Restructuring

Contributed by Doron P. Kenter.

“An attorney’s reluctance, or that of his assistant, to work after 6:30 p.m. one evening in order to meet a court-imposed filing deadline does not constitute excusable neglect.”
– In re An

In the next post in our series discussing the interplay between the fallibilities of computers and bankruptcy practice, we look at the deepest fear that so many of us have – if we have last-minute problems with electronic filing as a deadline approaches, will we be out of luck, hat in hand, begging forgiveness from our clients?  The Bankruptcy Court for the Central District of California says “yes!”

In In re An, Darryl and Paula Boyd sued the debtor in state court for intentional misrepresentation and fraud.  The debtor subsequently commenced a chapter 7 case, but did not provide the Boyds with a notice of commencement of the chapter 7 case in time for them to seek to have their claims excepted from the debtor’s discharge.  After the discharge order was entered, the debtor notified the Boyds of the discharge in the form of a motion for sanctions in the state court action, which the Boyds were proceeding with after the debtor was discharged. (The motion was denied because the debtor had not provided the creditors with effective notice prior to that time.)  Notwithstanding the debtor’s notice to the creditors of his chapter 7 discharge, the Boyds proceeded with their state court action on the theory that their claims had been excepted from the discharge pursuant to section 523(a)(3)(B) of the Bankruptcy Code (which provides that certain types of claims, including some fraud-related claims, are not dischargeable in bankruptcy).  The debtor therefore sought and obtained an order from the bankruptcy court reopening his chapter 7 case so that the debtor would seek sanctions against the Boyds for violation of the discharge injunction.
In resolving the debtor’s motion for sanctions, the bankruptcy court noted that the Boyds had not yet brought an action seeking a determination whether their claims were excepted from the debtor’s discharge, but that they had also not received timely notice of the commencement of the debtor’s chapter 7 case, and did not have an adequate opportunity to seek such relief.  The court therefore entered an order providing the creditors with sixty days to file a complaint to determine the dischargeability of their state court claims.  Because the sixtieth day after entry of the order was a Sunday, Rule 9006(a)(1)(C) of the Federal Rules of Bankruptcy Procedure provided the Boyds with until November 17, 2014, to commence their nondischargeability action against the debtor.
On November 17, the Boyds attempted to file a complaint to determine the nondischargeability of their state court claims.  On the afternoon of November 17, an employee of the Boyds’ attorney attempted to commence the adversary proceeding through the court’s electronic filing system by opening an adversary proceeding in the debtor’s chapter 7 case.  That attempt failed.  Then, at approximately 6:30 p.m. on November 17, the employee conferred with her boss, the Boyds’ attorney, alerting him to the problem (which may have arisen from the fact that the complaint included voluminous exhibits that could not be filed in one electronic upload).  The attorney then agreed to take the complaint (together with the voluminous exhibits) to court the following day to file it in person.  Neither the employee nor the Boyds’ attorney made any further efforts to commence the adversary proceeding that day.
The bankruptcy court rejected the Boyds’ complaint on the grounds that it had been filed after the November 17 deadline.  In particular, the bankruptcy court reiterated the importance of certainty in the bankruptcy case.  It was for that reason that the bankruptcy court had set its sixty-day deadline for the Boyds to commence their nondischargeability action.  The bankruptcy court then held that the Boyds had not shown excusable neglect in failing to meet the stated deadline.  The court observed that the employee and the attorney had known by 6:30 pm on November 17 that the attempted filing had failed.  But notwithstanding the (relatively) early hour, the Boyds’ attorney directed the employee to cease attempting to file the complaint that day because it would have been “time-consuming” to break the exhibits up into smaller pieces for electronic filing, and because the employee was already working over-time at that point.
Relying on the Ninth Circuit’s precedent in Anwar v. Johnson, the bankruptcy court recognized that the result, though perhaps harsh, was proper.  As the Ninth Circuit held in Anwar, “the fact that Anwar missed the filing deadline by less than an hour [due to technical difficulties] is immaterial.”  In An, the Boyds’ attorney’s failure was even more clear.  The court’s electronic case filing system made available a training program 24 hours a day, seven days a week.  That training program could have shown the Boyds’ attorney or his employee how to correct their mistake.  But the Boyds’ attorney knew that the initial attempted filing had failed, and determined not to take further steps to try to correct the problem prior to the expiration of the deadline, all because the effort would have been “time-consuming” and may have required his employee to work additional hours of overtime.
Although the ultimate result was unfortunate for the Boyds, the bankruptcy court recognized the importance of certainty and of meeting the deadlines imposed by the court.  It is telling that the court focused on the Boyds’ attorney’s failure to make any additional attempts to commence the nondischargeability action after 6:30 pm.  Perhaps additional struggles with computer glitches would have provided a better excuse.  Perhaps not.  But where deadlines are involves, parties would do well to make any and all efforts to comply, even if it means a little more leg-work.