Good things may come to those who wait, but not always when it comes to holding off until the final minutes to meet a court filing deadline.
U-Haul, the well-known truck rental company, filed chapter 11 bankruptcy in West Virginia in June 2021. Years before the filing, a class action suit was filed against it alleging that U-Haul had improperly charged its customers certain environmental fees and sought damages totaling $53 million.
The deadline for creditors to file proofs of claim was scheduled for August 25 at 11:59 pm. Claims could be filed in person with the court clerk, by mail, or through the bankruptcy court’s electronic filing system. The court explicitly stated that claims had to be received prior to midnight on August 25, or they would be “forever barred.”
Counsel for the class claimants planned to file two claims through the court’s electronic filing system during the evening of August 25. Unfortunately, the person charged with filing the claims did not realize that he lacked the proper login credentials for the court. By this time, he could not reach anyone in the clerk’s office for assistance. Midnight came and went without the claim filing.
The next morning, counsel for the class claimants secured filing credentials and filed the proofs of claim over nine hours after the court’s deadline had passed. Counsel for U-Haul predictably objected to the filing, citing the court’s statement that claims would be forever barred if not filed timely by 11:59 pm the prior evening.
Federal Rule of Bankruptcy Procedure 3003(c) allows a court to extend a creditor’s time to file a claim for “cause shown.” Another bankruptcy rule permits creditors to file claims beyond the time set upon a showing of “excusable neglect”.
The US Supreme Court stated in its 1993 decision Pioneer Investor Services v. Brunswick Associates Limited Partnership that “[a]lthough inadvertence, ignorance of the rules, or mistakes construing the rules do not usually constitute ‘excusable neglect’ it is clear that ‘excusable neglect’ . . . is a somewhat “elastic concept’ and is not limited strictly to omissions caused by circumstances beyond the control of the movant.” The Court further stressed that any neglect had to be “excusable”. This requires courts to consider the following four prongs:
- The prejudice to the debtor;
- The length of delay and the impact on judicial proceedings;
- The reason for the delay and whether it was within the control of the movant; and
- Whether the movant acted in good faith.
Counsel for the class claimants argued that the excusable neglect standards had been met. They maintained that the court should excuse the late filing because (1) the debtor was not prejudiced by the late filing, (2) disallowance of the $53 million clams would be unfair to the class members, (3) counsel’s inability to file the claim electronically through the court’s filing system was not under its control and (4) counsel had attempted to file the claims in good faith.
The bankruptcy court denied counsel’s request to accept the late filing. Noting that the “The reason for the delay in filing was entirely within the control of counsel . . . [and] had ample notice of the Bar Date as well as the dire consequences that would result from missing the deadline.” Further, the class had over a month to draft its claim and had three options for filing it. The court concluded that “Counsel knowingly assumed a significant risk to the status of the claim by waiting until the literal last minute to file it.”
Because the delay in filing was solely caused by class counsel and not “technical difficulties” with the electronic filing system, the court ruled that class counsel could not satisfy the excusable neglect standard. The court also noted that the other Pioneer actors also favored the debtor and the class was “forever barred” from asserting its $53 million claim.
Bankruptcy cases are designed to move quickly through the courts, and several deadlines are set forth on short time scales. Cases such as these remind us that a missed deadline in a bankruptcy case can result in extremely unfortunate outcomes. Parties who attempt to navigate the bankruptcy process without competent representation may leave themselves at risk of missing a required filing and having to face substantial losses of funds.
If you are a creditor in a bankruptcy matter, the attorneys at Nauman Smith would welcome the opportunity to explain your rights and obligations to ensure that you assert your rights in a timely manner.
 507 U.S.380, 392