Service of a complaint on a bank by regular mail – rather than certified mail – gave the bank no obligation to respond and compelled the bankruptcy court to set aside a notice of default, even though the bank never proffered a defense to the allegations in the complaint, according to an opinion by District Judge Arthur D. Spatt of Central Islip, N.Y.
The debtor, who had received a chapter 7 discharge, served a summons and complaint on the bank that had loaned her more than $160,000 to attend medical school abroad. The adversary proceeding sought a declaration that the student-loan debt was discharged under Section 523(a)(8) because the medical school was not accredited.
The bank did not respond to the initial complaint, an amended complaint, and the clerk’s notice of default, which were all served by ordinary mail addressed to the attention of the bank’s chief executive. The bank ultimately appeared in bankruptcy court after receiving the debtor’s motion for entry of default judgment. Because the bank never submitted a defense on the merits other than the insufficiency of service of process, the bankruptcy judge entered judgment in favor of the debtor.
The bank appealed and won in Judge Spatt’s Nov. 29 opinion. He held that the bankruptcy judge was required to set aside the default and that the bank had no obligation to respond on the merits because the complaint was not served by certified mail.
The case turned on Bankruptcy Rule 7001(h)(1), which provides that service on an “insured depository institution” must be made by “certified mail addressed to an officer of the institution” unless the bank has appeared by an attorney, “in which case the attorney shall be served by first class mail.”
Because the bank was entitled to service by certified mail, Judge Spatt cited Second Circuit authority for the proposition that judgment obtained by defective service was void for lack of personal jurisdiction and must be set aside as a matter of law.
Since the bank had no obligation to plead given the insufficiency of service of process, the bank was not required to proffer a defense to the complaint when confronted with a motion for judgment by default, Judge Spatt said. Thus, the bank’s actual knowledge of the lawsuit did not compel the bank to file an answer “or put forth any defense to the allegations of the amended complaint.”