IN RE KMART CORPORATION

SUSAN SONDERBY, Chief Judge, Bankruptcy

This matter is before the Court on the Motion of Maria Nieves ("Nieves") to Accept Administrative Claim as Timely Filed for Equitable Reasons or, in the Alternative, to Approve a Matter-Specific Exception to the Administrative Claim Bar Date (the "Motion"). Nieves, a personal injury claimant, failed to file an administrative proof of claim by the June 20, 2003 bar date. She now seeks entry of an order deeming her late-filed claim to be timely.

On January 22, 2002, Kmart Corporation and thirty-seven of its subsidiaries and affiliates filed voluntary Chapter 11 petitions in this court. Kmart continued to operate as debtor in possession thereafter.

On or about June 9, 2002, after the filing of the petitions, Nieves allegedly sustained personal injuries at a Kmart store in North Bergen, New Jersey. Nieves thereafter retained Marvin R. Walden, Jr., and the firm Greenberg, Walden, Zerquera Grossman, L.L.C. ("Greenberg Walden"), to represent her in connection with her claim for injuries. On June 26, 2002, Marvin Walden wrote to Kmart, advising of the representation. Armondo Wright, a claims examiner at the Kmart Customer Incident Center, responded to Walden by letter dated June 28, 2002, acknowledging the representation. Walden thereafter received a letter dated July 31, 2002 from Amy Pennybacker, another Kmart claims examiner, advising that she had been assigned the file and requesting information necessary for possible settlement.

In February, 2003, Walden filed a complaint on Nieves' behalf in Hudson County, New Jersey. The complaint was served on Kmart, together with summons, on March 30, 2003, and Kmart served its answer thereto on or about May 14, 2003.

On April 23, 2003, this Court entered an order confirming the First Amended Joint Plan of Reorganization of Kmart Corporation and its Affiliate Debtors and Debtors-in-Possession, as modified (the "Plan"). The Plan became effective on May 6, 2003 (the "Effective Date"). Shortly after the Effective Date, Trumbull Services, LLC, the court-approved noticing agent in this case, caused to be served a "Notice Regarding (A) Entry of Order Confirming the First Amended Joint Plan of Reorganization of Kmart Corporation and its Affiliated Debtors and Debtors-in-Possession, (B) Occurrence of Effective Date, and (C) Notice of the Administrative Bar Date" (the "Notice"). Paragraph 7 on the fourth page of the Notice contained a section entitled "Administrative Claims Bar Date." That section stated that "Administrative Claims" (other than certain types of Claims dealt with elsewhere in paragraph 7) had to be filed by June 20, 2003 (the "Administrative Bar Date").

Nieves asserts that her counsel never received the Notice and that the first communication received by the firm concerning Kmart's Chapter 11 filing was on or about October 30, 2003, in the form of a letter addressed to Marvin Walden from Kmart's personal injury counsel, Michael J. Leegan. In that letter, Leegan asserted that Nieves' claim was time-barred for failure to file by the Administrative Bar Date, and he demanded that the state court suit be dismissed.

Marvin Walden then advised Susan Walden, the attorney at the Greenberg Walden firm that handles all bankruptcy matters, of the missed bar date affecting Nieves' claim. Susan Walden avers, in an affidavit annexed to Nieves' reply brief, that it thereupon "became [her] responsibility to assume the bankruptcy aspect of Ms. Nieves' personal injury litigation."

Ms. Walden began calling Leegan's office immediately to obtain information necessary for the filing of a motion with this Court, but she received no response until December 3, 2003. She prepared and filed a motion less than two weeks later, on December 15, 2003. The motion was re-filed, together with a notice of hearing, on December 22, 2003. Ms. Walden also transmitted the claim form to Trumbull on December 10, 2003, and it was received on or about December 15, 2003.

Kmart contends that the Motion should be denied because Kmart properly served Nieves' counsel with notice of the Administrative Bar Date. Kmart submits in support the affidavit of Marc V. Orfitelli, a Case Analyst at Trumbull, attesting to the mailing of the Notice on May 9, 2003 to "NIEVES, MARIA C/O ATTORNEY AT LAW MARVIN R. WALDEN JR. 425 59^TH STREET WEST NEW YORK, NJ 07093." Orfitelli further avers that on May 19, 2003, the Notice was mailed to Nieves again, together with a claim form, at the same address and that neither the May 9 nor the May 19 mailing was returned as undeliverable.

In response to Kmart's position, Nieves submits the affidavits of Susan Walden and her secretary, Cary Betancourt. Ms. Walden, who has been handling the firm's bankruptcy matters for over ten years, avers that the procedure for opening and processing mail at the Greenberg Walden firm has been standardized for more than a decade and is reliable. The office mail clerk picks up the mail on a daily basis at 10:15 a.m. He then opens and separates the mail "according to attorney and subject matter." All "bankruptcy matters" are placed on the desk of Cary Betancourt, who is responsible for reviewing, calendaring, and delivering the matters to Ms. Walden. Ms. Walden avers that "[a]t no time did she receive an Administrative Bar Date Notice or an Administrative Expense Claim Request Form."

Cary Betancourt also attests to the daily routine of opening and sorting the mail according to attorney and subject matter and that she is responsible for receiving, calendaring, and forwarding all bankruptcy matters to Susan Walden. She further avers that the first time she saw any documentation concerning the Kmart bankruptcy was on or about October 30, 2003, when she received Leegan's letter, discussed above. She never saw the Administrative Bar Date Notice or the claim form.

The Betancourt and Susan Walden affidavits were the only affidavits submitted on Nieves' behalf. In the latter affidavit, Susan Walden also avers that she timely submitted Nieves' Personal Injury Questionnaire in order to comply with the deadline for same (under the alternative dispute resolution procedures for postpetition personal injury claims adopted by Court order dated September 8, 2003).

A fundamental requirement of due process is "notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Mullane v. Central Hanover Bank Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950) (citations omitted). Accordingly, unless a creditor is given reasonable notice of the bankruptcy case and the relevant bar dates, his claim cannot be constitutionally discharged. In re O'Shaughnessy, 252 B.R. 722, 729 (Bankr. N.D. Ill. 2000) (citations omitted); see also Chemetron Corp. v. Jones, 72 F.3d 341, 346 (3^rd Cir. 1995), cert. denied, 517 U.S. 1137, 116 S.Ct. 1424, 134 L.Ed.2d 548 (1996).

The court reviews the totality of circumstances to determine whether reasonable notice was given. O'Shaugnessy, 252 B.R., at 730. The court should consider, among other things, whether any inadequacies in the notice prejudiced the creditor and whether notice was given in enough time to afford a creditor sufficient opportunity to respond to "the impending deprivation of its rights." O'Shaugnessy, 252 B.R., at 730 ( citing In re Walker, 149 B.R. 511, 514 (Bankr. N.D. Ill. 1992)).

The Supreme Court has "repeatedly recognized that mail service is an inexpensive and efficient mechanism that is reasonably calculated to provide actual notice." Tulsa Professional Collection Services, Inc. v. Pope, 485 U.S. 478, 490, 108 S.Ct. 1340, 99 L.Ed.2d 565 (1988). Mail properly addressed, stamped, and deposited in the mail system is presumed to have reached its destination in the usual time and to have actually been received by the party to whom it was addressed. See, e.g., Hagner v. U.S., 285 U.S. 427, 430, 52 S.Ct. 417, 76 L.Ed. 861 (1932); In re Bucknum, 951 F.2d 204, 207 (9^th Cir. 1991).

This presumption of receipt is rebuttable. However, while a simple denial of receipt may create a question of fact, it does not rebut the presumption. See In re Longardner Assoc., Inc., 855 F.2d 455, 459 (7^th Cir. 1988), cert. denied, 489 U.S. 1015, 109 S.Ct. 1130, 103 L.Ed.2d 191 (1989); In re Pettibone Corp., 123 B.R. 304, 310 (Bankr. N.D.Ill. 1990); see also In re Ms. Interpret, 222 B.R. 409, 413 (Bankr. S.D.N.Y. 1998) ("a party must do more than merely assert that it did not receive the mailing; its testimony or affidavit of non-receipt is insufficient, standing alone, to rebut the presumption").

Here, Kmart claims the benefit of the presumption based on the Orfitelli affidavit, and Nieves seeks to rebut it based on the Betancourt and Susan Walden affidavits, which attest to non-receipt as well as to the firm's standardized practice in sorting and routing the mail.

In certain instances, evidence of standardized procedures used in processing and routing mail may be sufficient, in combination with testimony of non-receipt, to rebut the presumption. See, e.g., In re Dodd, 82 B.R. 924, 929 (N.D.Ill. 1987). The affidavits submitted on behalf of Nieves, however, fall short of the required showing.

While the Court does not expect a small firm to describe the elaborate sorting and routing procedures that a large firm (such as Merrill Lynch, in the Dodd case) would be able to provide, the showing must nonetheless be as detailed and thorough as possible. The Betancourt and Susan Walden affidavits describe the firm's procedures for sorting and routing mail, but there is no affidavit of non-receipt submitted by Marvin Walden. Although all "bankruptcy matters" at the Greenberg Walden firm are supposed to be routed to Cary Betancourt and Susan Walden, the "office mail clerk" initially sorts the mail "according to attorney and subject matter." It is therefore at least possible (if not likely) that the Notice was routed to Marvin Walden, the attorney whose name was included in the address. Indeed, the presumption itself assumes that the mail was received by the person to whom it was addressed. See, e.g., Hagner, 285 U.S. at 430; Bucknum, 951 F.2d at 207. Under the circumstances, the failure to include an affidavit from Marvin Walden is fatal to Nieves' attempt to rebut the presumption. Accordingly, the Court finds that the presumption of receipt has not been rebutted.

Nieves further contends that her claim should be deemed timely "for equitable reasons." She urges, inter alia, that Kmart failed to timely respond to inquiries and "veil[ed the state court] litigation with legitimacy by continuing in the litigation and negotiation process" notwithstanding the automatic stay. She also points out that the timely filing of the personal injury questionnaire eliminates any claim of prejudice.

In this regard, Nieves essentially seeks relief on excusable neglect grounds. Rule 9006(b)(1) of the Federal Rules of Bankruptcy Procedure provides in relevant part that

when an act is required or allowed to be done at or within a specified period by these rules or by a notice given thereunder or by order of court, the court for cause shown may at any time in its discretion . . . (2) on motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect.

Prior to the Supreme Court's decision in Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), there was a disagreement among the circuits as to the meaning and scope of "excusable neglect." Robb v. Norfolk Western Railway Co., 122 F.3d 354, 358 (7^th Cir. 1997). The Seventh Circuit was among those that interpreted the phrase narrowly. Id. That narrow approach was rejected in Pioneer, and the Supreme Court made it clear that neglect could be excusable even where it was the result of carelessness on the part of a litigant or his attorney.

Of course, not all carelessness is excusable. The Supreme Court concluded in Pioneer that the determination of whether neglect is "excusable"

is at bottom an equitable one, taking account of all relevant circumstances surrounding the party's omission. These include . . . the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith.

The four factors cited by the Court are, however, not exclusive. As our Circuit Court of Appeals has noted, the Supreme Court "specifically rejected an approach that would `narrow the range of factors to be considered.'" Robb, 122 F.3d at 362. The Seventh Circuit has also noted, without deciding the issue, that three of its "sister circuits have held that fault in the delay is the preeminent factor in the Pioneer analysis." In re Kmart Corp. (Appeal of Wilhemina Simmons), 381 F.3d 709, 715, (7^th Cir. 2004). In Simmons, the Court found the reason for the delay a "poor one" and "immensely persuasive" in the excusable neglect inquiry. Id.

Here, the reasons given for the delay are that the Notice was never received and that Kmart engaged in misconduct contributing to the delay. The Court has found, however, that the Notice was in fact received. As for the contention that Kmart "veiled" the state court action with legitimacy by continuing to litigate notwithstanding the automatic stay, it is clear that Nieves misunderstands the scope of that stay. The stay of § 362 of the Bankruptcy Code did not apply to Nieves' state court action, because that action was based on a claim that arose postpetition.

The Court finds the reasons for the delay in this case to be "poor ones," Indeed, even though Nieves and her counsel have acted in good faith, and even assuming that Kmart would not be prejudiced, under all the circumstances presented here, the relief requested must be denied. Setting a precedent of excusable neglect on these facts would undermine the goal of "deter[ring] creditors . . . from freely ignoring court-ordered deadlines." Pioneer, 507 U.S. at 395.

For all the foregoing reasons, the Court denies the Motion of Maria Nieves to Accept Administrative Claim as Timely Filed for Equitable Reasons or, in the Alternative, to Approve a Matter-Specific Exception to the Administrative Claim Bar Date. This opinion constitutes the Court's findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052. A separate order will be entered pursuant to Bankruptcy Rule 9021.