Opinion
Bankruptcy No. 03-15406DWS, Adversary No. 03-1112.
May 14, 2004
Daniel P. Bernstein, Esquire, Philadelphia, PA, Counsel for Debtors/Defendants.
Daniel S. Bernheim, Esquire, Philadelphia, PA, Counsel for Citizens Bank.
Michael Kaliner, Esquire, Fairless Hills, PA, Chapter 7 Trustee.
Dave P. Adams, Esquire, Office of the U.S. Trustee, Philadelphia, PA, United States Trustee.
AMENDED MEMORANDUM OPINION
Before the Court is the Motion of Defendants-Debtors (the "Defendants") to Dismiss Complaint filed by Citizens Bank of Pennsylvania (the "Bank") Pursuant to Rule of Bankruptcy Procedure 7012 (the "Motion"). The Complaint objects to the dischargeability of certain indebtedness of the Defendants to the Bank pursuant to 11 U.S.C. § 523(a)(2)(a)(A). The Motion seeks to have the Complaint dismissed as having been filed beyond the date fixed for the filing of such an action under Federal Rule of Bankruptcy Procedure 4007(c). For the reasons that follow, the Motion shall be granted.
BACKGROUND
The facts relevant to this Motion are not disputed. On April 8, 2003 Defendants filed a case under Chapter 7 of the Bankruptcy Code. A § 341 meeting was scheduled and held on June 9, 2003. The bar date for filing complaints objecting to dischargeability pursuant to 11 U.S.C. § 523(c), which includes an action under § 523(a)(2), was August 8, 2003. F.R.Bankr.P. 4007(c). The Complaint was filed on October 16, 2003 after the filing period had expired.
Rule 4007(c) provides that a complaint to determine dischargeability of a debt under § 523(c) shall be filed no later than 60 days after the first date set for the meeting of creditors under § 341.
I shall take judicial notice of the docket entries in this case. Fed.R.Evid. 201, incorporated in these proceedings by F.R.Bankr.P. 9017. See Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1200 n. 3 (3d Cir. 1991); Levine v. Egidi, 1993 WL 69146, at *2 (N.D. Ill. 1993); In re Paolino, 1991 WL 284107, at *12 n. 19 (Bankr. E.D. Pa. 1991); see generally In re Indian Palms Associates, Ltd., 61 F.3d 197 (3d Cir. 1995). This date is different than the date stated in the Motion but the difference is legally immaterial.
Not disputing its untimeliness, the Bank nonetheless contends it should be excused from the late filing because it was not given notice of the bankruptcy filing. It is undisputed that the Bank was not listed on the Defendants' bankruptcy matrix and thus received no service of the § 341 hearing notice which contains the bar date for filing § 523(c) complaints. See Exhibits C-1 (certificate of service) and C-2 (list of creditors) evidencing that the Bank was not listed.
Defendants counter with evidence that notwithstanding their failure to list and serve the Bank with the bar date notice, the Bank had actual notice of the bankruptcy. This notice was allegedly gained by its learning of the bankruptcy stay of certain state court litigation in which the parties were engaged ("State Court Suit"). Specifically the Defendants' state law attorney Andrew Spiegel, Esquire ("Spiegel") testified that the defense of three or four suits arising from a sale of the Defendants' business had become costly and he therefore recommended they seek bankruptcy protection. A settlement conference was scheduled for early April 2003 in the State Court Suit in connection with a discovery dispute. Prior to that event, he contacted the Complex Litigation Center and was advised that if a bankruptcy case was commenced, the conference would not be held. Apparently that conversation was not recorded because when Spiegel did not appear, a rule returnable was issued to him. In response to that sanctionable event, he sent a letter to Mary McGovern of the Center with a copy by facsimile to "all counsel" to explain that his absence from the settlement conference was due to the Defendants' filing for bankruptcy protection, a fact he had advised the Center on March 31 which had cancelled the conference. Exhibit D-1. Referenced as attachments to this letter are a copy of the time-stamped bankruptcy petition and a suggestion of bankruptcy. A copy of a facsimile cover sheet referencing the litigation also dated April 8, 2003 shows a transmission to the Bank's counsel Lauren Berschler, Esquire ("Berschler"). Exhibit D-2. It does not indicate how many pages were attached to the cover sheet. However, Spiegel credibly testified that he typed the fax cover sheet and actually faxed the letter and petition to Berschler. Moreover, he testified that it is the practice of the Center to call when one party appears and the other does not, and he never heard from the Center when he failed to appear at the rule returnable hearing. He concludes therefore that the Bank's counsel also did not appear, a result of receiving his letter regarding the bankruptcy stay. He also noted that he heard nothing from the Bank's counsel regarding the State Court Suit after the letter was faxed.
DISCUSSION
A.
Fed.R.Civ.P. 12(b)(6), applicable here pursuant to Rule 7012 of the Federal Rules of Bankruptcy Procedure ("F.R.Bankr.P.") for failing to state claims for which relief can be granted. A complaint must not be dismissed for failing to state a claim unless it appears beyond reasonable doubt that plaintiffs can prove no set of facts in support of their claim that would entitle them to relief. City of Philadelphia v. Lead Industries Ass'n, Inc., 994 F.2d 112, 118 (3d Cir. 1993) ( citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102 (1957)). If matters outside the pleadings are presented to the Court and not excluded, the motion may be treated as a one for summary judgment and disposed of as provided in Rule 56. Fed.R.Civ.P. 12(c). As certain documents and testimony were the only way to determine the ultimate issue, i.e., whether the Bank had notice of the bankruptcy to be bound by the bar date for filing a dischargeability complaint, matters outside the pleadings have been considered as discussed above. Accordingly this Motion shall be treated as one for summary judgment.
If a court decides to convert a motion to dismiss into one for summary judgment, it must provide the parties "reasonable opportunity" to present all material relevant to such motion. Such notice may be provided through the court's orders or at a hearing. In re Rockefeller Center Properties, Inc. Securities Litigation, 184 F.3d 280, 288 (3d Cir. 1999). Both parties sought to and did adduce evidence in support and in opposition to the Motion at the hearing.
B.
Section 523(a)(3)(B) provides that a debt of the kind specified in § 523(a)(2), (a)(4), (a)(6) that is neither listed nor scheduled in time to permit a timely request for a determination of dischargeability is not discharged "unless the creditor had actual knowledge of the case in time for such timely filing and request." 11 U.S.C. § 523(a) (3(B). This provision governs this contested matter where there is no question that the Bank's debt was not listed or scheduled and the Bank asserts that the debt is one arising under § 523(a)(2).
While not reflected in the statute, it is generally believed that § 523(a)(15) debts are also included in § 523(a)(3).
The Bank opposes the Motion on the grounds that to bar its claim as untimely where the Defendants have failed to list it and provide it with the requisite bankruptcy notices would violate its due process rights. The Bank does not directly address § 523(a)(3)(B) which statutorily enunciates the rule espoused by the Defendants that actual notice of the bankruptcy requires a creditor to file a timely complaint even where it was not listed so as to receive notices. Nor does it recognize the plethora of cases that have upheld the constitutionality of the statute's exception for creditors who do not receive notice of the case but otherwise acquire actual knowledge. In GAC Enterprises v. Medaglia (In re Medaglia), 52 F.3d 451 (2d Cir. 1995), the Second Circuit Court of Appeals concluded that due process was not offended by requiring a person with actual, timely knowledge of an event that may affect their rights to exercise due diligence and take the necessary steps to preserve its rights. It recognized that general knowledge that a bankruptcy has commenced is not the same as specific knowledge of the bar date, but concluded that the burden to discover the bar date is minimal and does not deprive unlisted creditors of their opportunity to be heard.
Indeed with knowledge of the petition, creditors can easily access from their desktops through the Court's PACER records the docket entry of the § 341 hearing notice which also sets forth the bar date for filing discharge and dischargeability complaints.
While the Third Circuit Court of Appeals has not addressed this issue, at least four other courts of appeals precededMedaglia and specifically rejected the argument that the actual knowledge provision of § 523(a)(3)(B) offends due process.Grossie v. Sam (In re Sam), 894 F.2d 778, 781-82 (5th Cir. 1990); Yukon Self Storage Fund v. Green (In re Green), 876 F.2d 854, 856 (10th Cir. 1989); Lompa v. Price (In re Price), 871 F.2d 97, 99 (9th Cir. 1989); Bryrd v. Alton (In re Alton), 837 F.2d 457, 460 (11th Cir. 1988). The Medaglia Court adopts their reasoning as do I. It also finds inapplicable in this context the decision of the United States Supreme Court in City of New York v. New York, N.H. H.R. Co., 344 U.S. 293, 73 S.Ct. 299 (1953). Notably that decision animates the reasoning of the court in In re Rogowski, 115 B.R. 409 (D. Conn. 1990), the principle case upon which the Bank relies to support its position. InCity of New York, the Supreme Court was construing § 77 of the former Bankruptcy Act dealing with railroad reorganizations and that provision's statutory requirement of "reasonable notice," not the constitutionality of a provision of the Bankruptcy Code. That statute, unlike § 523(a)(3)(B) of the Code, did not contain a constructive notice clause imposing a duty to inquire. Moreover, because City of New York involved a corporate reorganization proceeding where the bar date was not as estimable as it is in a Chapter 7 individual liquidation case, the creditor's burden of inquiry was greater. Finding City of New York not dispositive of this contested matter, I likewise do not adopt the reasoning in Rogowski.
In this circuit, see Dollinger v. Pozansker (In re Pozansker), 146 B.R. 125, 129 (D.N.J. 1992) (reasoning that the Third Circuit's approach to Code filing dates suggests that it would concur with its sister courts in reading the statute literally and strictly).
For example, the Sam court found that, as to the application of § 523(c) and § 523(a)(3)(B) through Rule 4007, constitutional due process requires only that a creditor receive "`notice reasonably calculated, under all the circumstances, to apprise [him] of the pendency of the action and afford [him] an opportunity to present [his] objections.'" 894 F.2d at 781 ( quoting Mullane v. Central Hanover Bank Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 657 (1950)) (alteration in original). Since the creditor there had notice of the bankruptcy proceeding via the Notice of Automatic Stay, he received notice sufficient to impose a duty on him to inquire as to the bar date. The court stressed that "actual knowledge of the case," as opposed to of the bar date was sufficient under § 523(a)(3)(B) to place the burden on the creditor to inquire. Id. (emphasis in original).
The other cases cited by the Bank also do not advance its position. While in those cases the untimely complaint was allowed, the rationale for the relief was that the creditor had not had actual knowledge of the bankruptcy case. Wright v. Gulf Insurance Co. (In re Wright), 266 B.R. 848 (Bankr. E.D. Ark. 2001) (no evidence presented that the creditor had received any actual notice or otherwise obtained any actual knowledge of the bankruptcy case); Finova Capital Corp v. Li (In re Li), 242 B.R. 280 (Bankr. E.D. Pa. 1999) (clerk's certification of notice of change of case to asset case not actual notice where creditor disclaimed receipt of mailed notices pointing out that its suite number was omitted from the matrix); Wunder v. Bortzel (In re Bortzel), 18 B.R. 523 (Bankr. E.D. Pa. 1982) (unscheduled creditor became aware of the bankruptcy when he sought to enforce a judgement against the debtor in district court some eight months after the bar date expired). Thus, while the result in these cases is what the Bank advocates for itself here, the significant learning is that the general rule remains the same,i.e., a showing that a creditor had actual knowledge within adequate time to act on behalf of its rights means that such a creditor cannot evade the time-bar imposed by § 523(c) and Rule 4007.
Thus the general rule is essentially as the Defendants state. If the Bank's claim was unlisted but the Bank had actual knowledge of the bankruptcy filing with sufficient time to act to protect its rights — either by filing a complaint or a motion to extend the deadline — the Bank's current complaint must be dismissed. While it has been established that the Bank's claim was not listed nor was the Bank served with the bar date notice, the question remains whether the Defendants have shown that the Bank indeed had such knowledge to allow it to timely protect its right to file a complaint objecting to the dischargeability of its debt.
C.
With that question in mind I will examine the record made on the Motion which, because of the introduction of matters outside the pleadings, will be, as noted above, treated as on summary judgment. Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, and affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).
Considering the testimony of Spiegel and the exhibits introduced by both parties, I conclude that the Bank had actual notice of the bankruptcy case on April 8, 2003 when Spiegel faxed to its counsel in the State Court Action, a copy of the letter to McGovern regarding the stay of the settlement conference because of the bankruptcy filing as well as a copy of the Chapter 7 petition. While the Bank's counsel seeks to undermine that testimony by noting that the letter itself merely recites copy to "all counsel," the fax cover sheet and testimony render that argument unpersuasive. Notably the Bank did not introduce any evidence (or for that matter even contend) that it did not receive this information.
Additionally the fact that no action was taken in the state court litigation after the letter was sent to the Court administrator in April, some four months before the bar date and after a rule returnable for sanctions was issued against the Defendants' counsel, would have put Bank on notice that something was amiss. Yet Bank's counsel made no inquiry.
I am also unpersuaded by the argument that the Defendants' failure to notify the Bank, as opposed to its counsel, precludes a finding of actual notice. Notice to a creditor's attorney is usually sufficient if the attorney received knowledge of it while representing his client in enforcing a claim against the debtor.Lompa v. Price (In re Price), 79 B.R. 888, 890 (9th Cir. BAP 1987). See also 4 Collier on Bankruptcy ¶ 523.09[4][a] at 523-68 (15th ed. rev. 2003) (citing cases). Berschler was the Bank's attorney in connection with the State Court Action in which the Bank was pursuing its claims against the Defendants. Notice to her was notice to the Bank. Since notice of the bankruptcy was provided on April 8 and the bar date for complaints did not expire until August 8, the Bank had more than sufficient time to learn of the actual bar date and file its complaint.
This far exceeds the thirty days considered by one court to be sufficient time to file the complaint. See Manufacturers Hanover FKA v. Dewalt (In re Dewalt), 961 F.2d 848, 851 (9th Cir. 1992). But see Herman v. Batemann (In re Bateman), 254 B.R. 866 (Bankr. D. Md. 2000) (rejecting the requirement of at least 30 days notice). In any event, the Bank had approximately 120 days and unquestionably sufficient time after notice to file a timely complaint.
This evidence made a prima facie showing of actual notice. The Bank produced no evidence to refute the conclusions that I have drawn. Notably the Bank's counsel never stated (in testimony, oral argument or memorandum) that Berschler did not receive the letter or did not know about the Bankruptcy case. The Bank's evidence was simply that it was not listed. On this record, the Defendants are entitled to have the Complaint dismissed as untimely.
An Order consistent with the foregoing Memorandum Opinion shall issue.
ORDER
AND NOW, this 13th day of May 2004, upon consideration of the Motion of Defendants-Debtors to Dismiss Complaint filed by Citizens Bank of Pennsylvania Pursuant to Rule of Bankruptcy Procedure 7012 (the "Motion"), after notice and hearing, and for the reason stated in the accompanying Memorandum Opinion;
It is hereby ORDERED that the Motion is GRANTED.