Case No. 02 B 02474.United States Bankruptcy Court, N.D. Illinois, Eastern Division.
October 1, 2004
MEMORANDUM OPINION
SUSAN SONDERBY, Chief Judge, Bankruptcy
This matter is before the Court on the Motion of Kings County, California (“Kings County”) to Have Its Claim be Deemed Timely Filed and to Have a Portion of Its Claim Deemed Administrative.
BACKGROUND
On January 22, 2002, Kmart Corporation and thirty-seven of its subsidiaries and affiliates filed voluntary Chapter 11 petitions in this court. Kmart continued to operate as debtor in possession thereafter.
On March 26, 2002, this Court entered an order fixing July 31, 2002 as the deadline for filing prepetition proofs of claim in these cases, i.e., claims which arose prior to January 22, 2002, whether secured, priority, or unsecured.
Thereafter, on April 23, 2003, this Court entered an order confirming the First Amended Joint Plan of Reorganization of Kmart Corporation and its Affiliate Debtors and Debtors-in-Possession,
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as modified. The Plan became effective on May 6, 2003 (the “Effective Date”). Pursuant to the confirmation order, administrative claims were to be filed no later than forty-five days after the Effective Date, i.e., by June 20, 2003.
On August 26, 2002, Kings County filed a proof of claim in the amount of $13,588.68, alleging secured status. The proof of claim does not indicate the nature of the tax or the period covered thereby. In its Motion, however, Kings County explains that the claim consists of two components, — one for real property taxes and one for personal property taxes. The real property taxes are for the 2001-2002 fiscal year and are alleged to be secured by an unavoidable statutory lien on the real property. Kings County alleges that this tax was payable in two installments: the first installment was due on December 10, 2001 and the second on April 15, 2002. Kmart paid the first installment in full but is alleged to owe $7,088.71 of the second installment.[1]
The second component of the claim is for personal property taxes for fiscal tax year 2002-2003. This portion of the claim is also alleged to be secured, — not only by a statutory lien on the personal property but also by a lien on the real property. In the Motion, Kings
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County alleges that this component is in the amount of $8,272.86[2] and was last due and payable on August 31, 2002.[3]
Kings County takes the position that since all portions of the tax claim were due and payable after January 22, 2002, the claims are administrative expense claims subject to the June 20, 2003 bar date, — and not subject to the July 31, 2002 bar date for prepetition claims.[4] Kings County argues in the alternative that the claim should be deemed timely on grounds of excusable neglect. The county filed its motion on May 15, 2003, after being served with an objection to claim by Kmart.
DISCUSSION
The Court will first address Kings County’s contention that because the taxes became due after the petition date, they are administrative claims not subject to the July 31, 2002 bar date. The Seventh Circuit, in In re Handy Andy Home Improvement Centers, Inc., 144 F.3d 1125 (7th Cir. 1998), rejected such a “billing date” approach in the context of determining whether the obligation to reimburse a landlord for certain real estate taxes under a lease
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constituted a pre- or post-petition obligation.[5] The landlord contended that because the debtor was billed postpetition, the obligation to reimburse the landlord was a postpetition obligation.[6] The court disagreed, finding that the tax obligation arose “piecemeal” every day of the tax period in question, and since the tax period was prepetition, the obligation to reimburse the landlord constituted a prepetition obligation. The court reasoned, inter alia, that this accrual approach is
more sensible . . . because it tracks the purpose of giving postpetition creditors a high priority in the distribution of the debtor’s estate. The purpose is to enable the debtor to keep going for as long as its current revenues cover its current costs, so that it does not collapse prematurely because of the weight of its existing debt.
Id. at 1127. Since Handy Andy’s tax debt related entirely to a prepetition period, it was “no different from its debts to trade creditors for supplies that it bought [during that period] but never paid for.” Id. at 1127-28.
In accordance with this authority, Kings County’s contention that the due date should control the determination as to administrative status is without merit. The taxes arose “piecemeal” every day of the tax periods in question. Accordingly, that portion of the claim that relates to a period prior to January 22, 2002 is a prepetition claim subject to the July 31, 2002 bar date.
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It is, however, difficult on the basis of the current record to determine exactly what portion of the taxes accrued prior to January 22, 2002. Some portion of the real property tax claim, which is for the 2001-2002 fiscal year, may have accrued prepetition. The personal property tax claim, which is alleged to relate to fiscal tax year 2002-2003, may constitute a postpetition obligation in its entirety.[7] The Court, however, makes no such findings at this time, — not only because Kmart has reserved its rights to object to the claim on all grounds other than timeliness, but also because of the dearth of detail in the record concerning each of the components of the tax claim and because such findings are not necessary for purposes of the disposition of this Motion.[8]
The Court does find, however, that to the extent Kings County’s claim accrued postpetition, it constitutes an administrative expense claim subject to the June 20, 2003 bar date and was timely filed by virtue of the filing of this Motion on May 15, 2003. Although Kmart, in its Objection, originally took the position that any administrative portion of the claim must be considered untimely for failure to file a claim form by the June 20, 2003 bar date, it ultimately conceded that the filing of this Motion prior to the bar date constituted a timely request for payment of any administrative portion of the claim. (See
Transcript, at 56)
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The Court next determines whether, as to any portion of the claim that accrued prepetition, the failure of Kings County to timely file was the result of excusable neglect. Rule 9006(b)(1) of the Federal Rules of Bankruptcy Procedure provides in relevant part that
when an act is required or allowed to be done at or within a specified period by these rules or by a notice given thereunder or by order of court, the court for cause shown may at any time in its discretion . . . (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.
Prior to the Supreme Court’s decision in Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), there was a disagreement among the circuits as to the meaning and scope of “excusable neglect.” Robb v. Norfolk Western Railway Co., 122 F.3d 354, 358 (7th Cir. 1997). The Seventh Circuit was among those that interpreted the phrase narrowly, Id. That narrow approach was rejected in Pioneer, and the Supreme Court made it clear that neglect could be excusable even where it was the result of carelessness on the part of a litigant or his attorney.
Of course, not all carelessness is excusable. The Supreme Court concluded in Pioneer that the determination of whether neglect is “excusable”
is at bottom an equitable one, taking account of all relevant circumstances surrounding the party’s omission. These include . . . the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith.
507 U.S. at 395.
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The four factors cited by the Court are, however, not exclusive. As our Circuit Court of Appeals has noted, the Supreme Court “specifically rejected an approach that would `narrow the range of factors to be considered.'” Robb, 122 F.3d at 362. The Seventh Circuit has also noted, without deciding the issue, that three of its “sister circuits have held that fault in the delay is the preeminent factor in the Pioneer analysis.” In re Kmart Corp. (Appeal of Wilhemina Simmons), 381 F.3d 709, 715 (7th
Cir. 2004). In Simmons, the Court found the reason for the delay a “poor one” and “immensely persuasive” in the excusable neglect inquiry. Id.
Here, although Kings County alleges generally that the failure to timely file was the result of excusable neglect, it fails to elaborate on the reason for the delay. The Motion simply alleges that Kings County filed its claim “[a]s soon as it was realized that taxes were due and owing,” suggesting that the county failed to file sooner because it was unaware any tax was due. (Motion, at 6). The county also states (in a somewhat contradictory fashion) that “since Kmart had paid a portion of the taxes, there was the expectation Kmart would pay” the balance. (Motion, at 4). Kings County’s counsel stated at the hearing on this Motion, in response to the Court’s inquiry concerning the reason for the delay. “They believed that they were an administrative claimant” (i.e., not subject to the July 31, 2002 bar date for prepetition claims). (Transcript, at 55).
The Court finds, with respect to any prepetition portion of the claim, that these reasons are “poor ones.” The Court further notes that although the claim itself was filed less than one month after the deadline, the Motion was not filed until over eight months later, i.e., nine and
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one-half months after the prepetition claims bar date (and only after being served with an objection to claim by Kmart). Accordingly, even though the county has acted in good faith, and even assuming that Kmart would not be prejudiced, under all the circumstances presented here, the relief requested must be denied. Setting a precedent of excusable neglect on these facts would undermine the goal of “deter[ring] creditors . . . from freely ignoring court-ordered deadlines.” Pioneer, 507 U.S. at 395.
CONCLUSION
For all the foregoing reasons, the Court denies Kings County’s motion to have its claim deemed timely, but only with respect to that portion which accrued prepetition. This opinion constitutes the Court’s findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052. A separate order will be entered pursuant to Bankruptcy Rule 9021.
the county’s tax bill (sent to the landlord) was also issued postpetition.