Restructuring

Contributed by Charlie Chen

“Sometimes, you can make no mistakes, do everything right, and still lose.”
Captain Jean-Luc Picard, Star Trek: The Next Generation (TNG)

For pro se litigants, the mailing of the notice of entry of order is often the only means by which they are notified of a ruling that affects their interests.  Upon entry of the order, a 14 day period generally applies under Bankruptcy Rule 8002(a) to file a notice of appeal.  As we have discussed in previous posts, here and here, missed filing deadlines are rarely excused by bankruptcy courts.  But should an exception be made when the clerk mails the notice to the wrong address and provides erroneous information regarding the status of the proceedings, which causes the pro se litigant to miss the appeal deadline?  The recent decision from Judge Halfenger of the United States Bankruptcy Court for the Eastern District of Wisconsin reminds us that deadlines are strictly enforced by the bankruptcy courts, and even exceptional circumstances may not suffice to protect a party.

Background
In In re Shah [No. 08-26365-GMH, (Bankr. E. D. Wis. February 25, 2016)], involved a complicated procedural history.  At the heart of the case, though, was whether the bankruptcy court could vacate and re-enter an order for the purpose of allowing the losing party – a pro se creditor – to file a timely appeal from the order. Although the remedy sounds extreme, unfortunately, so were the facts.  In September of 2014, the bankruptcy court held a hearing on a motion by the creditor.  Six months later, in March of 2015, the bankruptcy court entered an order denying the motion.  The creditor did not timely appeal from that order.
Here’s the problem.  The creditor asserted in its new motion before the bankruptcy court that, after the September hearing and entry of the order in March, the creditor did not receive timely notice of the March order despite his repeated inquiries to the clerk’s office regarding the status.  The bankruptcy court determined that the clerk mailed the notice of the March order to the creditor’s former counsel, who did not forward the notice to the creditor.  Thus, the creditor did not receive notice in time to file an appeal.  In addition, on multiple occasions, the creditor went to the clerk’s office to inquire about the status of its motion.  In one instance in May 2015 – two months after the bankruptcy court had entered its order— the clerk erroneously informed the creditor that the bankruptcy court had not issued its decision.  In September 2015, the creditor independently discovered the issuance of the March order while performing research on the Internet.
The Bankruptcy Court Denied the Creditor’s Motion
The bankruptcy court nevertheless refused to vacate and re-enter the March order to allow the creditor to file a timely notice of appeal. First, the bankruptcy court considered the Bankruptcy Rules governing the time to appeal. The bankruptcy court noted that Bankruptcy Rule 9022(a) states that failure to receive notice of the entry of an order does not affect the time to appeal except as provided by Bankruptcy Rule 8002.  Bankruptcy Rule 8002 generally requires appeals to be filed within 14 days after the entry of the order, and the extension of such deadline is limited to an additional 21 days if the party demonstrates “excusable neglect.”  Consequently, the bankruptcy court determined that the deadline to file a notice of appeal had expired months before the creditor became aware of the March order.
In response, the creditor relied upon Seventh Circuit opinions interpreting Federal Rule of Civil Procedure 60(b) to assert that the bankruptcy court was authorized to reset the appeal deadline because he had exercised “due diligence” and received “affirmative misleading information from the Bankruptcy Clerk” about the status of the proceedings.  Specifically, the creditor cited Spika v. Village of Lombard, which considered whether a litigant who did not receive notice of a final order could be entitled to have the district court vacate that order under Federal Rule of Civil Procedure 60(b) and reset the time to appeal.  In Spika, the Seventh Circuit found that such relief may be warranted when “some diligence or other special circumstances are shown.”  After reviewing the factual circumstances, the bankruptcy court determined that the creditor had shown that he (i) did not receive notice of the order, (ii) exercised “some diligence,” and (iii) experienced “other special circumstances.”  Consequently, the bankruptcy court concluded that if Spika were controlling precedent, the creditor had demonstrated sufficient grounds for vacating and reinstating the March order.
However, based upon the bankruptcy court’s analysis of subsequent Seventh Circuit opinions and the United States Supreme Court’s opinion in Bowles v. Russell, the bankruptcy court believed that Spika was no longer valid.  Specifically, the bankruptcy court found that the Supreme Court in Bowles, among other things, expressly rejected earlier decisions holding that a district court can expand the time to appeal based on a finding of “unique circumstances.” In addition, the bankruptcy court believed that the Seventh Circuit’s post-Spika opinion in In re Longardner had concluded that courts must strictly adhere to the Bankruptcy Rule 9022(a) requirement that “[l]ack of notice of the entry does not affect the time to appeal or relieve a party for failure to appeal within the time allowed, except as permitted in Rule 8002.”  As Bankruptcy Rule 8002 only provides for an additional extension of 21 days, the bankruptcy court ultimately concluded that it did not have authority to reset the time to appeal.  Thus, the bankruptcy court denied the creditor’s motion.
Conclusion
Although the decision in Shah may appear unduly harsh, it nonetheless provides a useful lesson to practitioners, debtors, and creditors alike that they are responsible for (i) maintaining an accurate address of record to ensure proper service and (ii) monitoring the case docket to avoid missing a deadline.  This is particularly relevant when, as was the case here, a party decides to no longer be represented by counsel and changes its mailing address.  In such an event, the party should be vigilant in following up with the court clerk to confirm its mailing records are updated to avoid losing its rights to object to an adverse ruling.  Unfortunately, the pro se creditor in Shah did not realize this important lesson until it was too late.