Notice of the bar date by email may satisfy the requirements of due process, but emailed notice does not comply with the Bankruptcy Rules and in itself is insufficient to enforce the bar date, according to Bankruptcy Judge Craig T. Goldblatt of Delaware.
Judge Goldblatt’s October 21 opinion reads like a polite, indirect suggestion that the rules committee should modify the Bankruptcy Rules or the Third Circuit should modify its precedents, to take modern technology into account.
Indeed, it has been this writer’s experience in recent years that mail is one of the least reliable methods to ensure delivery. Especially in a case that is several years old, creditors’ street addresses may change, but email addresses usually don’t.
Given the low cost of email, the rules could require several emailed notices in advance of a deadline, along with one notice by mail, all geared to accomplish actual notice.
Wrong Street Address, Correct Email Address
With a claim of almost $350,000, a corporate creditor was scheduled as the corporate debtor’s largest unsecured creditor. The parties agreed that notice of the claims bar date was mailed to the wrong address.
However, the proof of service showed that the bar date notice was also sent to an email address that the creditor’s principal actively used, albeit not for business. Evidently, the principal would qualify as the creditor’s agent for service of notices.
The creditor claimed it only learned about the bar date after the deadline passed. The debtor objected to the creditor’s $350,000 claim, contending it was untimely. Judge Goldblatt denied the objection but left the door open for an objection on other grounds.
Due Process Concerns
Judge Goldblatt interpreted decades of Supreme Court authority to mean that due process would be satisfied if the debtor employed “a means that might have been employed by a debtor who was ‘desirous of actually informing’ its creditors of the bar date.”
Since the debtor’s principal regularly used his personal email account and was an “agent” for the creditor, Judge Goldblatt saw “no question that an email to [the creditor’s principal] is a means that might be employed by someone who wanted to provide appropriate notice to [the creditor].” He said that an email was “at least as good (in terms of its likelihood of reaching the intended recipient) as an envelope placed in the mail addressed to the creditor’s last known address.”
Judge Goldblatt went on to say that “a fair case could be made” that a debtor “singularly focused” on giving notice “would send an email notice to an email address that the creditor actively used rather than dropping an envelope into a mailbox.”
Judge Goldblatt concluded that notice by email complied with constitutional requirements of due process. But due process isn’t enough, as it turns out.
Noncompliance with the Rules
Beyond satisfying the Constitution, Judge Goldblatt said that the debtor also must comply with the Bankruptcy Rules.
Rule 2002(a)(7) requires “at least 21 days’ notice by mail” of the bar date. Rule 2002(g)(1) requires that notice be given at the “mailing address” requested by the creditor, or, if there was no request, then the notice “shall be mailed” to the address in the debtor’s schedules.
Judge Goldblatt said that the “clear import” of the rules “is that a creditor is entitled to receive notice of the bar date by mail, at the address required by Bankruptcy Rule 2002(g).”
Because it had been stipulated that the creditor did not receive notice by mail, Judge Goldblatt ruled that the bar date could not be enforced against the creditor “in the absence of a showing that the error was a harmless one.”
No Harmless Error
In bankruptcy cases, harmless error is determined by Federal Rule 61, incorporated by Bankruptcy Rule 9005. The federal rules says that “the court must disregard all errors and defects that do not affect any party’s substantial rights.”
To establish harmless error, Judge Goldblatt said it was incumbent on the debtor to show that the creditor had “actual, subjective knowledge of the bar date.” Here’s where the debtor fell short.
The creditor’s principal testified that he was not aware of the bar date until he received a subpoena under Rule 2004 after the bar date. Had he known about the bar date, he also testified that he would have filed a timely claim given the “significant” amount of his company’s money that was involved.
The testimony accorded with “ordinary common sense,” Judge Goldblatt said. He therefore found as a fact that the principal did not have “actual knowledge” of the bar date as a result of the email.
Judge Goldblatt therefore found no harmless error and overruled the debtor’s objection to the claim on account of timeliness. He left the door open for an “objection on other grounds.”
Notice of the bar date by email may satisfy the requirements of due process, but emailed notice does not comply with the Bankruptcy Rules and in itself is insufficient to enforce the bar date, according to Bankruptcy Judge Craig T. Goldblatt of Delaware.
Judge Goldblatt’s October 21 opinion reads like a polite, indirect suggestion that the rules committee should modify the Bankruptcy Rules or the Third Circuit should modify its precedents, to take modern technology into account.
Indeed, it has been this writer’s experience in recent years that mail is one of the least reliable methods to ensure delivery. Especially in a case that is several years old, creditors’ street addresses may change, but email addresses usually don’t.
Given the low cost of email, the rules could require several emailed notices in advance of a deadline, along with one notice by mail, all geared to accomplish actual notice.