U.S. Bank National Association v. SMF Energy Corp. (In re Interstate Bakeries Corp.)

460 B.R. 222 (8th Cir.BAP 2011)
The 8th Circuit BAP AFFIRMED the Bankruptcy Court. The Panel held that the bankruptcy court did not abuse its discretion by extending the time for service of process of a complaint seeking preferences. The Court found that, pursuant to the Procedure Order, the statute of limitations under Fed. R. Civ. P. 4 was tolled. Even if it hadn't been tolled, the Debtor had shown "excusable neglect" to enlarge the service period under Fed. R. Civ. P. 4 or "cause" under Fed.R. Bankr. P. 9006 for several reasons. First, SMF was not prejudiced by the delay, because, had the Debtor decided to forgo pursuit of the preference action in its reorganization plan, SMF would have been benefitted. In addition, the delay would have been immaterial if SMF, who received notice of the filing of the complaint, had diligently protected its rights. Further, the delay was justified because it preserved the preference claims for all creditors of the estate, and the debtor acted in good faith because it sought to defer the decision to file the preference action unless necessary for an effective reorganization. The Court also held that the denial of summary judgment was not reviewable because a trial on the merits had taken place, and that the debtor had filed the complaint within the statute of limitations prescribed by Section 546 of the Bankruptcy Code. The Court also held that the Bankruptcy Court properly bifurcated the Debtor's omnibus complaint, which named several defendants, into several complaints with fewer defendants. The bifurcated complaint related back to the omnibus complaint within the meaning of Fed. R. Civ. P. 15 because the preference payment amount against SMF was the same in both complaints.
Procedural context:
On review from a judgment in favor of the debtor.
The appellant, SMF Energy Corporation ("SMF") provided vehicle fuel for an affiliate of Interstate Bakeries Corporation (the "Debtor") prior to Debtor's Chapter 11 filing on September 22, 2004. After commencing a chapter 11 case in Bankruptcy Court for the Western District of Missouri (the "Bankruptcy Court"), the Debtor moved to enlarge the time to file an omnibus preference action. The Debtor sought to defer the decision about whether to commence the action until it had confirmed its reorganization plan. The Bankruptcy Court granted the motion and issued an order (the "Procedure Order") enlarging the time for service of process under Fed. R. Civ. P. 4, applicable to the banruptcy proceedign under Fed. R. Bankr. P. 7004, to 90 days after teh effective date of a confirmed plan. The Debtor timely filed the omnibus preference complaint, and served a copy upon SMF. The Debtor's reorganization plan was confirmed. Subsquently, for administrative prupose, the Baknruptcy Court ordered that the omnibus complaint, which named several defendants, be "bifurcated" into several complaints with fewer defendants. The Debtor prevailed on a summary judgmetn motion raised in relevant part on statute of limitatios grounds and ultimately secured a judgment against SMF. SMF appealed, arguing that (1) the Bankruptcy Court improperly extended the time for service under the Procedure Order, and (2) the Bankruptcy Court erred in denying SMF's summary judgmet motion.
Kressel, Chief Judge; Saladino and Nail, Bankruptcy Judges

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