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Galope's due process argument and examined the adequacy of the notice of the claims bar date. The court concluded that Galope was not entitled to actual notice because she was an unknown creditor (a conclusion based on evidence presented by the trustee regarding his review of the debtor's books and records) at the time the bar date notice was served. The court then found that Galope, who lived in California, had received constitutionally adequate constructive notice of the bar date by virtue of its having been published in the national edition of the Wall Street Journal and the Orange County Register. The debtor did business nationwide, and at the time the bar date notices were sent, the debtor did not view borrowers as potential creditors. Additionally, requiring the debtor to publish in numerous local papers would have consumed a disproportionate share of the debtor's resources. In short, the court found that the Galope claim was subject to the claims bar date. Thus, the court could only allow Galope's claim if she satisfied the excusable neglect standard. The court found (addressing each of the Pioneer factors) that Galope could not satisfy this standard. The court found that the danger of prejudice to the debtor was high if it allowed Galope's claim. The court noted that the "the Trustee testified that allowing the Galope Claim would cause significant prejudice. First, the Debtors and the Trustee had no reason to anticipate a claim by Ms. Galope since the Debtors' books and records did not reflect any complaints by Ms. Galope about the loan. Second, the Trustee testified that the Trust has already made two interim distributions. The Trustee testified credibly that, depending on the amount of the claim-as well as numerous other pending late-filed claims-there is a substantial likelihood that the Trustee would have to go back to the Plan's distribution model and recalculate distributions." The court further noted that while the plan had been confirmed, and thus there was no reorganization to jeopardize, "allowance would jeopardize the Trustee's efforts to liquidate assets for distribution to creditors with timely-filed claims." Next, the court found that the length of delay between the bar date and the filing of Galope's claim also favored disallowance. The court stated: "the four year delay is significant. The Trustee has already completed two interim distributions and is finalizing administration of the Trust assets." Next, the court found that even if it accepted Galope's explanation of the reason for the delay - that Galope was unaware of her claim against the debtor until sometime in 2010-her neglect in waiting until July 2011 to file her claim was not excusable. In short, the court found that, especially given the prejudice to the debtor, Galope's claim was not entitled to relief from the bar date. The court disallowed the claim.
i. In re Tristar Esperanza Properties, LLC, 488 B.R. 394 (B.A.P. 9th Cir. 2013)
Issue: Whether 11 U.S.C. § 510(b)'s mandatory subordination applies to the claim of a member of the debtor limited liability company that withdrew as a member and obtained an arbitration award and judgment valuing her equity interest after the debtor did not buy back the member's interest.
©2014 William L. Norton III
