SUE L. ROBINSON, District Judge
Appellants Molly S. White and Ralph N. White ("White") ("appellants") filed this bankruptcy appeal on October 18, 2013, (D.I. 1) They appear pro se. The appeal arises from an order entered by the bankruptcy court on August 30, 2013, that determined debtors complied with the bankruptcy court's order establishing bar dates for filing proofs of claim and approving the form, manner, and sufficiency of the notice as applied to unknown creditors. The court has jurisdiction to hear an appeal from the bankruptcy court pursuant to 28 U.S.C. § 158(a).
Appellants entered into a consumer mortgage loan transaction that closed on or about July 26, 2006. White v. New Century TRS Holdings, Inc., Adv. No. 10-55357-BLS, D.I. 59.
On November 22, 2008, appellants filed claim 4073, and later, on or about January 21, 2009, they filed claim numbers 4074 and 4080 in debtors' bankruptcy case.
On August 13, 2010, the Trustee filed an objection to appellants' claims on the grounds they lacked merit and were filed after the bar date. (Adv. No. 10-55357-BLS, D.I. 59) On November 10, 2010, appellants filed adversary proceeding White v. New Century TRS Holdings, Adv. No. 10-55356-BLS. Disputes regarding appellants' claims and the adversary proceeding complaint were consolidated in a scheduling order that was entered in the adversary proceeding on December 13, 2010. (Id. at D.I. 9) On June 7, 2011, the bankruptcy court granted in part and denied in part the Trustee's motion to dismiss appellant's adversary complaint. (Id. at D.I. 59, 60) The bankruptcy court stated, "[a]lthough the [d]ebtors arguably complied with the stated minimum requirements of the [b]ar [d]ate [o]rder, without a more fully developed factual record, I am unable to determine whether the publication notice was reasonably calculated to provide notice to consumer mortgagors like the Whites. At this stage in the proceeding, the Trustee has not met his burden of proving that publication in one national edition newspaper and one local newspaper is sufficient to meet due process requirements as applied to the Whites as unknown creditors." (Id. at D.I. 59 at 14)
In July 2011, Helen Galope ("Galope") filed proof of claim number 4131, objected to by the Trustee, and an evidentiary hearing was held on December 13, 2011 to determine whether the claim should be disallowed as filed after the claims bar date. (Bankr. No. 07-10416-BLS at D.I. 11256) On February 7, 2012, the bankruptcy court entered a memorandum and order that disallowed and expunged Galope's claim. (Id. at 10725, 10726) The February 7, 2012 memorandum and order determined, in part, that debtors' publication of the bar date notice in the national edition of The Wall Street Journal, supplemented with notice in The Orange County Register, was constitutionally adequate for Galope,
On April 2, 2012, the Trustee filed a global constructive notice motion seeking a determination that the debtors had: (1) complied with the requirements of the bankruptcy court's June 28, 2007 order establishing bar dates for filing proofs of claim and approving form, manner and sufficiency of notice; and (2) provided constructive notice of the bar date by publication that satisfied the requirements of due process for all unknown creditors. (Id. at D.I. 10824) The Trustee sought an order consistent with the February 7, 2012 Galope decision and first reconsideration order that concluded debtors' publication notice of the bar date complied with the requirements set forth in the bar date order and satisfied the requirements of due process for unknown creditors. On April 18, 2012, appellants (and others) filed an objection to the global constructive notice motion and, on April 20, 2012, the Trustee filed an omnibus reply in further support of the motion and in response to the objections filed by the Whites and other pro se litigants. (Id. at D.I. 10841, 10853)
The bankruptcy court held an evidentiary hearing on the matter on May 23, 2012. (Id. at 10916) White appeared at the hearing but, due to his scheduled flight home, was unable to fully participate in the hearing. (Id. at 10916 at 145). During the hearing, White was told that this was his opportunity to cross-examine witnesses. (Id. at 145-46) The matter was taken under advisement and, on August 30, 2013, the bankruptcy court entered an order finding that debtors had complied with the requirements of the bar date order, and that debtors had published the bar date notice in a manner that was "reasonably calculated, under the circumstances, to apprise interested parties nationwide of the bar date and afford them an opportunity to file claims". (Id. at D.I. 11233, 11234). The bankruptcy court specifically stated that the memorandum "addresses only the constitutional sufficiency of the publication of the bar date notice as it applies to unknown creditors," that it made no "determination about whether particular creditors were unknown creditors or known creditors entitled to actual notice," that it did not "address whether any particular individual claimants have met the requirements of excusable neglect for a late-filed proof of claim," and that the decision did not "address the merits of any underlying borrower claims." (Id. at 11233 at 4-5 n.9, 15) The order is the subject of this appeal.
In undertaking a review of the issues on appeal, the court applies a clearly erroneous standard to the bankruptcy court's findings of fact and a plenary standard to that court's legal conclusions. See American Flint Glass Workers Union v. Anchor Resolution Corp., 197 F.3d 76, 80 (3d Cir.1999). With mixed questions of law and fact, the court must accept the bankruptcy court's "finding of historical or narrative facts unless clearly erroneous, but exercise[s] `plenary review of the [bankruptcy] court's choice and interpretation of legal precepts and its application of those precepts to the historical facts.'" Mellon Bank, N.A. v. Metro Commc'ns, Inc., 945 F.2d 635, 642 (3d Cir.1991) (citing Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 101-02 (3d Cir.1981)). The district court's appellate responsibilities are further informed by the directive of the United States Court of Appeals for the Third Circuit, which effectively reviews on a de novo basis bankruptcy court opinions.
Appellants raise the following issues for review (D.I. 2):
Appellee's counter-statement raises four issues on appeal (D.I. 3):
Appellants raise a number of issues that challenge the ruling of the bankruptcy court on the grounds that the bankruptcy court abused its discretion, erred, and misapplied the law. Appellants contend that they were entitled to receive actual notice of the bar date and, because they were not, they were not afforded due process. That issue, however, is not before the court. As discussed by the bankruptcy court, the August 30, 2013 order was limited solely to the issue of the constitutional sufficiency of the publication of the bar date notice as applied to unknown creditors. No ruling was made on the issue of whether any particular creditors were entitled to receive actual notice. Appellants further contend that the constructive notice was insufficiently published to provide unknown creditors with any meaningful opportunity to participate in debtors' chapter 11 proceedings.
An "unknown" creditor is one whose "interests are either conjectural or future or, although they could be discovered upon investigation, do not in due course of business come to knowledge [of the debtor]." Chemetron Corp. v. Jones, 72 F.3d 341, 346 (3d Cir.1995) (quoting Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 317, 70 S.Ct. 652, 94 L.Ed. 865 (1950)). Notice is "[a]n elementary and fundamental requirement of due process in any proceeding which is to be accorded finality. . . ." Mullane, 339 U.S. at 314, 70 S.Ct. 652. Whether adequate notice has been provided depends on the circumstances of a particular case. In re Grossman's, Inc., 607 F.3d 114, 127 (3d Cir.2010). Due process requires "notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Wright v. Owens Corning, 679 F.3d at 108 (quoting Mullane, 339 U.S. at 314, 70 S.Ct. 652). "Lack or inadequacy of notice of a bankruptcy prevents a claimant from having the opportunity to participate meaningfully in a bankruptcy proceeding to protect his or her claim." Wright v. Owens Corning, 679 F.3d at 107 (citing 11 U.S.C. § 342(a) ("There shall be given such notice as is appropriate . . . of an order for relief . . . under [the Bankruptcy Code].")). Inadequate notice accordingly "precludes discharge of a claim in bankruptcy." Chemetron, 72 F.3d at 346.
It is well settled that constructive notice of the claims bar date by publication satisfies the requirements of due process for unknown creditors. Id. at 348. Publication in national newspapers is regularly deemed sufficient notice to unknown creditors, especially when supplemented with notice in papers of general circulation in locations where the debtor is conducting business. Id. at 348; see also City of New York v. New York, N.H. & H.R. Co., 344 U.S. 293, 296, 73 S.Ct. 299, 97 L.Ed. 333 (1953) ("Notice by publication is a poor and sometimes a hopeless substitute for actual service of notice. Its justification is difficult at best.... But when the names, interests and addresses of persons are unknown, plain necessity may cause a resort to publication.").
The bar date order provided for debtors to cause the publication notice to be published once in the national edition of The Wall Street Journal and any such other local publications as debtors deemed appropriate not less than thirty days prior to
In its August 30, 2013 ruling, the bankruptcy court referred to its prior February 7, 2012 memorandum and order wherein it considered the testimony of Uhland, debtors' former lead counsel, regarding the decision-making behind the publication of the bar date notice with regard to Galope, an unknown creditor, and found the publication in the national edition of The Wall Street Journal supplemented with notice in The Orange County Register passed constitutional muster. (Bankr. No. 07-10416-BLS, D.I. 11233 at 4) In addition, the bankruptcy court considered the May 23, 2012 testimony presented by Uhland as well as a declaration she submitted in support of the bar date motion. That evidence included Uhland's testimony and declaration that notice of the bar date was published in the national edition of The Wall Street Journal because debtors had business operations throughout the United States and publication in a newspaper that was published and available nationwide would provide notice to unknown creditors (whether institutional or individual) as broadly as possible throughout the country. (Id. at D.I. 10825, ex. Uhland decl. at ¶¶ 5(b), (d); D.I. 10916 at 59-60, 92-93) Debtors had been doing business throughout the nation and had more than a million borrowers. (Id. at D.I. 10825, ex. Uhland decl. at ¶ 5(c)) Debtors determined that The Wall Street Journal was a customary place to publish legal notices and believed it was prudent to publish notice in a newspaper where parties might expect to find a bar date notice. (Id. at D.I. 10825, ex. Uhland decl. at ¶ 5(c); D.I. 10916 at 60)
The bar date order required publication in the national edition of The Wall Street Journal and "such local newspapers as the debtors deem appropriate, "and debtors published notice of the bar date in The Orange County Register because debtors' main office was located in the City of Irvine in Orange County, California. (Id. at D.I. 10825, ex. Uhland decl. at ¶ 6(a)) A large concentration of debtors' employees were based in Orange County, and debtors were concerned about the potential for unknown claims asserted by former employees affected by debtors' substantial workforce reduction in the weeks and months prior to the bankruptcy filing. (Id. at D.I. 10825, ex. Uhland decl. at ¶ 6(a); D.I. 10916 at 60-61) Debtors were aware that The Orange County Register was providing extensive coverage of debtors' bankruptcy, and debtors believed that supplementary notice in the local publication would reach individuals who may have been reading The Orange County Register to keep track of the chapter 11 cases. (Id. at D.I. 10825, ex. Uhland decl. at ¶ 6(b))
Appellants proceed pro se and generally contend, as characterized by appellee in his statement of issues raised on appeal, that the constructive notice of the bar date provided by publication, including the size, placement, and manner thereof, was not reasonably calculated, under the circumstances, to apprise all interested parties nationwide such that constitutional requirements of due process were satisfied. The court starts its analysis with the reminder that the August 30, 2013 memorandum specifically excludes the issues of whether particular creditors were unknown creditors or known creditors entitled to actual notice or whether individual claimants met the requirements for excusable neglect for a late-filed proof of claim.
With respect to the question of whether the constructive notice provided passes constitutional muster, the court finds no error by the bankruptcy court in its reliance upon Uhland's testimony and declaration to the extent that Uhland explained why The Wall Street Journal and The Orange County Register were chosen as appropriate publications in which to circulate notice of the bar date to unknown claimants. See In re Myers, 491 F.3d 120, 126 (3d Cir.2007) ("The bankruptcy court is best positioned to assess the facts, particularly those related to credibility...."). Given "the due process concern in [Wright v. Owens Corning, 679 F.3d 101 (3d Cir.2012)]—that claimants would lose any opportunity for relief without first receiving proper notice," In re W.R. Grace & Co., 729 F.3d 311, 323 (3d Cir.2013), the question remains whether the constructive notice provided in the instant bankruptcy proceeding was sufficient under the law.
As explained above,
Wright, 679 F.3d at 107 (citations omitted). While the Third Circuit generally deems notice by publication in national newspapers sufficient to satisfy the requirements of due process for unknown claimants, "whether adequate notice has been provided depends on the circumstances of a particular case.... Due process requires "notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Id. at 108 (citations omitted).
Looking to the circumstances in this particular case, the court reiterates the description of the landscape provided by Uhland. Debtors had business operations throughout the United States and had more than a million borrowers. Debtors were concerned about the potential for unknown claims asserted by former employees (unknown employee claims) but apparently did not consider their customers (borrowers) at all in connection with the question of notice.
In Wright, the Third Circuit found debtors' notices "sufficient as to most unknown claimants,"
Based on the reasoning above, the bankruptcy court's August 30, 2013 order will be vacated and the matter remanded for further proceedings consistent with this memorandum opinion.
At Wilmington this 19
IT IS HEREBY ORDERED that the bankruptcy court's August 30, 2013 order