Opinion
Bk. Case No. 93-05609-H11, Adversary Case No. 05-90348-H11.
December 13, 2006
MEMORANDUM DECISION
Jack Wireman and Ronald Thompson (collectively, "WT" or "Plaintiffs") and Joseph Vincent Caracciolo ("Debtor" or "Defendant") filed cross motions for summary judgment.
The matter came before the Court on October 12, 2006. Subsequently, the parties submitted supplemental briefs pursuant to this Court's Notice of Opportunity of Additional Briefing and Order Granting Ex Parte Application for Order Authorizing Further Briefing.
At issue is whether the notice of Debtor's bankruptcy filing by publication meets the constitutional requirements of due process.
This Court has jurisdiction to determine this matter pursuant to 28 U.S.C. §§ 1334 and 157(b)(1) and General Order No. 312-D of the United States District Court for the Southern District of California. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (I).
The Court having reviewed the parties' summary judgment motions and all the exhibits attached thereto, and all affidavits in support thereof, and having considered the argument of counsel and additional briefs, makes the following findings of fact and conclusions of law.
I. FINDINGS OF FACT
In late 1990, Rolling Hills Estates, Ltd. ("RHE"), and others, filed a lawsuit against the Rainbow Municipal Water District, and others, for Declaratory and Injunctive Relief and Money Damages entitled Ronald P. Thon, et al. v. Rainbow Municipal Water District, et al. (Superior Court Case No. N48567) (the "State Court Lawsuit"). The gist of the complaint involved a dispute between plaintiffs and defendants regarding the approval of an alternative sewer system in connection with the plaintiffs' real property.
Debtor was not a named plaintiff in the State Court Lawsuit, but was a partner in a general partnership (GCW Associates) that was a general partner of plaintiff RHE.
On or about July 1991, WT were added as defendants in the State Court Lawsuit.
WT moved for summary judgment which was granted in their favor on or about November 12, 1992.
RHE and other plaintiffs appealed the judgment in favor of WT.
On or about March 1993, the plaintiffs settled the State Court Lawsuit with all defendants except WT.
In April 1993, the San Diego Superior Court entered a final judgment whereby WT were awarded costs as the prevailing parties.
On May 25, 1993, Debtor filed his voluntary chapter 11 bankruptcy petition.
On or about June 7, 1993, Debtor's bankruptcy filing was listed in the San Diego Daily Transcript (the "Transcript"). The listing provided Debtor's bankruptcy case number, name and address, and was under the heading of Chapter 11. See Exhibit A attached hereto.
The Transcript did not publish the last date to object to Debtor's discharge or file a proof of claim.
The deadline to file a nondischargeability complaint was August 24, 1993.
The claims bar date was December 31, 1993.
WT were not scheduled as creditors and the debt owed to them was not scheduled as a claim.
WT did not file a proof of claim nor file a nondischargeability complaint by the August 24, 1993, bar date.
On November 8, 1994, the California Court of Appeal entered its published decision affirming the award of costs, subject to a reduced amount, in favor of WT.
On November 22, 1994, Debtor's reorganization plan was confirmed.
On January 7, 1995, this Court entered a Notice of Entry of Confirmation of Plan and Discharge.
On March 23, 1995, the San Diego Superior Court entered the final judgment regarding costs in the amount of $23,952.05 in favor of WT.
On or about March 1995, the appellate court affirmed the order granting summary judgment in favor of WT, but RHE petitioned for the Supreme Court of California to review.
On or about June 14, 1995, the California Supreme Court denied review.
On or about June 1995, WT's cost award became enforceable.
On or about April 1996, WT filed a lawsuit in the San Diego Superior Court against various parties, including but not limited to, Debtor and RHE seeking damages for malicious prosecution (the "MPL").
Debtor filed an answer in the MPL and as a twentieth and separate affirmative defense, he claimed that Plaintiffs were barred from recovering from him since all obligations owing to them were discharged in his bankruptcy.
On or about July 1997, the MPL came on for trial "as to the remaining defendant Joseph Caracciolo" as all other defendants had either settled or were defaulted.
The San Diego Superior Court found that Debtor was a general partner in RHE, and even though he was not a named plaintiff in the State Court Lawsuit, "he controlled RHE and was one of the key principals controlling the prior action. The evidence is unrefuted that Caracciolo was fully responsible on behalf of RHE in retaining counsel and pursuing the litigation." The court further found that the State Court Lawsuit "was commenced at the direction of Caracciolo, was terminated in plaintiffs' favor, and was brought without probable cause." The court rejected Debtor's alleged defenses and awarded Plaintiffs damages.
On August 18, 1997, judgment was entered in favor of WT in the amount of $1,045,303.31 with an offset for the prior settlements in the amount of $825,000 leaving the total amount awarded against several parties, including Debtor, at $266,270.35.
A final decree and order closing Debtor's bankruptcy case was entered on September 20, 2001.
In September of 2004, WT commenced collection efforts on their judgment against Debtor.
WT filed this adversary proceeding on August 11, 2005, alleging that the debt owed to them is nondischargeable under § 523(a)(3)(B) because they had no notice or actual knowledge of Debtor's bankruptcy.
II. CONCLUSIONS OF LAW
In his supplemental brief, Debtor argues that notice of his bankruptcy case in the Transcript was sufficient to satisfy the requirements of due process because Plaintiffs were unknown creditors. Specifically, Debtor contends that the listing of his bankruptcy case number and name and address in the Transcript, was sufficient information to alert Plaintiffs that he filed a chapter 11 petition and, was given in time for them to protect their rights. According to Debtor, nothing more is required under the U.S. Constitution.
On the other hand, Plaintiffs argue that they were known creditors and, therefore, they were entitled to actual notice of Debtor's bankruptcy. Alternatively, if they were unknown creditors, Plaintiffs argue that the notice Debtor relies upon was inadequate because it did not contain a claims bar date, the date by which to file a nondischargeability complaint, or the confirmation date. Therefore, the notice did not satisfy the requirements of due process.
A. STANDARDS FOR SUMMARY JUDGMENT
Rule 56(c) of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Fed.R.Bankr.P. 7056, provides that summary judgment:
[S]hall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
"The moving party bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Hughes v. United States, 953 F.2d 531, 541 (9th Cir. 1992) citing Celotex Corp. v. Catrett,
477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). "After the moving party has met its initial burden, Rule 56(e) . . . requires the nonmoving party to go beyond the pleadings and by her own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Hughes, 953 F.2d at 541 (citation omitted). If the record as a whole could not lead a rational trier of fact to find for the non-moving party, then there is no genuine issue of fact precluding summary judgment. Matsushita Elec. Ind. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348 (1986).
All material issues of fact regarding the published notice of Debtor's bankruptcy are undisputed and, therefore, summary judgment will be appropriate upon an analysis of the relevant law.
B. NOTICE STANDARDS IN BANKRUPTCY
"The Due Process Clause of the United States Constitution applies to proceedings under the Bankruptcy Code." In re Argonaut Fin. Serv., Inc., 164 B.R. 107, 110 (N.D. Cal. 1994) (citations omitted). The framework for the Due Process Clause is well established. The principal case is Mullane v. Central Hanover Bank Trust Co., 339 U.S. 306, 70 S.Ct. 652 (1950). In Mullane, the Supreme Court held that for notice to comport with due process, it must be "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." Id. at 314. "The notice must be of such nature as reasonably to convey the required information . . . and it must afford a reasonable time for those interested to make their appearance." Id. at 314-15.
The standard set forth in Mullane is flexible and whether a particular method of notice is reasonably calculated to reach interested parties depends upon the particular circumstances ofeach case. Tulsa Professional Collection Serv., Inc. v. Pope, 485 U.S. 478, 484 (1988) (emphasis added). "One circumstance to consider in evaluating the sufficiency of notice is whether alleged inadequacies in the notice prejudiced the creditor."Pettibone Corp. v. Payne (In re Pettibone Corp.), 151 B.R. 166, 172-73 (Bankr. N.D. Ill. 1993) (citing People ex rel. Hartigan v. Peters, 871 F.2d 1336, 1340 (7th Cir. 1989)). "Another circumstance to consider is whether notice was given to the creditor in time for it to take meaningful action in response to the impending deprivation of its rights." Pettibone, 151 B.R. at 172-73 (citations omitted).
The Seventh Circuit sums up the due process requirements set forth in Mullane as follows: "Fair or adequate notice has two basic elements: content and delivery." Fogel v. Zell, 221 F.3d 955, 962 (7th Cir. 2000) (citations omitted). "If notice is unclear, the fact that it was received will not make it adequate." Id. (citations omitted). "But unless received, the notice is inadequate unless the means chosen to deliver it was reasonable." Id. (noting that there are two basic means — the transmission of the notice to the intended recipient and the publication of the notice in a newspaper or magazine or other medium likely to come to the attention of the person entitled to notice) (citations omitted).
1. UNKNOWN VERSUS KNOWN CREDITORS
In the bankruptcy context, the knowledge of the parties dictates the delivery aspect of fair and adequate notice. See Argonaut, 164 B.R. at 112 ("Courts have found that known creditors are deserving of actual notice while unknown creditors are owed only publication notice.") (citations omitted); In re Talon Auto. Grp., Inc., 284 B.R. 622, 625 (Bankr. E.D. Mich. 2002) (finding that creditor in chapter 11 case was known creditor and, therefore, entitled to actual notice, but also noting that "[w]hen a creditor is unknown to the debtor, publication notice of the claims bar date may satisfy the requirements of due process.") (citing Mullane v. Central Hanover Bank Trust Co., 339 U.S. 306, 317-18).
The Supreme Court has defined a known creditor as one whose identity is either known or "reasonably ascertainable by the debtor." Tulsa Professional Collection Serv., 485 U.S. at 490. "An `unknown' creditor is one whose `interests are either conjectural or future or, although they could be discovered upon investigation, do not in due course of business come to the knowledge [of the debtor].'" Mullane, 339 U.S. at 317.
The parties throughly briefed and argued the issue of whether Plaintiffs were known or unknown creditors. Debtor asserts that Plaintiffs were unknown while Plaintiffs contend they were known. Assuming Plaintiffs were unknown creditors as Debtor contends, Debtor could provide notice to Plaintiffs by publication in a newspaper or magazine or other medium likely to come to the attention of the Plaintiffs. Therefore, the issue of whether Plaintiffs were known or unknown creditors need not be resolved if the notice Debtor relies upon was insufficient to meet the constitutional requirements under Mullane.
C. ADEQUACY OF THE DEBTOR'S NOTICE BY PUBLICATION
1. CONTENT
Debtor relies on GAC Enters., Inc. v. Medaglia (In re Medaglia), 52 F.3d 451 (2d Cir. 1995) for the proposition that publication of Debtor's bankruptcy filing, without the bar dates, provides sufficient notice under § 523(a)(3) to meet the requirements of due process. In other words, once Plaintiffs read that Debtor had filed a chapter 11 petition, they were put on inquiry notice regarding any bar dates.
Medaglia involved a chapter 7 filing where the creditors missed the deadline for filing their nondischargability complaint. The creditors did not receive formal notice of the bar date for filing their nondischargeability complaint, but their counsel wrote to debtor's counsel indicating that they were aware of Medaglia's bankruptcy filing. In analyzing § 523(a)(3)(B), the court stated that the statute "contemplates the situation of unlisted creditors who have timely, actual knowledge of a `case' but fail to receive official notice of the bar date. The section imposes a burden on such creditors to come forward before the bar date . . . it is well established that due process is not offended by requiring a person with actual, timely knowledge of an event that may affect a right to exercise due diligence and take necessary steps to preserve that right." Id. at 455. The court held that a creditor's actual knowledge of a bankruptcy filing may substitute for formal notice of the deadline to file a nondischargeability complaint against the debtor.
Arguably, the rule regarding actual knowledge of the bankruptcy filing appears to apply only in chapter 7 and 13 cases. As the Ninth Circuit explained in Levine v. Maya Const. (In re Maya Const. Co.), 78 F.3d 1395, 1399 (9th Cir. 1996), in chapter 7 and 13 cases, the lack of formal notice of a proof of claims deadline is not as significant in those chapters. "In contrast to the rule governing proofs of claims in a Chapter 11 suit, which instructs the court to fix a proof of claims deadline and permits the court to extend that deadline `for cause shown,' . . . the rule governing Chapter 7 and 13 proceedings provides that proofs of claim shall be filed within 90 days of the first creditors meeting and specifies limited exceptions. Thus, once the creditors . . . had received notice of the creditors meeting, they had effective notice that proofs of claim were due within 90 days, unless very limited exceptions applied." Id.
Therefore, in individual chapter 7 or 13 cases no formal notice of the bar dates is required because in those chapters, upon learning that a petition has been filed, the creditor can easily calculate the time periods in which to file a nondischargeability complaint or proof of claim. But in an individual's chapter 11 case such as this, the Ninth Circuit's rationale in Maya for giving formal notice of a bar date in a corporate chapter 11 context is equally applicable here. Even though this case involves an individual chapter 11 debtor, the Plaintiffs would be unable to calculate the claims bar date simply by reading that Debtor had filed bankruptcy.
Addressing the rights of an unknown creditor in the chapter 11 context, one court noted: "Notice by publication must state more than the fact that a petition has been filed. The notice must contain minimal information necessary to protect the rights of the unknown creditors. It must state where the bankruptcy is pending and the bar date. It should give sufficient information to permit an unknown creditor to file a timely proof of claim." In re Nat'l Spa Pool Institute, 257 B.R. 784, 791 (Bankr. E.D. Va. 2001) (citations omitted). Plaintiffs cite case law that supports this proposition as well. Therefore, the Court finds that a published notice giving the Debtor's bankruptcy case number, name and address, and the filing date is insufficient information in a chapter 11 case because Plaintiffs would be unable to calculate the bar date for filing claims.
Plaintiffs also cite numerous cases in support of the proposition that notice by publication must include important dates, especially in Chapter 11 proceedings. See Chemetron Corp. v. Jones, 72 F.3d 341, 348 (3rd Cir. 1995) (due process requires claims bar date to be communicated in publication notice);Monster Content, LLC v. HOMES.COM, Inc., 331 B.R. 438, 442 (N.D. Cal. 2005) (due process demands that a creditor in a Chapter 11 bankruptcy case must receive reasonable notice of a claims bar date before it is effective against the creditor); Second Chance Body Armor, Inc. v. Amer. Body Armor Equip., 1999 WL 608718 (N.D. Ill. 1999) (finding debtors' published notice insufficient when it did not communicate necessary dates such as the claims bar and confirmation hearing date); Grant v. U.S. Home Corp. (In re U.S.H. Corp. of New York), 223 B.R. 654, 658 (S.D.N.Y. 1998) (noting that publication notice of the claims bar date may satisfy the requirements of due process citing Mullane, 339 U.S. at 317-18, 70 S.Ct. 652); Charter Crude Oil Co. v. Petroleos Mexicanos (In re the Charter Co.), 125 B.R. 650, 655 at n. 3 (M.D. Fla. 1991) (noting in chapter 11 case that debtor had constitutional obligation to provide adequate notice of the bar date) (citation omitted).
2. DELIVERY
Besides the lack of critical information, the notice of Debtor's bankruptcy filing was buried in a list of all the bankruptcies that were filed on the same date as his, it was published only one time, and there is no evidence that it was published in a newspaper that was likely to come to the Plaintiffs attention. Debtor has the burden of proof to show that the notice was reasonably calculated under the circumstances to come to Plaintiffs' attention, but he provided no evidence that persons similarly situated to the Plaintiffs would be reading a publication such as the Transcript and, if they did, that they would read the section of the paper under the heading of "Bankruptcy Filings."
Specifically, the Transcript lists approximately 59 bankruptcy filings on May 25 that are single spaced and categorized under the headings of Chapter 7, Chapter 11 and Chapter 13. Creditors would have to examine each listing since they wouldn't have known which chapter Debtor filed under.
The Court takes judicial notice the Debtor's publication and notes that his bankruptcy filing was not published in the section of the Transcript under the heading of "Public Notices."
In sum, the notice Debtor relies upon fails to give the minimum information necessary and was not reasonably calculated to apprise WT of their rights. The failure to provide information regarding the claims bar date and the date by which to file a nondischargeability complaint prejudiced Plaintiffs since they were unable to take any meaningful action in response to the impending deprivation of their rights.
D. WHETHER DEBTOR OR HIS LAWYERS "CAUSED" THE PUBLICATION
There is some dispute as to whether Debtor, or his lawyers, "caused" the publication to occur, or whether the Transcript published the information in the ordinary course of its business. Debtor submitted a declaration stating that he recalls either his lawyers or someone of their staff informing him that he had to publish an announcement of his bankruptcy and "that it would be done in the San Diego Daily Transcript." Debtor also declares that he recalls "getting proofs of the published notice" and that he is "absolutely certain that the publication was arranged by my bankruptcy lawyers, and was not something that the newspaper simply reported by finding out about it from some other source." Debtor submitted a supplemental declaration that "clarifies" his recollection of whether his lawyers contacted the Transcript to provide the information regarding his bankruptcy filing. This supplemental declaration contradicts his earlier memories of the facts regarding how his bankruptcy filing appeared in the Transcript.
The Debtor filed his supplemental pleadings and Plaintiffs filed a response. These pleadings were filed without authorization from the Court. The Court has discretion to consider supplemental pleadings and will do so in this case. See Agate Holdings, Inc. v. Ceresota Mill Ltd. P'ship (In re Ceresota Mill Ltd. P'ship), 211 B.R. 315, 318 (B.A.P. 8th Cir. 1997) ("[W]hile a trial court may have the discretion to consider a late-filed document where no party objects, a party filing an untimely document without an accompanying 9006(b) motion does so at its peril.")
Plaintiffs refute Debtor's version of the facts by submitting the declaration of Jeff Phillips who is the operations manager at the Transcript. Mr. Phillips declares that he examined the copy of the pages from the Transcript submitted by Defendant and the information about bankruptcy filings contained in this part of the newspaper is obtained directly from the United States Bankruptcy Court, not from the bankruptcy debtors or their attorneys. Mr. Phillips further declares there is another portion of the newspaper under the heading of "Public Notices" that is used for purposes of providing the public with published notice of matters that are required to be published by law or pursuant to court order.
Although Debtor's supplemental declaration appears to remove any dispute as to whether his lawyers provided the information about Debtor's bankruptcy filing to the Transcript, to the extent there is a dispute, in ruling on a motion for summary judgment, the court is not to make credibility determinations, weigh evidence, or draw from the facts legitimate inferences for the movant, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505 (1986). But facts that are irrelevant or unnecessary to a decision are "non-material" and do not prevent summary judgment. Anderson, 477 U.S. at 242, 106 S.Ct. 2505. The Court finds that to the extent there is a disputed fact regarding how notice of Debtor's bankruptcy filing appeared in the Transcript, that fact that is immaterial in light of this Court's analysis regarding the content of the notice and, therefore, is not an impediment to granting summary judgment in favor of WT.
A one time published notice containing only the Debtor's case number and name and address, buried in a single spaced list of approximately 59 bankruptcies involving chapter 7, chapter 11 and chapter 13, does not meet the due process requirements set forth in Mullane.
Debtor also relies on In re West Coast Video Enters., Inc., 174 B.R. 906, 909 (Bankr. E.D. Pa. 1994) for the proposition that he, or his lawyers, do not need to cause the notice of his bankruptcy to be published and simply learning of a bankruptcy filing is sufficient notice. Compare In re Nat'1 Spa Pool Institute, 257 B.R. at 791 (finding that stories in trade journals and in two newspapers do not constitute notice by publication since the stories were not calculated to give notice of the filing of a petition in bankruptcy or the bar date) (citations omitted). Even assuming that this Court was bound by West Coast, the facts and circumstances in that case are vastly different.
To the extent Debtor's reliance on West Coast is a variation of his earlier argument under Medaqlia, the Court will not repeat its earlier findings regarding the content of the notice required for an individual chapter 11 case such as this.
In West Coast, the debtor was a well-known franchisor of video rental stores. Former fanchisees of the debtor sought to reopen the case and make a late claim and proceed with pending state court litigation against the debtor and certain of its principals. The debtor presented evidence that its filing received considerable media publicity on several local television stations and was the subject of several local newspaper and trade journal articles. The court found the franchisees were "unknown creditors" and noted that the debtor did not provide any formal or official sort of publication notice to its "unknown" creditors of the bar date, the confirmation hearing, or any other pertinent benchmarks in its case. Nonetheless, the court found the publicity about the case was quite likely to be noticed by lay persons to a much greater degree than an obscure legal notice. The court also did not believe the franchisees were unaware of the filing. "Assuming arguendo the Movants' unlikely lack of actual knowledge of the Debtor's bankruptcy, we nevertheless conclude that the publicity of the Debtor's bankruptcy case, particularly at its outset, provided reasonable notice of the Debtor's bankruptcy filing to them, which would have permitted them to access all information relevant thereto, including the bar date and the terms of the plan, had they chosen to investigate further." West Coast, 174 B.R. at 909-910.
Here, Debtor provided no evidence that his bankruptcy case was highly publicized through television stations or articles in local newspapers nor has the Debtor provided evidence that he was "well-known" and there was such a high degree of participation in his case that contributed to making his case a "complex, high-profile matter." West Coast would also appear contrary to Ninth Circuit law which holds that a creditor's actual knowledge of a chapter 11 bankruptcy proceeding does not obviate the need for formal notice. See In re Maya Const. Co., 78 F.3d at 1395. The Court finds West Coast unpersuasive.
Lastly, Debtor provided no evidence that demonstrated why he needed to provide notice by publication to his unknown creditors. In this Court's experience, notice by publication is usually required in large corporate chapter 11 cases which involve defective products and involve hundreds of unknown plaintiffs. The Court is unaware of a notice by publication in an individual's chapter 11 case. Moreover, if notice by publication is necessary, the debtor usually files a motion to obtain Court approval of the notice and the Court takes judicial notice that no such motion was filed in this case.
III. CONCLUSION
The Court finds that it is unnecessary to determine whether Plaintiffs were known or unknown creditors of the Debtor because under either scenario the notice by publication that Debtor relies upon was insufficient and does not meet the constitutional requirements of due process. Therefore, Plaintiffs are entitled to summary judgment on this issue.
This Memorandum Decision constitutes findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052. Plaintiffs are directed to file with this Court an order in conformance with this Memorandum Decision within ten (10) days from the date of entry thereof.
Exhibit