Pioneer Investment Services Company v. Brunswick Associates Limited Partnership – Oral Argument – November 30, 1992

Media for Pioneer Investment Services Company v. Brunswick Associates Limited Partnership

Audio Transcription for Opinion Announcement – March 24, 1993 in Pioneer Investment Services Company v. Brunswick Associates Limited Partnership

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William H. Rehnquist:

We’ll hear argument next in number 91-1695, Pioneer Investment Services Company v. Brunswick Associates Limited Partnership.

Mr. Donaldson, you may proceed when you’re ready.

Craig J. Donaldson:

Mr. Chief Justice, and may it please the Court:

This case comes to the Court from a decision of the United States Court of Appeals for the Sixth Circuit, which allowed the respondents who were claimants in Pioneer’s chapter 11 case to file their proofs of claim out of time based upon a finding by the Sixth Circuit that their failure to file within the originally prescribed deadline was the result of excusable neglect.

To reach that result, the Sixth Circuit adopted a test that was first enunciated in the Ninth Circuit in the case of In re Dix and has been referred to frequently as the liberal interpretation of excusable neglect focusing on five factors set forth in that opinion.

The Sixth Circuit also, to reach the result that it did, had to consider an equitable factor which was, in its opinion, there was no prejudice to the debtor to allow these proofs of claim to be filed under the excusable neglect standard.

And finally, what it had to do, contrary to the decision of this Court in Link v. the Wabash Railroad decided some 30 years ago, said that it was inappropriate for the courts below to punish the respondents for the neglect of their counsel.

We suggest to the Court that this opinion clearly is wrong on all three counts and must be reversed.

The first error is in the adoption of the test itself.

Petitioner submits to the Court that the test adopted by the Sixth Circuit and followed by the Ninth does violence to and runs plainly contrary to the plain language of rule 9006(b)(1) itself, which states that where, as here, a motion for an extension of time was filed after the deadline has expired, the court has to find that the failure to act was the result of excusable neglect.

As the Eleventh Circuit stated, and we contend properly so, in the South Atlantic case, the words failure to act in the plain language of the rule limit the focus of the inquiry to the actions or inactions of the movant and to the reasons for their failure to act within the time provided, and that they do not permit, as the Ninth Circuit has done and the Sixth Circuit has done in this case, consideration of factors other than why didn’t they do what they were supposed to do within the time they were supposed to do it, and what were the reasons for that.

The concept that there is no prejudice to the debtor we submit under the authorities, not only the Eleventh Circuit, but in the decisions of the Second, Third, Fourth, Fifth, and Eleventh Circuits that we have cited in our briefs, all hold uniformly that there is no room for consideration of so-called equitable factors in determining whether the failure to act under rule 9006 is a result of excusable neglect.

The bankruptcy code quite clearly in section 1111(a) dictates who must in a chapter 11 case file a proof of claim, and it says that if your claim is listed as disputed, contingent, or unliquidated, you must file a proof of claim.

Bankruptcy rule 3003 supplementing the code section goes on to say also that if your claim is not listed or you do not agree with the amount listed on the debtor’s schedule, you must file a proof of claim.

And the facts here clearly show that three of the respondents were listed as disputed and unliquidated, and one was not listed at all.

We submit to the Court that the congressional intent that underlies section 1111 in the bankruptcy rules is to clearly place an affirmative duty on creditors who fall within the definition of the code and rules to file their proofs of claim if they want to be able to participate in the debtor’s chapter 11 reorganization in three very important respects: one, to have their claim allowed; two, to have a right to vote on the plan of reorganization; and three, and probably most importantly, to receive a distribution from the debtor’s estate.

And as the decisions of the other courts of appeals that we have cited in our brief recognize, there was a congressional intent underlying this section requiring these creditors to file these claims to promote certainty and finality in chapter 11 proceedings.

And these courts, contrary to the Sixth Circuit in this case and the Ninth Circuit in the Dix case, say that this congressional intent precludes courts from finding exceptions based on equitable considerations or equitable factors.

Sandra Day O’Connor:

Well, Mr. Donaldson, I guess this case may turn on what we mean by excusable neglect under the statute.

Would you agree?

Craig J. Donaldson:

I would agree wholeheartedly, Justice O’Connor.

Sandra Day O’Connor:

And what’s our test for excusable neglect?

What does that mean, do you suppose?

Craig J. Donaldson:

Excusable neglect, as I’m sure the Court knows, is nowhere defined in the bankruptcy code or the rules and, for that matter, is nowhere defined in the similar rule 6 of the Federal Rules.

The Eleventh Circuit in the South Atlantic case defined excusable neglect as follows: the failure to timely perform a duty that was due to circumstances which were beyond the reasonable control of the person whose duty it was to perform.

William H. Rehnquist:

Well, why is that definition any improvement on the statutory language?

It doesn’t seem to say anything more than excusable neglect.

Craig J. Donaldson:

I think it is an improvement, Mr. Chief Justice, for this reason.

When the statute talks about excusable neglect in this definition which says… the essential part being beyond the reasonable control, granted it is somewhat nebulous, but I think it clearly implies that when you come into court saying excusable neglect, you have to come in and present circumstances that are unique or extraordinary, that are beyond–

William H. Rehnquist:

Doesn’t the provision of the… what does the Federal… provision in the Federal Rules that talks about default judgments say?

William H. Rehnquist:

Doesn’t it use the term excusable neglect?

Craig J. Donaldson:

–If Your Honor please, rule 55(c) that talks about the entry of default only is for cause shown.

Rule 60(b), where you would come in to ask to set aside a default judgment entered by the court, talks about excusable neglect.

William H. Rehnquist:

Why do we need a definition of excusable neglect?

Why not leave it largely to… don’t you think Congress may have intended to leave it largely to the discretion of the initial court, the bankruptcy court?

Craig J. Donaldson:

I think the answer is yes, Mr. Chief Justice.

If I may expound, though.

I think Congress, by using the term excusable neglect, certainly left it to the courts to exercise their discretion.

However, as this Court said not too many years ago in United States v. Boyle, what elements constitute excusable neglect is a question of law that clearly is unsettled, and we are asking the Court here today in this case to settle it.

Byron R. White:

Well, don’t you think it’s rather strange to talk about events beyond somebody’s control when you’re trying to define excusable neglect?

I mean, neglect is always… is never beyond your control, is it?

That’s just sort of… negligence.

Is that ever beyond your control?

Craig J. Donaldson:

Justice White, the answer to your question–

I would think–

Craig J. Donaldson:

–is no, as phrased, because neglect, obviously, means that something has to be within your control and you failed to do it.

But the test, as enunciated by the Eleventh Circuit and followed by the substantial–

Byron R. White:

–I would think the Eleventh Circuit definition would just… how could you ever prove that neglect was beyond your control?

Craig J. Donaldson:

–Well, if Your Honor please, they’re not saying it’s beyond your control.

They qualify it by saying it’s beyond your reasonable control.

They don’t say it’s… they don’t say you have to come in and prove something was totally beyond your control before you show excusable neglect.

David H. Souter:

That still doesn’t sound like a disregard or carelessness of any kind, and that’s the meaning of neglect, is it not?

It seems to me that the Eleventh Circuit reads the neglect word out of the statutory phrase, out of the rule.

Craig J. Donaldson:

I don’t believe so.

They–

David H. Souter:

Because if you say reasonable, well, then it’s not carelessness.

Craig J. Donaldson:

–Well, they say beyond the reasonable control, and I think what they mean by that is… and I think the case authority supports it… is that mere ordinary, garden variety neglect of counsel, simple inadvertence if you will, is not going to suffice to let someone be relieved from a deadline that is imposed by other rules of the court, that that discretion that’s vested in the court has to be circumscribed by something that shows that the reason you failed to act is due to something unique or extraordinary.

Byron R. White:

Well, but you just say it isn’t excusable.

You just… what’s wrong with that?

And let the courts decide whether it’s excusable or not.

Craig J. Donaldson:

I think that… I think that’s–

That’s not enough?

Isn’t that enough?

Craig J. Donaldson:

–I think that’s proper, Justice White, but I think someone… and I respectfully suggest it falls to the duty of this Court… is to tell the courts below how they determine whether it’s going to be excusable.

Byron R. White:

Well, did the… the court below didn’t even ever get around to determining whether the attorney’s error was excusable or not, did it?

I mean, they just… it seemed to me they said that the client, the creditor, wasn’t neglectful, it was his lawyer.

Craig J. Donaldson:

That’s correct.

Byron R. White:

And yet, the question should have been whether the neglect of the lawyer was excusable.

Craig J. Donaldson:

That’s correct.

Byron R. White:

Is that one of the three errors they made?

Craig J. Donaldson:

Yes, Justice White.

I suggest it–

Byron R. White:

You’ve only talked about one so far.

Craig J. Donaldson:

–That is the other error, and you’re absolutely correct.

They said, well, the client didn’t do anything wrong, and we’re not going to punish the client because the lawyer was neglectful.

And that is the other part of our argument.

Going back to 1962 and the decision of this case in Link v. the Wabash Railroad, this Court clearly laid down the proposition that a party cannot escape the consequences of the acts and omissions of his attorney, and that is precisely what the Sixth Circuit allowed these respondents–

Byron R. White:

Well, it would be hard… I suppose it would be… have been hard for the court of appeals to get to the issue of whether this is excusable neglect when the attorney just up… right out says there’s no hurry.

Craig J. Donaldson:

–I think–

Byron R. White:

That was just wrong.

Craig J. Donaldson:

–I think what they said was–

Byron R. White:

Maybe he ought to… he should know the law.

Craig J. Donaldson:

–Well, I would think any attorney is certainly charged with knowledge of the rules and the statute and–

Byron R. White:

It certainly hadn’t been changed lately, had it?

Craig J. Donaldson:

–No, not since… in substance as far as who was supposed to file their claims and within what time, it had been the same since the enactment in 1978.

Although the rules of procedure had changed by number, by substance, they really hadn’t.

So, really–

Antonin Scalia:

Mr. Donaldson, I don’t know why you concede.

It seems… maybe I misunderstood, but you appear to concede that neglect always has an element of negligence or blameworthiness about it.

Why do you concede that?

Antonin Scalia:

I don’t think that it does invariably.

Craig J. Donaldson:

–I think by–

Antonin Scalia:

You can talk about a neglected house.

Maybe the person doesn’t care about or doesn’t… the person doesn’t want to spend any more money on it.

It doesn’t mean that there’s any blame involved.

It’s just a failure to do something that could be done is neglect.

He neglected to do it.

Craig J. Donaldson:

–I agree.

Antonin Scalia:

He failed to do it.

It’s the same as failed.

That’s one meaning of it.

It can have the other meaning, but it doesn’t invariably have that meaning of negligence or blameworthiness, does it?

Craig J. Donaldson:

No.

I think–

Antonin Scalia:

Well, but you didn’t say that in response to the questions.

If that’s your position, I wish you would say it.

Craig J. Donaldson:

–No.

I agree, Justice Scalia.

An accepted definition of neglect certainly is very simply the failure to do an act.

Byron R. White:

He just neglected his legal training.

That’s all.

You just neglected to say that.

[Laughter]

Craig J. Donaldson:

I failed to do it.

That is correct.

Antonin Scalia:

Mr. Donaldson–

–I was using it there in the second sense, Mr. Donaldson.

May I ask this question, Mr. Donaldson?

Having had the benefit of that suggestion, can you give us an example of excusable neglect as either you or Justice Scalia would interpret it?

Craig J. Donaldson:

What would be acceptable–

John Paul Stevens:

What would… when should a judge ever excuse neglect either the way you define it or the way Justice Scalia does it?

Craig J. Donaldson:

–If… one that comes right away to mind, Justice Stevens, is if the attorney or the counsel never received notice of the bar date.

John Paul Stevens:

And you’d say that was neglect in that… and you think that’s the way in which they meant the neglect.

Craig J. Donaldson:

I think that’s a unique or extraordinary… I don’t go by so much the word neglect as I do the word excusable.

William H. Rehnquist:

What if you had a tickler system set up in your office that worked regularly where you were given a note the day before something was due that it’s due tomorrow, and it just failed on this one occasion?

Would that be an example of, A, neglect and, B, of excusable neglect?

Craig J. Donaldson:

No, Your Honor, it would not.

William H. Rehnquist:

Which… it would be… it would not be neglect or it would not be excusable?

Craig J. Donaldson:

It would be neglect, but it would not be excusable because–

John Paul Stevens:

That’s what happened in this case.

Craig J. Donaldson:

–Well, Justice Stevens, I would say based on the record here, Mr. Richards went far beyond the grounds of neglect or concurrent findings by the bankruptcy court and the district court that not only was he negligent, he was totally indifferent to the bar date.

William H. Rehnquist:

But why in the case, the hypothetical I put to you is that neglect not excusable?

Craig J. Donaldson:

The failure in your office of the tickler system?

Yes.

Craig J. Donaldson:

I think because the cases hold and the way the statute is construed, that mere neglect of counsel or counsel’s staff will not rise to the dignity of being excusable.

William H. Rehnquist:

Well, but by… mere… but by hypothesis the statute says some neglect is excusable, and to say that mere neglect is never excusable simply defies the statutory language.

Craig J. Donaldson:

Well, I think where that gets perilously close to, Mr. Chief Justice, is this.

Maybe something like if you did have a tickler system and you’ve taken all the steps you could conceivably take to make sure you don’t fall through the trap of missing a deadline and that system malfunctions, but that leads to these problems.

Then the next question might be, well, shouldn’t you have had a backup system, and I think you get into a series of what if’s that engulf the rule.

William H. Rehnquist:

Well, isn’t that an argument for confiding a great deal of discretion as Congress may have intended to the district courts or the bankruptcy courts here?

We don’t want thousands of little annotations in law books saying this is or is not excusable neglect.

Craig J. Donaldson:

Right.

I think the Congress clearly has conferred that discretion on the lower courts, but it also attempted to, and I think does, circumscribe it.

It’s not an unbridled discretion that any time someone runs into court and says… well, particularly like this case, runs into court and says, well, it’s my lawyer’s fault, or I forgot to read something, or a lawyer comes in and said I forgot to read something.

If that were permitted to be the standard of excusable neglect, I dare say it would do away with the efficacy of any deadline set under any rules of procedure.

Byron R. White:

Well, would you be satisfied to win this case on the ground that the court of appeals didn’t blame the client, they didn’t stick the client with his lawyer’s neglect, and therefore did not decide whether the lawyer was excusably neglectful or not?

Craig J. Donaldson:

To answer your question, Justice White, I certainly would be happy to win the case on that–

Byron R. White:

But you would rather win it on some other ground.

Craig J. Donaldson:

–Well, I don’t know that I’d rather win it on some other ground, but for the sake of the system and the efficient administration of justice throughout the Federal system at least, I would like to win it on a ground where–

Byron R. White:

You want to confine… you want to put some definition into excusable neglect.

Craig J. Donaldson:

–I would like this Court to adopt as bright a line as possible as to what factors are to be considered or what the appropriate definition is of excusable neglect because–

Antonin Scalia:

Do I understand that your position is that the factors to be included can only be factors that have to do with the action or the state of mind of the person who is allegedly excusably neglectful?

Craig J. Donaldson:

–Yes, sir.

Antonin Scalia:

So that you cannot take into account, for example, how much harm has been caused by the action.

Craig J. Donaldson:

Correct.

Antonin Scalia:

He’s either excusably neglectful or not, and if he is, it doesn’t matter if it has caused a whole lot of harm.

It’s still excusable neglect.

Craig J. Donaldson:

That’s correct.

I think it has to be determined solely by the actions of the moving party and the reasons for those actions without consideration of any other, what you might call equitable factors, such as prejudice or lack thereof.

John Paul Stevens:

May I go a step or so?

Whether it’s a $100 million windfall or a 10 cent windfall is totally irrelevant.

That’s one.

Also, I take it it’s totally irrelevant whether it’s a 10-minute delay or a 3-year delay.

Craig J. Donaldson:

Yes, sir.

I think it has to be.

David H. Souter:

How do you get around the fact that the statute reads that the court may allow the late filing in a case of excusable neglect, which seems to suggest that there may be cases of excusable neglect in which it will and other cases of excusable neglect in which it will not allow the late filing?

And isn’t it at that point that it’s appropriate for the court to look at the consequences to third parties, whether they’re getting hurt or whether they’re not getting hurt?

Craig J. Donaldson:

I think, to answer your question, no, and if I may expound.

The statute… the last sentence begins with the failure to act.

I think the plain language of the words failure to act directs the focus solely and exclusively to what the movant did or didn’t do and the reasons for that.

David H. Souter:

Well, it may… that may direct the court’s attention to the reasons for the failure to act in determining what is excusable, but it certainly does not exclude from the court’s consideration the consequences to third parties in determining whether a… an excusable neglect should, in fact, be a basis for precluding him and making… precluding the party from making a late filing.

Craig J. Donaldson:

But I think it does for this reason.

If a party could come in and, in fact, establish that there was excusable neglect, however determined, even if that would result in the most extreme prejudice to the debtor, I think the court has to exercise its discretion and let that creditor file its claim regardless of the consequences if–

David H. Souter:

Yes, but that’s no discretion at all.

I mean, if that were going to be… if that were the intent of Congress, why didn’t Congress simply make it mandatory that if the neglect was found to be excusable, a late filing would be permitted?

Craig J. Donaldson:

–They could have done that, but they did not.

David H. Souter:

Well, I know, and it seems to me there’s some significance in the fact that they did not.

They left it a discretionary judgment or they left some further act of discretion even when the neglect was found to be excusable.

And yet, in the hypothesis that you give, it seems to me that the court has no discretion left at all.

Craig J. Donaldson:

I would think if the party comes in and proves that the neglect… that their failure to act was excusable neglect, that they have brought themselves within rule 9006(b)(1), and that the court would have to exercise its discretion to let them in.

Antonin Scalia:

But, no, they have brought themselves within the rule, but what the rule says, as Justice Souter points out, is that the court may permit the act to be done.

That’s the rule.

The court may.

I don’t know why you fight this.

It’s a discretion that’s all in your favor.

It’s not a discretion that could possibly hurt the interests of your client.

It’s a discretion not to allow the excusable neglect even though you have authority to do so, where in Justice Stevens’ example, for instance, the consequences are enormous of allowing it to be filed late.

Don’t you think there’s room in the words excusable neglect to mean that, well, there has been neglect in this case, but because of other considerations, we’re going to excuse it?

This is saying that excusable doesn’t necessarily define neglect.

It’s just a… it defines… it tells the court, no matter what the neglect is, you can excuse it based on other considerations.

Craig J. Donaldson:

But I don’t think that’s what the rule intends.

I think what the rule–

Byron R. White:

But there’s room just in reading the language to… for that, isn’t there?

Craig J. Donaldson:

–Well, perhaps there is after you first determine whether the failure to act was the result of excusable neglect.

Byron R. White:

No.

You just say there’s neglect.

Sure, it’s neglect, but that isn’t the whole story.

Craig J. Donaldson:

I think it may be.

John Paul Stevens:

May I ask you?

How much is the windfall in this case?

Craig J. Donaldson:

To answer your question directly, Your Honor, none.

John Paul Stevens:

How much is… how much do the creditors claim the windfall was?

Craig J. Donaldson:

In excess of $6 million.

John Paul Stevens:

$6 million.

Craig J. Donaldson:

Yes, sir.

John Paul Stevens:

And there’s no prejudice whatsoever to the State in allowing the claim other than the fact you have to defend the claim, which you otherwise wouldn’t have to defend.

Craig J. Donaldson:

Well, I think there is.

What has been overlooked is the prejudice the other creditors who timely did file whose payout period would be extended by… from 5 years to 10.

So there’s definitely prejudice to the other creditors.

John Paul Stevens:

Why would it be extended for 5 years?

Craig J. Donaldson:

That’s what the plan provides, Justice Stevens, is if these claims were ever ultimately allowed to pay out, the unsecured creditors–

John Paul Stevens:

Oh, I see, because there’s much more money to pay.

Craig J. Donaldson:

–Yes, sir.

Mr. Chief Justice, I would like to reserve the remaining time for rebuttal.

William H. Rehnquist:

Very well, Mr. Donaldson.

Mr. Lucas, we’ll hear from you.

John A. Lucas:

Mr. Chief Justice, and may it please the Court:

I would like to focus at the outset on what I believe is the key issue and… which the Court… many members of the Court have been addressing in their questions to my adversary, and that is the fundamental difference between the petitioners and the respondents in this case is that the petitioners advocate, in essence, a nondiscretionary, strict, in their words, inflexible rule to be applied only in extraordinary circumstances.

That is not an exercise of discretion.

The respondents, on the other hand, submit that this is and should be a discretionary standard in which the lower courts are permitted flexibility in the exercise of their discretion as guided perhaps by certain guideposts set by this Court.

William H. Rehnquist:

Well, in this case, Mr. Lucas, the bankruptcy court ruled against your client, and then the district court in the exercise of its discretion ruled against it, didn’t it?

John A. Lucas:

The bankruptcy court did, Your Honor, and we believe that the bankruptcy court, in effect, abused its discretion because of the way that it weighed the factors.

William H. Rehnquist:

Well, do you think that is something that should be reviewed on a legal basis every time a bankruptcy court reaches a conclusion?

John A. Lucas:

Your Honor, I think that the review on an abuse of discretion standard will be a very rare review.

When litigants and attorneys know that the bankruptcy court is exercising its discretion and is operating within a fairly broad framework, then the chances of cases being appealed for abuse of discretion are very rare.

And, in fact, we believe that it will cut down on this collateral litigation rather than promote it.

But if the Court attempts to draw a bright line rule, a rule… a bright line that I submit does not exist and cannot exist, but if the Court were to attempt that, that would increase the collateral litigation.

Anthony M. Kennedy:

But the line, I take it, is bright enough so that there would be an abuse of discretion in this case if the bankruptcy court ruled against your client.

John A. Lucas:

I believe there was an abuse of discretion in this case, Your Honor, and that’s one of the points of our appeal is that the bankruptcy court erred in the way it weighed these factors because the way it weighed them… and I’ll come to this in a moment, but it weighed them in a way that inevitably would find against clients like mine who moved expeditiously to correct their error, to correct their neglect and, in effect, weighed these factors in a way that put undue emphasis and put sole emphasis on this beyond reasonable control test that the bankruptcy court had accepted in the first instance and which was continually urged by petitioners.

Your Honor, let me add–

Antonin Scalia:

I understand one of your arguments to be that excusable neglect cannot consist of circumstance… exclusively of circumstances reasonably beyond the control of the party for the reason that that would not be neglect because there would not be any negligence or blame attachable, if it were circumstances beyond the control of the party.

Isn’t that one of the arguments you make?

John A. Lucas:

–That is correct, Justice Scalia.

Antonin Scalia:

Am I to understand then that where you are negligent or blameworthy, but you have some excuse, you are in better shape for purposes of this rule than if you’re not blameworthy at all?

John A. Lucas:

No, Your Honor, because–

Antonin Scalia:

What do you do with a person where the circumstances are beyond his control?

If it doesn’t come within the meaning of 906(b)(1), what do you do in that situation?

John A. Lucas:

–Your Honor, I think that that is covered in other rules.

For example, one of the examples frequently given, not one that my opponent gave, but it’s when the courthouse for some reason is just physically inaccessible.

A practitioner in San Francisco and there’s an earthquake and he cannot get to the courthouse.

John A. Lucas:

It’s beyond his reasonable control.

That’s the type of example that some lower courts have given.

That’s covered in the same rule.

In rule 9006(a), it provides that if the courthouse is inaccessible, then it will be extended under subsection (a).

Antonin Scalia:

That’s the only thing?

His car is engulfed by a flood on the way to the court?

John A. Lucas:

No, Your Honor–

Antonin Scalia:

That isn’t covered by 906(a), is it?

John A. Lucas:

–9006(a) covers where the courthouse is physically… is inaccessible.

Antonin Scalia:

That’s just one small example of absolute… circumstances that absolutely prevent it.

There are so many others I can think of, and you say that’s not covered by (b).

John A. Lucas:

No, Your Honor.

I believe that there are other ways of covering.

I believe that under, for example, section 105 of the bankruptcy code, which is a broad grant of equitable powers, that the court would have the power to grant extensions such as Your Honor just suggested in your question.

There’s also constitutional ramifications here.

For example, one of the contexts that this situation arises in is creditors who never received notice of the bankruptcy, consequently never filed a proof of claim, never moved for an extension of time because they weren’t aware of it.

And there’s a well-developed body of case law that says you cannot deprive those creditors of their property right without due process, meaning that they have to get notice.

Antonin Scalia:

That’s another single instance, but why don’t you just cover my one instance of the car being swept away on the way to the courthouse.

What do you say covers that?

John A. Lucas:

Your Honor, I would say that either the… either section 105 of the bankruptcy code–

Antonin Scalia:

What does that say?

John A. Lucas:

–Your Honor, that’s a section that essentially grants the court inherent equitable powers, makes the bankruptcy court a court of equity.

And it has been the subject of some case law in this Court and in the lower courts which says, well, that can’t be used in derogation of specific provisions.

But I think the section 105 could be used in this instance to fill in a gap if that were a gap.

It also might come under the doctrine of equitable tolling.

Byron R. White:

Are you defending entirely the court of appeals opinion?

John A. Lucas:

Your Honor, we would articulate the rule slightly differently.

Byron R. White:

Well, let me ask you specifically.

Do you think the court of appeals said the client shouldn’t be blamed for the negligence of his or its lawyer?

John A. Lucas:

Your Honor, in this situation I believe the court of appeals did say that under the circumstances, it would be unfair to penalize the client.

Byron R. White:

So, they didn’t really inquire whether the attorney’s negligence was excusable.

John A. Lucas:

Well, I believe that they did ultimately because they were addressing the question at the outset of excusable neglect.

We’re not trying to overturn Link v. Wabash.

We accept that for purposes of this argument as good law.

William H. Rehnquist:

Do you think the court of appeals accepted it as good law?

John A. Lucas:

I believe it did, Your Honor, because the question is not whether or not we’re going to… whether or not the client is chargeable with the acts or omissions of attorney, it’s what are the consequences of that.

And Link says that the client, having chosen attorney… having chosen an attorney, is bound by the acts of his attorney and, in the words of the court, that he cannot avoid the consequences of having chosen his own attorney.

And the question here is what should those consequences be.

William H. Rehnquist:

Well, you can’t imagine more severe consequences than in Link when the plaintiff’s complaint was dismissed.

John A. Lucas:

That’s correct, Your Honor, but here’s an important point about Link.

Link supports our position, Mr. Chief Justice, and that is because you will recall that in Link this Court affirmed the exercise of discretion by the trial court.

The trial court had dismissed a case for the plaintiff’s attorney’s failure to appear at a pretrial conference, and this Court gave the trial court discretion and said it could do that based upon all the facts and circumstances in the record which were known to the trial court, and that this Court would grant the district courts that discretion.

William H. Rehnquist:

And here the bankruptcy court denied your motion.

The district court denied it, but the court of appeals didn’t say that those courts had any discretion.

John A. Lucas:

Well, they did both deny, but let me jump, if I may, to the last point of my argument, which is to why the bankruptcy court abused its discretion.

In the respondent’s favor, the bankruptcy court found that there was no prejudice to the debtor or to other creditors.

And Mr. Donaldson was asked a moment ago by Justice Scalia, well, why does he fight this discretionary rule.

The reason that the petitioner fights the discretionary rule is they know that if the discretion is weighed properly, that the respondents’ claims should be filed because there was no prejudice to anyone.

The bankruptcy court so found, and it has been affirmed by the district court, not the subject of appeal.

No adverse impact on judicial administration, no bad faith.

And the bankruptcy court said… curiously they said but early in the case, like here, and where there’s a short delay, like here, those factors will seldom, if ever, be present.

Byron R. White:

So, it wouldn’t make any difference whether the attorney’s error would subject him to a malpractice suit or not?

John A. Lucas:

I don’t think that makes a difference, Justice White.

But–

Byron R. White:

So, you’re not really talking about whether it was just a human error in the sense that almost anybody would make it.

John A. Lucas:

–It was a human error.

We concede it was neglect, but the way the bankruptcy court weighed these factors, it said that early in the case they will hardly ever be present where the delay like here is short.

And so, they said… the bankruptcy court said, therefore, I’m going to look at whether or not it was within their reasonable control and focus on that.

So, early in the case where creditors, such as my client, is diligent, realizes their mistake, takes actions promptly to cure it, they’re penalized the way the bankruptcy court weighed the factors because he says, well, I won’t consider those because it’s too early in the case.

They won’t be present.

John A. Lucas:

But he created a catch-22 because late in the case those factors will almost always be present.

There’s a much greater risk of prejudice, impact on judicial administration, bad faith, and the like late in the case.

William H. Rehnquist:

That’s an argument certainly why the bankruptcy court was wrong in exercising its discretion in this case, but it… do you support the view taken by the Sixth Circuit, as Justice White reads its opinion, as I do, that whatever the consequences… whatever the neglect of the attorney, it should not be visited on the client?

John A. Lucas:

Your Honor, I don’t think–

William H. Rehnquist:

Can you answer it yes or no?

John A. Lucas:

–I don’t support it the way Your Honor just articulated it.

If Your Honor meant to say must the sins of the attorney always be visited upon the client, then I believe that the answer is no.

I believe that the courts in some circumstances have some discretion.

There’s attorney sins and there’s client sins.

An example is rule 11.

There’s… there are some instances in rule 11 where the courts say we’re going to visit this sin upon the attorney because it’s an attorney-type error.

Other times it’s appropriate to penalize the client.

So, Link doesn’t purport to overrule that sort of distinction.

But in this case, I say that we are not attempting to overrule Link, and to the extent that the Sixth Circuit decision relied upon Link, we think it can be affirmed on other grounds because we say in this case we acknowledge that there was neglect, and we acknowledge that that neglect is imputable to the respondents.

William H. Rehnquist:

So, then if the Sixth Circuit said otherwise, you don’t find it necessary to uphold that part of the Sixth Circuit–

John A. Lucas:

That is correct, Your Honor.

That is correct, but I still–

–So, you can look to other factors.

John A. Lucas:

–That is correct because I still say that begs the question.

Now that the respondents are charged with their client’s neglect, the rule then inquires should we excuse that neglect.

I think it’s appropriate at this point to… I’d like to refer to a case… an opinion that Justice Scalia wrote for the majority in 1988, Pierce v. Underwood, and in that case, Your Honor may recall that the question before the Court was whether or not the position of the United States was substantially justified for purposes of an award of attorney’s fees.

And Justice Scalia, writing for the majority, said that the Court was going to eschew what Justice Scalia and the Court termed a rigorously scientific approach and said because of the large number of possible situations in which the phrase might arise, that it was inappropriate to draw a set of narrow guidelines, that this was simply an area in which the court… the lower courts had to have a substantial amount of discretion.

And the Court also said that it would not choose to substitute a different formula for the formula substantially justified which had been chosen by Congress.

We think that that holding is applicable to this case also because what the petitioner is seeking to do, Your Honors, is to substitute new words for the words that exist in the rule.

They want the rule to read that an extension of time may be granted where the failure to act was due to circumstances beyond the reasonable control of the moving party, and that’s simply not what the rule says.

The rule grants on its face the trial court’s discretion.

It says that the trial court, in its discretion, may extend the time.

Antonin Scalia:

Suppose you say it goes beyond circumstances entirely beyond the reasonable control and includes some other factors, all of which, however, have to do with the subjective actions of the individual and does not include such extrinsic elements as how much hardship is produced to the other party.

You’d have a whole lot of discretion still within the meaning of excusable so long as it’s limited to factors affecting the subjective actions of the individual.

And then you would have additional discretion at the back end because even when the court finds excusable neglect, it need not… it may, as the rule says, but it need not use that.

Antonin Scalia:

And once again, that would be up to its discretion.

John A. Lucas:

That is correct, Justice Scalia, but there’s nothing in the rule that dictates that approach.

There is simply nothing in the rule that says that the only focus shall be on the actions of the moving party or the party who has failed to act.

And, in fact, I think it comports not only with the face of the rule, but just with our everyday experience when we inquire if a person has transgressed, whether it’s neglect, an act, or omission, but if a person has failed to act or if they’ve transgressed in some way and we then visit the question of should we excuse their transgression, should we excuse their failure to act, what is a perfectly logical inquiry?

What harm have they caused?

William H. Rehnquist:

But that isn’t quite what the statute says.

The last clause says where the failure to act was the result of excusable neglect.

It seems to me that does tie it down rather closely to the acts of the person who should have acted.

John A. Lucas:

But it’s where the failure to act is simply a descriptive trigger, if you will, for describing what has happened.

Remember… and this is extremely important… that rule 9006 is a rule of general application.

We’re describing all sorts of omissions here.

This is not a rule that deals just with bankruptcy proofs of claim.

Like its counterpart in the Federal civil rules, Federal rule 6, this deals with obtaining an extension of time under… for virtually any filing required to be made in the context of a civil suit or any filing in a bankruptcy case.

So the phrase, where the failure to act, is simply a description that triggers the rule.

Antonin Scalia:

Does the word excusable have some notion of looking into the motives and the subjective inclinations of the actor?

I mean, I wouldn’t consider it excusable neglect if you violate the rule but you didn’t cause any harm.

I mean, could the court say, well, it’s excusable neglect because even though he’s out of time, what’s the harm.

It’s no big deal.

He’s a week late.

Nobody is going to be harmed.

I’ll just extend it.

It’s excusable neglect because it’s harmless.

Is that excusable neglect?

John A. Lucas:

Yes, I believe it is.

I believe it may be a proper factor to weigh, Justice Scalia, not the only factor, but I think whether or not there is harm is a factor that the court should weigh.

Antonin Scalia:

It’s not an intentional failure to file it on time.

He just said I’m going to be a week late, and the court said no harm done.

John A. Lucas:

I misunderstood the question then, Your Honor.

If it’s intentional, then the element of good faith comes in and good faith might well be decisive if it’s intentional.

But the point is that the petitioner’s test fails to allow any of these things to be weighed.

John A. Lucas:

We say that they should weigh the prejudice to other parties, other creditors, prejudice to the court essentially in the impact on judicial administration, good faith.

There’s a fourth element that I would suggest that would go into the calculus properly which is not covered in our brief, and that is what is the nature of the deadline missed and what is the impact on the moving party.

Keeping in mind that this rule applies, as I said, to virtually any filing, under the Federal rules, it applies to answers, it applies to discovery responses, it applies to briefs, it applies to proofs of claim, it applies to notices of appeal.

And the way you weigh these factors, and particularly the good faith factor, might vary from case to case, but that’s what discretion is all about.

And that’s the type of discretion that the Court allowed the trial courts in Pierce v. Underwood, and we submit that that discretion is appropriate here because on the face of the rule it says that the court may in its discretion.

Your Honor, there’s another point that I would like to make about the source of this beyond reasonable control test because that test, obviously, is not one that appears on the face of the rules or the bankruptcy code.

It’s not in the plain language of the rule.

Where do we find it?

The petitioner finds that… and this is the linchpin of their argument because it appears in the very first section of the argument portion of their brief, and the rest of their argument flows from the need for finality.

And they say, well, there’s a need for finality that was articulated by the lower courts, and they cite to a Second Circuit opinion in a case called Hoos v. Dynamics Corporation.

And they cite this need for finality there.

And the reason that’s so important to the petitioner is that without this need for finality that they find in the bankruptcy code, an overriding need in their view, you really can’t get to the beyond reasonable control language because it’s just not in the rules.

But in the Hoos v. Dynamics Corporation, the court did discuss the need for finality, but… and perhaps it was an overriding or the most important need there, but the circumstances were entirely different than they are today.

In that case, it was decided under the old Bankruptcy Act, and in that case creditors in a chapter 11 case had until virtually the end of the bankruptcy process in which to file their proofs of claim.

Proofs of claim had to be filed by confirmation of the plan, not before.

That, as the Court knows, is virtually the last step in the process.

In Hoos, the creditors were actually attempting to file their claims after the plan had already been confirmed.

So, of course, there was a need for finality.

There’s always a need… a greater need for finality at the end of the case, but the petitioners seek to extrapolate from that and say, well, in Hoos there was a need for finality at the end of the case.

Therefore, there’s a need for finality here at the beginning of the case.

Obviously, it just doesn’t follow, and without that supposed need for finality, the overriding need for finality, they simply can’t get to this beyond reasonable control test because that’s the need that has driven every court of appeal that has decided and articulated this beyond reasonable control test.

Harry A. Blackmun:

Mr. Lucas, straighten me out on some facts.

Has this plan been confirmed?

John A. Lucas:

Yes, Your Honor, it has.

Harry A. Blackmun:

And do I understand that the unsecured creditors will be paid off 100 cents on the dollar?

John A. Lucas:

That is correct, Justice Blackmun.

Harry A. Blackmun:

Do you have any comments about that as far as your clients are concerned?

John A. Lucas:

Your Honor, it illustrates the windfall to the debtor, to the petitioner, if this type of procedural defect is allowed to essentially deprive my clients of their right to file the claim.

And, of course, once the claim is filed, it is prima facie evidence of the validity of the claim.

So, we do believe that for purposes of this discussion, the claim has to be accepted as a valid one, and therefore, there is a $6.9 million windfall to the debtor because that’s the amount of money–

There are that many assets.

John A. Lucas:

–It was I believe a $55 million asset case, Your Honor, and it’s a 100 percent payment plan.

So, that is the amount that my clients have been deprived of because their attorney was negligently 20 days late.

Harry A. Blackmun:

Well, if these claims are filed, is the 100 percent payoff affected?

John A. Lucas:

It is affected to this extent that without my clients’ claims, it’s a 5-year payoff.

Once our claims are factored into the plan… if our claims are allowed, it’s a 10-year payoff.

That plan, incidentally, was formulated after… the plan had not begun being drafted at the time this time extension was sought.

So, the plan anticipated… because the litigation over the filing of these claims was going on while the debtor was drafting its plan, the plan anticipated and planned for the eventuality that these claims would be permitted or would be allowed.

Anthony M. Kennedy:

Is interest payable on the claims?

John A. Lucas:

Yes, Justice Kennedy, there is interest payable, and interest is being paid to other creditors and has been since the plar was confirmed.

William H. Rehnquist:

Would there be any virtue in tying the phrase excusable neglect in this bankruptcy rule into the provisions of rule 60(b) of the Rules of Civil Procedure where I’m sure there must be some decisions construing the same phrase?

John A. Lucas:

Your Honor, I think that whatever decision this Court makes necessarily… even if the Court attempts to limit it to proofs of claim and bankruptcy rule 9006, that whatever decision this Court makes will be construed as also governing rule 6 and all the filings in Federal civil litigation simply because the rule, for all intents and purposes, are identical.

And the phrase excusable neglect, if the Court is going to avoid the one-subsection-at-a-time approach to the statutory construction, if we’re going to avoid that, it seems to me that it has to be construed uniformly.

If it’s going to be an absolute, strict standard allowing no exceptions except for matters beyond the moving party’s reasonable control here, then the same must be true for a party who files an answer 1 day late in a lawsuit.

And let me use that example, if I may, to sort of highlight the everyday litigation problems that would flow from the rule proposed by petitioners if it were accepted by this Court.

Let’s take a hypothetical example of a defendant in a lawsuit who is served with a summons and, of course, required to answer in 20 days.

But through an administrative error, clerical breakdown, whatever, through neglect, for reasons within his control, the defendant doesn’t answer the lawsuit, say, a $7 million lawsuit, until the 21st day.

9:00 the next morning, his answer is 9 hours late.

Today, I submit and I believe that in most jurisdictions around the country, most district judges will think that it’s in the exercise of their discretion to allow an answer to be filed 9 hours late rather than to deprive a party of his or her day in court and essentially impose a windfall to the plaintiff, who at that point would have a $6.9 million default judgment.

But it is precisely that sort of exercise of discretion that the petitioners would deprive the trial courts of exercising if their hard and fast, inflexible rule is accepted in this case.

If there are no other questions, that completes my comments.

William H. Rehnquist:

Thank you, Mr. Lucas.

Mr. Donaldson, you have 4 minutes remaining.

Craig J. Donaldson:

Mr. Chief Justice, and may it please the Court:

The respondents say that the test that we advance here is inflexible.

What I would say to the Court on behalf of the petitioner is the test advanced here by the respondent is no test at all.

It leads to an unbridled, unchecked discretion vested in lower courts that, in effect, any time someone comes in with any excuse, whatever it may be, that a deadline is going to be extended.

And as I said earlier in our argument, in construing this term, it cannot be construed such that it just sweeps away deadlines imposed by other rules of the court which are necessary to the efficient administration of justice.

In particular reference to the Sixth Circuit opinion below, the only way that the Sixth Circuit found the bankruptcy court and district court abused this discretion was predicated on the finding that it was inappropriate to penalize the party for the negligence of counsel.

Had it not found that, and had it found that it should have penalized, as the bankruptcy court and district court did, the respondents for the neglect of their counsel, the Sixth Circuit could not have found that the bankruptcy court and district court abused their discretion.

Byron R. White:

Well, if you want to… I suppose the real party in interest is the client, and if you want to impose a rule that this is excusable if it’s due to something… some act beyond your control, surely in this case the negligence of his lawyer was beyond his control.

Craig J. Donaldson:

But I think the rule looks, Justice White, at the negligence of the party and the party’s counsel, and if one of them is at fault… well, at least in the context of the client, if the lawyer is at fault, the client I think under Link has to suffer the consequences.

But ultimately the system allocates the burden properly because the client still has, which is exactly what has been done in this case, its action against… over against the attorney for whatever damages it sustained as a result of his negligence.

Byron R. White:

Or whatever damages he could recover.

Craig J. Donaldson:

Or what he could prove–

Byron R. White:

I mean, or whatever damages the lawyer could pay for.

Craig J. Donaldson:

–Yes, sir.

Finally, to answer one point… two points of Mr. Lucas very briefly.

He says that from the Hoos case and the need for finality came out of the Bankruptcy Act because at that point you filed plans of confirmation, and he seems to imply that the need for finality and certainty is less now under the bankruptcy code and rules than it was under the act.

And I submit it’s exactly in reverse.

The bankruptcy code and rules now say that the court shall fix the time within which claims are to be filed.

Byron R. White:

Can that be amended?

Craig J. Donaldson:

Pardon, Justice White?

Byron R. White:

Can the court set a file date and then change it?

Craig J. Donaldson:

If it does so before the expiration of the date set, the plain language of rule 3003 says for cause shown, that the court may extend it provided that it’s done before the expiration of the original period.

But I think that the… I’m sorry.

Thank you.

William H. Rehnquist:

Thank you, Mr. Donaldson.

The case is submitted.

The honorable Court is now adjourned until tomorrow at ten o’clock.