickler system and you've taken all the steps you could conceivably take to make sure you don't fall through the trap of missing a deadline and that system malfunctions, but that leads to these problems. Then the next question might be, well, shouldn't you have had a backup system, and I think you get into a series of what if's that engulf the rule.
William H. Rehnquist: Well, isn't that an argument for confiding a great deal of discretion as Congress may have intended to the district courts or the bankruptcy courts here? We don't want thousands of little annotations in law books saying this is or is not excusable neglect.
Craig J. Donaldson: Right. I think the Congress clearly has conferred that discretion on the lower courts, but it also attempted to, and I think does, circumscribe it. It's not an unbridled discretion that any time someone runs into court and says... well, particularly like this case, runs into court and says, well, it's my lawyer's fault, or I forgot to read something, or a lawyer comes in and said I forgot to read something. If that were permitted to be the standard of excusable neglect, I dare say it would do away with the efficacy of any deadline set under any rules of procedure.
Byron R. White: Well, would you be satisfied to win this case on the ground that the court of appeals didn't blame the client, they didn't stick the client with his lawyer's neglect, and therefore did not decide whether the lawyer was excusably neglectful or not?
Craig J. Donaldson: To answer your question, Justice White, I certainly would be happy to win the case on that--
Byron R. White: But you would rather win it on some other ground.
Craig J. Donaldson: --Well, I don't know that I'd rather win it on some other ground, but for the sake of the system and the efficient administration of justice throughout the Federal system at least, I would like to win it on a ground where--
Byron R. White: You want to confine... you want to put some definition into excusable neglect.
Craig J. Donaldson: --I would like this Court to adopt as bright a line as possible as to what factors are to be considered or what the appropriate definition is of excusable neglect because--
Antonin Scalia: Do I understand that your position is that the factors to be included can only be factors that have to do with the action or the state of mind of the person who is allegedly excusably neglectful?
Craig J. Donaldson: --Yes, sir.
Antonin Scalia: So that you cannot take into account, for example, how much harm has been caused by the action.
Craig J. Donaldson: Correct.
Antonin Scalia: He's either excusably neglectful or not, and if he is, it doesn't matter if it has caused a whole lot of harm. It's still excusable neglect.
Craig J. Donaldson: That's correct. I think it has to be determined solely by the actions of the moving party and the reasons for those actions without consideration of any other, what you might call equitable factors, such as prejudice or lack thereof.
John Paul Stevens: May I go a step or so? Whether it's a $100 million windfall or a 10 cent windfall is totally irrelevant. That's one. Also, I take it it's totally irrelevant whether it's a 10-minute delay or a 3-year delay.
Craig J. Donaldson: Yes, sir. I think it has to be.
David H. Souter: How do you get around the fact that the statute reads that the court may allow the late filing in a case of excusable neglect, which seems to suggest that there may be cases of excusable neglect in which it will and other cases of excusable neglect in which it will not allow the late filing? And isn't it at that point that it's appropriate for the court to look at the consequences to third parties, whether they're getting hurt or whether they're not getting hurt?
Craig J. Donaldson: I think, to answer your question, no, and if I may expound. The statute... the last sentence begins with the failure to act. I think the plain language of the words failure to act directs the focus solely and exclusively to what the movant did or didn't do and the reasons for that.
David H. Souter: Well, it may... that may direct the court's attention to the reasons for the failure to act in determining what is excusable, but it certainly does not exclude from the court's consideration the consequences to third parties in determining whether a... an excusable neglect should, in fact, be a basis for precluding him and making... precluding the party from making a late filing.
Craig J. Donaldson: But I think it does for this reason. If a party could come in and, in fact, establish that there was excusable neglect, however determined, even if that would result in the most extreme prejudice to the debtor, I think the court has to exercise its discretion and let that creditor file its claim regardless of the consequences if--
David H. Souter: Yes, but that's no discretion at all. I mean, if that were going to be... if that were the intent of Congress, why didn't Congress simply make it mandatory that if the neglect was found to be excusable, a late filing would be permitted?
Craig J. Donaldson: --They could have done that, but they did not.
David H. Souter: Well, I know, and it seems to me there's some significance in the fact that they did not. They left it a discretionary judgment or they left some further act of discretion even when the neglect was found to be excusable. And yet, in the hypothesis that you give, it seems to me that the court has no discretion left at all.
Craig J. Donaldson: I would think if the party comes in and proves that the neglect... that their failure to act was excusable neglect, that they have brought themselves within rule 9006(b)(1), and that the court would have to exercise its discretion to let them in.
Antonin Scalia: But, no, they have brought themselves within the rule, but what the rule says, as Justice Souter points out, is that the court may permit the act to be done. That's the rule. The court may. I don't know why you fight this. It's a discretion that's all in your favor. It's not a discretion that could possibly hurt the interests of your client. It's a discretion not to allow the excusable neglect even though you have authority to do so, where in Justice Stevens' example, for instance, the consequences are enormous of allowing it to be filed late. Don't you think there's room in the words excusable neglect to mean that, well, there has been neglect in this case, but because of other considerations, we're going to excuse it? This is saying that excusable doesn't necessarily define neglect. It's just a... it defines... it tells the court, no matter what the neglect is, you can excuse it based on other considerations.
Craig J. Donaldson: But I don't think that's what the rule intends. I think what the rule--
Byron R. White: But there's room just in reading the language to... for that, isn't there?
Craig J. Donaldson: --Well, perhaps there is after you first determine whether the failure to act was the result of excusable neglect.
Byron R. White: No. You just say there's neglect. Sure, it's neglect, but that isn't the whole story.
Craig J. Donaldson: I think it may be.
John Paul Stevens: May I ask you? How much is the windfall in this case?
Craig J. Donaldson: To answer your question directly, Your Honor, none.
John Paul Stevens: How much is... how much do the creditors claim the windfall was?
Craig J. Donaldson: In excess of $6 million.
John Paul Stevens: $6 million.
Craig J. Donaldson: Yes, sir.
John Paul Stevens: And there's no prejudice whatsoever to the State in allowing the claim other than the fact you have to defend the claim, which you otherwise wouldn't have to defend.
Craig J. Donaldson: Well, I think there is. What has been overlooked is the prejudice the other creditors who timely did file whose payout period would be extended by... from 5 years to 10. So there's definitely prejudice to the other creditors.
John Paul Stevens: Why would it be extended for 5 years?
Craig J. Donaldson: That's what the plan provides, Justice Stevens, is if these claims were ever ultimately allowed to pay out, the unsecured creditors--
John Paul Stevens: Oh, I see, because there's much more money to pay.
Craig J. Donaldson: --Yes, sir. Mr. Chief Justice, I would like to reserve the remaining time for rebuttal.
William H. Rehnquist: Very well, Mr. Donaldson. Mr. Lucas, we'll hear from you.
John A. Lucas: Mr. Chief Justice, and may it please the Court: I would like to focus at the outset on what I believe is the key issue and... which the Court... many members of the Court have been addressing in their questions to my adversary, and that is the fundamental difference between the petitioners and the respondents in this case is that the petitioners advocate, in essence, a nondiscretionary, strict, in their words, inflexible rule to be applied only in extraordinary circumstances. That is not an exercise of discretion. The respondents, on the other hand, submit that this is and should be a discretionary standard in which the lower courts are permitted flexibility in the exercise of their discretion as guided perhaps by certain guideposts set by this Court.
William H. Rehnquist: Well, in this case, Mr. Lucas, the bankruptcy court ruled against your client, and then the district court in the exercise of its discretion ruled against it, didn't it?
John A. Lucas: The bankruptcy court did, Your Honor, and we believe that the bankruptcy court, in effect, abused its discretion because of the way that it weighed the factors.
William H. Rehnquist: Well, do you think that is something that should be reviewed on a legal basis every time a bankruptcy court reaches a conclusion?
John A. Lucas: Your Honor, I think that the review on an abuse of discretion standard will be a very rare review. When litigants and attorneys know that the bankruptcy court is exercising its discretion and is operating within a fairly broad framework, then the chances of cases being appealed for abuse of discretion are very rare. And, in fact, we believe that it will cut down on this collateral litigation rather than promote it. But if the Court attempts to draw a bright line rule, a rule... a bright line that I submit does not exist and cannot exist, but if the Court were to attempt that, that would increase the collateral litigation.
Anthony M. Kennedy: But the line, I take it, is bright enough so that there would be an abuse of discretion in this case if the bankruptcy court ruled against your client.
John A. Lucas: I believe there was an abuse of discretion in this case, Your Honor, and that's one of the points of our appeal is that the bankruptcy court erred in the way it weighed these factors because the way it weighed them... and I'll come to this in a moment, but it weighed them in a way that inevitably would find against clients like mine who moved expeditiously to correct their error, to correct their neglect and, in effect, weighed these factors in a way that put undue emphasis and put sole emphasis on this beyond reasonable control test that the bankruptcy court had accepted in the first instance and which was continually urged by petitioners. Your Honor, let me add--
Antonin Scalia: I understand one of your arguments to be that excusable neglect cannot consist of circumstance... exclusively of circumstances reasonably beyond the control of the party for the reason that that would not be neglect because there would not be any negligence or blame attachable, if it were circumstances beyond the control of the party. Isn't that one of the arguments you make?
John A. Lucas: --That is correct, Justice Scalia.
Antonin Scalia: Am I to understand then that where you are negligent or blameworthy, but you have some excuse, you are in better shape for purposes of this rule than if you're not blameworthy at all?
John A. Lucas: No, Your Honor, because--
Antonin Scalia: What do you do with a person where the circumstances are beyond his control? If it doesn't come within the meaning of 906(b)(1), what do you do in that situation?
John A. Lucas: --Your Honor, I think that that is covered in other rules. For example, one of the examples frequently given, not one that my opponent gave, but it's when the courthouse for some reason is just physically inaccessible. A practitioner in San Francisco and there's an earthquake and he cannot get to the courthouse. It's beyond his reasonable control. That's the type of example that some lower courts have given. That's covered in the same rule. In rule 9006(a), it provides that if the courthouse is inaccessible, then it will be extended under subsection (a).
Antonin Scalia: That's the only thing? His car is engulfed by a flood on the way to the court?
John A. Lucas: No, Your Honor--
Antonin Scalia: That isn't covered by 906(a), is it?
John A. Lucas: --9006(a) covers where the courthouse is physically... is inaccessible.
Antonin Scalia: That's just one small example of absolute... circumstances that absolutely prevent it. There are so many others I can think of, and you say that's not covered by (b).
John A. Lucas: No, Your Honor. I believe that there are other ways of covering. I believe that under, for example, section 105 of the bankruptcy code, which is a broad grant of equitable powers, that the court would have the power to grant extensions such as Your Honor just suggested in your question. There's also constitutional ramifications here. For example, one of the contexts that this situation arises in is creditors who never received notice of the bankruptcy, consequently never filed a proof of claim, never moved for an extension of time because they weren't aware of it. And there's a well-developed body of case law that says you cannot deprive those creditors of their property right without due process, meaning that they have to get notice.
Antonin Scalia: That's another single instance, but why don't you just cover my one instance of the car being swept away on the way to the courthouse. What do you say covers that?
John A. Lucas: Your Honor, I would say that either the... either section 105 of the bankruptcy code--
Antonin Scalia: What does that say?
John A. Lucas: --Your Honor, that's a section that essentially grants the court inherent equitable powers, makes the bankruptcy court a court of equity. And it has been the subject of some case law in this Court and in the lower courts which says, well, that can't be used in derogation of specific provisions. But I think the section 105 could be used in this instance to fill in a gap if that were a gap. It also might come under the doctrine of equitable tolling.
Byron R. White: Are you defending entirely the court of appeals opinion?
John A. Lucas: Your Honor, we would articulate the rule slightly differently.
Byron R. White: Well, let me ask you specifically. Do you think the court of appeals said the client shouldn't be blamed for the negligence of his or its lawyer?
John A. Lucas: Your Honor, in this situation I believe the court of appeals did say that under the circumstances, it would be unfair to penalize the client.
Byron R. White: So, they didn't really inquire whether the attorney's negligence was excusable.
John A. Lucas: Well, I believe that they did ultimately because they were addressing the question at the outset of excusable neglect. We're not trying to overturn Link v. Wabash. We accept that for purposes of this argument as good law.
William H. Rehnquist: Do you think the court of appeals accepted it as good law?
John A. Lucas: I believe it did, Your Honor, because the question is not whether or not we're going to... whether or not the client is chargeable with the acts or omissions of attorney, it's what are the consequences of that. And Link says that the client, having chosen attorney... having chosen an attorney, is bound by the acts of his attorney and, in the words of the court, that he cannot avoid the consequences of having chosen his own attorney. And the question here is what should those consequences be.
William H. Rehnquist: Well, you can't imagine more severe consequences than in Link when the plaintiff's complaint was dismissed.
John A. Lucas: That's correct, Your Honor, but here's an important point about Link. Link supports our position, Mr. Chief Justice, and that is because you will recall that in Link this Court affirmed the exercise of discretion by the trial court. The trial court had dismissed a case for the plaintiff's attorney's failure to appear at a pretrial conference, and this Court gave the trial court discretion and said it could do that based upon all the facts and circumstances in the record which were known to the trial court, and that this Court would grant the district courts that discretion.
William H. Rehnquist: And here the bankruptcy court denied your motion. The district court denied it, but the court of appeals didn't say that those courts had any discretion.
John A. Lucas: Well, they did both deny, but let me jump, if I may, to the last point of my argument, which is to why the bankruptcy court abused its discretion. In the respondent's favor, the bankruptcy court found that there was no prejudice to the debtor or to other creditors. And Mr. Donaldson was asked a moment ago by Justice Scalia, well, why does he fight this discretionary rule. The reason that the petitioner fights the discretionary rule is they know that if the discretion is weighed properly, that the respondents' claims should be filed because there was no prejudice to anyone. The bankruptcy court so found, and it has been affirmed by the district court, not the subject of appeal. No adverse impact on judicial administration, no bad faith. And the bankruptcy court said... curiously they said but early in the case, like here, and where there's a short delay, like here, those factors will seldom, if ever, be present.
Byron R. White: So, it wouldn't make any difference whether the attorney's error would subject him to a malpractice suit or not?
John A. Lucas: I don't think that makes a difference, Justice White. But--
Byron R. White: So, you're not really talking about whether it was just a human error in the sense that almost anybody would make it.
John A. Lucas: --It was a human error. We concede it was neglect, but the way the bankruptcy court weighed these factors, it said that early in the case they will hardly ever be present where the delay like here is short. And so, they said... the bankruptcy court said, therefore, I'm going to look at whether or not it was within their reasonable control and focus on that. So, early in the case where creditors, such as my client, is diligent, realizes their mistake, takes actions promptly to cure it, they're penalized the way the bankruptcy court weighed the factors because he says, well, I won't consider those because it's too early in the case. They won't be present. But he created a catch-22 because late in the case those factors will almost always be present. There's a much greater risk of prejudice, impact on judicial administration, bad faith, and the like late in the case.
William H. Rehnquist: That's an argument certainly why the bankruptcy court was wrong in exercising its discretion in this case, but it... do you support the view taken by the Sixth Circuit, as Justice White reads its opinion, as I do, that whatever the consequences... whatever the neglect of the attorney, it should not be visited on the client?
John A. Lucas: Your Honor, I don't think--
William H. Rehnquist: Can you answer it yes or no?
John A. Lucas: --I don't support it the way Your Honor just articulated it. If Your Honor meant to say must the sins of the attorney always be visited upon the client, then I believe that the answer is no. I believe that the courts in some circumstances have some discretion. There's attorney sins and there's client sins. An example is rule 11. There's... there are some instances in rule 11 where the courts say we're going to visit this sin upon the attorney because it's an attorney-type error. Other times it's appropriate to penalize the client. So, Link doesn't purport to overrule that sort of distinction. But in this case, I say that we are not attempting to overrule Link, and to the extent that the Sixth Circuit decision relied upon Link, we think it can be affirmed on other grounds because we say in this case we acknowledge that there was neglect, and we acknowledge that that neglect is imputable to the respondents.
William H. Rehnquist: So, then if the Sixth Circuit said otherwise, you don't find it necessary to uphold that part of the Sixth Circuit--
John A. Lucas: That is correct, Your Honor. That is correct, but I still--
Speaker: --So, you can look to other factors.
John A. Lucas: --That is correct because I still say that begs the question. Now that the respondents are charged with their client's neglect, the rule then inquires should we excuse that neglect. I think it's appropriate at this point to... I'd like to refer to a case... an opinion that Justice Scalia wrote for the majority in 1988, Pierce v. Underwood, and in that case, Your Honor may recall that the question before the Court was whether or not the position of the United States was substantially justified for purposes of an award of attorney's fees. And Justice Scalia, writing for the majority, said that the Court was going to eschew what Justice Scalia and the Court termed a rigorously scientific approach and said because of the large number of possible situations in which the phrase might arise, that it was inappropriate to draw a set of narrow guidelines, that this was simply an area in which the court... the lower courts had to have a substantial amount of discretion. And the Court also said that it would not choose to substitute a different formula for the formula substantially justified which had been chosen by Congress. We think that that holding is applicable to this case also because what the petitioner is seeking to do, Your Honors, is to substitute new words for the words that exist in the rule. They want the rule to read that an extension of time may be granted where the failure to act was due to circumstances beyond the reasonable control of the moving party, and that's simply not what the rule says. The rule grants on its face the trial court's discretion. It says that the trial court, in its discretion, may extend the time.
Antonin Scalia: Suppose you say it goes beyond circumstances entirely beyond the reasonable control and includes some other factors, all of which, however, have to do with the subjective actions of the individual and does not include such extrinsic elements as how much hardship is produced to the other party. You'd have a whole lot of discretion still within the meaning of excusable so long as it's limited to factors affecting the subjective actions of the individual. And then you would have additional discretion at the back end because even when the court finds excusable neglect, it need not... it may, as the rule says, but it need not use that. And once again, that would be up to its discretion.
John A. Lucas: That is correct, Justice Scalia, but there's nothing in the rule that dictates that approach. There is simply nothing in the rule that says that the only focus shall be on the actions of the moving party or the party who has failed to act. And, in fact, I think it comports not only with the face of the rule, but just with our everyday experience when we inquire if a person has transgressed, whether it's neglect, an act, or omission, but if a person has failed to act or if they've transgressed in some way and we then visit the question of should we excuse their transgression, should we excuse their failure to act, what is a perfectly logical inquiry? What harm have they caused?
William H. Rehnquist: But that isn't quite what the statute says. The last clause says where the failure to act was the result of excusable neglect. It seems to me that does tie it down rather closely to the acts of the person who should have acted.
John A. Lucas: But it's where the failure to act is simply a descriptive trigger, if you will, for describing what has happened. Remember... and this is extremely important... that rule 9006 is a rule of general application. We're describing all sorts of omissions here. This is not a rule that deals just with bankruptcy proofs of claim. Like its counterpart in the Federal civil rules, Federal rule 6, this deals with obtaining an extension of time under... for virtually any filing required to be made in the context of a civil suit or any filing in a bankruptcy case. So the phrase, where the failure to act, is simply a description that triggers the rule.
Antonin Scalia: Does the word excusable have some notion of looking into the motives and the subjective inclinations of the actor? I mean, I wouldn't consider it excusable neglect if you violate the rule but you didn't cause any harm. I mean, could the court say, well, it's excusable neglect because even though he's out of time, what's the harm. It's no big deal. He's a week late. Nobody is going to be harmed. I'll just extend it. It's excusable neglect because it's harmless. Is that excusable neglect?
John A. Lucas: Yes, I believe it is. I believe it may be a proper factor to weigh, Justice Scalia, not the only factor, but I think whether or not there is harm is a factor that the court should weigh.
Antonin Scalia: It's not an intentional failure to file it on time. He just said I'm going to be a week late, and the court said no harm done.
John A. Lucas: I misunderstood the question then, Your Honor. If it's intentional, then the element of good faith comes in and good faith might well be decisive if it's intentional. But the point is that the petitioner's test fails to allow any of these things to be weighed. We say that they should weigh the prejudice to other parties, other creditors, prejudice to the court essentially in the impact on judicial administration, good faith. There's a fourth element that I would suggest that would go into the calculus properly which is not covered in our brief, and that is what is the nature of the deadline missed and what is the impact on the moving party. Keeping in mind that this rule applies, as I said, to virtually any filing, under the Federal rules, it applies to answers, it applies to discovery responses, it applies to briefs, it applies to proofs of claim, it applies to notices of appeal. And the way you weigh these factors, and particularly the good faith factor, might vary from case to case, but that's what discretion is all about. And that's the type of discretion that the Court allowed the trial courts in Pierce v. Underwood, and we submit that that discretion is appropriate here because on the face of the rule it says that the court may in its discretion. Your Honor, there's another point that I would like to make about the source of this beyond reasonable control test because that test, obviously, is not one that appears on the face of the rules or the bankruptcy code. It's not in the plain language of the rule. Where do we find it? The petitioner finds that... and this is the linchpin of their argument because it appears in the very first section of the argument portion of their brief, and the rest of their argument flows from the need for finality. And they say, well, there's a need for finality that was articulated by the lower courts, and they cite to a Second Circuit opinion in a case called Hoos v. Dynamics Corporation. And they cite this need for finality there. And the reason that's so important to the petitioner is that without this need for finality that they find in the bankruptcy code, an overriding need in their view, you really can't get to the beyond reasonable control language because it's just not in the rules. But in the Hoos v. Dynamics Corporation, the court did discuss the need for finality, but... and perhaps it was an overriding or the most important need there, but the circumstances were entirely different than they are today. In that case, it was decided under the old Bankruptcy Act, and in that case creditors in a chapter 11 case had until virtually the end of the bankruptcy process in which to file their proofs of claim. Proofs of claim had to be filed by confirmation of the plan, not before. That, as the Court knows, is virtually the last step in the process. In Hoos, the creditors were actually attempting to file their claims after the plan had already been confirmed. So, of course, there was a need for finality. There's always a need... a greater need for finality at the end of the case, but the petitioners seek to extrapolate from that and say, well, in Hoos there was a need for finality at the end of the case. Therefore, there's a need for finality here at the beginning of the case. Obviously, it just doesn't follow, and without that supposed need for finality, the overriding need for finality, they simply can't get to this beyond reasonable control test because that's the need that has driven every court of appeal that has decided and articulated this beyond reasonable control test.
Harry A. Blackmun: Mr. Lucas, straighten me out on some facts. Has this plan been confirmed?
John A. Lucas: Yes, Your Honor, it has.
Harry A. Blackmun: And do I understand that the unsecured creditors will be paid off 100 cents on the dollar?
John A. Lucas: That is correct, Justice Blackmun.
Harry A. Blackmun: Do you have any comments about that as far as your clients are concerned?
John A. Lucas: Your Honor, it illustrates the windfall to the debtor, to the petitioner, if this type of procedural defect is allowed to essentially deprive my clients of their right to file the claim. And, of course, once the claim is filed, it is prima facie evidence of the validity of the claim. So, we do believe that for purposes of this discussion, the claim has to be accepted as a valid one, and therefore, there is a $6.9 million windfall to the debtor because that's the amount of money--
Speaker: There are that many assets.
John A. Lucas: --It was I believe a $55 million asset case, Your Honor, and it's a 100 percent payment plan. So, that is the amount that my clients have been deprived of because their attorney was negligently 20 days late.
Harry A. Blackmun: Well, if these claims are filed, is the 100 percent payoff affected?
John A. Lucas: It is affected to this extent that without my clients' claims, it's a 5-year payoff. Once our claims are factored into the plan... if our claims are allowed, it's a 10-year payoff. That plan, incidentally, was formulated after... the plan had not begun being drafted at the time this time extension was sought. So, the plan anticipated... because the litigation over the filing of these claims was going on while the debtor was drafting its plan, the plan anticipated and planned for the eventuality that these claims would be permitted or would be allowed.
Anthony M. Kennedy: Is interest payable on the claims?
John A. Lucas: Yes, Justice Kennedy, there is interest payable, and interest is being paid to other creditors and has been since the plar was confirmed.
William H. Rehnquist: Would there be any virtue in tying the phrase excusable neglect in this bankruptcy rule into the provisions of rule 60(b) of the Rules of Civil Procedure where I'm sure there must be some decisions construing the same phrase?
John A. Lucas: Your Honor, I think that whatever decision this Court makes necessarily... even if the Court attempts to limit it to proofs of claim and bankruptcy rule 9006, that whatever decision this Court makes will be construed as also governing rule 6 and all the filings in Federal civil litigation simply because the rule, for all intents and purposes, are identical. And the phrase excusable neglect, if the Court is going to avoid the one-subsection-at-a-time approach to the statutory construction, if we're going to avoid that, it seems to me that it has to be construed uniformly. If it's going to be an absolute, strict standard allowing no exceptions except for matters beyond the moving party's reasonable control here, then the same must be true for a party who files an answer 1 day late in a lawsuit. And let me use that example, if I may, to sort of highlight the everyday litigation problems that would flow from the rule proposed by petitioners if it were accepted by this Court. Let's take a hypothetical example of a defendant in a lawsuit who is served with a summons and, of course, required to answer in 20 days. But through an administrative error, clerical breakdown, whatever, through neglect, for reasons within his control, the defendant doesn't answer the lawsuit, say, a $7 million lawsuit, until the 21st day. 9:00 the next morning, his answer is 9 hours late. Today, I submit and I believe that in most jurisdictions around the country, most district judges will think that it's in the exercise of their discretion to allow an answer to be filed 9 hours late rather than to deprive a party of his or her day in court and essentially impose a windfall to the plaintiff, who at that point would have a $6.9 million default judgment. But it is precisely that sort of exercise of discretion that the petitioners would deprive the trial courts of exercising if their hard and fast, inflexible rule is accepted in this case. If there are no other questions, that completes my comments.
William H. Rehnquist: Thank you, Mr. Lucas. Mr. Donaldson, you have 4 minutes remaining.
Craig J. Donaldson: Mr. Chief Justice, and may it please the Court: The respondents say that the test that we advance here is inflexible. What I would say to the Court on behalf of the petitioner is the test advanced here by the respondent is no test at all. It leads to an unbridled, unchecked discretion vested in lower courts that, in effect, any time someone comes in with any excuse, whatever it may be, that a deadline is going to be extended. And as I said earlier in our argument, in construing this term, it cannot be construed such that it just sweeps away deadlines imposed by other rules of the court which are necessary to the efficient administration of justice. In particular reference to the Sixth Circuit opinion below, the only way that the Sixth Circuit found the bankruptcy court and district court abused this discretion was predicated on the finding that it was inappropriate to penalize the party for the negligence of counsel. Had it not found that, and had it found that it should have penalized, as the bankruptcy court and district court did, the respondents for the neglect of their counsel, the Sixth Circuit could not have found that the bankruptcy court and district court abused their discretion.
Byron R. White: Well, if you want to... I suppose the real party in interest is the client, and if you want to impose a rule that this is excusable if it's due to something... some act beyond your control, surely in this case the negligence of his lawyer was beyond his control.
Craig J. Donaldson: But I think the rule looks, Justice White, at the negligence of the party and the party's counsel, and if one of them is at fault... well, at least in the context of the client, if the lawyer is at fault, the client I think under Link has to suffer the consequences. But ultimately the system allocates the burden properly because the client still has, which is exactly what has been done in this case, its action against... over against the attorney for whatever damages it sustained as a result of his negligence.
Byron R. White: Or whatever damages he could recover.
Craig J. Donaldson: Or what he could prove--
Byron R. White: I mean, or whatever damages the lawyer could pay for.
Craig J. Donaldson: --Yes, sir. Finally, to answer one point... two points of Mr. Lucas very briefly. He says that from the Hoos case and the need for finality came out of the Bankruptcy Act because at that point you filed plans of confirmation, and he seems to imply that the need for finality and certainty is less now under the bankruptcy code and rules than it was under the act. And I submit it's exactly in reverse. The bankruptcy code and rules now say that the court shall fix the time within which claims are to be filed.
Byron R. White: Can that be amended?
Craig J. Donaldson: Pardon, Justice White?
Byron R. White: Can the court set a file date and then change it?
Craig J. Donaldson: If it does so before the expiration of the date set, the plain language of rule 3003 says for cause shown, that the court may extend it provided that it's done before the expiration of the original period. But I think that the... I'm sorry. Thank you.
William H. Rehnquist: Thank you, Mr. Donaldson. The case is submitted.
Speaker: The honorable Court is now adjourned until tomorrow at ten o'clock.