ATD Corporation v. Advantage Packaging

RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 2 In re ATD Corporation No. 02-3785 ELECTRONIC CITATION: 2003 FED App. 0445P (6th Cir.) File Name: 03a0445p.06 Before: GUY and GILMAN, Circuit Judges; REEVES, District Judge.* UNITED STATES COURT OF APPEALS _________________ FOR THE SIXTH CIRCUIT COUNSEL _________________ ARGUED: Michael A. Gallo, NADLER, NALDER & In re: ATD CORPORATION , X BURDMAN, Youngstown, Ohio, for Appellant. Peter A. Jackson, CLARK HILL, Detroit, Michigan, for Appellees. Debtor. - ON BRIEF: Michael A. Gallo, Timothy M. Reardon, ________________________ - NADLER, NALDER & BURDMAN, Youngstown, Ohio, for - No. 02-3785 - Appellant. Peter A. Jackson, James E. Brenner, CLARK ATD CORPORATION , > HILL, Detroit, Michigan, for Appellees. , Appellant, - _________________ - v. - OPINION - _________________ ADVANTAGE PACKAGING , - - RALPH B. GUY, JR., Circuit Judge. ATD Corporation, INC.; MOLDED MATERIALS, - the debtor in this Chapter 11 bankruptcy proceeding, appeals INC., - following the district court’s affirmance of the bankruptcy Appellees. - court’s order allowing the claims of two creditors, Advantage - Packaging, Inc., and Molded Materials, Inc., despite their - having failed to physically file a proof of claim before the N “bar date.” Debtor argues that the bankruptcy court’s Bar Appeal from the United States District Court Date Order required all creditors to file a proof of claim, for the Northern District of Ohio at Akron. including those whose claims were “deemed filed” pursuant No. 02-00627—David D. Dowd, Jr., District Judge. to 11 U.S.C. § 1111(a), in order to participate in the plan of reorganization. After review of the record and the arguments Argued: December 2, 2003 presented on appeal, we affirm.

Decided and Filed: December 17, 2003

* The Honorable Danny C. Reeves, United States District Judge for the Eastern District of Kentucky, sitting by designation.

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I. the claims adjudication process and assist in the formulation and approval of a Plan and Disclosure ATD, a manufacturer and supplier of parts to the Statement. automotive industry, filed a voluntary petition for relief under Chapter 11 on January 30, 1998. As the debtor-in-possession, IT IS THEREFORE ORDERED that creditors are ATD filed bankruptcy schedules that listed obligations to its provided a period of forty-five (45) days from the date of unsecured creditors totaling $10,965,045.68. On those the mailing of this Notice within which to file a Proof of schedules, Advantage Packaging and Molded Materials were Claim in the Form required by Rule 3001 of the Federal listed as holders of undisputed, non-contingent, liquidated Rules of Bankruptcy Procedure, and upon their failure to claims in the amounts of $336,435.89 and $523,308.44, do so, such claimants shall be barred from participating respectively. Debtor concedes that because these debts were in Debtor’s Plan in any regard, including voting or not scheduled as disputed, contingent or unliquidated, distribution purposes. Advantage and Molded Materials were not required by either 11 U.S.C. § 1111(a) or Fed. Bankr. R. P. 3003 to execute and The cover letter sent with the Bar Date Order advised file a proof of claim. However, debtor contends that the creditors: bankruptcy court was authorized through the general equity powers granted in 11 U.S.C. § 105(a), to order otherwise in a PLEASE REVIEW THE ENCLOSED ORDER given case. CAREFULLY

On October 26, 1999, the debtor moved ex parte for an THE ORDER SETS DECEMBER 13, 1999 AS THE order fixing the time period within which holders of claims or DATE BY WHICH A PROOF OF CLAIM OR interests must file claims. In support of the request, debtor INTEREST IN THE FORM REQUIRED BY RULE stated, without elaboration, that “the exact amount of the 3001 . . . MUST BE FILED WITH THE liabilities set forth in Debtor’s Schedules are, in many BANKRUPTCY COURT IN ORDER FOR instances, unable to be determined or are disputed by Debtor.” CREDITORS TO PARTICIPATE IN THE PLAN OF The order, submitted by debtor with the motion, was entered REORGANIZATION FILED BY ROBERT H. CALE the following day. That order provided in relevant part as follows: PLEASE TAKE NOTICE THAT FAILURE TO COMPLY WITH THE COURT’S ORDER MAY IT APPEARING TO THE COURT that pursuant to RESULT IN YOUR BEING BARRED FROM Rule 3003 of the Federal Rules of Bankruptcy Procedure, PARTICIPATING IN THE VOTING OR it would be in the best interest of these proceedings if all DISTRIBUTION PROCESS RELATED TO THE creditors and equity interest holders were required to file PLAN Proofs of Claim or interest in the Form as required by Rule 3001 of the Federal Rules of Bankruptcy Procedure IF YOU HAVE ALREADY FILED A PROOF OF or be forever barred therefrom; and CLAIM OR INTEREST, THERE IS NO REQUIREMENT THAT YOU DO SO AGAIN AS A IT FURTHER APPEARING TO THE COURT that RESULT OF THE COURT’S ORDER the establishment of a bar date will significantly expedite

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The bankruptcy court also sent notice of the Bar Date Order, provisions relieving the creditor of having to physically file which stated in part: “IF ANY CREDITOR HAS a proof of claim. Id. at 761.1 PREVIOUSLY FILED A CLAIM IN THIS CASE, IT WILL NOT BE NECESSARY TO FILE ANOTHER CLAIM.” The debtor appealed and the district court affirmed in an There is no dispute that Advantage Packaging and Molded opinion and order dated June 12, 2002, on the grounds that Materials were served with the Bar Date Order, did not appeal the authority granted by § 105(a) did not include the power to from that order, and did not file a physical proof of claim contravene the clear language of § 1111(a). In conclusion, the before December 13, 1999. district court observed that: “The plain fact is that the Debtor is seeking to enjoy a windfall by arguing for the disallowance On June 20, 2000, the bankruptcy court confirmed debtor’s of the claims of Advantage and Molding Materials, claims first amended plan of reorganization. In January 2001, debtor which it listed in its own schedules as non-contingent, began making distributions to unsecured creditors. When undisputed and liquidated.” This appeal followed. Advantage and Molded Materials did not receive any distribution, each filed a motion in bankruptcy court for an II. order requiring payment of its claim, or, if necessary, relief from the Bar Date Order. The debtor responded on July 2, “When we review appeals from the decisions of a district 2001. court in a case originating in bankruptcy court, we directly review the decision of the bankruptcy court rather than the On March 1, 2002, the bankruptcy court granted the district court’s review of the bankruptcy court’s decision.” motions of Advantage and Molded Materials and allowed the Stevenson v. J.C. Bradford & Co. (In re Cannon), 277 F.3d claims because they were “deemed filed” pursuant to 11 838, 849 (6th Cir. 2002). The bankruptcy court’s decision is U.S.C. § 1111(a). In re ATD Corp., 278 B.R. 758 (Bankr. independently reviewed, applying the clearly erroneous N.D. Ohio 2002). The bankruptcy court’s opinion opened standard to the factual findings and a de novo review to the with the statement that the debtor’s interpretation of the Bar conclusions of law. Id.2 Date Order fails for three reasons: it allows the debtor to ignore the mandatory requirements of § 1111(a); it allows the debtor to ignore Fed. Bankr. R. P. 3003; and it permits debtor 1 In a footnote, the bankruptcy court suggested that an order requiring to avoid constitutionally required due process notice of all creditors to physically file a proof of claim may be inconsistent with objections to the scheduled claims. In analyzing the issues, Bankrup tcy Co de. Id. at 758 n.3. however, the bankruptcy court expressly declined to decide 2 whether a bankruptcy court has the power to ignore the The debtor a rgues that the creditors’ motions should have been directive of § 1111(a), and held that nothing in the Bar Date denied because they failed to appeal from the Bar Date O rder within the Order gave adequate notice that it was intended to override 10-day appeal pe riod. It was not the Bar Date Order that the creditors quarreled with, but the debtor’s interpretation of that Order as applying to the creditors’ claims despite their not having been required to file a proof of claim or interest under § 1111 (a) and Bankr. Rule 3003 . The creditors’ motions sought an order declaring that the Bar Date O rder did not affect their right to distribution under the plan, or, in the alternative, relief from the Bar Date O rder pursuant to Fed. R . Civ. P. 60(b )(4). W e are satisfied that the failure to appeal from the Bar Date O rder itself did not preclude the creditors from moving for either allowance of their

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Creditors whose claims are scheduled, but are not determination necessary or appropriate to enforce or scheduled as disputed, contingent or unliquidated, are deemed implement court orders or rules, or to prevent an abuse of to have filed a proof of claim or interest. Section 1111(a) process. states: “A proof of claim or interest is deemed filed under section 501 of this title for any claim or interest that appears The bankruptcy court’s broad equitable powers are in the schedules filed under section 521(1) or 1106(a)(2) of nonetheless constrained to actions or determinations that are this title, except a claim or interest that is scheduled as “not inconsistent” with the Bankruptcy Code. See, United disputed, contingent, or unliquidated.” Consistent with States v. Energy Res. Co., 495 U.S. 545, 549-50 (1990); In re § 1111(a), Bankr. Rule 3003 provides both that the schedule Dow Corning, 280 F.3d 648, 658 (6th Cir. 2002); In re of liabilities is “prima facie evidence of the validity and Foremost Mfg. Co., 137 F.3d 919, 924 (6th Cir. 1998). amount of the claims of creditors, unless they are scheduled as disputed, contingent, or unliquidated”; and that while any While one bankruptcy court has found it had authority creditor may file a proof of claim within the time set by the under § 105(a) to order that proof of claims must be filed by court, only a “creditor or equity security holder whose claim all creditors notwithstanding § 1111(a), In re McLean Enters, or interest is not scheduled or scheduled as disputed, Inc., 98 B.R. 485 (Bankr. W.D. Mo. 1989), that court relied contingent, or unliquidated” must file a proof of claim within on pre-code authority and did not attempt to determine the time set by the court. Bankr. Rule 3003(b)(1), (c)(1), and whether such an order would be inconsistent with § 1111(a). (c)(2). In fact, subsection (b)(1) of Rule 3003 concludes by Like the bankruptcy court, we find it is unnecessary to decide stating that: “It shall not be necessary for a creditor or equity whether a bankruptcy court can ever order proof of claims to security holder to file a proof of claim or interest except as be filed by creditors whose claims would be deemed filed provided in subdivision (c)(2) of this rule.” under § 1111(a). Instead, we conclude that whether or not the bankruptcy court has the power to do so, the Bar Date Order Debtor acknowledges that Advantage and Molded entered in this case did not adequately notify creditors that Materials were not required by either the Bankruptcy Code or they could not rely on § 1111(a) and Bankr. Rule 3003. the Bankruptcy Rules to physically file a proof of claim, but Accord In re Johnson, 238 B.R. 462, 467 (Bankr. W.D. Mo. vehemently argues that the directive in the Bar Date Order 1999) (“Nothing in the Order Setting Bar Date or the Order of that “all creditors” file a proof of claim by the bar date Confirmation stated that either Order was intended to override applied to these creditors notwithstanding § 1111(a) and the provisions of the Code and Rules upon which [the Bankr. Rule 3003. For support, debtor relies on the grant of creditor] was justified in relying.”) power in 11 U.S.C. § 105(a) authorizing bankruptcy courts to Despite the fact that the Bar Date Order directed all issue any order, process, or judgment that is necessary or creditors to file a proof of claim or interest by the bar date, appropriate to carry out the provisions of this title. No there was no indication in either the Order or the notices provision of this title providing for the raising of an issue pertaining to the Order that would advise creditors such as by a party in interest shall be construed to preclude the Advantage and Molded Materials that it applied to them court from, sua sponte, taking any action or making any notwithstanding § 1111(a) and Bankr. Rule 3003. Rather, such an implication was contradicted by the Order’s statement that the bar date was being set pursuant to Bankr. Rule 3003. Nor was the intention that it apply to all creditors clarified by claims or relief from the Bar Date Order.

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the statement in the notices indicating that if a claim had already been filed it would not be necessary to file another claim. We find no error in the bankruptcy court’s determination that to construe the Bar Date Order as debtor urges would “run afoul” of the due process rights of these creditors to receive adequate and meaningful notice that they were required to physically file a proof of claim before the bar date. In re ATD, 278 B.R. at 763. See also New York v. New York, New Haven & Hartford R.R. Co., 344 U.S. 293, 297 (1953) (“But even creditors who have knowledge of a reorganization have a right to assume that the statutory ‘reasonable notice’ will be given them before their claims are forever barred.”); In re Herd, 840 F.2d 757, 759 (10th Cir. 1988) (notice containing obviously invalid bar date was not sufficient to reasonably convey the required information). AFFIRMED.