Webster Capital Finance, Inc. v. Ottawa Bus Service, Inc. (In re Ottawa Bus Service, Inc.)
Webster Capital Finance, Inc. v. Ottawa Bus Service, Inc. (In re Ottawa Bus Service, Inc.)
Opinion of the Court
MEMORANDUM AND ORDER
In this bankruptcy appeal, appellant Webster Capital Finance, Inc. f/k/a Center Capital Corporation (“Webster Capital”) seeks review of various orders issued by the United States Bankruptcy Court for the District of Kansas. Webster Capital challenges the bankruptcy court’s order denying its untimely objection to confirmation, confirming the debtor’s Chapter 11 Small Business Plan, and treating Ottawa Bus Service, Inc., as a small business debt- or. For the reasons set forth below, the bankruptcy court’s order is affirmed.
I. Factual and Procedural Background
A. Ottawa Bus’s Bankruptcy Filing and Chapter 11 Small Business Plan
Webster Capital is a Connecticut corporation that provides financing to various business ventures. Defendants Daniel Newby and Thomacine Newby are residents of Kansas City, Missouri, who operate Ottawa Bus Service, Inc. (“Ottawa Bus”), a Kansas corporation. On February 19, 2002, Webster Capital and Ottawa Bus entered into Master Loan and Security Agreement No. 31505 (the “Master Loan Agreement”), which provided the terms under which Webster Capital would extend credit and financing to Ottawa Bus. Pursuant to the Master Loan Agreement, Webster Capital and Ottawa Bus entered into at least six loan schedules, under which Webster Capital financed and obtained a purchase money security interest in several pieces of collateral. Ottawa Bus failed to pay monthly installments for July, August, and September 2010. Accordingly, on September 2, 2010, Webster Capital sent Ottawa Bus a Notice of Default, which accelerated the balance due under the various loan schedules.
On November 22, 2010, Ottawa Bus filed a voluntary petition for bankruptcy protection under Chapter 11. The voluntary petition did not identify Ottawa Bus as a small business debtor. Schedule D of the petition listed Webster Capital as a secured creditor that was owed $508,025.38 as of the petition date. On May 19, 2011, Webster Capital filed its secured proof of claim in the amount of $482,257.23. Several days later, the bankruptcy court entered a stipulation and agreed order regarding adequate protection payments from Ottawa Bus to Webster Capital.
On November 15, 2011, Ottawa Bus filed its Chapter 11 Small Business Plan (the “Plan”), which listed Webster Capital as a secured creditor. The Plan provided that “[t]he rights and obligations of any entity named or referred to in this Plan will be binding upon ... such entity.”
B. Webster Capital’s Untimely Objection to Confirmation
On April 5, 2012, more than six weeks after the bankruptcy court conditionally confirmed the Plan, Webster Capital filed an objection to confirmation. Ottawa Bus submitted a response and moved to strike the objection as untimely. Webster Capital then filed a motion for leave to file an objection out of time, asserting that its delay constituted excusable neglect under Fed. R. Bankr.P. 9006. In support of its motion for leave, Webster Capital alleged that it had numerous email discussions and telephone conferences with Ottawa Bus’s attorneys regarding the Plan, such that Webster Capital believed it could negotiate a resolution in good faith.
The Court has already conditionally, some months ago, confirmed this plan subject to the changes that have been agreed upon with the timely objecting creditors and the ones who appeared at the hearing. And so the Court is going to grant the motion to strike and will not consider, obviously, the untimely filed objections to confirmation. I just think that not timely filing an objection to confirmation and/or not appearing at a hearing that is set for confirmation or approval of the disclosure statement, a creditor does so at its own peril.
And based on these facts, the Court and its discretion, and based on the practice of law, just doesn’t feel that that standard is reached, whether it is Pioneer, which dealt with an order entered in a Chapter 11 case or under any other standard, whether it is under Rule 60(b) or any other standard that expresses excusable neglect. Because generally excusable neglect is not — it is not enough that counsel made a mistake, I mean, the case law generally supports that procedural aspect.
And that is why the Court — another reason the Court would not allow an untimely objection to confirmation to the plan to allow one creditor with an untimely objection throw a wrench into the works of a plan that has taken months to solidify in which creditors, other secured lenders have made compromises and have reached this point, probably in a critical mass, in which this debtor needs to just move down the road and do what it does best and conduct its business, and part of that business is paying its debts as secured creditors. So that falls into the balance as well.3
II. Standards Governing Bankruptcy Appeals
In reviewing a bankruptcy court’s decision, this Court functions as an appellate court and is authorized to affirm, reverse, modify, or remand the bankruptcy court’s ruling.
III. Analysis
A. The Bankruptcy Court Did Not Abuse Its Discretion in Denying Webster Capital’s Untimely Objection
Webster Capital argues that the bankruptcy court abused its discretion when it struck Webster Capital’s untimely objection and denied its motion for leave to file an objection to confirmation out of time. As a preliminary matter, Ottawa Bus argues that the Court should decline to consider various documents Webster Capital included in the record on appeal. In support of its argument that the parties were engaged in settlement negotiations, Webster Capital provided this Court with over eighty pages of e-mail correspondence and telephone records that were not presented to the bankruptcy court. The record on appeal, however, should consist only of items that were before the bankruptcy court at the time of its decision.
Federal Rule of Bankruptcy Procedure 9006(b) grants bankruptcy courts discretion to enlarge a deadline “where the failure to act was the result of excusable neglect.”
In Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship,
1. Danger of Prejudice to Ottawa Bus
Under the first Pioneer factor, courts must weigh the danger that an untimely objection would result in prejudice to the debtor.
The Court is not persuaded that the bankruptcy judge abused his discretion in reaching this conclusion. The bankruptcy court unambiguously found that allowing Webster Capital’s untimely objection would jeopardize Ottawa Bus’s ability to reorganize. Particularly relevant to this decision, the bankruptcy court noted that Ottawa Bus and numerous creditors negotiated for months and resolved timely-filed objections to arrive at the Plan’s terms, which could become unworkable if Webster Capital’s objection was sustained. Accordingly, the Court finds that the bankruptcy court did not abuse its discretion in finding that Ottawa Bus would suffer unfair prejudice if Webster Capital were allowed to proceed with its untimely objection.
2. Length and Impact of Delay
The second Pioneer factor requires courts to consider the length and impact of
And after the hearing we had a discussion in the conference room with regard to how the objections to confirmation could be resolved with the creditors who did bother to appear at the hearing and who did timely file objections to confirmation of the plan. And if Webster would have been here, then Webster would have certainly been a party to the negotiations after the confirmation hearing with regard to treatment [of] its and other creditor’s claims. So it is important that Webster wasn’t here for the noticed confirmation hearing. I think that if counsel doesn’t appear they really do so at their own peril.19
Webster Capital filed its objection six weeks after the Plan was conditionally confirmed. Because Webster Capital itself sought and obtained a continuance, the bankruptcy court did not hold a hearing on the objection until June 20, 2012, nearly four months after the Plan’s conditional confirmation.
As noted above, the bankruptcy court not only considered the length of delay, but also found that such delay would negatively impact the positions of Ottawa Bus and other creditors. The court concluded that Webster Capital’s untimely objection would not only jeopardize Ottawa Bus’s ability to effectively reorganize, but would also substantially impair the rights of creditors that filed timely objections and diligently appeared for the confirmation hearing. The bankruptcy court also noted that Webster Capital would retain its secured position and would receive full payment of its claim regardless of whether it permitted the untimely objection. Given the bankruptcy court’s thorough consideration and ruling that altering the Plan may harm Ottawa Bus and the remaining creditors, the Court cannot find that the bankruptcy court abused its discretion in denying the untimely objection due to the length and impact of Webster Capital’s delay.
3. Reason and Responsibility for Delay
The third Pioneer factor requires courts to consider the reason for the delay, including whether it was within the reasonable control of the movant.
Courts in several jurisdictions have analyzed the extent to which settlement negotiations may give rise to excusable ne-
Unlike Friedman, however, this bankruptcy proceeding affects Ottawa Bus, Webster Capital, and numerous creditors that rely upon negotiated terms of the confirmed Plan. When evaluating excusable neglect in the bankruptcy context, “it is important for the court to determine whether granting an extension would unduly delay the administration of the bankruptcy case, given the unique context of bankruptcy proceedings.”
Given the unique nature of bankruptcy proceedings, especially those concerning plan confirmation, the Court cannot conclude that the bankruptcy court’s refusal to find excusable neglect despite the existence of communications was “arbitrary, capricious or whimsical.”
B. Webster Capital’s Objections to Confirmation Are Barred as Untimely
Because the Court affirms the bankruptcy court’s finding that Webster Capital’s untimely objection did not result from excusable neglect, the Court does not reach the substance of Webster Capital’s untimely and unpreserved objection.
C. Webster Capital’s Objections to Ottawa Bus’s Treatment as a “Small Business Debtor” are Untimely
Finally, Webster Capital argues that the bankruptcy court erred in treating Ottawa Bus as a “small business debtor,” as defined under 11 U.S.C. § 101(61D). In its untimely objection to confirmation, Webster Capital recognized that Ottawa Bus continued to operate its business and manage its property as a small business debt- or-in-possession. Webster Capital’s objection contained a footnote, however, which alleged that “[a] question exits [sic] whether the Debtor qualifies as a ‘small business debtor’ under section 101(51D) of the Bankruptcy Code...
For the first time on appeal, Webster Capital argues that the bankruptcy court erred in treating Ottawa Bus as a small business debtor. The Federal Rules of Bankruptcy Procedure provide that “[i]n a voluntary chapter 11 case, the debtor shall state in the petition whether the debtor is a small business debtor.”
Further, Webster Capital has failed to show that it suffered prejudice as a result of Ottawa Bus’s treatment. Although Ottawa Bus failed to mark the box on its voluntary petition for small business debtors, Ottawa Bus’s counsel represented to the Court that it was determined to be a small business debtor at a meeting of the creditors on January 4, 2011, just over one month after Ottawa Bus filed its voluntary petition. On November 15, 2011, Ottawa Bus filed its Chapter 11 Small Business Plan (the “Plan”), along with its Chapter 11 Small Business Disclosure Statement. Because Webster Capital failed to file a timely objection and failed to show any resulting prejudice, its objection is barred.
IT IS ACCORDINGLY ORDERED that the bankruptcy court’s Order dated July 3, 2012 Confirming Chapter 11 Plan and Denying the Objection of Webster Capital Finance, Inc. to Debtor’s Plan as Untimely is AFFIRMED.
IT IS SO ORDERED.
. Chapter 11 Small Business Plan, Doc. 5-2, at 37.
. While Webster Capital refers to e-mail correspondence, the record on appeal reveals that Webster Capital did not attach specific communications as exhibits to its motion for leave to file its objection out of time.
. Hearing Transcript from June 20, 2012, Doc. 9-3, at 23-27.
. Order Confirming Plan, Doc. 5-12, at 9.
. 28 U.S.C. § 158(a); Fed. R. Bankr.P. 8013.
. Jenkins v. IBD, Inc., 489 B.R. 587, 593 (D.Kan. 2013).
. Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 398, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993); see In re Enron Corp., 419 F.3d 115, 124 (2d Cir. 2005) (holding that a bankruptcy court's finding regarding excusable neglect is reviewed for abuse of discretion and is not subject to de novo review).
. Reeves v. Reeves, 502 Fed.Appx. 776, 778 (10th Cir. 2012) (citation omitted).
. Id.
. See Fed. R.App. P. 10(e); Opetubo v. Citibank Student Loan Corp., 74 Fed.Appx. 145, 146 (2d Cir. 2003); In re Peter J. Gould, 2008 WL 2945606, at *2 (D.Conn. July 28, 2008).
. Fed. R. Bankr.P. 9006(b)(1). This rule of bankruptcy procedure closely tracks the language of Fed.R.Civ.P. 6(b)(1)(B), which provides, "[w]hen an act may or must be done
. Pioneer, 507 U.S. at 388, 113 S.Ct. 1489.
. Id.
. Id.
. Id.
. Hearing Transcript from June 20, 2012, Doc. 9-3, at 26.
. Id. at 23-27.
. Pioneer, 507 U.S. at 388, 113 S.Ct. 1489.
. Hearing Transcript, Doc. 9-3, at 24.
.Pioneer, 507 U.S. at 388, 113 S.Ct. 1489.
. See, e.g., In re Langston, 319 B.R. 667, 670-71 (D.Utah 2005); Friedman & Feiger, L.L.P. v. ULofts Lubbock, LLC, 2009 WL 3378401, at *2 (N.D.Tex. Oct. 19, 2009).
. 2009 WL 3378401 (N.D.Tex. Oct. 19, 2009).
. Id. at *1.
. Id.
. Id.
. Nugent v. Betacom of Phoenix, Inc., 250 B.R. 376, 381 n. 6 (9th Cir. BAP 2000) (internal quotations omitted).
. In re Contessa Liquidating Co., Inc., 2012 WL 2153271, at *2 (Bankr.C.D.Cal. June 13, 2012); see In re Langston, 319 B.R. 667, 670-71 (D.Utah 2005).
. In re Contessa Liquidating Co., 2012 WL 2153271 at *2.
. Id. at *1-2 (rejecting an argument that settlement negotiations gave rise to excusable neglect under Fed.R.Civ.P. 60(b) for failure to answer a third-party complaint).
. Id.
. Objection to Confirmation, Doc. 5-10, at 35.
. Fed. R. Bankr.P. 1020(a).
. Voluntary Petition, Doc. 5-1, at 24 (emphasis added).
Reference
- Full Case Name
- In re OTTAWA BUS SERVICE, INC., Debtor. Webster Capital Finance, Inc. f/k/a Center Capital Corporation v. Ottawa Bus Service, Inc.
- Cited By
- 1 case
- Status
- Published