Warner Angle Hallam Jackson Formanek, P.L.C v. Lock (In re LMM Sports Management, LLC., et al.)

Citation:
BAP No. AZ-15-1195-KuJaJu (BAP 9th Cir. Jun. 1, 2016) (unpublished)
Tag(s):
Ruling:
The BAP for the 9th Circuit affirmed the ruling of the bankruptcy court (D. Az.), finding that the bankruptcy court did not err in denying creditor's motion to allow late filed claim, or in rejecting creditor's claim of excusable neglect, or in refusing to fashion an equitable exception to Rule 3003(c)(2) claim filing requirement. Debtor was properly served with bar date notice. Creditor's incorrect statement in objection to settlement objection that court had not yet set bar date was insufficient to establish excusable neglect for missing bar date. The court found in favor of Warner Angle regarding two of the four Pioneer excusable factors. According to the court, Warner Angle had sufficiently established its good faith and also had established that the length of delay associated with its belated proof of claim was relatively minor - two months – and did not potentially impact the debtors’ bankruptcy cases (except to the extent noted in the court’s discussion of prejudice). On the other hand, with respect to the third Pioneer factor, which focuses on the reason for the delay, the bankruptcy court noted that Warner Angle had conceded that they had no good reason for the delay and that the delay had been preventable and within their control. Most importantly, as for the remaining Pioneer factor, whether Lock and Metz were in danger of suffering prejudice if the untimely proofs of claim were treated as timely. Creditor's inclusion of claim amount and general description of claim in settlement objection was also insufficient to satisfy the claim requirement. Court also rejected creditor's argument that debtor's scheduling of claim as disputed, contingent, or unmatured was in bad faith and spurious, and justified equitable allowance of late filed proof of claim. Denial of claim was without prejudice to creditor's setoff rights in potential malpractice suit by debtors.
Procedural context:
In two of three related chapter 11 bankruptcy cases, appellant filed proofs of claim two months after the claims bar date. The bankruptcy court denied creditor's excusable neglect motion seeking to have the proofs of claim treated as timely filed and disallowed the claims as untimely under § 502(b)(9). The bankruptcy court also denied creditor's motion for reconsideration. Creditor appealed to the BAP for the 9th Circuit.
Facts:
Debtors Lock and Metz are two of the three owners of debtor LMM Sports Management, LLC. The third owner is non-debtor Vance Malinovic. Together, Lock, Metz, and Malinovic are sports managers and agents for roughly 30 athletes employed by the National Football League. Through LMM Sports Management, and formerly through its predecessor, provided their sports management and agency services. Appellant Warner Angle, a law firm, provided legal services to one or more of the debtors in their state court litigation against third party Your Source Pacific Fund I, LLP. Warner Angle claims that it still is owed attorney’s fees and interest for the services it rendered. In the Maricopa County Superior Court, Your Source Pacific Fund I, LLP, obtained a $2.4 million judgment against the debtors and Malinovic. Enforcement of the state court judgment ultimately caused the three debtors to file their chapter 11 bankruptcy petitions. The judgment was the subject of state court cross-appeals until the parties reached a consensual resolution of their dispute, which was approved by the bankruptcy court, agreeing to pay Your Source Pacific Fund I an immediate lump sum settlement payment of $1.5 million in full satisfaction of its $2.4 million judgment, which had the potential to more than double if Your Source Pacific Fund I prevailed on appeal. The bankruptcy court approved the settlement over Warner Angle’s objection. Warner Angle argued in the objection that it held Angle asserts that, as of the Petition Date, its claim, with interest, is $1,301,055.86 (plus accruing interest). The Court has not set a claims bar date and Warner Angle has not yet filed a proof of claim.” Warner Angle’s statement regarding the bar date was incorrect. By order entered November 12, 2014, the bankruptcy court granted the debtors’ bar date motion and set a claims bar date in all three bankruptcy cases of December 16, 2014. The certificates of service accompanying the bar date motion and the entered bar date order indicate that Warner Angle was served at the address set forth in Warner Angle’s notice of appearance and request for special notice. On the same day Warner Angle filed its objection to debtors’ compromise motion, February 17, 2015, debtors filed a motion seeking to accelerate the hearing on the compromise motion. In the motion to accelerate, debtors pointed out that the claims bar date had expired on December 16, 2014, that Warner Angle had not filed any proofs of claim and, hence, that Warner Angle lacked standing to object to the compromise motion. One day later, apparently in response to the debtor’s assertions in the motion to accelerate, Warner Angle belatedly filed proofs of claim in the Lock and Metz bankruptcy cases. While the compromise motion was still pending, Lock and Metz filed an objection to Warner Angle’s proofs of claim and argued that the claims should be disallowed as untimely. In response, Warner Angle filed a cross-motion requesting that the bankruptcy court under 9006(b)(1) treat its proofs of claim as if they had been timely filed. According to Warner Angle, it was entitled to this relief because the late filing of its proofs of claim was the result of excusable neglect, under the standard articulated by the Supreme Court in Pioneer Inv. Servs. Co. v. Brunswick Assoc. Ltd. P'ship, 507 U.S. 380, 395 (1993). After further briefing, the bankruptcy court held a hearing at which the court rejected Warner Angle’s excusable neglect argument. The court found in favor of Warner Angle regarding two of the four Pioneer factors. According to the court, Warner Angle had sufficiently established its good faith and also had established that the length of delay associated with its belated proof of claim was relatively minor - two months – and did not potentially impact the debtors’ bankruptcy cases (except to the extent noted in the court’s discussion of prejudice). On the other hand, with respect to the third Pioneer factor, which focuses on the reason for the delay, the bankruptcy court noted that Warner Angle had conceded that they had no good reason for the delay and that the delay had been preventable and within their control. Most importantly, as for the remaining Pioneer factor, whether Lock and Metz were in danger of suffering prejudice if the untimely proofs of claim were treated as timely, the bankruptcy found that there was a risk of prejudice. The bankruptcy court explained that Lock and Metz had presented evidence indicating that, based on the absence of proofs of claim from Warner Angle, they finalized close to three months of settlement negotiations with Your Source Pacific Fund I and submitted the resulting settlement agreement to the bankruptcy court for approval. The court acknowledged that Warner Angle’s objection to the settlement motion put the debtors on notice, before the settlement agreement was approved, that Warner Angle did not intend to abandon its claim and instead sought to file belated proofs of claim against Lock and Metz and to have those claims treated as timely. Even so, the court explained, Lock and Metz had presented evidence indicating that they proceeded down a particular path towards settlement they would not have proceeded down if they had been confronted with timely filed proofs of claim from Warner Angle and that it would not have been reasonable under the circumstances to have expected Lock and Metz to unwind or attempt to modify the settlement at the time of Warner Angle’s settlement objection based on Warner Angle’s belated proofs of claim.
Judge(s):
Kurtz, Jaime, Jury

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