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DAVIS POLK & WARDWELL LLP 450 Lexington Avenue New York, New York 10017 Telephone: (212) 450-4000 Facsimile: (212) 701-6001 Marshall S. Huebner Timothy Graulich Lynn I. Poss Counsel to the Reorganized Debtors
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x In re: STAR TRIBUNE HOLDINGS CORPORATION, et al., Reorganized Debtors.1
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Chapter 11 Case No. 09-10244 (RDD) (Jointly Administered)
REORGANIZED DEBTORS’ RESPONSE TO PETITION OF STEPHEN
DANFORTH AND OBJECTION TO RELATED PROOF OF CLAIM
Star Tribune Holdings Corporation (“Star Tribune Holdings”), The Star
Tribune Company (together, the “Debtors”), Star Tribune Media Holdings Company,
Star Tribune Media Intermediate Holdings Company I, Star Tribune Media Intermediate
Holdings Company II and Star Tribune Media Company LLC (collectively with the
Debtors, the “Reorganized Debtors”), submit this memorandum of law in response (the
“Response”) to the Petition for Relief from Injunction in Order Confirming Debtors’
1 The Reorganized Debtors are Star Tribune Holdings Corporation, Star Tribune Media Holdings
Company, Star Tribune Media Intermediate Holdings Company I, Star Tribune Media Intermediate Holdings Company II and Star Tribune Media Company LLC.
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Amended Joint Plan of Reorganization (etc) and for Leave to File Proof of Claim Nunc
Pro Tunc and/or to Liquidate Unliquidated Claim in State Action, entered on November
20, 2009 [ECF No. 493]2 (the “Petition”) by Stephen Danforth (“Petitioner”).3 As
described in further detail herein, Petitioner—an incarcerated person under sentence for a
felony conviction—seeks relief related to allegedly libelous statements in an article
published in the Star Tribune in 2007.
I. FACTS
A. Background of Reorganized Debtors’ Chapter 11 Cases
1. On January 15, 2009 (the “Petition Date”), the Debtors filed voluntary
petitions for relief under chapter 11 of the United States Bankruptcy Code (the “Code”).
By order dated April 14, 2009 (the “Bar Date Order”), the Court established May 27,
2009 (the “Bar Date”) as the last day by which certain proofs of claim could be timely
filed in these cases. In accordance with the Bar Date Order, on April 19, 2009, written
notice of the Bar Date (the “Bar Date Notice”) was (a) mailed to known creditors on the
Debtors’ books and records, statements of financial affairs and schedules of assets and
liabilities; (b) published in the Star Tribune; and (c) posted on the Debtors’ case
information website. An affidavit attesting to the publication of the Bar Date Notice
[ECF No. 245] is attached hereto as Exhibit A.
2 The docket entry for [ECF No. 493] indicates that the Petition was filed on October 21, 2009 and
that the Petition was entered on the Court’s ECF System on November 20, 2009.
3 For purposes of this Response, references to the “Reorganized Debtors” shall refer to the pre-reorganization “Debtors” as the context may require.
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2. On September 17, 2009, the Court entered an order (the “Confirmation
Order”) confirming the Debtors’ Amended Joint Plan of Reorganization under Chapter
11 of the Code (as confirmed, the “Plan”) and providing a mechanism to reserve stock
for filed disputed claims.4 On September 28, 2009 (the “Effective Date”), the Plan
became effective. On the Effective Date, the Reorganized Debtors completed the
Restructuring Transactions, and issued and distributed to the various Plan constituents
approximately 95% of the Plan Shares, 100% of the New Warrants and 100% of the New
Secured Term Notes (each as defined in the Plan).
B. Background of Petition
3. By letter dated September 29, 2009 and addressed to the publisher of the
Star Tribune (the “Retraction Demand”), Petitioner demanded retraction pursuant to
Minn. Stat. Section 548.06 of allegedly libelous statements in an article published by the
Star Tribune on October 22, 2007. See Retraction Demand, at 1-2 (attached hereto as
Exhibit B).
4. By letter dated October 8, 2009 (the “October 8 Letter”), Randy M.
Lebedoff, Senior Vice President and General Counsel of Star Tribune Media Company
LLC, notified petitioner that (a) the Star Tribune declined to retract either the story as a
whole or any of the specific statements identified in the Retraction Demand; (b)
Petitioner’s request for retraction was a claim that had been discharged pursuant to the
Plan and the Confirmation Order; and (c) pursuant to the Confirmation Order, Petitioner
4 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto
in the Plan.
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was “enjoined from ‘commencing or continuing in any manner any action or other
proceeding of any kind’ against the Reorganized Debtors.” October 8 Letter, at 1-2
(quoting Confirmation Order ¶¶ 68-70).
5. By letter dated October 14, 2009 (the “October 14 Letter”), and without
first obtaining any relief from this Court with respect to the discharge and injunction
provisions of the Confirmation Order, Petitioner acknowledged receipt of the October 8
Letter and submitted to the Reorganized Debtors a Summons and Complaint for a civil
action (the “Complaint”), dated October 15, 2009, in the Rice County District Court in
the State of Minnesota (the “State Court”), naming as defendants therein (a) Debtor Star
Tribune Holdings; (b) Debtor Star Tribune Holdings’ pre-emergence equity interest
holders: Avista Capital Partners, LP, Avista Capital Partners (Offshore), LP and
Christopher M. Harte 1992 Family Trust; (c) certain staff members of the Star Tribune:
Kevin Diaz, Rene Sanchez and Nancy Barnes; (d) Christopher M. Harte, the former
publisher of the Star Tribune; (e) Pat Diamond, the Deputy County Attorney for
Hennepin County, Minnesota; (f) Michael O. Freeman, the County Attorney for
Hennepin County, Minnesota; (g) Hennepin County, Minnesota; (h) Lori Swanson, the
Attorney General for the State of Minnesota; (i) the State of Minnesota; and (j) various
other parties. See October 14 Letter, at 1; Complaint, at 1. The Complaint seeks $50
million in damages and certain injunctive relief for, inter alia, alleged claims of (x) libel;
(y) invasion of privacy by public discussion of embarrassing assertions of private facts
and (z) denial of substantive due process, infliction of cruel and unusual punishment, and
denial of rights and privileges in violation of the U.S. Constitution. See Complaint ¶¶ 19-
62 (attached hereto as Exhibit C).
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6. On October 21, 2009, Petitioner filed the Petition with this Court, seeking
(a) relief from the injunctive provision of the Confirmation Order in order to liquidate the
unliquidated claim set forth in the Complaint; (b) leave to file a proof of claim herein;
and (c) an order permitting Petitioner to liquidate the unliquidated claim set forth in the
Complaint to judgment against the Debtors.5 See Petition ¶¶ 1-3 (attached hereto as
Exhibit D).
7. Contemporaneously therewith, Petitioner filed a Supplemental Affidavit in
Support of the Petition (the “Danforth Affidavit”), alleging, inter alia, that Petitioner (a)
was first notified of these chapter 11 cases by the October 11 Letter; (b) “never saw
any . . . published notice of the pendency of this action” in the Star Tribune; (c) “never
regularly read the Star Tribune,” can recall only “six instances of even merely glancing at
an issue of the Star Tribune” in the first half of 2009 and has had “only sporadic
opportunities for access to isolated issues of that newspaper”; and (d) was “unaware of
any need to file a claim in this bankruptcy proceeding.” Danforth Affidavit ¶¶ 4-6
(attached hereto as Exhibit E).
8. The Danforth Affidavit further states that it is Petitioner’s “general
understanding that ‘debts’/‘claims’ based on intentional or willful tortious misconduct
perpetrated maliciously are not dischargeable in bankruptcy.” Finally, the Danforth
Affidavit states that “notwithstanding the lack of any service upon, or effective means of
notice to a prison inmate” such as himself, Petitioner “do[es] not believe that either
5 It should be noted that the Petition is devoid of citation to any legal authority supporting the
relief requested therein. Accordingly, this Response addresses legal arguments upon which Petitioner presumably intends to rely, but which are not expressly set forth therein.
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bankruptcy law or this Court countenances such unjust . . . manipulation of bankruptcy
proceedings . . . to extinguish substantively valid causes of action . . . through laying such
a silent trap for the uninformed.” Danforth Affidavit ¶¶ 9-11.
9. By letter dated October 26, 2009, Faegre & Benson LLP—Minnesota
counsel to the Reorganized Debtors—informed Petitioner that (a) pursuant to Minn. Stat.
§541.07(1), the two-year statute of limitations applicable to the claims asserted in the
Complaint had expired; (b) Petitioner had not obtained effective service within the
limitations period upon any of the defendants named in the Complaint; and (c) the claims
asserted in the Complaint were therefore barred by the applicable statute of limitations.
10. On November 12, 2009, Petitioner submitted to the Court a “proposed
proof of claim,” to be appended to the Petition, for a $50 million unsecured non-priority
claim.
11. By order dated December 16, 2009, the State Court, inter alia, dismissed
the Complaint on the merits and with prejudice as frivolous. See State Court Order ¶¶ 1-
5 (attached hereto as Exhibit F).
12. For the reasons set forth below, the Petition should be denied in all
respects and an order should be entered declaring the Complaint to be void as to each of
the Reorganized Debtors and Petitioner’s claim to have been discharged, disallowing and
expunging Petitioner’s “proposed proof of claim” and enjoining Petitioner from further
violation of the injunction set forth in the Confirmation Order.
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II. ARGUMENT
13. As set forth in further detail below, the Petition should be denied for at
least four independent reasons. First, the Complaint is wholly without legal merit and has
been dismissed with prejudice by the State Court, thereby rendering the relief sought in
the petition moot. Second, even if the Complaint had not been dismissed, it was void
because it asserted a claim which has been discharged pursuant to, and which the
Petitioner is enjoined from pursuing by, the Confirmation Order. Third, Petitioner’s
claim is untimely and petitioner has not demonstrated a basis for allowing his late claim.
Finally, the Petition is equitably moot.
A. The Complaint Has Been Dismissed With Prejudice
14. As noted above, on December 16, 2009, the State Court dismissed with
prejudice the Complaint as frivolous. Accordingly, the Petition is now moot, as it relates
entirely to the relief sought in the Complaint, which has been rejected by the State Court
on the merits.
B. The Relief Sought in the Complaint Constituted a Discharged Claim
i. Petitioner Seeks a Pre-Petition Claim
15. The relief sought in the Complaint constituted a “claim” as defined in the
Code. According to § 101(5) of the Code, a “claim” is defined to include:
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or (B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to
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judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.
11 U.S.C. § 101(5). “Congress gave the term ‘claim’ ‘the broadest available definition’
in the Bankruptcy Code.” In re Worldcom, Inc., 546 F.3d 211, 216 (2d Cir. 2008)
(quoting FCC v. NextWave Pers. Commc'ns Inc., 537 U.S. 293, 302 (2003)); see In re
Manville Forest Prods. Corp., 209 F.3d 125, 128 (2d Cir. 2000) (“Congress gave the
term claim a broad definition and ‘contemplate[d] that all legal obligations of the debtor,
no matter how remote or contingent, will be able to be dealt with in the bankruptcy
case.’”) (quoting In re Chateaugay Corp., 944 F.2d 997, 1003 (2d Cir. 1991)).
16. Although the Complaint did not state a basis for relief, if it had, such relief
would have consisted of the right to receive payment of up to the $50 million damages
award sought therein. This would have entailed a right to reach the Reorganized
Debtors’ assets and, therefore, would have amounted to a pre-petition “claim” for
bankruptcy purposes. See e.g., In re Worldcom, Inc., 546 F.3d 211, 216 (2d Cir. 2008)
(“a claim should be deemed to exist whenever, in the absence of bankruptcy, a particular
claimant has the right to reach the debtor’s assets”) (internal quotation marks omitted).6
6 The Complaint asserted a broad prayer for injunctive relief “forbidding Defendants, or any of
them, from publishing in any way or releasing to anyone any information or assertions about Plaintiff.” Complaint, Paragraph C, page 23. This aspect of the Complaint does not alter the conclusion that the Complaint sought a pre-petition claim. Afterall, the only conceivable sanction for violation of the requested injunction would be a contempt order to pay some amount of money, tied in some fashion to any injury actually caused by that violation. Petitioner’s equitable claims thus were inextricably intertwined with his claims for monetary damages. Accordingly, the Complaint constituted a pre-petition “claim” for bankruptcy law purposes.
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ii. The Complaint was Void
17. Pursuant to the Confirmation Order, Petitioner’s claim, if any, has been
discharged and Petitioner was enjoined from filing the Complaint. The Confirmation
Order provides in relevant part that:
[A]ll existing Claims against the Debtors and Interests in the Debtors shall be . . . discharged and terminated, and all holders of Claims and Interests . . . shall be precluded and enjoined from asserting against the Reorganized Debtors, their successors or assignees, or any of their assets or properties, any other or further Claim or Interest based upon any act or omission, transaction or other activity of any kind or nature that occurred prior to the Effective Date, whether or not such holder has filed a Proof of Claim and whether or not the facts or legal bases therefor were known or existed prior to the Effective Date. . . . [E]ach holder . . . of a Claim or Interest and any Affiliate of such holder is deemed to have forever waived, released and discharged the Debtors . . . of and from any and all Claims, Interests, rights and liabilities that arose prior to the Effective Date. Upon the Effective Date, all such persons are forever precluded and enjoined . . . from prosecuting or asserting any such discharged Claim against or terminated Interest in the Debtors. . . . [A]ll persons or entities who have held, hold or may hold Claims or Interests and all other parties-in-interest . . . are permanently enjoined, from and after the Effective Date, from (a) commencing or continuing in any manner any action or other proceeding of any kind with respect to any such Claim or Interest against the Debtors, the Reorganized Debtors or property or interest in property of any Debtor or Reorganized Debtor, other than to enforce any right to a distribution pursuant to the Plan. . . .
Confirmation Order ¶¶ 68 and 70 (emphasis added).
18. The import of these provisions is clear: Any alleged claim by Petitioner in
respect of the October 22, 2007 article would have arisen no later than the date of
publication—which occurred almost two years before the Effective Date—and thus any
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such alleged claim would have been discharged, and Petitioner would now be enjoined
from “commencing or continuing in any manner any action or other proceeding of any
kind” against the Reorganized Debtors with respect to any such alleged claim.
19. Petitioner appears to erroneously rely on section 523(a)(6) of the Code in
asserting that “‘debts’/‘claims’ based on intentional or willful tortious misconduct
perpetrated maliciously are not dischargeable in bankruptcy.” Danforth Affidavit ¶¶ 9-11.
Section 523(a)(6) of the Code—which provides that debts based on willful and malicious
injury, such as intentional torts, are not dischargeable in bankruptcy—applies only to
individual debtors and is inapplicable here because the Reorganized Debtors are entities
rather than individuals. See, e.g., In re Spiegel Inc., No. 03-11540, 2007 Bankr. LEXIS
234, at *15 (Bankr. S.D.N.Y. Jan. 23, 2007) (section 523(a) “applies only to individual
debtors and is inapplicable to these corporate debtors.”) (citing Towers v. United States
(In re Pacific-Atlantic Trading Co.), 64 F.3d 1292, 1302 (9th Cir. 1995) (section “523
only applies to individual and not corporate debtors”)); see also 11 U.S.C. § 523(a)(6).
20. Lastly, actions taken in violation of an injunction set forth in a
confirmation order are void. See e.g., Spiegel, 2007 Bankr. LEXIS 234, at *15 (finding
that actions taken in violation of confirmation order injunction against commencing or
continuing actions with respect to claims against the debtors are void ad initio) (citing
48th Street Steakhouse, Inc. v. Rockefeller Group, Inc. (In re 48th Street Steakhouse,
Inc.), 835 F.2d 427, 431 (2d Cir. 1987); see also 7 Collier on Bankruptcy ¶ 362.11 (15th
ed. 2009) (“actions taken in violation of the stay are void and without effect”). Here, the
Complaint was a clear violation of the injunction against the commencement of
proceedings set forth in paragraph 70 of the Confirmation Order. Petitioner received
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clear and unambiguous notice of the injunction by way of the October 8 Letter and,
nevertheless, proceeded to knowingly and willfully violate the injunction by filing the
Complaint in the State Court. Only after having already violated the Confirmation Order
did Petitioner see fit to even attempt to seek relief from this Court For these reasons, the
entire Complaint was void, and the Reorganized Debtors hereby seek an order from this
Court to the effect thereof and enjoining Petitioner from further violation of the
injunction set forth in the Confirmation Order through pursuit of the action in the State
Court.7
C. There is No Basis for Allowing Petitioner’s Untimely Claim
21. Assuming arguendo that Petitioner’s claim was not discharged pursuant to
the Plan and Confirmation Order and the Complaint dismissed with prejudice,
Petitioner’s claim would nevertheless be barred as untimely because it was filed nearly
five months after the Bar Date. Moreover, there is no basis for granting Petitioner an
extension to file a late proof of claim.
i. Petitioner Had Legally Sufficient Notice of the Reorganized Debtors’ Bankruptcy Proceedings
22. The notice of the Bar Date published in the Star Tribune provided
Petitioner with legally sufficient notice of the Bar Date and these chapter 11 proceedings.
Petitioner indicated in the Danforth Affidavit that he was first notified of these chapter 11
cases by the October 11 Letter and that he “never saw any . . . published notice of the
pendency of this action” in the Star Tribune. Danforth Affidavit ¶ 5. These assertions,
7 As previously noted, the Complaint was dismissed by the State Court with prejudice.
Accordingly, there is no valid lawsuit pending in the State Court.
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even if true, would not excuse Petitioner’s failure to timely a proof of claim, because
Petitioner was an unknown creditor and, as such, received adequate notice of the Bar
Date through publication of the Bar Date Notice in the Star Tribune.
23. In evaluating whether proper notice has been provided to a claimant
attempting to file a late claim, it has been noted that “[i]n chapter 11, a known creditor
must receive proper, adequate notice before its claim is forever barred,” and that this
determination is fundamentally “an equitable one.” In re Dana Corp., No. 06-10354,
2007 Bankr. LEXIS 1934, at *9 (Bankr. S.D.N.Y. May 30, 2007). In In re XO
Communications, Inc., the court examined the adequacy of notice as required by the Due
Process Clause of the Fifth Amendment: “[The Due Process Clause] dictates that a
debtor’s creditors receive notice of the debtor’s bankruptcy case and applicable bar date
so that creditors have an opportunity to make any claims they may have against the
debtor’s estate.” 301 B.R. 782, 791-92 (Bankr. S.D.N.Y. 2003). The court held that:
What type of notice is reasonable or adequate . . . depends on whether the creditor is “known” or “unknown” to the debtor. If a creditor is “known” to a debtor, actual notice of a debtor’s bankruptcy filing and bar date must be given to the creditor in order to achieve a legally effective discharge of the creditor’s claim. If the creditor is “unknown” to the debtor; however, constructive notice is generally sufficient. Constructive notice can be satisfied through publication notice . . . .
Id. at 792-93 (citation and footnotes omitted). A “known” creditor includes a claimant
whose identity “is actually known to the debtor” or whose identity “is ‘reasonably
ascertainable’ by the debtor.” Id. at 793 (quoting Chemtron Corp. v. Jones, 72 F.3d 341,
346 (3d Cir. 1995)). An “unknown” creditor is a claimant “whose identity or claim is not
‘reasonably ascertainable’ or is merely ‘conceivable, conjectural or speculative.’” Id.
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(quoting In re Thomson McKinnon Sec., Inc., 130 B.R. 717, 720 (Bankr. S.D.N.Y. 1991);
see e.g., In re Texaco Inc., 182 B.R. 937, 955 (Bankr. S.D.N.Y. 1995); Drexel Burnham
Lambert Group, Inc., 151 B.R. 674, 680 (Bankr. S.D.N.Y. 1993).
24. For tort claimants, publication is sufficient where such claimants are
“unknown.” See In re McCrory Corp., 93 Civ. 4054, 1994 U.S. Dist. LEXIS 947, at *4
(S.D.N.Y. Feb. 2, 1994) (“Publication suffices as to . . . unknown [tort] claimants.”); see
also Texaco, 182 B.R. at 957 (noting that a debtor is “not required to give actual notice to
creditors with merely conceivable, conjectural or speculative claims”) (internal quotation
marks omitted). Additionally, a “debtor is not charged with the knowledge of the
existence of a contingent claim absent a claimant’s express statement of its intent to lodge
a future claim against the debtor.” In re Agway, Inc., 313 B.R. 31, 39 (Bankr. N.D.N.Y
2004).
25. Here, Petitioner is a purported claimant neither actually known nor
reasonably ascertainable by the Reorganized Debtors at the time notice was provided of
the Bar Date. Petitioner never conducted business with the Reorganized Debtors, never
sold any products or services to the Reorganized Debtors and never lodged any
complaints concerning or stated an intent to lodge a future claim against the Reorganized
Debtors. Consequently, the Reorganized Debtors did not have knowledge of Petitioner’s
alleged claim or the basis thereof until receiving the Retraction Demand after September
29, 2009 and the Reorganized Debtors could not possibly have anticipated such alleged
claim prior to that time.
26. In order for the Reorganized Debtors to have provided actual notice to
Petitioner (or any similarly situated potential claimant), the Reorganized Debtors would
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have needed to mail a notice of the Bar Date to every single person about whom an
article had been published in the Star Tribune prior to the Petition Date. Such an
undertaking is neither possible nor legally required. Petitioner is the quintessence of an
unknown claimant. Accordingly, publication notice of the Bar Date was sufficient. See
McCrory, 1994 U.S. Dist. LEXIS 947, at *4; see also In re Agway, Inc., 313 B.R. 31, 39
(Bankr. N.D.N.Y 2004); Texaco, 182 B.R. at 957.
ii. Petitioner Failed to Meet His Burden of Proving Excusable Neglect
27. Notwithstanding the sufficiency of the notice of the Bar Date provided to
Petitioner, the Court could nevertheless allow the late filing of Petitioner’s claim upon a
showing of excusable neglect pursuant to rule 9006(b)(1) of the Federal Rules of
Bankruptcy Procedure.8 “The burden of proving excusable neglect lies with the late-
claimant.” Midland Cogeneration Venture Ltd. v. Enron Corp. (In re Enron Corp.), 419
F.3d 115, 121 (2d Cir. 2005) (internal quotation marks omitted); see XO Commc’ns, 301
B.R. at 795 (“The burden is on the claimant to prove that he or she did not timely file the
proof of claim because of excusable neglect.”); McCrory, 1994 U.S. Dist. LEXIS 947, at
*3. However, Petitioner has not demonstrated excusable neglect and, consequently, the
Court should not allow the late filing of Petitioner’s claim.
8 Rule 9006(b)(1) of the Federal Rules of Bankruptcy Procedure provides in pertinent part:
Except as provided in paragraphs (2) and (3) of this subdivision, 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 . . . 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.
Fed.R.Bankr.P. 9006(b)(1).
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28. The Supreme Court has established four considerations to be weighed in
determining the existence of excusable neglect: (a) danger of prejudice to the debtor; (b)
the length of the delay and its potential impact on judicial proceedings; (c) the reason for
the delay, including whether it was within the reasonable control of the claimant; and (d)
whether the claimant acted in good faith. See Pioneer Inv. Servs. Co. v. Brunswick
Assocs. Ltd. P’ship, 507 U.S. 380, 395 (1993). The Court of Appeals for the Second
Circuit has “taken a hard line” in applying these factors, noting that “a party claiming
excusable neglect will, in the ordinary course, lose under the Pioneer test.” Midland, 419
F.3d at 122-23 (internal quotation marks omitted). Pursuant to this “hard line” approach,
the Second Circuit has explained that “in the ‘typical’ case, ‘three of the [Pioneer]
factors’—the length of the delay, the danger of prejudice, and the movant’s good faith—
‘usually weigh in favor of the party seeking the extension.’” Id. at 122 (quoting Silivanch
v. Celebrity Cruises, Inc., 333 F.3d 355, 366 (2d Cir. 2003) (alteration in original).
Accordingly, “the Second Circuit has ‘focused on the third factor: the reason for the
delay, including whether it was in the reasonable control of the movant.’” In re Enron
Creditors Recovery Corp., 370 B.R. 90, 101 (Bankr. S.D.N.Y. 2007) (quoting Midland,
419 F.3d at 122). This Response addresses each of the relevant factors in turn.
a. Petitioner’s Late Claim Will Prejudice the Reorganized Debtors
29. Courts have identified a number of considerations relevant to determining
prejudice in the context of excusable neglect, “including (1) the ‘size of the late claim in
relation to the estate,’ (2) ‘whether a disclosure statement or plan [of reorganization] has
been filed or confirmed with knowledge of the existence of the claim,’ and (3) ‘the
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disruptive effect that the late filing would have on a plan close to completion or upon the
economic model upon which the plan was formulated and negotiated.’” In re Enron,
Corp., No. 01-16034, 2007 Bankr. LEXIS 655, at *26 (Bankr. S.D.N.Y. Feb. 23, 2007)
(quoting In re Keene Corp., 188 B.R. 903, 910 (Bankr. S.D.N.Y. 1995) (alteration in
original); see Midland, 419 F.3d at 130 (noting that courts, in determining prejudice,
analyze the size of the claim, whether the debtor had advance knowledge of the claim and
whether allowing a claim would likely precipitate a flood of similar claims). The inquiry
extends beyond dollar-for-dollar depletion to a broader consideration of the
circumstances. See Manousoff v. Macy’s Northeast, Inc. (In re R.H. Macy & Co.), 166
B.R. 799, 802 (S.D.N.Y. 1994). Each of these considerations supports a finding of
prejudice on the facts of these cases.
30. Petitioner’s putative claim for $50 million in damages would have been
substantial in relation to the Reorganized Debtors’ estate. In fact, Petitioner’s claim
would have constituted the single largest unsecured claim filed in these cases, amounting
to fully one-third of the total $150 million estimated unsecured claims pool9 and over
one-third of the Reorganized Debtors’ estimated $144 million enterprise value.10 Courts
have upheld findings of prejudice in cases where the late-filed claim was far smaller than
Petitioner’s claim in both relative and absolute terms. See, e.g., Midland, 419 F.3d at 131
9 Section 4.1 of the Plan provides that the projected recovery ranges listed therein are based on an
estimated $150 million of Unsecured Claims.
10 Blackstone Advisory Services L.P., estimated the enterprise value of the Reorganized Debtors to range from approximately $118 million to $144 million in the valuation analysis appended as Exhibit B to the Disclosure Statement for Debtors’ Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated July 30, 2009.
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(affirming a finding of prejudice in connection with a $12.5 million late-filed claim in the
context of a $900 billion bankruptcy; noting that, “in absolute terms, $12.5 million is no
small amount”) (internal quotation marks omitted); In re Drexel Burnham Lambert
Group, Inc., 148 B.R. 1002, 1007-08 (Bankr. S.D.N.Y. 1993) (late claim amounting to
20% of the claims for which payments remained to be processed was substantial).
31. Further, the Plan was filed, voted upon, confirmed and substantially
consummated11 without knowledge by the Reorganized Debtors, the claimholders or the
Court of the existence of Petitioner’s substantial alleged claim. As a result, the
Reorganized Debtors did not factor Petitioner’s claim into their calculations for
determining the necessary court-approved claims reserves and, consequently, have not
established an adequate reserve to accommodate Petitioner’s substantial claim. In such a
scenario, Courts have found that allowing the late-filed claim would be disruptive to the
economic model upon which the Plan was formulated and negotiated. See, e.g., In re
Alexander’s Inc., 176 B.R. 715, (Bankr. S.D.N.Y. 1995) (claim filed after confirmation of
plan of reorganization and partial distribution of assets would “disrupt the economic
model on which all parties reached their agreements”) (internal quotation marks omitted);
Drexel, 148 B.R. at 1007-08 (“acceptance of a substantial late claim after consummation
of a vigorously negotiated claims settlement and Plan of Reorganization thereon and a
distribution of a major part of the assets thereunder, would disrupt the economic model
on which the creditors, the Debtor and the stockholders had reached their agreements”).
11 See infra Section I.II.D. for further discussion regarding substantial consummation of the Plan.
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32. Finally, courts have found that prejudice to the debtor may result even
where the claim is not substantial in relation to the size of the estate and the claim is filed
before the plan of reorganization. See In re Enron Corp., 298 B.R. 513, 525-26 (Bankr.
S.D.N.Y. 2003) (“While [the] claim is not substantial in relation to the Debtors’ estate
and although the claim was filed before the Debtors filed their proposed plan of
reorganization and disclosure statement, the Court nevertheless finds that prejudice to the
Debtors is significant [because] allowing [the] late-filed proof of claims . . . would
adversely affect the Debtors’ assessment of their liabilities as well as negatively impact
their bankruptcy proceedings.”); see also Enron, 2007 Bankr. LEXIS 655, at *28
(explaining that allowing a late-filed claim may open the floodgates to extensive late
claims and explaining the impact on judicial proceedings of allowing a late-filed claim).
Here, a finding of excusable neglect could open the doors to a large number of other
potential claimants.
33. In light of these considerations, Petitioner’s late claim would undoubtedly
prejudice the Reorganized Debtors by adversely affecting their assessment of their
liabilities and grossly increasing the size of the unsecured claims pool beyond previously
relied upon estimates. Accordingly, a finding of prejudice is appropriate.
b. Petitioner’s Delay is Extensive and Will Impact These Proceedings
34. With regard to delay, the Midland court explained that while there is no
bright-line rule on what constitutes “substantial” delay, courts will look to the degree to
which the delay may disrupt the judicial administration of the case, including whether the
plan of reorganization has been filed or confirmed. See Midland, 419 F.3d at 128.
19
35. The Retraction Demand was dated September 29, 2009, which is nearly
two years after the publication date of the article to which it relates (October 22, 2007),
over four months after the Bar Date (May 27, 2009), 12 days after the Plan was
confirmed (September 17, 2009) and one day after the Plan became effective and the
Creditors’ Committee dissolved (September 28, 2009). Moreover, Petitioner did not file
the Petition until October 21, 2009. A delay of this duration is extensive, especially
considering that the Plan has already been confirmed and substantially consummated, and
that the entire case was only eight months in duration. Furthermore, the Reorganized
Debtors have not established an adequate claims reserve to accommodate a claim of this
magnitude. As a result, allowing Petitioner’s late claim would unavoidably have a
negative impact on these proceedings.
36. In this context, a finding of substantial delay, weighing against allowance
of Petitioner’s late claim, is warranted. See, e.g., XO Commc’ns, 301 B.R. at 795 (finding
substantial delay where late claim was filed approximately four months after publication
of bar date notice and three days after confirmation); In re Agway, 313 B.R. at 45
(finding that delay of approximately six months would negatively impact the bankruptcy
proceedings where unsecured creditors’ committee had already been disbanded); In re
Rainbow Trust, 179 B.R. 51, 55-56 (Bankr. D. Vt. 1995) (denying claimant’s defense of
excusable neglect where claim was submitted four months late); In re McCrory Corp.,
1994 U.S. Dist. LEXIS 947, at *4-5 (finding no basis for excusable neglect where claim
was submitted two years after occurrence of event that gave rise to claim and over five
months after bar date); see also In re Kmart Corp., 381 F.3d 709, 714-15 (7th Cir. 2004)
(rejecting claims filed just one day late).
20
c. There is No Valid Reason for Petitioner’s Delay
37. In light of the “hard line’ taken on excusable neglect in this jurisdiction,
the reason-for-delay factor has proven difficult to surmount by claimants when the delay
is within the claimants’ control. See, e.g., In re Enron, Corp., No. 01-16034, 2006 Bankr.
LEXIS 894, at *20 (Bankr. S.D.N.Y. Mar. 29, 2006) (noting that mistake or inadvertence
is generally insufficient to constitute excusable neglect); see also In re Agway, 313 B.R.
at 30 (declining to find excusable neglect where delay was within the claimant’s
reasonable control); In re Au Coton, Inc., 171 B.R. 16, 18 (S.D.N.Y. 1994). Here,
Petitioner has offered no explanation for his failure to take any action whatsoever with
respect to the allegedly libelous article published in the Star Tribune for nearly two years
after publication. Additionally, knowledge of the Bar Date is imputed to Petitioner by
virtue of the publication notice of the Bar Date in the Star Tribune. In light of these
considerations, there does not appear to be a valid reason for Petitioner’s delay. Further,
Petitioner’s failure to timely file a proof of claim was within his control upon
constructive notice of the Bar Date. Thus, the delay is inexcusable. Having sat on his
rights for so long, Petitioner should not now be able to avail himself of the equitable
principle of excusable neglect in order to extend the period for filing a proof of claim.
The equities clearly weigh in favor of disallowing Petitioner’s late claim.
D. The Petition is Equitably Moot
38. Independent of the other factors discussed herein, the Petition should be
denied in all respects based on the doctrine of equitable mootness because the Plan has
21
been substantially consummated and Petitioner has not sought a stay of the Confirmation
Order.
39. “Equitable mootness is a prudential doctrine that is invoked to avoid
disturbing a reorganization plan once implemented.” In re Metromedia Fiber Network,
Inc., 416 F.3d 136, 143 (2d Cir. 2005) (citing In re UNR Indus., 20 F.3d 766, 769 (7th
Cir. 1994). The doctrine is applicable by analogy to the facts here at hand, but is
typically invoked in appeals in bankruptcy cases. The doctrine generally provides that
appeals in bankruptcy cases “should . . . be dismissed as moot when, even though
effective relief could conceivably be fashioned, implementation of that relief would be
inequitable.” Metromedia, 416 F.3d at 143 (citing Official Comm. of Unsecured
Creditors of LTV Aerospace and Def. Co. v. Official Comm. of Unsecured Creditors of
LTV Steel Co. ( In re Chateaugay Corp.), 988 F.2d 322, 325 (2d Cir. 1993) [hereinafter
Chateaugay I]) (alteration in original).
40. “[A] plan is ‘substantially consummated’ upon [i] transfer of substantially
all of the property proposed by the plan to be transferred; [ii] the reorganized debtor’s
assumption of the debtor’s business; and [iii] commencement of distribution under the
plan.” Metromedia, 416 F.3d at 143 (citing 11 U.S.C. § 1101(2)). By this measure, the
Plan has been substantially consummated, as the Reorganized Debtors have already
issued and distributed approximately 95% of the Plan Shares, 100% of the New Warrants
and 100% New Secured Term Notes to the constituencies in these cases—comprising
substantially all of the property to be transferred under the Plan—and undergone the
Restructuring Transactions effecting the assumption of the Debtors’ business by the
Reorganized Debtors.
22
41. “When a plan has been substantially consummated, an appeal should be
dismissed unless several enumerated requirements are satisfied.” Metromedia, 416 F.3d
at 144 (citing Frito-Lay, Inc. v. LTV Steel Co. (In re Chateaugay Corp.), 10 F.3d 944,
952-53 (2d Cir. 1993) [hereinafter Chateaugay II]); see also UNR Indus., 20 F.3d at 769
(“In common with other courts of appeals, we have recognized that a plan of
reorganization, once implemented, should be disturbed only for compelling reasons.”).
Important among these requirements is whether the appellant sought a stay of
confirmation. See Metromedia, 416 F.3d at 144; Chateaugay II, 10 F.3d at 953. If the
appellant failed to seek a stay, courts in this jurisdiction consider whether that the failure
renders relief inequitable. See Metromedia, 416 F.3d at 144; Chateaugay II, 10 F.3d at
953.
42. Effectively, the Petition is a collateral attack on the Plan and the
distribution mechanic approved by this Court. Petitioner did not seek a stay of
confirmation, the Plan has been substantially consummated—such that it would be
impracticable if not impossible to unwind—and Petitioner seeks to pursue a claim that
would amount to over one-third of the Reorganized Debtors’ enterprise value for which
an adequate reserve is not available. Allowing Petitioner to proceed on this basis would
be highly inequitable to the Reorganized Debtors and to all of the existing claimholders
in these cases. Petitioner has not demonstrated justification for such relief. Accordingly,
Petitioner’s claim is equitably moot.
23
WHEREFORE, the Reorganized Debtors respectfully request that the
Petition be denied in its entirety, and for such other and further relief as is deemed just
and proper.
Dated: New York, New York January 11, 2010
By: /s/ Timothy E. Graulich Marshall S. Huebner
Timothy E. Graulich Lynn I. Poss
DAVIS POLK & WARDWELL LLP 450 Lexington Avenue New York, New York 10017 Telephone: (212) 450-4000 Facsimile: (212) 701-6001
Counsel to the Reorganized Debtors
STATE OF MINNESOTA )COUNTY OF HENNEPIN )
Linda S1. Clair, being duly sworn, on oath says she is and during all times herein stated has been an employee ofThe Star Tribune Company, a Delaware corporation with offices at 425 Portland Avenue, Minneapolis, Minnesota55488, publisher and printer of the Star Tribune newspaper (the "Newspaper"), published 7 days a week, and hasfull knowledge of the facts herein stated as follows:
1. The Newspaper meets the following qualifications:(a) The Newspaper is printed in the English language in newspaper format and in column and
sheet form equivalent in printed space to at least 1,000 square inches;(b) The Newspaper is printed daily and distributed at least five days each week;(c) In at least half of its issues each year, the Newspaper has no more than 75 percent of its printed
space comprised of advertising material and paid public notices. In all of its issues each year,the Newspaper has not less than 25 percent of its news columns devoted to news of localinterest to the community that it purports to serve. Not more than 25 percent of theNewspaper's non-advertising column inches in any issue duplicates any other publication;
(d) The Newspaper is circulated in the local public corporation which it purports to serve, and hasat least 500 copies regularly delivered to paying subscribers;
(e) The Newspaper has its known office of issue established in either the county in which it lies,in whole or in part, the local public corporation which the Newspaper purports to serve, or inan adjoining county;
(f) The Newspaper files a copy of each issue immediately with the state historical society;(g) The Newspaper is made available at single or subscription prices to any person, corporation,
partnership, or other unincorporated association requesting the Newspaper and making theapplicable payment;
(h) The Newspaper has complied with all the foregoing conditions for at least one yearimmediately preceding the date of the notice publication which is the subject of the Affidavit;and
(i) Between September 1 and December 31 of each year, the Newspaper publishes and submits tothe secretary of state, along with a filing fee of $25, a sworn United States Post Officeperiodical class statement of ownership and circulation.
2. The printed copy of the matter attached hereto (the "Notice") was copied from the columns of theNewspaper and was printed and published in the English language on the following days and dates: Sunday,April 19, 2009.
3. Except as otherwise directed by a particular statute requiring publication of a public notice, the Noticewas printed in a typeface no smaller than six point with a lowercase alphabet of 90 point.
Subscribed and sworn to before me on May 6, 2009
~~
Stephen DanforthMCF-Faribault- 1476361101 Linden LaneFaribault, MN 55021 -6400
September 29,2009
Mr. Christopher M. Harte, PublisherStar' Tribune Holdings Corp.425 Portlarrd AvenueMinneapolis, MN 55488-0002
RE: Notice: Demand for Retraction pursuant to Minn. Srsr. Section 548.06
Dear Mr. Harte:
I write to you in your capacity as publisher of the Star Tribune newspaper. Pursuant toMinn. Srar. Section 548.06, this letter serves as the notice and demand for retractiondescribed by that statute: This pertains to an article, "Right to confront accuser propelspedophile's case," by Kevin Diaz, appearing in an issue of the Star Tribune on or aboutOctober 22,2Q07, and posted, for a time, on the Web site operated by the Star Tribune.
Pursuant to the aforesaid statute, this will serve as notice that each of the foilowingstatements in that article are claimed to be libelous as to myself; by virtue of the languageI have underlined in each:
C .
"The U.S. Supreme Court will hear a Minnesota man's appeal over a 1996trial in which the victim. 6. testified on videotape." (emphasis supplied)"From the Prairie Correctional Facility in Appleton, Minnesota, where he isserving a26-year term for sexually abuslng a 6-year-old boy,...." (emphasissupplied)"But there will be little, if anything, said about the day in July i995 when hemolested the son of a friend at a swimming pool in Richfield" (emphasissupplied)"Convicted by a Hennepin County jury of first degree criminal sexualconduct, Danforth, a repeat pedophile whom psychiatrists termed a pattem sexoffender,. ..." (emphasis supplied)"Representing himself in his 1996 trial, he admitted to a multitude of 'petty
insanities and stranee practices' . . .." (emphasis supplied)"During a sentencing appeal in 1998, he complained about 'vicious
." (emphasissupplied)
A.
B.
D.
E.
F.
Christopher Harte. Publisher. Star Tribune September 29. 2009 Paee Two
G. "Danforth's accuser, identified in court papers as J.S., was scheduled to testifyat Danforth's original trial. But Richard Solum, now retired, decided afterinterviewing the boy that he was not competent to testiff before a jury.Although the boy had the abili{' to know and remember what happened, thejudge concluded, he was not capable of paying attention long enough to testifimeaningfully. " (emphasis supplied)"Instead, the boy told his story on videotape." (emphasis supplied)"Danforth ...said he had reformed, resolving merely to look at pictures ofchildren for sexual gratification. I've 6ecome a voyeur, he said." (emphasissupplied)
to the aforesaid statute, this is to request that each of statements A through H,withdrawn in the manner of "retraction" specified by that statute.
H.I.
Pursuantabove, be
Additionally, I claim that the entire article cited above libels me by implication andcharacterization. Therefore, this is to request that the entirety of that article be withdrawnin the manner of "retraction" specified by that statute.
Please publish that retraction and notify me by letter that such retraction has beenpublished identifuing and enclosing a copy of the page of the issue of the Star Tribuneincluding that retraction.
Thank you.
Sincerely.
;Wli.i*\*--%***.
Stephen Danforth, J.D.
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