United States v. Worthington Investments, Inc. (In re Worthington Investments, Inc.)

184 B.R. 538, 75 A.F.T.R.2d (RIA) 2407, 1995 U.S. Dist. LEXIS 5831, 1995 WL 457227

• Court: District Court, S.D. Ohio
• Decided: April 12, 1995
• Docket: No. C-2-94-0430; Bankruptcy No. 93-50205
• Status: Published

Opinion

OPINION AND ORDER

KINNEARY, District Judge.

This matter comes before the Court to consider an appeal from the bankruptcy court’s April 5, 1994 order. The court below held that subordination is a proper penalty for. a priority creditor when that creditor filed a tardy claim despite having notice of the bankruptcy filing. This Court has jurisdiction to hear appeals from final judgments, orders, and decrees of bankruptcy judges. 28 U.S.C. § 158(a); Bankr.Rule 8001. A district court’s appellate review of a bankruptcy court decision is governed by Bankruptcy Rule 8013. A bankruptcy judge’s conclusions of law are subject to de novo review. For the reasons set forth below, the judgment of the bankruptcy court is REVERSED.-

This appeal presents the following question of law:¹ if a priority creditor had notice of the case and claims bar date but filed a claim one day after the bar date, should the creditor recover under 11 U.S.C. § 726(a)(1) or § 726(a)(3)? In a recent' case, the Sixth Circuit indicated that untimely filed priority claims in Chapter 7 proceedings may retain their priority status. United States v. Chavis, 47 F.3d 818 (6th Cir.1995).- In Chavis, the Sixth Circuit approved of the reasoning supporting the holding in In re Vecchio, 20 F.3d 555 (2d Cir.1994). Vecchio stands for the proposition that a priority creditor with notice of the case and bar date is entitled to § 726(a)(1)'priority despite filing a late claim. Vecchio, 20 F.3d at 560. As the Sixth Circuit has stated, “[tjhere are valid reasons for permitting all tardily filed priority claims to be paid whether or not the creditor had notice.” United States v. Cardinal Mine Supply, Inc., 916 F.2d 1087, 1091 (6th Cir.1990). In light of the legal standards in the Sixth Circuit, the Court cannot punish a pn-ority creditor for filing its claim one day after the deadline.

Upon consideration and being duly advised, the Court finds appellant’s arguments to be meritorious.² Therefore, the decision of the bankruptcy court is REVERSED. The case is REMANDED for any necessary further proceedings.

IT IS SO ORDERED.

1 . The parties agree upon the relevant facts.

2 . The Government’s motion for leave to file its brief out of time is GRANTED.