The opinion of the court was delivered by: JOHN GRADY, Senior District Judge
This case is before us on appeal from the bankruptcy court's order of
May 16, 2003, which denied the motion of Expeditors International of
Washington, Inc. ("Expeditors") to amend its proof of claim. For the
reasons explained below, the bankruptcy court's order is vacated and the
case is remanded,
Expeditors transported goods and provided consolidation and other
logistics services for Kmart Corporation ("Kmart"). When Kmart filed a
voluntary petition for reorganization pursuant to Chapter 11 of the
United States Bankruptcy Code, it owed Expeditors approximately $700,000.
The bankruptcy court established July 31, 2002 as the bar date for
Kmart's creditors to file proofs of claim. According to Expeditors, it
believed at that time that it held an unsecured claim, and its counsel therefore filed an unsecured proof of claim on
July 25, 2002. In January 2003, different counsel for Expeditors analyzed
the claim, for reasons that are unimportant here, and concluded that
Expeditors in fact had a secured claim. Expeditors asserts that
thereafter, it "promptly marshaled evidence to support its status as a
secured creditor," Appellant's Brief at 9, and then filed a motion to
amend its proof of claim to change its status from unsecured to secured.
As an unsecured creditor, Expeditors would recover only $70,000 in
stock, as opposed to $700,000 in cash as a secured creditor.
Expeditors did not file its motion, however, until April 11, 2003. By
this time, Kmart had filed (in February 2003) its plan of reorganization
and its disclosure statement, which set out. the total amounts of
unsecured and secured claims. April 14, 2003 had been set as the date for
the hearing on the confirmation of the plan of reorganization, and the
hearing began on that date. The plan was confirmed on April 23, 2003.
Because Expeditors had noticed its motion for April 30, 2003, its motion
was not heard until after the plan had been confirmed. Kmart objected to
On May 12, 2003, the bankruptcy court heard oral arguments on the
motion, and stated as follows at the conclusion of the hearing:
Well, I'm going to deny the motion for leave to
amend the timely filed Proof of Claim as to Expeditors
International of Washington. I'm going to rely on the
Unroe case, wherein the Court looks to the prejudice
to the estate in allowing late claims, the debtors'
notice of the pending claim and the creditors'
Even though it could be arguable that a $600,000
amount would not be tremendously significant in
the amount of claims that are going to be paid out
of this estate, and that figure comes from the
$700,000 claim, which if paid at 100 percent,
would have that amount corning out of the estate,
as opposed to the estimated recovery of about 9.7
percent if it is paid as an unsecured claim.
I cannot help but be persuaded by the fact that this
motion was filed eight months after filing the
original unsecured claim that was filed by
Expeditors, and and it was filed the motion was
filed on April 11th, 2003, which was 45 days after
approval of the Disclosure Statement, and because the
documents were exclusively in the control of
Expeditors, they could have, in fact, made a timely
filing to amend this claim.
So for the reasons cited on the record, the
claim is denied.
(App. to Appellant's Brief, Ex. H, at 181-82.) On May 16, 2003, the
bankruptcy court entered a written order denying the motion.
Expeditors now appeals the order,
"The disposition of a motion to amend a proof of claim falls within the
sound discretion of the bankruptcy court." In re Stavriotis, 977 F.2d 1202,
1204 (7th Cir. 1992). On appeal, we review that decision for an abuse of
discretion. See id. We review the bankruptcy court's factual findings for
clear error and its conclusions of law de novo. See In re Smith,
286 F.3d 461
, 464-65 (7th Cir. 2002); F.R.Bankr.P. 8013.
We begin with the applicable general principles. "[J]ustice does not
require amendment, and indeed rarely permits amendment, once the last date for filing claims has passed. `Late-filed claims,
especially in the bankruptcy context, disrupt orderly discharge and
should generally be barred.'" In re Plunkett, 82 F.3d 738, 741 (7th Cir.
1996) (quoting In re Unroe, 937 F.2d 346, 351 (7th Cir. 1991)).
The parties disagree on what to call the analysis of whether to allow
such an amendment the Unroe test or the "excusable neglect" test. The
label does not matter, though, because the analysis is ultimately the
same. Moreover, it is not really a bright-line test, but an equitable
determination involving several factors: notice to the debtor; prejudice
to the debtor and other creditors; the length of the delay*fn1 and its
potential impact on judicial proceedings, including the cost of
administering the estate; the reason for the delay; and the good faith of
the movant. See Unroe, 937 F.2d at 349-51; Plunkett, 82 F.3d at 741-42;
Pioneer Inv. Servs. Co., v. Brunswick Assocs. Ltd., P'ship, 507 U.S. 380,
395 (1993). Compressing some of these considerations into the concept of
"excusable neglect," the bankruptcy court correctly identified these
Expeditors argues that the bankruptcy court erred as a matter of law
with regard to the "prejudice" prong of the analysis because the court concluded that there would be prejudice to the estate if
Expeditors's claim were to be amended because the estate would have to
pay out roughly $600,000 more. We agree that the bankruptcy court's
remarks did reflect a misunderstanding of what constitutes prejudice. In
a case involving amendment to a proof of claim, the Seventh Circuit
explained the concept of prejudice as follows:
The bankruptcy judge thought there was harm to other
creditors because if the bank's claim is allowed, the
entitlements of the unsecured creditors will be cut
down. This is a misunderstanding of what it means for [a
creditor's] error to be harmful in the sense of
"prejudicial," that is, entitling the person harmed to
complain. To say that an error is prejudicial means not
that if the error is corrected someone will lose, which
is almost always true, but that the error itself imposed
a cost, as by misleading someone. Obviously there will:
be losers if the bank's claim is allowed, because the
pool of assets available to the other creditors will be
diminished, but the fact that the proof of claim failed
to comply with Rule 3001 did not mislead or otherwise
In re Stoecker, 5 F.3d 1022, 1028 (7th Cir. 1993), Therefore, whether
Kmart would have to pay more or its other creditors would receive less is
not relevant to the issue of prejudice. The issue is whether anyone was
misled or otherwise harmed by Expeditors's original filing of an
Accordingly, the bankruptcy court's ruling will be vacated because it
was based in part on an erroneous concept of prejudice as a matter of
law. The case will be remanded for a new determination of whether
Expeditors should be granted leave to amend, considering the equitable
factors outlined supra and "he proper definition of prejudice. We express no opinion regarding what
weight the bankruptcy court should assign to each factor or what result
the bankruptcy court should reach.
For the foregoing reasons, the bankruptcy court's order of May 16,
2003, denying the motion of Expeditors International of Washington, Inc.
for leave to amend its timely-filed proof of claim is vacated, and the
case is ...