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What Standards Govern Motions to Reconsider Orders Allowing or Disallowing Claims

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nder Federal Rule of Bankruptcy Procedure 3008 and under §502(j) of the Bankruptcy Code, it is clear that once a claim has been allowed or disallowed by the bankruptcy court, a party in interest may file a motion to reconsider for "cause." These provisions fail to provide any guidance, however, as to what constitutes "cause." This article addresses the standards that have been applied by the various courts to determine whether cause exists to reconsider orders allowing or disallowing claims.

A Review of the Relevant Provisions

11 U.S.C. §502(j) provides in relevant part as follows:

A claim that has been allowed or disallowed may be reconsidered for cause. A reconsidered claim may be allowed or disallowed according to the equities of the case...

Federal Rule of Bankruptcy Procedure 3008 provides that reconsideration of an allowed or disallowed claim shall be by motion of a party in interest and that the court after hearing on notice shall enter an appropriate order.

These provisions are silent as to what exactly constitutes "cause." Because of Congress’ silence on the matter, the courts have developed their own standards. These standards derive from Federal Rules of Bankruptcy Procedure 9023 and 9024, which incorporate Federal Rules of Civil Procedure 59 (Regarding Motions for New Trials or Amendment of Judgments) and 60 (Regarding Motions for Relief from Judgment or Orders).

Motions Governed by Rule 9023

The courts generally hold that if a motion to reconsider is filed within 10 days of the date the order allowing or disallowing the claim was entered, then the motion will be governed by Federal Rule of Bankruptcy Procedure 9023. See Ashford v. Consolidated Pioneer Mortgage (In re Consolidated Pioneer Mortgage),.178 B.R. 222, 227 (9th Cir. BAP 1995); Abraham v. Aguilar (In re Aguilar), .61 F.2d. 873, 874 (5th Cir. 1988); U.S. v. Colvin, .03 B.R. 930, 935 (N.D. Tex. 1996); Tandy Credit Corp. v. Martinez (In re Martinez),.179 B.R. 90 (Bankr. N.D. Ill. 1994).

Federal Rule of Bankruptcy Procedure 9023 incorporates Rule 59 of the Federal Rules of Civil Procedure, which provides in relevant part as follows:

(a) Grounds. A new trial may be granted to all or any of the parties and on all or part of the issues...(2) in an action tried without a jury, for any of the reasons for which rehearings have heretofore been granted in suits in equity in the courts of the United States.

(e) Motion to Alter or Amend Judgment. Any motion to alter or amend a judgment shall be filed no later than 10 days after entry of the judgment.

Fed. R. Civ. P. 59(a) and (e).

In Martinez,.the court held that the function of a Rule 59(e) motion is to allow a court "an opportunity to correct manifest errors of law or fact, or consider the import of newly discovered evidence... It is not to allow the moving party another ‘bite of the apple’ by permitting that party to argue issues more properly raised prior to final judgment." In re Martinez, .79 B.R. at 95. (Citations omitted).

At least two cases, however, have found that Rule 9023 standards should be applied to a 3008 motion to reconsider even if the motion was filed more than 10 days after the order allowing or disallowing the claim was entered. See In re Farley Inc.,.211 B.R. 889, 893 (Bankr. N.D. Ill. 1997), and In re Motor Freight Exp.,.91 B.R. 705, 710 (Bankr. E.D. Pa. 1988). These cases held that the language in Bankruptcy Rule 9023 that Fed. R. Civ. P. 59 applies in adversary proceedings except as provided in Bankruptcy Rule 3008 means that the 10-day filing period of Rule 59 is eliminated. "Rule 9023 does not state that Rule 59 does not apply to such motions, only that the rule ‘applies in cases under the Code, except as provided, in Rule 3008.’" In re Farley,.211 B.R. at 893 n.3. (Citation omitted). Finding that Bankruptcy Rule 3008 does not conflict with Bankruptcy Rule 9023, the Farley.court noted that the standards for reconsideration under Bankruptcy Rule 9023 can be used to show cause under 11 U.S.C. §502(j) and Bankruptcy Rule 3008. Id.

Motions Governed by Bankruptcy Rule 9024

Many courts have looked to Bankruptcy Rule 9024, which incorporates Federal Rule of Civil Procedure 60, to determine if cause exists to reconsider a claim under Bankruptcy Rule 3008 and 11 U.S.C. §502(j). See U.S. v. Levoy (In re Levoy),.182 B.R. 827 (9th Cir. BAP 1995); S.G. Wilson Co. Inc. v. Cleanmaster Industries Inc. (In re Cleanmaster Industries Inc.), .06 ..R. 628, 630 (9th Cir. BAP 1989); In re Colley,.814 F.2d.1008, 1010, reh.I>’.I>g denied, .18 F.2d. 443 (5th Cir.), cert. denied,.484 U.S. 898, 108 S.Ct. 234, 98 L.Ed. 2d. 193(1987); and In re W.F. Hurley Inc.,.612 F. 2d. 392, 396 n.4 (8th Cir. 1980).

Pursuant to Federal Rule of Civil Procedure 60(b), relief from a judgment or order may be granted for any of the following reasons:

(1) mistake, inadvertence, surprise or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment.

Fed. R. Civ. P. 60(b).

The excusable neglect standard in 60(b)(1) is generally determined by examination of the following factors:

(1) danger of prejudice to the debtor; (2) the length of delay and its potential impact on judicial pro-ceedings; (3) the reason for the delay, including whether it was within the reasonable control of the movant; (4) whether the movant acted in good faith; (5) whether the clients should be penalized for the mistakes of their counsel and (6) whether the claimant has a meritorious claim.

See Pioneer, Inv. Servs. Co. v. Brunswick Assocs. Ltd. Partnership, .07 U.S. 380, 395, 113 S.Ct. 1489, 1498, 123 L. Ed. 2d 74 (1993) and In re Resources Reclamation Corp. of America, .4 B.R. 771, 773-774 (9th Cir. BAP 1983).

In one case, a bankruptcy court has held that even if a Rule 3008 motion to reconsider is filed within 10 days of the order allowing or disallowing the claim, Bankruptcy Rule 9023 and Federal Rule of Civil Procedure 59 cannot.apply. See In re Excello Press Inc.,.83 B.R. 539 (Bankr. N.D. Ill. 1988). The bankruptcy court looked to the language of Bankruptcy Rule 9023, which provides that "Rule 59 Fed. R. Civ. P. applies in cases under the Code, except as provided in Rule 3008" and interpreted this language to mean that Fed. R. Civ. P. 59 does not apply to motions brought under Bankruptcy Rule 3008. Id..at 541.

It should be noted that this seems to be the only case interpreting the language of Bankruptcy Rule 9023 this way. As discussed above, cases such as In re Farley.and In re Motor Freight .ave interpreted this language to mean that the 10-day filing period of Federal Rule of Civil Procedure 59 is eliminated. The Farley.court reasoned that if the provision were read the way the Excello Press.court interpreted it, then parties would be unable to allege errors of law as grounds for cause to reconsider. On that basis, the Farley.court chose not to follow Excello Press. In re Farley,.211 B.R. at 893 n.3.

Cause Under §502(j)

In the case of In re Cassell, .06 B.R. 853, 856 (Bankr. W.D. Va. 1997), .ne of the latest cases to grapple with the determination of "cause" in a motion to reconsider brought under 11 U.S.C. §502(j) and Bankruptcy Rule 3008, the bankruptcy court, on remand from the district court, held that the "‘cause’ standard of §502(j) is not identical to the more stringent ‘excusable neglect’ standard of Fed. R. Civ. P. 60(b)." Id. .Citing Thompson v. E.I. DuPont De Nemours & Co., 76 F.3d. 530, 532-34 (4th Cir. 1996)). Despite this holding, the bankruptcy court, following the district court’s instructions set forth in Cassell v. Shawsville Farm Supply Inc.,.208 B.R. 380 (W.D. Va. 1996), held that the factors considered in an excusable neglect analysis are likely applicable to a cause analysis. In re Cassell,.206 B.R. at 856. It noted that the examination of whether a distribution had occurred was also important and that the factors of possible prejudice to the debtor, the explanation for delay in contesting the objection to the claim and the possible prejudice to the movant absent reconsideration were especially relevant to an analysis under §502(j). Id.

Conclusion

In general, it seems that the majority of courts will apply the standards of Bankruptcy Rule 9023 and Fed. R. Civ. P. 59 if the motion has been filed within 10 days of the order allowing or disallowing a claim and will apply the standards of Bankruptcy Rule 9024 and Fed. R. Civ. P. 60 if more than 10 days have elapsed since the order. Although the Cassell .ecision stated that there was a difference between "cause" and "excusable neglect," it failed to specify just what those differences were. Only one decision, In re Leroux,.216 B.R. 459 (Bankr. D. Mass. 1997), has discussed all of the standards applied by the various courts. Failing to take a position with regard to which of the standards applied, the bankruptcy court in Leroux.chose to start its analysis with the strictest standard, Fed. R. Civ. P. 60(b). Finding that the motion to reconsider would be warranted even under that standard, the bankruptcy court ended its analysis without discussing the other standards. Id. .t is unclear what the Leroux.court would have done if the motion to reconsider had not been warranted under 60(b).

Journal Date: 
Monday, June 1, 1998

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