Court Opinion

ID: 2973393
Source: CourtListenerOpinion
Date Created: 2015-09-22 17:01:56.075022+00
Date Added: 2024-06-11T15:02:19.569195
License: Public Domain

By order of the Bankruptcy Appellate Panel, the precedential effect
               of this decision is limited to the case and parties pursuant to 6th
               Cir. BAP LBR 8013-1(b). See also 6th Cir. BAP LBR 8010-1(c).

                                   File Name: 06b0005n.06

           BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT

In re: STERLING RUBBER           )
PRODUCTS COMPANY,                )
                                 )
               Debtor.           )
                                 )
                                 )
SPENCER CENTRAL DEVELOPERS, LLC, )
                                 )
               Appellant,        )
                                 )
v.                               )                         No. 04-8090
                                 )
STERLING RUBBER PRODUCTS         )
COMPANY,                         )
                                 )
               Appellee.         )
                                 )

                      Appeal from the United States Bankruptcy Court
                     for the Southern District of Ohio, Western Division
                               Chapter 11 Case No. 03-40549

                                Submitted: November 9, 2005

                            Decided and Filed: February 15, 2006

        Before: GREGG, LATTA, and WHIPPLE, Bankruptcy Appellate Panel Judges.

                                    __________________

                                         COUNSEL

ON BRIEF: Timothy R. Dodd, Evansville, Indiana, for Appellant. Lawrence T. Burick, Jennifer
L. Maffett, THOMPSON HINE, Dayton, Ohio, for Appellee.
                                              OPINION

         MARY ANN WHIPPLE, Bankruptcy Appellate Panel Judge. Creditor Spencer Central
Developers, LLC (“SCD”), appeals an order disallowing its claim because it failed to respond to the
objection filed by Debtor Sterling Rubber Products Corp. (“Debtor”). SCD also appeals another
order denying its motion for relief from the earlier order and denying a request that its proof of claim
be deemed timely filed. For the reasons that follow, we conclude that the orders on appeal should
be AFFIRMED.

                                     I. ISSUES ON APPEAL

         The issues presented are whether the bankruptcy court erred in (1) sustaining the Debtor’s
objection to the allowance of SCD’s claim, (2) denying SCD relief from the order disallowing its
claim, and (3) denying SCD’s motion for an order deeming its proof of claim to have been timely
filed.

                     II. JURISDICTION AND STANDARD OF REVIEW

         An order disallowing a claim is a final order, e.g., Beneke Co. v. Economy Lodging Sys., Inc.
(In re Economy Lodging Sys., Inc.), 234 B.R. 691, 693 (B.A.P. 6th Cir. 1999); see Stearns Salt &
Lumber Co. v. Hammond, 217 F. 559, 564 (6th Cir. 1914), as is an order denying relief from a prior
order, e.g., Patterson Dental Supply, Inc. v. Hochhauser (In re Hochhauser), No. 03-8024, slip op.
at 2 (B.A.P. 6th Cir. Dec. 30, 2003) (citing Peake v. First Nat’l Bank & Trust Co., 717 F.2d 1016,
1020 (6th Cir. 1983)); In re White Motor Corp., 65 B.R. 383, 390 (N.D. Ohio 1986), aff’d, 886 F.2d
1462 (6th Cir. 1989). Thus, the orders in question may both be appealed as of right. 28 U.S.C.
§158(a)(1). The United States District Court for the Southern District of Ohio has authorized
appeals to the Bankruptcy Appellate Panel, and neither party has timely elected to have this appeal

                                                   2
heard by the district court. 28 U.S.C. §§ 158(b)(6), (c)(1). Accordingly, the Panel has jurisdiction
to decide this appeal.

        Insofar as the appellant asserts that the order disallowing its claim represents an error of law,
the order is reviewed de novo. E.g., Corzin v. Fordu (In re Fordu), 201 F.3d 693, 696 n.1 (6th Cir.
1999). “De novo means that the appellate court determines the law independently of the trial court's
determination.” Treinish v. Norwest Bank Minn., N.A. (In re Periandri), 266 B.R. 651, 653 (B.A.P.
6th Cir. 2001) (quoting Myers v. IRS (In re Myers), 216 B.R. 402, 403 (B.A.P. 6th Cir. 1998)
(quoting Corzin v. Fordu (In re Fordu), 209 B.R. 854, 857 (B.A.P. 6th Cir. 1997), aff’d, 201 F.3d
693 (6th Cir. 1999)), aff’d, 196 F.3d 622 (6th Cir. 1999)). Insofar as the appellant challenges the
order disallowing its claim on the basis of an error of fact, the order is reviewed for clear error. Fed.
R. Bankr. P. 8013 & 7052; Fed. R. Civ. P. 52(a). “A finding of fact is clearly erroneous ‘when
although there is evidence to support it, the reviewing court, on the entire evidence, is left with the
definite and firm conviction that a mistake has been committed.’” United States v. Mathews (In re
Mathews), 209 B.R. 218, 219 (B.A.P. 6th Cir. 1997) (quoting Anderson v. City of Bessemer City,
470 U.S. 564, 573, 105 S. Ct. 1504, 1511 (1985)).

        The denial of a Rule 60(b) motion is reviewed for abuse of discretion. E.g., Burrell v.
Henderson, – F.3d –, 2006 WL 59815 (6th Cir. Jan. 12, 2006); Eglinton v. Loyer (In re G.A.D., Inc.),
340 F.3d 331, 334 (6th Cir. 2003) (citing Smith v. Kincaid, 249 F.2d 243, 245 (6th Cir. 1957)). An
abuse of discretion occurs when the Panel is left with “a definite and firm conviction that the court
below committed a clear error of judgment in the conclusion it reached upon a weighing of the
relevant factors.” Taylor v. United States Parole Comm’n, 734 F.2d 1152, 1155 (6th Cir. 1984).

                                             III. FACTS

        The Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in
the United States Bankruptcy Court for the Southern District of Ohio, Western Division, at Dayton.
The Debtor’s schedule of creditors holding unsecured nonpriority claims listed a debt to SCD in the

                                                   3
amount of $219,155.25 and indicated that the debt was disputed. The bankruptcy court entered an
order setting April 14, 2004, as the last day for filing proofs of claim and, on January 24, 2004, the
court issued a notice of that deadline. SCD does not dispute that it received a copy of that notice in
due course.

       SCD contends that, on April 13, 2004, it sent a proof of claim to the clerk by Express Mail,
anticipating that the package would be delivered the next day. However, the proof of claim was not
delivered or filed until April 15, 2004. On May 3, 2004, the Debtor filed an objection to SCD’s
claim, seeking its disallowance because, among other reasons, the proof of claim was untimely. At
the end of the objection, below the certificate of service, the Debtor inserted the following box:

                            NOTICE OF OBJECTION TO CLAIM

         Debtor and Debtor in Possession, The Sterling Rubber Products Company (“SRP”),
 has filed an objection to your claim in this bankruptcy case.

       Your claim may be reduced, modified or eliminated. You should read these
 papers carefully and discuss them with your attorney, if you have one.

          If you do not want the court to eliminate or change your claim, then on or before
 June 2, 2004, you or your lawyer must file with the court a written response to the objections
 [sic], explaining your position, at the Clerk’s Office, United State [sic] Bankruptcy Court for
 the Southern District of Ohio, Dayton Office, 120 W. Third Street, Dayton, Ohio 45402.

        If you mail your response to the court for filing, you must mail it early enough so that
 the court will receive it on or before the date stated above.

       You must also mail a copy to Lawrence T. Burick, Esq., Thompson Hine LLP, 2000
 Courthouse Plaza, N.E., Dayton, Ohio 45402.

        If you or your attorney do not take these steps, the court may decide that you do not
 oppose the objection to your claim.

       SCD did not timely file a response to the objection by June 2, 2004. On June 8, 2004,
without holding a hearing, the bankruptcy court entered an order disallowing SCD’s claim based

                                                  4
solely on the failure to respond. Counsel for SCD later admitted that they did not timely read the
notice reproduced above, averring that the oversight occurred because the notice was placed at the
end of the objection after the certificate of service. The attorney stated that the “notice was initially
missed by our office” and acknowledged: “We have been lazy.” (Appellant’s App., at 314, 317.)
An attorney in the office first saw the notice “seven days out” (id. at 342), after the deadline set in
the notice for responding to the claim. Asserting that the language of the notice led them to conclude
that the court would nevertheless hold a hearing on the objection whether or not a response was filed,
counsel was surprised that the next event was receipt of the June 8 order disallowing SCD’s claim
instead of a notice of hearing on the Debtor’s objection.

        On June 14, 2004, SCD filed a motion seeking an order deeming its proof of claim to have
been timely filed and responding to the Debtor’s objection. On June 17, 2004, SCD filed a separate
response to the objection, and a motion for relief from the order disallowing its claim. On October
25, 2004, the bankruptcy judge entered an order denying both of SCD’s motions. In re Sterling
Rubber Prods. Co., 316 B.R. 485 (Bankr. S.D. Ohio 2004). SCD timely filed a notice of appeal on
November 2, 2004.1

                                         IV. DISCUSSION

A.      Order Disallowing Claim

        The bankruptcy court’s order disallowing SCD’s claim was based solely on its failure to
respond to the Debtor’s objection. The court found that the notice of the objection complied with
Rule 3007 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) and Rule 3007-1
of the Local Rules of the Bankruptcy Court for the Southern District of Ohio (the “Local Rules”),

        1
          The appeal was timely with respect to the June 8 order disallowing the claim, as well as
the October 25 order, because Rule 8002(b)(4) of the Federal Rules of Bankruptcy Procedure
provides that the time for appeal runs from the entry of an order disposing of a motion under Rule
9024 for relief from an earlier order if the motion was filed within 10 days after the entry of the
earlier order and, in this case, the motion was filed within that 10-day period.

                                                   5
that the objection was properly served, that SCD did not timely respond, and that under Local Rule
3007-1 “SCD is deemed to have waived any objection to the relief sought in Debtor’s Objection.”
SCD asserts, first, that the notice did not comply with Official Form 20B.2

       Bankruptcy Rule 9009 provides that “[t]he Official Forms prescribed by the Judicial Con-
ference of the United States shall be observed and used with alterations as may be appropriate.
Forms may be combined and their contents rearranged to permit economies in their use.” Official
Form 20B is the form for notices of objections to claims. Comparison of the official form to the
notice appearing on the Debtor’s objection reveals that the title and text of the two are substantially
identical, except that the Debtor’s notice does not include the time and location of a hearing on the
objection. That omission is consistent with the Local Rules, which provide for a hearing only if a
response is timely filed: “The objection shall also include or be accompanied by the mandatory
notice set forth in Official Form 20B (Notice of Objection to Claim) except that no hearing date need
be set.” Bankr. S.D. Ohio R. 3007-1(b). The committee note to Official Form 20B makes clear that
this is the very sort of “appropriate alteration” authorized by Rule 9009: “These forms are not
intended to dictate the specific procedures to be used by different bankruptcy courts. The forms
contain optional language that can be used or adapted, depending on local procedures.”

       Section 502(b) of the Bankruptcy Code provides for the disallowance of claims “after notice
and a hearing,” and that phrase is defined as follows:

       “after notice and a hearing”, or a similar phrase—

              (A) means after such notice as is appropriate in the particular circumstances,
       and such opportunity for a hearing as is appropriate in the particular circumstances;
       but

       2
         SCD also contends that the caption does not comply with Bankruptcy Rule 1005. However,
that rule by its own terms applies only to petitions and, although Rule 2002(n) makes Rule 1005
applicable to “every notice given under this rule,” a notice of an objection to allowance of a claim
is not one of the types of notice governed by Rule 2002. Fed. R. Bankr. P. 2002(a), (b), (e), (f).

                                                  6
              (B) authorizes an act without an actual hearing if such notice is given properly
       and if—

                         (i) such a hearing is not requested timely by a party in interest; or

                        (ii) there is insufficient time for a hearing to be commenced before
                 such act must be done, and the court authorizes such act . . . .

11 U.S.C. § 102(1). The bankruptcy court was well within its authority in promulgating a local rule
that provides for a hearing on objections to claims only if timely requested. Indeed, SCD does not
suggest that the bankruptcy court was required to conduct a hearing or that the local rule mandates
an improper deviation from Official Form 20B. Nor does SCD suggest that the title or text of the
Debtor’s notice is not otherwise substantially identical to the official form. Rather, it complains only
that the Debtor’s notice was not, unlike the official form, placed directly below the caption of the
case. In other words, it is SCD’s position that the notice must appear on a document separate from
the objection or, at least, on a separate page with its own caption. However, Bankruptcy Rule 9009
explicitly provides that “[f]orms may be combined and their contents rearranged to permit economies
in their use.” That is precisely what the Debtor did: it combined the notice with the objection and
rearranged the official form’s contents by moving the body of the notice from directly below the
caption to the end of the document.3 Moreover, the sentence of Local Rule 3007-1 quoted above
expressly provides that the objection must either “include or be accompanied by” the requisite notice.

       SCD also contends that, even if the notice was sufficient (and even if its attorneys had read
it when they received it), they would have concluded that a response was not required, because the
notice indicated that the “claim may be reduced, modified or eliminated” and that, if the creditor or
its attorney did not timely file a response, “the court may decide that you do not oppose the objection
to your claim” (emphasis added).4 This language comports with Official Form 20B. However, the

       3
         For the same reason, SCD’s complaint that the Debtor’s attorney’s signature does not
appear immediately below the notice is not well taken.
       4
           As the bankruptcy judge pointed out, the use of the word “may” signifies only that the court
                                                                                        (continued...)

                                                    7
notice also made it clear that, “[i]f you do not want the court to eliminate or change your claim, then
on or before June 2, 2004, you or your lawyer must file with the court a written response to the
objections” (emphasis added). Moreover, subdivisions (c) and (d) of Local Rule 3007-1 explicitly
state that “[t]he claimant whose claim is the subject of a filed objection shall file a response to the
objection and serve a copy thereof as directed by the notice not later than thirty (30) days after
service of the objection” and that, “[i]f a claimant fails to file a timely response to an objection, the
claimant shall be deemed to have waived any objection to the relief sought” (emphasis added).
Lawyers are charged with knowledge of the applicable procedural rules and statutes. See PDS Eng’g
& Constr., Inc. v. Link Corp. (In re Lyman), 254 B.R. 517, 520 (Bankr. D. Conn. 2000). Particularly
given Local Rule 3007-1, the consequences of failing to timely respond to the Debtor’s objection
should have been obvious to SCD’s attorneys if they had read the notice. In the context of the entire
notice and the Local Rule, use of the word “may” does not make the notice vague or misleading in
any respect.

        Moreover, as the bankruptcy court pointed out, the caption of the objection included a
reference to the notice appearing at the end thereof, so the attorneys had no excuse for not reading
the notice. The Debtor’s notice complied with applicable rules of procedure and was reasonably
calculated to apprise SCD of the objection and afford it a reasonable opportunity to respond and be
heard. For those reasons and because SCD’s claim was disallowed on the basis of its failure to
respond to the objection, the bankruptcy court’s order disallowing the claim does not represent error.

        4
           (...continued)
has the discretion to overrule the objection. The notice makes clear, however, that, if the creditor
fails to timely respond, the court may also exercise its discretion to sustain the objection. The notice
gives no indication that a hearing will be scheduled whether or not a response is filed. Indeed, Local
Rule 3007-1 specifically provides that the hearing time and location is to be omitted from Official
Form 20B, which should have made it even clearer to SCD that no hearing would be scheduled
absent a timely response.

                                                   8
B.      Order Denying Relief From Order Disallowing Claim

        SCD’s motion for relief from the order disallowing its claim was based on Bankruptcy Rule
9024, which makes Rule 60 of the Federal Rules of Civil Procedure applicable in bankruptcy cases.
Where Rule 60(b) is invoked to set aside a default judgment, a trial court is directed to consider three
equitable factors derived from Federal Rule of Civil Procedure 55 jurisprudence as to “good cause”
for setting aside default entries: (1) whether plaintiff will be prejudiced if the judgment is vacated;
(2) whether the defendant had a meritorious defense; and (3) whether culpable conduct of the
defendant led to the default. United Coin Meter Co. v. Seaboard Coastline R.R., 705 F.2d 839, 845
(6th Cir. 1983). In addition to considering the equitable factors enumerated in United Coin Meter,
the court must also find that one of the specific requirements of Rule 60(b) is met. Thompson v. Am.
Home Assur. Co., 95 F.3d 429, 433 (6th Cir. 1996).

        SCD apparently relied on subdivision (b)(1) of Rule 60 for relief, which provides that, “[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.” In Waifersong , Ltd. v. Classic Music Vending, 976 F.2d 290, 292 (6th Cir. 1992), the
Sixth Circuit clarified application of the three United Coin Meter factors where a party seeks to
vacate a default judgment under Rule 60(b)(1). Contrary to SCD’s arguments emphasizing a lack
of prejudice and a balancing of the equities, the three factors are not to be balanced. Rather, the party
seeking to vacate the default judgment “must demonstrate first and foremost that the default did not
result from his culpable conduct.” Weiss v. St. Paul Fire & Marine Ins. Co., 283 F.3d 790, 794 (6th
Cir. 2002). The court must consider the other two United Coin Meter factors only if the moving
party makes this showing. Id. (citing Waifersong, 976 F.2d at 292). On motions based on Rule
60(b)(1), the burden of demonstrating non-culpable conduct merges with and may be met by
establishing the requirements of Rule 60(b)(1), specifically that the default was the product of
mistake, inadvertence, surprise or excusable neglect. Id.; Mfrs.’ Indus. Relations Ass’n v. E. Akron
Casting Co., 58 F.3d 204, 209 (6th Cir. 1995) (citing Waifersong, 976 F.2d at 292).

                                                   9
       SCD’s motion for relief from the order reiterated the same arguments regarding the notice
made in its belated response to the Debtor’s objection to its claim. As explained above, the notice
complied with applicable rules of procedure and therefore does not provide a basis for finding non-
culpable conduct in failing to respond timely to the objection. Beyond SCD’s arguments about the
content and placement of the notice, the only other arguable basis for finding mistake or excusable
neglect is counsel’s acknowledged failure to timely read the notice. But failing to read a notice
setting a deadline is not non-culpable conduct justifying relief from a party’s failure to comply with
the deadline. E.g., In re D’Amico, Civ. A. No. 93-1429, 1993 WL 293293, at **2 (E.D. La. July 26,
1993), aff’d, 19 F.3d 15 (5th Cir. 1994). Moreover, the deadline for responding to an objection to
a claim is separately established by local rule and “ignorance of the rules . . . do[es] not usually
constitute ‘excusable’ neglect.” Pioneer Inv. Servs. Co., 507 U.S. 380, 392, 113 S. Ct. 1489, 1496
(1993); see Marks Mgmt. Corp. v. Reliant Mfg. Inc., 268 B.R. 505, 524-25 (E.D. Mich. 2001), aff’d,
74 F. App’x 493, 2003 WL 21995438 (6th Cir. 2003) (failure to respond to a motion for summary
judgment by the deadline set by the local bankruptcy rules, leading the court to grant the unopposed
motion, did not constitute excusable neglect). SCD has not established that the default in responding
to the Debtor’s claim objection resulted from non-culpable conduct, making it unnecessary to ana-
lyze the other two United Coin Meter factors. The bankruptcy court did not abuse its discretion in
denying SCD’s motion for relief from the order disallowing its claim.

C.     Order Denying Motion to Deem Claim Timely Filed

       SCD argues that the bankruptcy court also erred in denying its motion to deem its claim
timely filed because this case is similar to Pioneer, where the Supreme Court applied a balancing
test and held that a late filed claim should be deemed timely filed under Bankruptcy Rule 9006(b)(1).
But this case is different from Pioneer. SCD filed its claim late and then compounded that
procedural problem by failing to respond timely to Debtor’s objection. In contrast to Pioneer, the
Debtor in this case had already filed an objection to SCD’s claim and the objection had already been
properly granted because of the failure to respond by the time SCD finally filed its motion to deem
its claim timely filed under Bankruptcy Rule 9006(b)(1). Because SCD was not entitled to relief

                                                 10
from the order disallowing its claim, the bankruptcy court correctly held as a matter of law that
whether SCD’s proof of claim should be deemed timely under Rule 9006(b)(1) was moot. SCD’s
motion seeking that relief was thus also properly denied by the bankruptcy court.

                                      V. CONCLUSION

       For the foregoing reasons, the bankruptcy court’s order disallowing SCD’s claim and its later
order denying SCD’s motion for relief from that order and SCD’s motion to deem its claim timely
filed are hereby AFFIRMED.

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