In Re Marino
MEMORANDUM OPINION
This mаtter relates to the bankruptcy proceeding filed by Herman Joseph Marino (“Debtor”) under Chapter 11 of the Bankruptcy Code, (the “Code”),
Undisputed Factual Background
The following facts are shown by the pleadings to be undisputed.
Debtor was at one time Thompson’s attorney. He arranged to have Thompson invest in Anthony Dodge, an automobile dealership selling Chrysler cars. Debtor himself held stock in the dealership. The venture did not do well and went out of business. Debtor and Michael Concialdi (“Concialdi”) had operated Anthony Dodge. Concialdi has been indicted by a Grand Jury of Cook County for allegedly illegal actions he undertook while operating Anthony Dodge. According to Thompson, Concialdi has alleged that Debtor and not he is responsible for the illegal activities that caused Anthony Dodge to go out of business. Concialdi has also filed for a petition for bankruptcy in this District, Case No. 95 B 00399. Apparently because of Concial-di’s allegations, Thompson believes he may have a claim against Debtor, although, as he states in his motion, he is still trying to ascertain if the allegations against Debtor are true. If the allegations are true, Thompson believes he may have grounds to object to Debtor’s discharge under
On October 20,1995, Debtor filed his bankruptcy petition for relief (the “Petition”). At that time he also filed a list of creditors holding the twenty largest unsecured claims. Thompson was not scheduled on that list or any list filed by Debtor with the Petition. As a result, Thompson did not receive notice to creditors sent on October, 28, 1995, by the Bankruptcy Court Clerk (“the Clerk”) of the § 341 creditors’ meeting and of the date by which dischargeability complaints were to be filed. Such notice is routinely sent out to creditors by the Clerk immediately аfter a bankruptcy petition is filed. Not having received such notice, neither Thompson or his counsel attended the § 341 creditors’ meeting. However, a month after filing the Petition, on November 20, 1995, Debtor filed several additional schedules. One of those supplemental schedules listed Thompson as holding a contingent, unliquidated, disputed claim. Thompson’s address was listed in “c/o Mrs. Patricia Thompson,” a Chicago attorney, at her office.
By affidavit, Debtor states that on the same day he filed the Bankruptcy Petition, he messengered a copy of the Petition to Mrs. Patricia Thompson along with a lettеr asking her to cease any collection efforts against Debtor. Debtor’s Reply, Ex. A. Mrs. Patricia Thompson is one of the attorneys representing Thompson in the instant Motion. It is not specified by either party’s pleadings whether Mrs. Patricia Thompson represented Thompson at the time the Petition was filed. However, in the instant proceedings, she is one of the attorneys of record for Thompson.
Debtor also alleges that Thompson , received notice of the bankruptcy on November 20,1995, when Debtor filed the supplemental schedules with the court. Because there is necessarily some time delay between the filing of schedules and notice to creditors listed on those schedules, Thompson did not likely receive notice of the bankruptcy on the same day those schedules were filed. There is some dispute about whether Thompson or his attorney received actual notice of this bankruptcy prior to November 28, 1995. It is possible that Thompson did not receive notice of Debtor’s case until that date, when by court order it was directed that all creditors listed in all the schedules filed receive notice of all proceedings in the bankruptcy case. Thompson received notice of that order and all subsequent pleadings filed in this case.
As in most cases, the Clerk’s notice of thе § 341 creditors’ meeting also notified creditors of the statutory bar date for filing a complaint to bar dischargeability of debts. That bar date fell on January 29, 1996, sixty days after the § 341 meeting took place. Thompson believes he may have a claim against Debtor’s estate which is non-dis-chargeable and would like to file a complaint under
Discussion
The issue in this case is whether an unscheduled creditor may file a cоmplaint objecting to dischargeability after the bar date when that creditor’s attorney admittedly received actual notice of the bankruptcy case two months before the bar date, but no formal bar date notice came from the Clerk.
A complaint to determine dischargeability of any debt pursuant to§ 523(e) of the Code shall be filed not later than 60 days following the first date set for the meeting of creditors held pursuant to § 84.1(a). The court shall give all creditors not less than 80 days notice of the time so fixed in the manner provided in Rule 2002. On motion of any party in interest, after hearing on notice, the court may for сause extend the time fused under this subdivision. The motion shall be made before the time has expired.
Thus,
The court may enlarge the time for taking action under Rule ... 4007(c) ... only to the extent and under the conditions stated in those rules.
Except as provided in subsection (a)(3)(B) of this section, the debtor shall be discharged from a debt of a kind specified in paragraph (2), (4), or (6) of subsection (a) of this section, unless, on request of the creditor to whom such debt is owed, and after notice and a hearing, the court determines such debt to be excepted irom discharge under paragraph (2), (4), or (6), as the case may be, of subsection (a) of this section.
The foregoing sixty-day deadline and notice to be served by the Clerk on creditors must be read in tandem with
In this case, the
Thompson asks that the sixty-day bar date be extended because he never received formal notice from the Clerk as required by
The Due Process Clause Authorizes the Requested Extension If Reasonable Notice Were Absent
Debtor points out under
Bankruptcy
certain types of nondischargeability claims would be automatically cut off after a relatively short period of limitations in order to prevent debtors from being harassed by creditors after their claims had been discharged in bankruptcy. Congress meant to cure the abuse whereby debtors were routinely sued by creditors long after bankruptcy claiming that their claims were not discharged because of fraud or a false financial statement. This is the policy that underlies§ 523(c) of the Bankruptcy Code, (citations omitted).
In re Kirsch,
Because
This “set in stоne” interpretation, however, cannot be applied in all cases. Because Bankruptcy
Thompson does not request an extension because of excusable neglect but because he was not notified by the Clerk of the Bankruptcy Court of the bar date. It is undisputed that the Clerk never sеnt Thompson notice of the bar date. Because of due process concerns under the Fifth Amendment to the United States Constitution, a bankruptcy judge retains authority to consider extension of the sixty-day period. When applying the Bankruptcy Code or its Rules strictly would deny a claimant due process rights in violation of the Fifth Amendment, then the Constitution must take precedence and the Code or its rules must be set aside or modified in their application.
In re Walker,
It is universally agreed that adequate notice lies at the heart of due process. Unless a person is adequately informed of the reasons for denial of a legal interest, a hearing serves no purpose — and resembles more a scene from Kafka than a constitutional process.
Chicago Cable Communications v. Chicago Cable Commission,
Thus, the sixty-day period outlined by Bankruptcy
The Thirty-Day Notice Requirement Under Bankruptcy
Bankruptcy
The Bankruptcy Code, the history of
The predecessor to
The wording of
A creditor, who knows of the proceeding but has not received formal notice, should be prevented from standing back and allowing the bankruptcy action to proceed and then asserting that the debt is non-dischargeable.
Byrd v. Alton (In re Alton),
Most courts have held that a creditor’s actual notice of debtor’s bankruptcy filing may satisfy due process requirements under the Fifth Amendment.
Manufacturers Hanover, FKA v. Dewalt (In re Dewalt),
Several decisions do support Thompson’s argument that a creditor cannot be barred from filing a complaint for untimeliness where creditor did not receive thirty-day notice from the court of the bar date.
Shaheen v. Penrose (In re Shaheen)
Were this a case where Debtor was shown to have knowingly omitted Thompson from the schedules with intent to preclude him from using remedies available to creditors under the Code, the result here should and would have been different. Depending on when such conduct would be discovered, remedies could range from dismissing the bankruptcy case under § 1208(d),
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revocation of Debtor’s discharge or confirmation order,
see Kelly v. Giguere (In re Giguere),
Thompson’s Knowledge of Debtor’s Bankruptcy Proceeding Was “Reasonable Notice”
“Reasonable notice” is defined by the Supreme Court as “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.”
Mullane v. Central Hanover Bank & Trust,
This definition of “reasonable notice” raises two questions: First, can Mrs. Patricia Thompson’s knowledge of Debtor’s bankruptcy be imputed to Thompson? Second, did knowledge of the bankruptcy on November 28, 1995, more than two months prior to expiration of the deadline, allow Thompson or his counsel time for adequate preparation to present objections to discharge or timely seek an extension? For the following reasons, the totality of the undisputed circumstances in this case indicate that Thompson’s knowledge of Debtor’s bankruptcy was adequate notice so that Fifth Amendment concerns are allayed.
Mrs. Patricia Thompson’s knowledge of Debtor’s bankruptcy on November 28, 1995, can here be imputed to Thompson. It is well recognized that an attorney’s actual notice of the pendency of a bankruptcy may be imputed to his client if it occurs within the scope of the attorney-client relationship.
See e.g. GAC Enters., Inc. v. Medaglia (In re Medaglia),
While it has not been specified by the parties that Mrs. Patricia Thompson was Thompson’s counsel for his possible claim аgainst Debtor when she learned of Debtor’s bankruptcy, that can be inferred from the fact that she represents Thompson in the instant proceedings. Furthermore, in her affidavit to the court, Mrs. Patricia Thompson did not deny that on November 28, 1995, she was Thompson’s counsel. Debtor certainly hád that understanding when he scheduled Thompson on the supplemental schedules in “c/o Mrs. Patricia Thompson” at her law offices. On November 28, 1995, when Mrs. Patricia Thompson learned of Debtor’s bankruptcy, the record is clear that she was then Thompson’s counsel.
Although the scope of that client-attorney relatiоnship on November 28, 1996, is unclear from the pleadings, it could not and need not have expressly included representation of Thompson in the present bankruptcy proceedings. Prior to November 28, 1995, neither Mrs. Patricia Thompson nor Mr. Thompson knew of Debtor’s bankruptcy. Mrs. Patricia Thompson therefore could not have been Thompson’s counsel for the express purpose of representing him in Debt- or’s insolvency proceedings. Nonetheless, being that she was Thompson’s attorney at the time she learned of Debtor’s bankruptcy and represented him in considering any claims against Marino, she had a duty to notify Thompson of that bankruptcy and search the record for a possible discharge complaint bar date.
See In re Rhodes,
The final issue is whether notice two months 4 prior to the bar date to a creditor’s attorney is “reasonable notice.”
Thompson had twо months, from November 28, 1995, until January 29, 1996, to file a complaint or to seek an extension of time to do so. This was ample time for him with aid of counsel to take such action. Thompson or his counsel decided to wait. Why is not clear. Perhaps it was, as Thompson states in the Motion, that he was assessing whether he had a claim. Indeed it is not clear from pleadings filed that he is even now thoroughly convinced that he does have a claim.
After examining the totality of undisputed circumstances pleaded in this case, it is concluded that Thompson received notice adequate enough to afford him an opportunity to prepare and file a complaint by the January 29,1996, bar date or to seek by that date an extension of time. As in
Walker,
in reaching this conclusion, both the purpose sought to be served by
Thompson was not prejudiced by the lack of formal notice. With two months of actual notice, he had plenty of time to file his dischargeability complaint or seek an extension of time to do so before the bar date. His attorney could have checked the Bankruptcy Cоurt docket to learn the applicable deadlines. Thompson’s Motion notes that he is still assessing whether he may have a non-dischargeability claim against Debtor. It is probably this indecision that slowed his reaction time. If the Motion were allowed, such indecision would result in an open-ended threat, suspended like a deadly pendulum,
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the very result intended to be prevented under § 528(a)(3)(B) and
Same Result Under
Under
Here, Debtor did not schedule Thompson in the initial schedules he filed with his bankruptcy petition. Because of this, Thompson was not included on the Clerk’s notice to creditors of the § 341 meeting and of the bar date for filing dischargeability complaints. Debtor failed to schedule Thompson as a creditor until a later date. However, as
CONCLUSION
As a general rule, justiciаble controversies should be decided on their merits and not barred by procedural technicalities unless some important policy or purpose is served. Bankruptcy
The Bankruptcy Code and the accompanying Bankruptcy Rules of Procedure indicate that adequate actual knowledge on the part of a creditor that debtor has filed for bankruptcy protection is enough to substitute for the Clerk’s notice required under
Notes
. In
In re Dambrie,
the court observed that some courts have carved out exceptions to the sixty-day rule based on “exceptional” or "unique” circumstances.
.
(a) A discharge under section 727, 1141, 1228[a] 1228[b], or 1328(b) of this title does not discharge an individual debtor from any debt —
(3) neither listed nor scheduled undersection 521(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit—
(B) if such is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dischargeability of such debt under one of such paragraphs unless such creditor had notice or actual knowledge of the case in time for such timely filing and request.
. Section 1208(d) of the Bankruptcy Code states: (d) On request of a party in interest, and after notice and a hearing, the court may dismiss a case under this chapter or convert a case under this chapter to a case under chapter 7 of this title upon a showing that the debtor has committed fraud in connection with the case.
11U.S.C. § 1208(d).
. As earlier noted, the time when Thompson first learned of Debtor’s bankruptcy is in dispute. Thompson, through an affidavit submitted, and Mrs. Patricia Thompson, through her own affida
. Edgar Allen Poe, The Pit and the Pendulum.