Restructuring

The timing of a bankruptcy petition filing is often a carefully calculated decision that a debtor makes to obtain certain protections of the Bankruptcy Code, most notably, the automatic stay, in advance of a looming event. In many cases, a debtor may be close to tripping a covenant, missing a debt payment, or a creditor may be attempting to foreclose on the debtor’s assets. The debtor must be cognizant of the timing of these events as the protections of the Bankruptcy Code only apply after the petition has been filed. In In re Buckskin Realty, Inc, the United States Bankruptcy Court for the Eastern District of New York explained that it would not grant nunc pro tunc relief to deem a bankruptcy petition filed earlier than it actually was when substantive rights would be altered. Where the debtor’s principal argued that he could not file the bankruptcy petition to invoke the automatic stay before the foreclosure sale on the grounds that the subway directions to the courthouse were wrong and caused the delayed filing, the court held excusable neglect and inaccessibility of the clerk’s office could not be used as a means to deem an earlier filing of a bankruptcy petition.
Background
Prior to January 8, 2013, the debtor’s primary assets, two plots of land, were subject to a foreclosure action brought by the community’s homeowners association. The foreclosure sale was scheduled to occur on January 8, 2013 at 10:00 a.m. Olsen, the debtor’s principal, claimed that, on the morning of January 8, he intended to file a bankruptcy petition on behalf of the debtor in advance of the sale to obtain the benefit of the automatic stay of such sale.
Despite his stated intentions, Olsen failed to arrive at the Bankruptcy Court for the Eastern District of New York – located in Cadman Plaza in Brooklyn, New York – in time to file the petition and stop the sale. The bankruptcy petition was time-stamped “received” more than two hours after the sale was conducted.
Along with the petition, Olsen filed a letter stating that he was unable to reach the courthouse in time to stop the sale because he had relied on faulty directions posted on the court’s website. Specifically, he claimed that those directions stated that the courthouse could be reached by taking a Brooklyn-bound “N” train; however, after boarding an “N” train at Queensboro Plaza, he rode all the way to Coney Island before realizing the train did not actually stop at Cadman Plaza. Not until 12:46 p.m. did Olsen find his way to the courthouse and file the petition, but by then the property had been foreclosed.
Seeking nunc pro tunc relief and also arguing excusable neglect and inaccessibility of the courthouse, the debtor asked the court to deem the petition retroactively filed so as to have the automatic stay in effect to void the foreclosure sale.
Analysis
Nunc Pro Tunc Relief
The doctrine of nunc pro tunc relief refers to a court’s ability to grant an order specifying an effective date that is earlier than the date of the order’s issuance. The court acknowledged that such relief is extraordinary and should only be used to correct inaccurate records, not to alter substantive rights. The court found the debtor’s request to deem the petition to be filed before the foreclosure sale and thus retroactively availing the debtor of the protections of the automatic stay to be a clear alteration of substantive rights and denied the request for nunc pro tunc relief.
Excusable Neglect
Olsen and the debtor also argued, pursuant to Federal Rules of Civil Procedure 60(b) and (6)(b) and Federal Bankruptcy Rule 9006, that the petition should be deemed filed prior to the foreclosure sale because an act of excusable neglect was the cause for the delayed filing.
Rule (60)(b)(1), made applicable by Bankruptcy Rule 9024, states, in relevant part, that the court “may relieve a party . . . from a final judgment, order, or proceeding for . . . excusable neglect.” After reviewing prior precedent, the bankruptcy court noted the requirement that the neglect be “excusable” acts as a limitation and that “ignorance or inadvertence alone is rarely a sufficient excuse.”
Olsen and the debtor also pointed to Bankruptcy Rule 9006 for support for extending the time in which it had to file its bankruptcy petition to stop the foreclosure. Bankruptcy Rule 9006, which corresponds to Federal Rule (6)(b), provides, in relevant part:
“when an act is required or allowed to be done within a specified period by these rules or by a notice given thereunder or by order of the court, the court for cause shown may at any time in its discretion (1) with or without motion or notice order the period enlarged if the request therefor is made before the expiration of the period originally prescribed…or (2) on motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect.”
Olsen and the debtor argued that the circumstances causing the filing of the bankruptcy petition after the foreclosure sale met the excusable neglect standard. They argued that, among other reasons, the homeowners association would not be prejudiced if the retroactive relief were granted, the reason for the late filing was outside of Olsen’s control, and Olsen could not have acted any quicker than he did. Olsen even posed to the court, “What more could I have done?”
First remarking that the legal standard is not about what counsel did or did not do, the court, following the Bankruptcy Court for the Northern District of Indiana in In re Sizemore, found that Rule 60(b) and Rule 9006 are only operable after a case has been filed and that those rules do not apply to an event that occurred before a case has been filed. These rules “do not authorize the filing of a case on one day while pretending it was filed on another [and that] [t]his is especially true where bankruptcy cases are concerned and so many rights are determined as of the date of the petition.”
The court went on to note that Olsen’s and the debtor’s reliance on these rules was entirely misplaced because those rules govern “enlargements of time ‘when an act is required or allowed to be done at or within a specified period.’” Here, the petition was not required to be filed by a certain hour or day, and, therefore, there was no deadline for the court to extend.
Inaccessibility of the Clerk’s Office
Finally, Olsen and the debtor argued that the faulty directions posted on the court’s website had rendered the clerk’s office inaccessible during the time Olsen was trying to file the petition. Pointing to Federal Rule (6)(a)(3) and the corresponding rule applicable in bankruptcy cases, Rule 9006(a)(3)(A), they argued that the petition should be deemed filed at an earlier time because those rules provide “[u]nless the court orders otherwise, if the clerk’s office is inaccessible . . . on the last day for filing . . . then the time for filing is extended to the first accessible day that is not a Saturday, Sunday, or legal holiday.”
After accepting Olsen’s account that the “N” train did not stop at Cadman Plaza (the court’s website was updated shortly after the debtor’s filing), the court quickly dismissed this argument, again emphasizing that “these rules only apply to the computation of time after a case has been filed and a deadline imposed.” The court made clear that even if these rules were applicable, the clerk’s office was not “inaccessible” on January 8, 2013. A survey of cases made clear that the application of Rule 6(a)(3) and Bankruptcy Rule 9006(a)(3) is limited to situations when the courthouse is physically inaccessible, such as when weather or a natural disaster physically prevent access to the courthouse. On January 8, 2013, the courthouse was open and there was no inclement weather or other condition that would have prevented anyone from filing documents.
The court also acknowledged that the use of ECF has even further narrowed the meaning of inaccessibility, citing cases that have held ECF filing has ended the concept of the clerk’s office being inaccessible on weekends and legal holidays.
Conclusion
The court denied the request to deem the petition filed prior to the foreclosure sale and held that the sale did not violate the automatic stay. As a consequence, this debtor’s ability to use the Bankruptcy Code in an attempt to restructure or otherwise maximize the value of its property was lost before it had a chance to start. This case serves as a stark reminder that debtors must be aware of the importance of the time when a petition is filed and how only a few hours difference can have major consequences.