In re Neurology & Neurophysiology Assocs., P.A., No. 15-50105, 2015 WL 5973588 (5th Cir. Oct. 15, 2015)
Opinion issued: Oct. 15, 2015. WestLaw Link
Written by: Benjamin Petty, Staff Member
After the Texas Secretary of State forfeited the debtor’s charter, the debtor only existed as an entity to liquidate assets and defend itself against legal claims. Approximately five years after forfeiture, the debtor filed for bankruptcy and a creditor appealed, claiming the debtor did not qualify as a person under the Bankruptcy Code because it no longer held a corporate charter. The bankruptcy court dismissed the case after determining the debtor was not a person. The debtor appealed, but it did not file a brief. A month after the debtor’s brief deadline the creditor moved for dismissal of the debtor’s appeal. In response, the debtor filed a motion to extend the deadline to file the brief, claiming it never received notice of the docketing record on appeal because the attorney’s email address on file with the court was outdated.
The district court granted the creditor’s motion for dismissal, finding the debtor’s conduct satisfied the four conjunctive factors used to determine neglect was not excusable. Specifically, the district court dismissed the case for the following reasons: (1) the debtor’s delay prejudiced the creditor; (2) the delay was substantial “and could have been easily avoided through basic diligence”; (3) the debtor’s “failure to exercise diligence . . . was the sole reason for the delay”; and (4) the debtor did not show good cause for the delay. The Fifth Circuit Court of Appeals affirmed these findings.
Ultimately, this case reaffirms the importance of procedure and due diligence because failure to remain cognizant of deadlines, statutory requirements, and current contact information will not constitute excusable neglect. Additionally, failure to follow procedural requirements may prevent the resolution of legitimate legal issues on the merits. Here, there was an opportunity for the court to resolve a legal issue, namely whether a corporation terminated by the Secretary of State can file for bankruptcy, but because of the procedural failure, this issue was not resolved.
 Neurology & Neurophysiology Assocs., P.A. v. Tarbox (In re Neurology & Neurophysiology Assocs., P.A.), No. 15-50105, 2015 WL 5973588, at *1–3, *1 (5th Cir. 2015).
 Id. at *1.
 Id. See also, Fed. R. Bankr. P. 8009(a)(1) (stating that “(A) The appellant must file with the bankruptcy clerk and serve on the appellee a designation of the items to be included in the record on appeal and a statement of the issues to be presented. (B) The appellant must file and serve the designation and statement within 14 days after: (i) the appellant's notice of appeal as of right becomes effective under Rule 8002; or (ii) an order granting leave to appeal is entered. A designation and statement served prematurely must be treated as served on the first day on which filing is timely.”).
 Neurology & Neurophysiology Assocs., 2015 WL 5973588, at *1.
 Id. at *2 (examining the reasoning and function of the excusable neglect test discussed in Salts v. Epps, 676 F.3d 468, 474 (5th Cir. 2012)). The original four-part test for determining whether excusable neglect existed is as follows: (1) the possibility of prejudice, 2) the length and impact of the delay, 3) the reason for delay and if it was in the movant’s control, and 4) the actions of the movant and if such actions were in good faith. See Neurology & Neurophysiology Assocs., 2015 WL 5973588, at *2 (quoting and synthesizing the factors in Salts v. Epps, 676 F.3d 468, 474 (5th Cir. 2012)).
 Neurology & Neurophysiology Assocs., 2015 WL 5973588, at *2.
 Id. A separate legal issue, whether the debtor’s “terminated entity” status qualified as a person in bankruptcy under 11 U.S.C. § 109(b) and 11 U.S.C. § 101(41), was not taken up on appeal by the district court or the Fifth Circuit, because the debtor’s procedural failure rendered the issue moot. Id. at *3.
 See id. at *2.
 In Texas, there is case law suggesting that a corporation terminated by the Secretary of State can contemplate a bankruptcy filing for three years. See e.g., In re Am. Heartland Sagebrush Secs. Invs., Inc., 334 B.R. 848, 852–53 (Bankr. N.D. Tex. 2005) (finding that a terminated entity may file a Chapter 7 bankruptcy proceeding for up to three years after termination). Furthermore the court found that “[t]he three year period is based on the Texas Business Corporation Act's provision providing for a dissolved corporation's continued existence for limited purposes for three years from the date of dissolution” , and that “[o]ne of the allowed purposes is the liquidation and distribution of assets, as is contemplated by a chapter 7 filing.” Additionally the court concluded “that, if the three year period expires before filing bankruptcy, the purported corporate debtor ceases to be a person within the meaning of section 109 of the Bankruptcy Code eligible to file bankruptcy.” Id. at 853.