You Have to Follow the Rules: The Importance of Adhering to Bankruptcy Rule 2002 When Serving Claims Bar Date Notices

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A Delaware bankruptcy court recently held that the bar date for filing proofs of claim cannot be enforced against a creditor if the notice of the bar date was not sent by mail to that creditor.  In re Cyber Litigation Inc., No. 20-12702 (CTG) (Bankr. D. Del. Oct. 21, 2021).

Relevant Bankruptcy Rules

Bankruptcy Rule 3003(c)(3) provides that the court “shall fix . . . the time within which proofs of claims or interest may be filed.”  Bankruptcy Rule 2002(a)(7) provides “the clerk, or some other person as the court may direct, shall give . . . all creditors   . . . at least 21 days’ notice by mail of . . . the time fixed for filing proofs of claims pursuant to Rule 3003(c).”

Procedural status

Hansen Networks, the largest unsecured creditor in Cyber Litigation Inc.’s bankruptcy case, missed the deadline for filing proofs of claim. It filed a late proof of claim.  The debtor filed a motion to disallow the claim on the ground that the proof of claim was filed after the bar date.

The Bar Date Notice

Notice of the bar date was mailed to parties in interest and published in the national edition of the New York Times.  It was mailed to Hansen Networks in Las Vegas and to David Hansen, the principal of Nansen Networks, at an address in Puerto Rico where Mr. Hansen no longer resided at the time the notice was sent.

The debtor’s claim agent also emailed notice to an email address that Mr. Hansen actively used.  There is nothing in the record to suggest that the email was returned to the claims agent as undeliverable.  Mr. Hansen admitted that he used this address in a subsequent exchange with the debtor.

The court concluded that an email sent to this address was reasonably calculated to reach Mr. Hansen and thus Hansen Networks and that the email notice satisfied the requirements of due process which require that notice be provided in a means such as one desirous of actually informing the party to be bound might reasonably adopt to accomplish it.  The court noted:

It is well established that to bind a creditor to a claims bar date, known creditors must receive “actual notice.”  A long line of cases establishes that the paradigmatic means for proving “actual notice” is by mail to a creditor’s last known address. Here, it is stipulated that the address to which the bar date notice was mailed was not Hansen Networks’ last known address.

Mailing a notice to a creditor’s’ last known address, however, while surely sufficient to satisfy due process, has never been found to be a necessary element of due process.  Cyber Litigation at p.11.

The court found that the notice satisfied the requirements of due process.

The Notice Did Not Satisfy Rule 2002

The court, however, noted that the analysis did not end with due process, but that the requirements of Bankruptcy Rule 2002 must also be satisfied:

In addition to satisfying the requirements of due process, a debtor is also obligated to meet the requirements of the Bankruptcy Rules. .  . When the Supreme Court does promulgate . . . a procedural rule, those rules “are binding and courts must abide by them unless there is an irreconcilable conflict with the Bankruptcy Code.” Cyber Litigation at p.15.

Bankruptcy Rule 2002(a)(7) requires 21-day notice by mail of the time fixed for filing proofs of claim.  Bankruptcy Rule 2002(g) requires that notices to creditors shall be mailed to the address shown on the list of creditors or schedule of labilities, whichever is filed later, if the creditor has not made a request for mailing to a specific address.  The notice mailed to Mr. Hansen at a residence from which he had moved did not meet the requirements of Rule 2002.

The Failure to Provide Proper Notice Was Not Harmless Error

If the failure to comply with the requirement of Bankruptcy Rule 2002 was harmless error, it could be disregarded pursuant to Rule 61 of the Federal Rule of Civil Procedure which is incorporated into the Bankruptcy Rules by Bankruptcy Rule 9005.

In order to show that the failure to provide proper service by mail was harmless, however, it is insufficient to demonstrate that the creditor was sent notice by some other means by which he might or should  have learned of the bar date.  In the absence of a showing that the creditor obtained actual, subjective knowledge of the bar date, the Court is unable to conclude that the failure to meet the specific of the rule may be treated as no-harm-no-foul situation.  Cyber Litigation at p. 17.

As a result, the court overruled the debtor’s objection to the late filed proof of claim.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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