In Re: Ditech Holding Corporation

Background

James Lapinski and Patricia Lapinski, representing themselves without lawyers, appealed a decision of the United States Bankruptcy Court for the Southern District of New York. The bankruptcy court had disallowed and expunged Proof of Claim 2625 and Proof of Claim 2687, which the Lapinskis filed in the Chapter 11 bankruptcy cases of Ditech Holding Corporation and certain affiliates.

The claims arose from the foreclosure of the Lapinskis’ mortgage. The Lapinskis executed a $168,000 promissory note secured by a mortgage on property in Deland, Florida. Green Tree Servicing, LLC, later renamed Ditech Financial LLC, brought a foreclosure action in Florida in 2014. The Florida trial court entered a summary final judgment of foreclosure in 2017, and a Florida appellate court affirmed. The Florida Supreme Court later denied the Lapinskis’ petition for rehearing.

Ditech and the other debtors began Chapter 11 bankruptcy proceedings in February 2019. The bankruptcy court ultimately set June 3, 2019, as the deadline for consumer borrowers to file proofs of claim. On November 8 and November 11, 2019, the Lapinskis filed Claims 2625 and 2687, respectively—both roughly five months after the deadline and after confirmation of the debtors’ amended bankruptcy plan.

The claims sought monthly rent payments of $1,950 from July 2013 through December 30, 2019, or later, adjusted for inflation. In later filings, the Lapinskis demanded $300,000 and alleged theft, fraud, collusion, constitutional violations, and malpractice. The Consumer Claims Trustee objected that the claims were untimely and failed to state a legally sufficient claim. On October 23, 2022, Bankruptcy Judge James L. Garrity, Jr. disallowed and expunged both claims for failure to state a claim.

Issues on Appeal

The Lapinskis argued that the Consumer Claims Trustee and its attorney misrepresented what they had presented to the bankruptcy court. They also argued that Judge Garrity improperly disallowed and expunged the claims based on doctrines including claim preclusion, issue preclusion, and the rule limiting federal review of certain state-court judgments, or did so without adequate legal reasoning.

D. R. Horton, Inc. and the Federal National Mortgage Association separately asked to be removed from the appeal under Federal Rule of Civil Procedure 21, arguing that they had been improperly joined. The Consumer Claims Trustee argued that the bankruptcy court’s decision should be affirmed.

Court’s Analysis

The district court affirmed the bankruptcy court’s decision on a different ground: the claims were untimely. An appellate court may affirm on any legal basis supported by the record, even if the lower court did not rely on that ground.

The court explained that a bankruptcy court’s claims deadline is an important part of administering a Chapter 11 case. Federal bankruptcy rules require the court to set a deadline for proofs of claim, and the deadline must generally be strictly observed. A court may extend the deadline for “excusable neglect,” a flexible standard that considers the danger of prejudice, the length and effect of the delay, the reason for the delay and whether it was within the claimant’s control, and whether the claimant acted in good faith. The party seeking an extension bears the burden of proving excusable neglect.

The district court found that the Lapinskis filed both claims after the operative June 3, 2019 deadline. It also found that the deadline had been made clear and that the record contained no explanation for the delay, even though timeliness had been raised in the objection, at the bankruptcy court hearing, and in the opposition to the appeal. The court therefore concluded that the Lapinskis had not carried their burden of proving excusable neglect.

Because the claims were untimely, the district court did not decide whether they stated legally sufficient claims for relief. The court also did not need to address the other grounds discussed by the Lapinskis.

Disposition

The opinion states that the appeal is dismissed and that the bankruptcy court’s decision is affirmed. In its conclusion, the court states that the bankruptcy court’s decision is AFFIRMED. D. R. Horton’s and Fannie Mae’s Rule 21 motions are DENIED as moot. The Lapinskis’ request at Docket No. 31 for copies of additional documents is also DENIED as moot. The clerk was directed to close the case and mail the opinion and order to the Lapinskis.