A recent opinion by the Bankruptcy Court for the District of Delaware underscores how important it is for creditors to file complete and well-reasoned proofs of claim. The opinion also highlights the problems creditors may encounter if they have to amend their claims.
SNMP Research International, Inc. (“SNMPRI”) sold and licensed software to customers. In 1999, Nortel Networks Inc. (“Nortel”) entered into a license agreement with SNMPRI to use certain of its software. On January 14, 2009, Nortel and a number of its affiliates filed Chapter 11 petitions in the Bankruptcy Court for the District of Delaware.
The bankruptcy court set September 30, 2009 as the date (the “Bar Date”) by which all non-governmental claims had to be filed. SNMPRI timely filed a proof of claim (the “Claim”) in the amount of $22,281.00 for unpaid royalties and other fees arising under the license agreement. Following discovery taken in response to Nortel’s objection to SNMPRI’s claim, SNMPRI filed an amended claim seeking over $8 million.
On November 23, 2016, over seven years after the Bar Date had passed, SNMPRI filed a motion seeking leave to amend the Claim, this time in order to (1) add SNMP Research, Inc. (“SNMPR”) (collectively with SNMPRI, “SNMP”) as a co-claimant, and (2) to increase the amount of the Claim to over $81 million. The basis for the proposed amended claim was SNMPRI’s argument that Nortel was liable to SNMP for copyright infringement.
The court denied the motion to amend the Claim citing numerous concerns. First, the court described the motion to amend as an unjustifiable request by SNMPRI to drastically alter the substantive nature of the Claim, namely to “convert its claim for contractual royalties to a claim for more than $81 million of alleged copyright infringement damages.”
Second, the court raised concerns with the fact that SNMPRI was seeking to add SNMPR to the Claim seven years after the Bar Date. The court noted that the “failure to add SNMPR to the Original Claim and the amendments was based on a ‘belief’ that it was unnecessary.” Nonetheless, the court stated “[t]he law is clear: ignorance is not a sufficient reason to permit amendment.” Additionally SNMPR was represented by counsel when it filed the Claim, and “[l]awyers are charged with knowing the law.”
Finally, the court was concerned with the increase in damages, describing it as being “massive” and finding that Nortel would be prejudiced if the court were to allow the Claim to be amended. The court held that the motion to amend came “far too late, [was] for too much and [is] not in the same nature as the Original Claim.” And while the court’s “decision may appear to be harsh,” the court held that this was so because the motion sought “unreasonable relief.”
The SNMPR case serves as a warning to creditors and creditors’ counsel alike when filing proofs of claim. Courts may be unwilling to allow amendments to proofs of claim when (1) a considerable amount of time has passed since the bar date, (2) the amended amount of the claim far exceeds the original amount of the claim, or (3) the amendment changes the substantive nature of the claim. Creditors and their counsel must ensure that proofs of claim include as much detail as possible at the time they are filed, that the amount sought is accurate and supported by appropriate documentation, and that all legal bases for the claim are asserted. While a motion to amend may be necessary in light of newly-discovered evidence, creditors and their counsel can avoid such motions by doing their due diligence and legal analysis before they file their proof of claim.