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finding service by mail on attorney who appeared for creditor in the state court litigation inadequate to meet the requirements of Rule 7004
Summary of this case from Hutto v. Discover Bank (In re Hutto)Opinion
Case No. 02-21540
January 3, 2003
MEMORANDUM OF DECISION
I. INTRODUCTION
The above chapter 7 Debtors seek to avoid certain judicial liens under § 522(f)(1)(A) on the basis that such liens impair their homestead exemption. Upon its review of the entirety of the record and consideration of relevant authority, the Court concludes that Debtors' request must be denied based upon lack of proof of proper service on the lien holders.
II. BACKGROUND AND FACTS
Michael and Jane Lancaster ("Debtors") filed a voluntary chapter 7 petition on October 11, 2002. They also then filed their schedules and statements of financial affairs. On schedule C they claimed, under § 522(b) and § 55-1001, et seq., a homestead exemption in real property located in Kootenai County, Idaho.
The § 341(a) meeting of creditors and examination occurred on November 21, 2002. No objection to the Debtors' exemptions was filed within 30 days of that meeting, and the exemptions are thus allowed. See § 522(1); F.R.Bankr.P. 4003(b); In re Conley, 99.1 I.B.C.R. 7 (Bankr. D. Idaho 1999).
On December 10, the Debtors' filed a "Motion to Avoid Judicial Lien and Notice of Hearing." See Doc. No. 7 ("Motion"). The Motion was served, in the fashion discussed below, on five separate creditors holding such liens, and they were advised of a hearing on the Motion scheduled for December 19, 2002. The hearing was held, and Debtors appeared in support of the Motion. The chapter 7 trustee appeared but took no position on the matters. None of the affected creditors appeared, nor did any file an objection. The Court took the matter under advisement.
III. DISCUSSION AND DISPOSITION
Section 522(f)(1)(A) allows a debtor to avoid a "judicial lien" to the extent the lien impairs the debtor's exemption. The Code defines a judicial lien as
[a] lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.
§ 101 (36). In light of the documents attached to the Motion, each of the subject liens here appears to have been created by the recording of a judgment in the real property records of Kootenai County. This recording provided each creditor with a lien on all property of Debtors in Kootenai County by virtue of Idaho Code § 11-1110.
A request to avoid a lien under § 522(f)(1)(A) is brought "by motion in accordance with Rule 9014." See F.R.Bankr.P. 4003(d). Rule 9014 addresses "contested matters" and provides, in part, that a motion "shall be served in the manner provided for service of a summons and complaint by Rule 7004."
This is an exception to the general requirement that a party commence an adversary proceeding when it wishes to determine the validity or extent of a lien. See F.R.Bankr.P. 7001(2).
Debtors' certificate of mailing indicates that the Motion was served on the following creditors by mail, addressed as indicated, as well as being served on the trustee and the U.S. Trustee:
This name might be read as referring to either an individual or an entity. The Motion, however, makes it clear that this creditor is a corporation.
(b) Except as provided in subdivision (h), in addition to the methods of service authorized by Rule 4(e)-(j) F.R.Civ.P., service may be made within the United States by first class mail postage prepaid as follows:
. . .
(3) Upon a domestic or foreign corporation or upon a partnership or other unincorporated association, by mailing a copy of the summons and complaint to the attention of an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process and, if the agent is one authorized by statute to receive service and the statute so requires, by also mailing a copy to the defendant.
The service of the Motion and the notice of hearing here did not comply with Rule 7004(b)(3) as to any of these five entities. The Motion was not directed "to the attention of an officer, a managing or general agent," or to any other "authorized agent" of any of these entities. Rule 7004(b)(3). Thus, the service is insufficient. See In re Egan, Case No. 00-41030 (Bankr. D. Idaho Nov. 8, 2002) (addressing Rule 7004(b)(3) and the insufficiency of service on a corporation which "was not directed to any particular individual, and was certainly not addressed to any officer, manager or agent"); accord In re Venegas, 257 B.R. 41, 45, 01.1 I.B.C.R. 5, 6 (Bankr. D. Idaho 2001) (addressing similar requirement of Rule 7004(b)(6) requiring service to be directed to municipal officer).
The Court notes that, in regard to one creditor (Coeur d'Alene Credit Bureau), Debtors served their Motion by mailing it to the attorney who had appeared for that creditor in the state court litigation which gave rise to the recorded judgment. However, there is no subdivision of Rule 7004 which appears to countenance this form of service, nor is there anything in the record before the Court indicating an appearance was made in the bankruptcy case such that service on the attorney could stand in lieu of service on the affected creditor. See In re Rae, No. 02-11815, 2002 WL 31846211 (Bankr. N.D. Ind. Nov. 25, 2002) (service of § 552(f) motion on attorney who had appeared for lien creditor in pre-bankruptcy litigation giving rise to the lien was not sufficient under Rule 7004); accord Citicorp Mortgage, Inc. v. Brooks (In re Ex-Cel Concrete Co.), 178 B.R. 198, 203-04 (9th Cir. BAP 1995) (service on attorney is effective under Rule 7004 only where the attorney has agency relationship or has appeared in same action; appearance for the party in other matters is not sufficient). This alternative service is therefore also found inadequate.
This fact is made evident from the face page of the Coeur d'Alene Credit Bureau recorded judgment which is attached to the Motion. Oddly, though four of the five judicial liens stemmed from judgments in cases where the creditor had counsel, and the names of these attorneys appeared on the face pages of the recorded judgments as appended to the Motion, Debtors elected to use this style of service with only Coeur d'Alene Credit Bureau.
The Court acknowledges that orders have previously been entered under § 522(f) where the service was made on the state court counsel for the judgment creditor. However, earlier laxity of review or error of analysis cannot serve as binding precedent.
The Court appreciates that no opposition was raised to the Motion. But that fact alone does not absolve the Court of its responsibility to ensure that relief may properly be entered. See Roberts v. Nat'l Mortgage Servs. (In re Roberts), 98.4 I.B.C.R. 106 (Bankr. D. Idaho 1998) (explaining Court's duty to ensure relief is proper even in absence of contest); accord GMAC Mortgage Corp. v. Salisbury (In re Loloee), 241 B.R. 655, 662 (9th Cir. BAP 1999) ("Parties are entitled to presume that the court will comply with applicable rules of procedure and that they will receive the notice that is usually required.")
When so much of the daily diet of bankruptcy practice is handled by "notice and hearing" under § 102(1), and on the nonappearance or nonobjection of a party who has been provided an opportunity to appear or object, it is appropriate that both the Court and counsel for the proponent pay heed to the requirements of proper service. As noted in Ultrasonics, Inc. v. Eisberg (In re Ultrasonics, Inc), 269 B.R. 856, 861-62 (Bankr. D. Idaho 2001), the special and "comparatively lenient" procedure of service by mail in bankruptcy cases requires parties to strictly comply with Rule 7004, thus protecting due process rights while still allowing bankruptcy matters to proceed expeditiously.
IV. CONCLUSION
Since the five creditors here were not properly served, the requested relief may not be entered at this time. The Motion will be denied, without prejudice to renewal. An order will be entered accordingly.