On March 13, 2012 the Queen of Hearts in the Fifth Circuit Court of Appeals showed no sympathy for the White Rabbit’s plight and denied a creditor’s appeal of an order disallowing its late filed proof of claim in the DHL Master Land Holding LLC bankruptcy case.1
The bank-creditor (the “Bank”) received its invitation to DHL’s chapter 11 proceeding in February of 2010, but did not notify its counsel of the matter until “late May, early June” and directed them to focus on DHL’s non-debtor affiliates as co-debtors on obligations owed to the Bank.
The White Rabbit finally arrived to see the Queen a full 42 days after the June 2, 2010 Bar Date. Realizing its tardiness, the Bank filed a motion to permit the late filing, claiming its counsel was responsible and that it should not be beheaded for counsel’s mistake. The Bank also claimed that its lateness would not prejudice the debtor since it had been aware of the Bank’s claim since the start of the bankruptcy proceeding. The creditors’ committee objected to the Bank’s motion on the grounds that the Bank failed to show excusable neglect, and, after considering the evidence, the bankruptcy court denied the Bank leave to file a late claim. The bankruptcy court pointed to the fact that the Bank had notice of the proof of claim bar date well in advance of the deadline and had failed to inform its counsel when it hired them just days before the date in question. On appeal, the district court affirmed, finding no abuse of discretion in the bankruptcy court’s decision.
The Bank further appealed to the circuit court, claiming that the district court erred in affirming the bankruptcy court’s finding that inadvertence did not constitute “excusable neglect.” The Fifth Circuit disagreed. After considering all of the relevant factors, including the danger of prejudice to the debtor, length of the delay and potential impact to the proceedings, the reason for the delay, and whether the movant acted in good faith, the Fifth Circuit confirmed the “off with their heads!” approach of the lower courts and denied the Bank’s appeal.
As with all entertaining stories, there is a valuable underlying lesson. Here the looking glass is clear: the bankruptcy court is no Mad Hatter’s eternal tea party, and time does not stand still when filing proofs of claim.