Webster Capital Finance, Inc. v. Ottawa Bus Service, Inc.

Filing 19

MEMORANDUM AND ORDER. The bankruptcy court's Order, dated July 3, 2012, Confirming Chapter 11 Plan and Denying the Objection of Webster Capital Finance, Inc. to Debtor's Plan as Untimely is AFFIRMED. Signed by District Judge Eric F. Melgren on 8/16/2013. (alm)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS

IN RE:
OTTAWA BUS SERVICE, INC.,
Debtor.

WEBSTER CAPITAL FINANCE, INC.
F/K/A CENTER CAPITAL
CORPORATION,

Case No. 12-CV-2453-EFM

Appellant,
vs.
OTTAWA BUS SERVICE, INC.,
Appellee.

MEMORANDUM AND ORDER
In this bankruptcy appeal, appellant Webster Capital Finance, Inc. f/k/a Center Capital
Corporation (“Webster Capital”) seeks review of various orders issued by the United States
Bankruptcy Court for the District of Kansas. Webster Capital challenges the bankruptcy court’s
order denying its untimely objection to confirmation, confirming the debtor’s Chapter 11 Small
Business Plan, and treating Ottawa Bus Service, Inc., as a small business debtor. For the reasons
set forth below, the bankruptcy court’s order is affirmed.

I.

Factual and Procedural Background

A. Ottawa Bus’s Bankruptcy Filing and Chapter 11 Small Business Plan
Webster Capital is a Connecticut corporation that provides financing to various business
ventures. Defendants Daniel Newby and Thomacine Newby are residents of Kansas City,
Missouri, who operate Ottawa Bus Service, Inc. (“Ottawa Bus”), a Kansas corporation. On
February 19, 2002, Webster Capital and Ottawa Bus entered into Master Loan and Security
Agreement No. 31505 (the “Master Loan Agreement”), which provided the terms under which
Webster Capital would extend credit and financing to Ottawa Bus. Pursuant to the Master Loan
Agreement, Webster Capital and Ottawa Bus entered into at least six loan schedules, under
which Webster Capital financed and obtained a purchase money security interest in several
pieces of collateral. Ottawa Bus failed to pay monthly installments for July, August, and
September 2010. Accordingly, on September 2, 2010, Webster Capital sent Ottawa Bus a Notice
of Default, which accelerated the balance due under the various loan schedules.
On November 22, 2010, Ottawa Bus filed a voluntary petition for bankruptcy protection
under Chapter 11. The voluntary petition did not identify Ottawa Bus as a small business debtor.
Schedule D of the petition listed Webster Capital as a secured creditor that was owed
$508,025.38 as of the petition date. On May 19, 2011, Webster Capital filed its secured proof of
claim in the amount of $482,257.23.

Several days later, the bankruptcy court entered a

stipulation and agreed order regarding adequate protection payments from Ottawa Bus to
Webster Capital.
On November 15, 2011, Ottawa Bus filed its Chapter 11 Small Business Plan (the
“Plan”), which listed Webster Capital as a secured creditor. The Plan provided that “[t]he rights
and obligations of any entity named or referred to in this Plan will be binding upon . . . such

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entity.”1 On January 3, 2012, the bankruptcy court set a confirmation hearing for February 22,
2012, and sent notice of the hearing to all parties involved, including counsel for Webster
Capital. Webster Capital did not file an objection prior to that date, it did not return a voting
ballot rejecting the Plan, and its attorneys did not appear at the hearing to protect Webster
Capital’s interests.

Accordingly, at the confirmation hearing on February 22, 2012, the

bankruptcy court conditionally confirmed the Plan, subject to the resolution of two timely-filed
objections by other secured creditors. Ottawa Bus resolved both timely-filed objections in early
March 2012.
B. Webster Capital’s Untimely Objection to Confirmation
On April 5, 2012, more than six weeks after the bankruptcy court conditionally
confirmed the Plan, Webster Capital filed an objection to confirmation. Ottawa Bus submitted a
response and moved to strike the objection as untimely. Webster Capital then filed a motion for
leave to file an objection out of time, asserting that its delay constituted excusable neglect under
Fed. R. Bankr. P. 9006. In support of its motion for leave, Webster Capital alleged that it had
numerous email discussions and telephone conferences with Ottawa Bus’s attorneys regarding
the Plan, such that Webster Capital believed it could negotiate a resolution in good faith.2 The
bankruptcy court scheduled a hearing for these motions to take place on May 8, 2012, but
Webster Capital sought and obtained a continuance. Finally, on June 20, 2012, the bankruptcy
court heard oral argument and declined to consider Webster Capital’s untimely objection,
reasoning as follows:

1

Chapter 11 Small Business Plan, Doc. 5-2, at 37.

2

While Webster Capital refers to e-mail correspondence, the record on appeal reveals that Webster Capital
did not attach specific communications as exhibits to its motion for leave to file its objection out of time.

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The Court has already conditionally, some months ago, confirmed this plan
subject to the changes that have been agreed upon with the timely objecting
creditors and the ones who appeared at the hearing. And so the Court is going to
grant the motion to strike and will not consider, obviously, the untimely filed
objections to confirmation. I just think that not timely filing an objection to
confirmation and/or not appearing at a hearing that is set for confirmation or
approval of the disclosure statement, a creditor does so at its own peril.
And based on these facts, the Court and its discretion, and based on the practice of
law, just doesn’t feel that that standard is reached, whether it is Pioneer, which
dealt with an order entered in a Chapter 11 case or under any other standard,
whether it is under Rule 60(b) or any other standard that expresses excusable
neglect. Because generally excusable neglect is not – it is not enough that counsel
made a mistake, I mean, the case law generally supports that procedural aspect.
....
And that is why the Court – another reason the Court would not allow an untimely
objection to confirmation to the plan to allow one creditor with an untimely
objection throw a wrench into the works of a plan that has taken months to
solidify in which creditors, other secured lenders have made compromises and
have reached this point, probably in a critical mass, in which this debtor needs to
just move down the road and do what it does best and conduct its business, and
part of that business is paying its debts as secured creditors. So that falls into the
balance as well.3
On July 3, 2012, the bankruptcy court entered its order confirming the Plan and denying
Webster Capital’s objection as untimely.4 On July 17, 2012, Webster Capital filed its Notice of
Appeal challenging the bankruptcy court’s order denying its objection to confirmation and
arguing that the court erred in failing to find excusable neglect.
II.

Standards Governing Bankruptcy Appeals

In reviewing a bankruptcy court’s decision, this Court functions as an appellate court and
is authorized to affirm, reverse, modify, or remand the bankruptcy court’s ruling.5 Generally,
“[l]egal decisions of the bankruptcy court are reviewed de novo and factual findings are

3

4

Order Confirming Plan, Doc. 5-12, at 9.

5

Hearing Transcript from June 20, 2012, Doc. 9-3, at 23-27.

28 U.S.C. § 158(a); Fed. R. Bankr. P. 8013.

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reviewed for clear error.”6 However, a bankruptcy court’s decision to permit or refuse untimely
motions for excusable neglect is reviewed only for abuse of discretion.7 This Court will not
disturb the bankruptcy court’s decision unless it has “made a clear error of judgment or exceeded
the bounds of permissible choice in the circumstances.”8 An abuse of discretion occurs when the
bankruptcy court’s decision was “arbitrary, capricious or whimsical, or results in a manifestly
unreasonable judgment.”9
III.

Analysis

A. The Bankruptcy Court Did Not Abuse Its Discretion in Denying Webster Capital’s
Untimely Objection
Webster Capital argues that the bankruptcy court abused its discretion when it struck
Webster Capital’s untimely objection and denied its motion for leave to file an objection to
confirmation out of time. As a preliminary matter, Ottawa Bus argues that the Court should
decline to consider various documents Webster Capital included in the record on appeal. In
support of its argument that the parties were engaged in settlement negotiations, Webster Capital
provided this Court with over eighty pages of e-mail correspondence and telephone records that
were not presented to the bankruptcy court. The record on appeal, however, should consist only
of items that were before the bankruptcy court at the time of its decision.10 Accordingly, the

6

Jenkins v. IBD, Inc., 489 B.R. 587, 593 (D. Kan. 2013).

7

Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 398 (1993); see In re Enron
Corp., 419 F.3d 115, 124 (2d Cir. 2005) (holding that a bankruptcy court’s finding regarding excusable neglect is
reviewed for abuse of discretion and is not subject to de novo review).
8

Reeves v. Reeves, 502 F. App’x 776, 778 (10th Cir. 2012) (citation omitted).

9

Id.

10

See Fed. R. App. P. 10(e); Opetubo v. Citibank Student Loan Corp., 74 F. App’x 145, 146 (2d Cir. 2003);
In re Peter J. Gould, 2008 WL 2945606, at *2 (D. Conn. July 28, 2008).

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Court will restrict its review to the evidence that was before the bankruptcy court when it
decided to strike Webster Capital’s objection to confirmation on June 20, 2012.
Federal Rule of Bankruptcy Procedure 9006(b) grants bankruptcy courts discretion to
enlarge a deadline “where the failure to act was the result of excusable neglect.”11 “[B]y
empowering the courts to accept late filings where the failure to act was the result of excusable
neglect . . . Congress plainly contemplated that the courts would be permitted, where appropriate,
to accept late filings caused by inadvertence, mistake, or carelessness, as well as by intervening
circumstances beyond the party’s control.”12
In Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship,13 the Supreme Court
articulated four factors that a court must consider in determining whether a party’s neglect is
excusable: (1) the danger of prejudice to the debtor; (2) the length of the delay and its potential
impact on judicial proceedings; (3) the reason for the delay, including whether it was within the
reasonable control of the movant; and (4) whether the movant acted in good faith.

The

determination of whether a party’s neglect of a deadline was excusable is “at bottom an equitable
one, taking account of all relevant circumstances surrounding the party’s omission.”14 Ottawa
Bus does not present any evidence that Webster Capital filed its untimely objection in bad faith,
and the record does not support such an assertion. Accordingly, the Court will analyze the
remaining three Pioneer factors.

11

Fed. R. Bankr. P. 9006(b)(1). This rule of bankruptcy procedure closely tracks the language of Fed. R.
Civ. P. 6(b)(1)(B), which provides, “[w]hen an act may or must be done within a specified time, the court may, for
good cause, extend the time . . . on motion made after the time has expired if the party failed to act because of
excusable neglect.”
12

13

Id.

14

Pioneer, 507 U.S. at 388.

Id.

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1. Danger of Prejudice to Ottawa Bus
Under the first Pioneer factor, courts must weigh the danger that an untimely objection
would result in prejudice to the debtor.15 Webster Capital argues that Ottawa Bus would not be
prejudiced by the untimely objection because it was aware of Webster Capital’s concerns
through negotiations that occurred before and after confirmation. After considering the record
and the status of Ottawa Bus as a debtor, however, the bankruptcy court expressly found that “if
the Court were to allow an untimely objection at this late date in June to proceed, then it throws a
wrench into everything and curtails and potentially destroys the ability of this debtor to
effectually reorganize.”16 For this very reason, the bankruptcy court ruled that it would not
“allow one creditor with an untimely objection [to] throw a wrench into the works of a plan that
has taken months to solidify . . . .”17
The Court is not persuaded that the bankruptcy judge abused his discretion in reaching
this conclusion. The bankruptcy court unambiguously found that allowing Webster Capital’s
untimely objection would jeopardize Ottawa Bus’s ability to reorganize. Particularly relevant to
this decision, the bankruptcy court noted that Ottawa Bus and numerous creditors negotiated for
months and resolved timely-filed objections to arrive at the Plan’s terms, which could become
unworkable if Webster Capital’s objection was sustained. Accordingly, the Court finds that the
bankruptcy court did not abuse its discretion in finding that Ottawa Bus would suffer unfair
prejudice if Webster Capital were allowed to proceed with its untimely objection.

15

16

Hearing Transcript from June 20, 2012, Doc. 9-3, at 26.

17

Id.

Id. at 23-27.

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2. Length and Impact of Delay
The second Pioneer factor requires courts to consider the length and impact of delay
associated with an untimely filing.18 The bankruptcy court conditionally confirmed the Plan on
February 22, 2012. At this time, only two creditors filed timely objections, which were quickly
resolved. Webster Capital was not considered among those objecting creditors solely because its
counsel elected not to appear at the confirmation hearing. The bankruptcy court explained the
significance of this absence as follows:
And after the hearing we had a discussion in the conference room with regard to
how the objections to confirmation could be resolved with the creditors who did
bother to appear at the hearing and who did timely file objections to confirmation
of the plan. And if Webster would have been here, then Webster would have
certainly been a party to the negotiations after the confirmation hearing with
regard to treatment [of] its and other creditor’s claims. So it is important that
Webster wasn’t here for the noticed confirmation hearing. I think that if counsel
doesn’t appear they really do so at their own peril.19
Webster Capital filed its objection six weeks after the Plan was conditionally confirmed.
Because Webster Capital itself sought and obtained a continuance, the bankruptcy court did not
hold a hearing on the objection until June 20, 2012, nearly four months after the Plan’s
conditional confirmation.
As noted above, the bankruptcy court not only considered the length of delay, but also
found that such delay would negatively impact the positions of Ottawa Bus and other creditors.
The court concluded that Webster Capital’s untimely objection would not only jeopardize
Ottawa Bus’s ability to effectively reorganize, but would also substantially impair the rights of
creditors that filed timely objections and diligently appeared for the confirmation hearing. The
bankruptcy court also noted that Webster Capital would retain its secured position and would

18

19

Pioneer, 507 U.S. at 388.
Hearing Transcript, Doc. 9-3, at 24.

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receive full payment of its claim regardless of whether it permitted the untimely objection.
Given the bankruptcy court’s thorough consideration and ruling that altering the Plan may harm
Ottawa Bus and the remaining creditors, the Court cannot find that the bankruptcy court abused
its discretion in denying the untimely objection due to the length and impact of Webster
Capital’s delay.
3.

Reason and Responsibility for Delay

The third Pioneer factor requires courts to consider the reason for the delay, including
whether it was within the reasonable control of the movant.20 It is uncontroverted that Webster
Capital received notice of the objection deadline but failed to file an objection until six weeks
after the deadline had passed. However, Webster Capital argues that it elected not to file an
objection because its attorneys and counsel for Ottawa Bus were engaged in ongoing
negotiations concerning the Plan in the months before and after confirmation. Ottawa Bus
denies that the parties’ communications constituted negotiations regarding Webster Capital’s
treatment under the Plan and denies that the parties formed any agreement that Webster Capital
preserved a right to object after confirmation.
Courts in several jurisdictions have analyzed the extent to which settlement negotiations
may give rise to excusable neglect.21 Webster Capital primarily relies upon Friedman & Feiger,
LLP v. ULofts Lubbock, LLC,22 in support of its argument that settlement negotiations justified
its untimely objection. Friedman involved a civil dispute between two parties, in which the
plaintiff filed an answer to the defendant’s counterclaim twelve days late.23 The plaintiff filed a

20

Pioneer, 507 U.S. at 388.

21

See, e.g., In re Langston, 319 B.R. 667, 670-71 (D. Utah 2005); Friedman & Feiger, L.L.P. v. ULofts
Lubbock, LLC, 2009 WL 3378401, at *2 (N.D. Tex. Oct. 19, 2009).
22

2009 WL 3378401 (N.D. Tex. Oct. 19, 2009).

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motion to respond out of time, alleging excusable neglect on the basis of ongoing settlement
negotiations.24 The court in Friedman recognized that no rule affirmatively prohibited courts
from considering settlement negotiations, and it ultimately found excusable neglect on that
basis.25
Unlike Friedman, however, this bankruptcy proceeding affects Ottawa Bus, Webster
Capital, and numerous creditors that rely upon negotiated terms of the confirmed Plan. When
evaluating excusable neglect in the bankruptcy context, “it is important for the court to determine
whether granting an extension would unduly delay the administration of the bankruptcy case,
given the unique context of bankruptcy proceedings.”26 Because bankruptcy proceedings involve
negotiation and collaboration among numerous parties, some bankruptcy courts have exercised
discretion to deny untimely filings despite the existence of settlement negotiations when the
objecting party received notice but failed to file an objection or to appear at a critical hearing.27
Ongoing discussions between a debtor and a creditor do “not excuse [the creditor] from
complying with the [local bankruptcy rules] by filing a timely response, attending the hearing, or
seeking a continuance.”28 While this district has not had occasion to address this issue in the
bankruptcy context, this Court has noted that settlement negotiations do not abrogate a party’s
responsibility to diligently observe procedural rules.29

23

Id. at *1.

24

Id.

25

Id.

26

Nugent v. Betacom of Phoenix, Inc., 250 B.R. 376, 381 n. 6 (9th Cir.2000) (internal quotations omitted).

27

In re Contessa Liquidating Co., Inc., 2012 WL 2153271, at *2 (Bankr. C.D. Cal. June 13, 2012); see In
re Langston, 319 B.R. 667, 670-71 (D. Utah 2005).
28

In re Contessa Liquidating Co., 2012 WL 2153271 at *2.

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Given the unique nature of bankruptcy proceedings, especially those concerning plan
confirmation, the Court cannot conclude that the bankruptcy court’s refusal to find excusable
neglect despite the existence of communications was “arbitrary, capricious or whimsical.”30
Webster Capital is not an unsophisticated litigant, and it was represented by counsel at all times
relevant to confirmation of the Plan. Because counsel for Webster Capital received notice but
affirmatively elected not to file an objection or to attend the confirmation hearing, the Court
agrees with the bankruptcy court that Webster Capital bore significant responsibility for the
delay. Because Webster Capital’s delay was within its control and because an untimely filing
would prejudice Ottawa Bus and negatively impact other creditors, the Court must affirm the
bankruptcy court’s order denying Webster Capital’s objection.
B. Webster Capital’s Objections to Confirmation Are Barred as Untimely
Because the Court affirms the bankruptcy court’s finding that Webster Capital’s untimely
objection did not result from excusable neglect, the Court does not reach the substance of
Webster Capital’s untimely and unpreserved objection.
C. Webster Capital’s Objections to Ottawa Bus’s Treatment as a “Small Business Debtor”
are Untimely
Finally, Webster Capital argues that the bankruptcy court erred in treating Ottawa Bus as
a “small business debtor,” as defined under 11 U.S.C. § 101(51D). In its untimely objection to
confirmation, Webster Capital recognized that Ottawa Bus continued to operate its business and
manage its property as a small business debtor-in-possession.

Webster Capital’s objection

29

Id. at *1-2 (rejecting an argument that settlement negotiations gave rise to excusable neglect under Fed.
R. Civ. P. 60(b) for failure to answer a third-party complaint).
30

Id.

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contained a footnote, however, which alleged that “[a] question exits [sic] whether the Debtor
qualifies as a ‘small business debtor’ under section 101(51D) of the Bankruptcy Code . . . .”31
For the first time on appeal, Webster Capital argues that the bankruptcy court erred in
treating Ottawa Bus as a small business debtor. The Federal Rules of Bankruptcy Procedure
provide that “[i]n a voluntary chapter 11 case, the debtor shall state in the petition whether the
debtor is a small business debtor.”32 In this case, Ottawa Bus’s voluntary petition indicated that
“Debtor is not a small business debtor as defined in 11 U.S.C. § 101(51D).”33 However, the
record on appeal does not reflect that Webster Capital, the trustee, or any other creditors objected
to Ottawa Bus’s treatment at any time. For the reasons stated above, the Court finds that any
such objection by Webster Capital is barred as untimely.
Further, Webster Capital has failed to show that it suffered prejudice as a result of Ottawa
Bus’s treatment. Although Ottawa Bus failed to mark the box on its voluntary petition for small
business debtors, Ottawa Bus’s counsel represented to the Court that it was determined to be a
small business debtor at a meeting of the creditors on January 4, 2011, just over one month after
Ottawa Bus filed its voluntary petition. On November 15, 2011, Ottawa Bus filed its Chapter 11
Small Business Plan (the “Plan”), along with its Chapter 11 Small Business Disclosure
Statement. Because Webster Capital failed to file a timely objection and failed to show any
resulting prejudice, its objection is barred.

31

32

Fed. R. Bankr. P. 1020(a).

33

Objection to Confirmation, Doc. 5-10, at 35.

Voluntary Petition, Doc. 5-1, at 24 (emphasis added).

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IT IS ACCORDINGLY ORDERED that the bankruptcy court’s Order dated July 3,
2012 Confirming Chapter 11 Plan and Denying the Objection of Webster Capital Finance, Inc. to
Debtor’s Plan as Untimely is AFFIRMED.
IT IS SO ORDERED.
Dated this 16th day of August, 2013.

ERIC F. MELGREN
UNITED STATES DISTRICT JUDGE

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