APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA (Scranton) D.C. Nos. 81-0146 and 81-0147
Before: HUNTER, HIGGINBOTHAM, Circuit Judges and ACKERMAN,*fn* District Judge
ACKERMAN, District Judge:
This appeal raises the issue of whether a bankruptcy judge has the equitable power to allow proofs of claim filed by creditors after expiration of the statutory six month period for filing such proofs set out in Section 57(n) of the Bankruptcy Act, 11 U.S.C. § 93(n). The bankruptcy judge permitted two creditors to file untimely proofs of claim over the objections of another creditor, Conestoga Ceramic Tile Distributors, Inc., ("Conestoga") the appellant. On appeal, the district court affirmed summarily.For reasons expressed herein, we reverse the district court and remand for proceedings in accordance with this opinion.
On September 19, 1978, James P. Pigott, doing business as James P. Pigott Building Materials, filed a voluntary petition in bankruptcy. He listed the Commonwealth of Pennsylvania, Department of Revenue as a priority tax creditor. On October 5, 1978, the first meeting of creditors was held. The six month statutory period for filing claims runs from this date. At this meeting, Landis & Co. ("Landis") was listed as a creditor claiming $1,885.00.
Landis completed a Proof of Claim and forwarded it to its attorney in late January, 1979. Upon receipt of the Proof of Claim form, Landis' counsel contacted the Trustee, Edward Harker, Esquire, to ascertain the procedure for filing and completing a valid proof of claim.
On March 28, 1979, an accident at the Three Mile Island Nuclear Reactor occurred, discharging low level radiation. A mass evacuation of the area was under consideration by the governor of the state. The uncertainty and anxiety created by the crisis allegedly disrupted business in the area. Around March 30, 1979, Landis' counsel telephoned the Trustee to explain that their office was being evacuated by choice and that as a result, formal filing of the Proof of Claim would be delayed beyond the due date of April 5, 1979. The Trustee stated that he had no objection to the late filing.
Subsequently, Landis' Proof of Claim was sent to the Trustee on April 11, 1979. The Trustee received it on April 13 and its was filed with the Bankruptcy Court on April 24, 1979.
The Commonwealth of Pennsylvania filed its Proof of Claim on June 30, 1979. The late filing was apparently the result of bureaucratic inertia.
Conestoga filed timely objections to the Proofs of Claim of both Landis and the Commonwealth. The Trustee objected only to the Commonwealth's claim.
The bankruptcy court, relying primarily on Pepper v. Litton, 308 U.S. 295, 84 L. Ed. 281, 60 S. Ct. 238 (1939), decided in the exercise of discretion to allow the claims of both Landis and the Commonwealth. On appeal, the district court affirmed summarily in an order dated April 23, 1981.
As a threshold matter, the parties disagree as to the correct standard of review applicable to this appeal. The appellant, Conestoga, contends that the appropriate standard is the "clearly erroneous or contrary to law" standard. The appellees argue that review should be limited to determining whether there was an abuse of discretion. In our judgment, Conestoga's view is correct. The abuse of discretion standard is only relevant if under applicable law the issue is left to the discretion of the court ...