Opinion
CASE NO. 20-12484 (NVA) ADVERSARY NO. 20-00205
2023-09-29
IN RE: Bret Steven FOXSON, Debtor. North American Specialty Insurance Company, Plaintiff, v. Bret Steven Foxson, Defendant.
Michael A. Stover, Wright, Constable & Skeen, LLP, Towson, MD, for Plaintiff. Michael Patrick Coyle, The Coyle Law Group LLC, Columbia, MD, for Defendant.
Michael A. Stover, Wright, Constable & Skeen, LLP, Towson, MD, for Plaintiff. Michael Patrick Coyle, The Coyle Law Group LLC, Columbia, MD, for Defendant. MEMORANDUM ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT [ECF NO. 42] NANCY V. ALQUIST, UNITED STATES BANKRUPTCY JUDGE
At issue in this adversary proceeding is whether a creditor will be allowed to proceed against property that a husband (who is the debtor in this bankruptcy case) purports to own as tenants by the entireties with his wife. If the property is owned by the debtor and his wife, then in order to succeed, the creditor must hold claims against both of them, which becomes a problem for the creditor because the debtor claims that the wife discharged her liability to the creditor in the separate bankruptcy case she filed some time ago.
The creditor filed an action for declaratory judgment on these points, and now seeks summary judgment in its action for declaratory relief.
The Parties and The Pleadings
The Plaintiff, North American Specialty Insurance Company ("NASIC") brings this Adversary Proceeding against Bret Foxson, the debtor in this case (the "Debtor" or "Bret"). NASIC seeks a declaratory judgment that the claims and interests of NASIC were not subject to the discharge and plan confirmation in the previous bankruptcy case in which Bret's wife, Amy Foxson ("Amy") was a debtor, and accordingly, that NASIC continues to be a joint creditor of Bret and Amy, and holds interests in property of the estate held jointly by Bret and Amy as tenants by the entireties in this bankruptcy case. (Amy and the Bret, will be referred to collectively as "the Foxsons"). [AP ECF No. 1]. At issue is whether or not NASIC was notified or made aware of Amy's bankruptcy case. NASIC maintains that it was not made aware of Amy's bankruptcy until months after her bankruptcy case was closed, and therefor that its claims against Amy could not have been discharged. NASIC also claims that Amy failed to identify NASIC as a creditor by its correct name or address on her Schedules and that as a result, NASIC was denied of its Constitutional right of Due Process and the opportunity to participate in Amy's bankruptcy case.
Before the Court is North American Specialty Insurance Company's Motion for Summary Judgment (the "Motion for Summary Judgment"), Bret Foxson's Opposition to North American Specialty Insurance Company's Motion for Summary Judgment (the "Opposition"), and North American Specialty Insurance Company's Reply Memorandum in Support of Motion for Summary Judgment and Motion to Strike Exhibits Submitted by the Debtor (the "Reply"). [AP ECF Nos. 42, 49, 53]. The Court conducted an evidentiary hearing, and the Motion for Summary Judgment was taken under advisement. [AP ECF No. 60].
For the reasons set forth below, the Court will grant the Motion for Summary Judgment.
Jurisdiction
The property at issue is property of the Debtor's estate, over which the Court has exclusive jurisdiction pursuant to 11 U.S.C. § 1334(e)(1); see also In re Abell, 549 B.R. 631, 649 (Bankr. D. Md. 2016) ("[I]n a bankruptcy context, the court has authority to issue declaratory judgments on matters concerning the administration of the estate."). The Fourth Circuit follows the Pacor "related to" test, and has held that "a district court, and derivatively the Bankruptcy court has jurisdiction over an action related to a bankruptcy case if the outcome of the proceeding could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and the proceeding in any way impacts upon the handling and administration of the bankrupt estate." New Horizon of NY LLC v. Jacobs, 231 F.3d 143, 151 (4th Cir. 2000) (cleaned up) (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)). In this circuit, a civil case is related to bankruptcy if "the outcome of [the civil] proceeding could conceivably have any effect on the estate being administered in bankruptcy." In re Celotex Corp., 124 F.3d 619, 625 (4th Cir. 1997) (citing Pacor, 743 F.2d at 994). "Notably, as is the case here, a related to case need not necessarily be against the debtor or his property." New Horizon of NY LLC, 231 F.3d at 151.
The Court has jurisdiction over this proceeding under 28 U.S.C. § 1334. Under 28 U.S.C. § 157(a) and Local Rule 402, the United States District Court for the District of Maryland has referred the bankruptcy case and this adversary proceeding to this Court. This ruling constitutes the Court's findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure (the "Civil Rules"), made applicable here by Bankruptcy Rule 7052. To the extent this Court lacks authority to determine all or part of this matter, this memorandum constitutes the Court's report and recommendation.
Legal Standards
Motions for summary judgment are governed by Civil Rule 56, made applicable to this adversary proceeding by Bankruptcy Rule 7056. "Summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed 'to secure the just, speedy and inexpensive determination of every action.' " Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Civil Rule 1). Where a moving party "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law," the Civil Rules mandate entry of summary judgment. Fed. R. Civ. P. 56(a).
The burden of showing that there is no genuine issue of material fact rests first with the moving party and requires only that the movant identify the basis for its motion and those portions of the record which it believes demonstrate the absence of a genuine issue of material fact. See Celotex, 477 U.S. at 323, 106 S.Ct. 2548; Fed. R. Civ. P. 56(c)(1). Once that burden has been satisfied, the burden shifts to the non-moving party, who may not rest on mere allegations or denials, but must set forth specific facts showing that there is a genuine issue for trial. See Matsushita v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Fed. R. Civ. P. 56(c)(1). A fact is "material" only if it will affect the outcome of a lawsuit under the applicable law and a dispute is "genuine" only if the evidence is such that a finder of fact reasonably could return a verdict for the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); accord Wai Man Tom v. Hosp. Ventures LLC, 980 F.3d 1027, 1037 (4th Cir. 2020) ("A fact is 'material' if proof of its existence or non-existence would affect disposition of the case under applicable law. An issue of material fact is 'genuine' if the evidence offered is such that a reasonable jury might return a verdict for the non-movant.").
"The facts themselves, and the inferences to be drawn from the underlying facts, must be viewed in the light most favorable to the opposing party." Ramirez v. Amazing Home Contractors, Inc., 114 F. Supp. 3d 306, 308 (D. Md. 2015). When considering a motion for summary judgment, "the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Id. at 249, 106 S.Ct. 2505.
The court may grant summary judgment only if it concludes that the evidence could not permit a reasonable jury to return a favorable verdict. Therefore, courts must view the evidence in the light most favorable to the nonmoving party and refrain from weighing the evidence or making credibility determinations.Sedar v. Reston Town Ctr. Prop., LLC, 988 F.3d 756, 761 (4th Cir. 2021) (cleaned up). Civil Rule 56 sets forth certain procedural requirements for summary judgment motions:
(1) Supporting Factual Positions. A party asserting that a fact cannot be or is genuinely disputed must support the assertion by:
Fed. R. Civ. P. 56(c). "[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322, 106 S.Ct. 2548.(A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials; or
(B) showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.
Undisputed Material Facts
The following undisputed material facts are pertinent to consideration of the Motion for Summary Judgment and are drawn from NASIC's Complaint in this Adversary Proceeding, the Debtor's Answer, the Parties' papers and the exhibits attached thereto, the record of this Adversary Proceeding, and the record of the bankruptcy cases of both the Debtor and Amy.
The Parties did not object to exhibits submitted in support of the Parties' Motions, with the exception of the exhibits Plaintiff moved to strike in its Reply. The Declarations of Bret Foxson and Amy Foxson were filed as part of the Opposition. [AP ECF No. 49]. Excerpts from the transcripts of the depositions of Bret Foxson and John Weisbrot (President of JW Surety Bonds) were also filed with the Opposition. Id. Excerpts from the transcripts of the depositions of Wes Pumphrey were filed with the Motion for Summary Judgment. [ECF No. 42]. The affidavits of Harold E. McKee III (Vice President of Surety Claims at NASIC through September 11, 2020) and George J. Bachrach (legal representative for Hanover Insurance Company and NASIC) were also submitted with the Motion for Summary Judgment. Id. Excerpts from the transcripts of the depositions of Amy Foxson, John Weisbrot, and Bret Foxson were filed by NASIC in support of their Motion for Summary Judgment as a Line. [ECF No. 43].
In re Bret Steven Foxson, Case No. 20-12484 (Bankr. D. Md. February 26, 2020); In re Amy Foxson, Case No. 19-19206 (Bankr. D. Md. July 6, 2019) (which also proceeded before this Judge).
A. The Indemnity Agreement and the NASIC Bonds
On or about March 10, 2007, the Debtor, Bret, established B&B Technologies, LLC ("B&B"), a business that provides commercial HVAC services. Bret was the managing member of B&B, and Amy was a member of B&B. Her primary responsibilities included handling Human Resources and Accounts Payable. B&B later became known by its tradename, ComfortTech. (B&B and ComfortTech will be referred to collectively as "B&B").
During the course of B&B's operations, it was determined that B&B needed surety bonds to work on certain construction projects, and Bret obtained these bonds through Wes Pumphrey of Sandy Spring Insurance. On February 29, 2016, Bret and Amy executed a General Indemnity Agreement ("Indemnity Agreement") as part of the process for obtaining these bonds. Bret and Amy signed the Indemnity Agreement as Individual Indemnitors and as members on behalf of B&B as Corporation, Company, Partnership or Trust Indemnitors. The Indemnity Agreement provides in pertinent part:
Indemnity Agreement.
NAS SURETY GROUP
475 N. Martingale Road, Suite 850
Schaumburg, IL 60173
GENERAL INDEMNITY AGREEMENT ("Agreement")
The undersigned have requested and do request that North American Specialty Insurance Company, Washington International Insurance Company, North American Capacity Insurance Company, Westport Insurance Corporation, and any existing or future affiliates, subsidiaries, divisions, successors, assigns, co-sureties, or reinsurers ("Surety") execute or procure the execution of surety bonds ("Bond" or "Bonds"). This General Indemnity Agreement ("Agreement") shall cover all Bonds that have been and as may hereafter be applied for or executed on behalf of any of the following ("Indemnitors"): the undersigned, any successors, any affiliates, any subsidiaries, any joint venture with others, and any person, firm, corporation or association furnished to the Surety by any of the undersigned.
As an inducement to the Surety and in consideration of the execution or continuance of the Bonds, the Indemnitors for themselves, their joint venture partners, their heirs, affiliates, subsidiaries, executors, administrators, successors and assigns, do jointly and severally enter into this Agreement and agree with the Surety as follows: . . .
Between 2016 and 2018, NASIC issued seven sets of performance and payment bonds (collectively the "NASIC Bonds") on behalf of B&B as a subcontractor for various construction contracts (the "Bonded Contracts"). The following three NASIC Bonds appear to form the basis of NASIC's claims against the Debtor and Amy:
• Bond No. 2266811 was entered on February 28, 2018 between B&B Technologies, LLC dba Comfort Tech, LLC as Principal, NASIC as Surety, and Hascon, LLC as Obligee in the amount of $964,000.00. This bond was entered into for the Hanger
111, Life Extension, Phase Three, Naval Air Station, Patuxent River, MD project. On this bond, NASIC's address is listed as 1450 American Lane, Suite 1100, Schaumburg, IL 60173.
• Bond No. 2266817 was entered on April 27, 2018 between B&B Technologies, LLC dba Comfort Tech, LLC as Principal, NASIC as Surety, and Hunt Construction Group, Inc. as Obligee in the amount of $3,325,120.00. This bond was entered into for the Kite Pharma - Cell Therapy Research & Clinical Production Facility project. On this bond, NASIC's address is listed as 1450 American Lane, Suite 1100, Schaumburg, IL 60173.
• Bond No. 2266801 was entered on December 28, 2018 between B&B Technologies, LLC dba Comfort Tech as Principal, NASIC as Surety, and Forrester Construction Company as Obligee in the amount of $2,329,775.00. This bond was entered into for the Capitol Seniors Housing project. On this bond, NASIC's address is listed as 1450 American Lane, Suite 1100, Schaumburg, IL 60173.
In 2018, B&B began to experience difficulties with the prime contractor on certain projects. Although certain of B&B's projects were substantially complete and the prime contractor had been paid by the owner, a substantial amount of money was still owed to B&B. B&B began having financial problems and was unable to pay certain costs related to the Bonded Contracts. By July 2019, claimants were submitting demand letters to NASIC regarding the performance failures of B&B on certain projects. Between July 23, 2019 and December 6, 2019, Harry McKee, III, Claims Expert and Vice President of NASIC, sent nine letters to B&B and the Debtor regarding payment bond claims made against the NASIC Bonds. Amy was a direct recipient of the October 1, 2019 letter and was copied on the October 28, 2019 and December 6, 2019 letters. The return address on each of Mr. McKee's letters for NASIC is listed as 1450 American Lane, Suite 1100, Schaumburg, IL 60173.
B. The Foxsons' Bankruptcy Cases
On July 6, 2019, Amy filed a petition in this Bankruptcy Court, commencing her Chapter 13 case, Case No. 19-19206 ("Amy's Bankruptcy Case"). Along with the voluntary petition, Amy filed her Schedules, which listed a nonpriority unsecured claim for a debt incurred as "co-indemnitor on surety bond for company" with the creditor's name listed as North American Surety with an address at 6023A Kellers Church Road, Pipersville, PA 18947. The Foxsons knew this was the business address for JW Surety Bonds. Amy did not list NASIC as a creditor on her Schedules. She stated that she filed for bankruptcy due to her potential exposure under two indemnity agreements that secured bonds related to business debts (including the Indemnity Agreement), and understood her personal liability to derive from the Indemnity Agreement. She further stated that she understood the indemnitee under that agreement to be NAS "because the name 'NAS Surety Group' is at the top of the Indemnity Agreement in bold, large font lettering." Bret states that he prepared Amy's Schedules. He states that he did not look at the Indemnity Agreement or the NASIC Bonds when preparing Amy's (or his own) schedules, and that while he did not have a copy of the Indemnity Agreement at the time Amy filed for bankruptcy, he did have copies of the NASIC Bonds.
In Amy's Bankruptcy Case, the Notice of Chapter 13 Bankruptcy Case set the deadline for filing proofs of claim as September 16, 2019. NASIC did not file a proof of claim in Amy's Bankruptcy Case. A Chapter 13 Plan was filed on July 6, 2019, was confirmed by order dated October 11, 2019. On January 10, 2020, Amy completed her plan payments, and on January 31, 2020, she received a discharge and her Chapter 13 bankruptcy case was closed.
Nearly a month later, on February 26, 2020, Bret, the Debtor in this case, filed his petition under Chapter 7, and that case was converted to a Chapter 11 case on April 14, 2021 ("Bret's Bankruptcy Case"). Bret filed his Schedules, and just as was done in Amy's Bankruptcy Case, he listed a nonpriority unsecured claim for a debt incurred as "co-indemnitor on surety bond for company" with the creditor's name listed as North American Surety with an address at 6023A Kellers Church Road, Pipersville, PA 18947. Bret knew that this was the business address for JW Surety Bonds. On June 3, 2020, Bret filed Amended Schedules and an amendment to his Creditor Matrix to include North American Specialty Insurance Co. (NASIC) with an address at 1450 American Lane, Suite 1100, Schaumburg, IL 60173. NASIC first learned of both Amy and Bret's bankruptcy filings through communications from the Chapter 7 Trustee on or about May 14, 2020, and filed a Proof of Claim in this case on June 5, 2020. [Claim 6-1.] NASIC filed an Amended Proof of Claim on August 3, 2021, alleging that NASIC holds fixed, liquidated, non-contingent, and undisputed claims in the amount of $585,988.64 and contingent, unliquidated claims in excess of $21,369,111.36. [Claim 6-2.]
Material Facts in Dispute
The Debtor attempted to demonstrate that NASIC was aware of the filing of Amy's Bankruptcy Case. He introduced evidence of conversations that he had with three different individuals to support his argument that NASIC was aware of Amy's Bankruptcy Case. First, he testified that he spoke with Wes Pumphrey (the bond broker who was identified as NASIC's attorney-in-fact in connection with the NASIC Bonds). He said that he spoke with Mr. Pumphrey on July 25 or 26, 2019 regarding the freezing of his personal and business checking accounts by Sandy Spring Bank. Mr. Pumphrey testified that he did not recall this conversation and that he has never been aware of the fact that Amy filed for bankruptcy. Mr. Pumphrey further testified that as of July 2021, he had only "recently" become aware that Bret filed for bankruptcy.
The Debtor's deposition testimony is that his conversation with Mr. Pumphrey on that day was limited to him asking "How did Sandy Spring Bank find out that Amy filed bankruptcy?" and Mr. Pumphrey responding "I don't know. I will find out and let you know."
Secondly, Bret presented a September 5, 2019, email from Harry McKee (as Claims Expert and Vice President of NASIC) which stated in part: "Mr. Foxson: Wes Pumphrey and I spoke earlier this afternoon. Please give me a call tomorrow so that we can discuss these three projects." The subject line of this email identifies three construction projects relating to the NASIC Bonds.
Lastly, Bret introduced evidence that in August of 2020, electronic notice of his bankruptcy case was received by JW Surety Bonds at the address the Foxsons provided in their schedules. John Weisbrot ("Mr. Weisbrot"), President of JW Surety Bonds, testified that his office sent this notice to North American Specialty. Mr. Weisbrot was questioned about a second notice of hearing dated October 27, 2020, but testified he could not confirm whether he received the document or not. Neither notice was submitted as evidence. NASIC disputes that any of this resulted in its having notice or knowledge of Amy's Bankruptcy Case.
Discussion
Against this backdrop of undisputed and disputed material facts, the Court must consider what is required for NASIC to prevail in establishing that its debt was not discharged in Amy's Bankruptcy Case, and thus that it still holds joint claims against the Foxsons and their entireties property. The inquiry starts with the Bankruptcy Code provisions requiring that creditors be listed or have notice or actual knowledge of the existence of a bankruptcy case.
I. Dischargeability under § 523(a)(3)
NASIC asserts that its claim is nondischargeable pursuant to § 523(a)(3)(A) of the Bankruptcy Code, which provides in relevant part:
(a) A discharge under section . . . 1328(b) of this title does not discharge an individual debtor from any debt--
. . . .
(3) neither listed nor scheduled under section 521(a)(1) of this title, with name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit--
11 U.S.C. § 523(a). This exception to discharge is construed narrowly, to preserve the Bankruptcy Code's overarching purpose of providing a fresh start to an honest, but unfortunate debtor. See In re Rountree, 478 F.3d 215, 219 (4th Cir. 2007); In re Spar, 176 B.R. 321, (Bankr. S.D.N.Y. 1994) ("To meet the goals intended under the Code, exceptions to discharge must be strictly and literally construed against the creditor and liberally construed in favor of the honest debtor.").(A) if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing . . . .
A creditor seeking a determination of nondischargeability has the burden of proof and must show that the debt is nondischargeable by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); In re Rountree, 478 F.3d at 220. Section 523(a)(3)(A) contains three conditions: (1) the debt must not have been scheduled in time for the creditor to file a nondischargeability complaint; (2) the creditor must be known to the debtor; and (3) the creditor cannot have notice or actual knowledge of the bankruptcy case. See, e.g., In re Garland, 501 B.R. 195, 199 (Bankr. S.D.N.Y. 2013). The Court addresses each element of the dischargeability provision below.
A. Failure to List or Schedule
The Bankruptcy Code and Bankruptcy Rules require every debtor to file a list or a schedule of the names and addresses of all creditors in order to ensure sufficient notice to parties in interest of various events in a bankruptcy case. Section 521(a)(1) provides, in relevant part, that the "debtor shall (1) file — (A) a list of creditors; and (B) unless the court orders otherwise — (i) a schedule of assets and liabilities." 11 U.S.C. § 521(a)(1); see also Fed. R. Bankr. P. 1007(a)(1) ("In a voluntary case, the debtor shall file with the petition a list containing the name and address of each entity included or to be included on Schedules D, E/F, G, and H as prescribed by the Official Forms."); In re J.A. Jones, Inc., 492 F.3d 242, 252 (4th Cir. 2007) ("Bankruptcy debtors are required to prepare and submit a list or schedule of creditors with an initial bankruptcy petition so that appropriate notice can be provided to those creditors."). Further, debtors have a continuing duty to amend their bankruptcy schedules to disclose newly discovered claims and assets. Canterbury v. J.P. Morgan Acquisition Corp., 958 F. Supp. 2d 637, 651 (W.D. Va. 2013), aff'd sub nom. Canterbury v. J.P. Morgan Mortg. Acquisition Corp., 561 F. App'x 293 (4th Cir. 2014).
The burden is on the debtor to use reasonable diligence in completing their schedules and lists. See In re Fauchier, 71 B.R. 212 (B.A.P. 9th Cir. 1987) (citing In re Robertson, 13 B.R. 726, 731 (Bankr. E.D. Va. 1981)); In re Gray, 57 B.R. 927, 931 (Bankr. D.R.I. 1986) ("Case law is clear and consistent; the debtor is held to a standard of reasonable diligence in ascertaining and listing all creditors."). For known creditors, reasonable diligence does not require "impracticable and extended searches in the name of due process" but instead "focuses on the debtor's own books and records." In re City Homes III LLC, 564 B.R. 827, 838 (Bankr. D. Md. 2017) (citing Chemetron Corp. v. Jones, 72 F.3d 341, 347 (3d Cir. 1995)); Board v. AMF Bowling Worldwide, Inc., 533 B.R. 144, 149-50 (E.D. Va. 2015).
If a creditor is able to show that the address listed or scheduled by a debtor was inadequate, the burden then shifts to the debtor to show that, notwithstanding the incorrect address, the creditor had timely notice or actual knowledge of the bankruptcy case. In re Fauchier, 71 B.R. at 215 ("If a creditor proves that an address is incorrect, the debtor must justify the inaccuracy in preparing his schedules."); In re Walker, 125 B.R. 177, 180 (Bankr. E.D.Mich. 1990). Notice or actual knowledge of a bankruptcy case is described as "knowledge of facts sufficient to apprise the creditor that a case was actually filed, and where the proceeding is pending." In re Taylor, 2009 WL 3398711, at *5 (Bankr. D. Md. Oct. 2, 2009) (quoting In re Layman, 131 B.R. 495, 497 (M.D. Fla. 1991)).
The Foxsons admit that Amy did not list NASIC as a creditor on the Schedules. The Foxsons argue, however, that Amy listed the debt under an entity named North American Surety, which is the name listed at the top of the Indemnity Agreement. But the Foxsons also admit that this creditor was listed at an address that they knew to be the address of another company—JW Surety Bonds. The Foxsons are both signatories to the Indemnity Agreement and to each of the NASIC Bonds, all of which identify NASIC as Surety. Although the address on the Indemnity Agreement is different than the address on the NASIC Bonds, the Foxsons did not use either address when scheduling its obligations under the Indemnity Agreement.
Amy testified that she was confused about who to list as the creditor under the Indemnity Agreement. Bret, who as noted prepared both Amy's and his own bankruptcy petitions, testified that he had access to the NASIC Bonds (which contain NASIC's correct address) in his books and records at the time of Amy's bankruptcy. But reasonable diligence would require that Amy's Schedules list NASIC as a surety at an address listed on either the Indemnity Agreement, the NASIC Bonds, or the contemporaneous communications from NASIC regarding the claims being made against the NASIC Bonds. Even if the Foxsons believed the creditor or its address to be unknown, they were required to state that fact, and not simply interpose an address that they knew to be the address of another business. A & M Recs., Inc. v. M.V.C. Distrib. Corp., 471 F. Supp. 980, 985 (E.D. Mich. 1979) ("If the defendant was ignorant of his creditors' location the statute required him to state that fact, not to give the address of some other business with whom the creditors had dealings."). Accordingly, NASIC was neither listed nor scheduled as required by § 521(a)(1) of the Bankruptcy Code and Bankruptcy Rule 1007(a)(1).
B. Known to the Debtor
A creditor is "known" if the creditor's identity is either known or "reasonably ascertainable by the debtor." Tulsa Prof'l Collection Servs., Inc. v. Pope, 485 U.S. 478, 490, 108 S.Ct. 1340, 99 L.Ed.2d 565 (1988). A creditor's identity is "reasonably ascertainable" if that creditor can be identified through "reasonably diligent efforts." Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 798 n.4, 103 S.Ct. 2706, 77 L.Ed.2d 180 (1983); see also Chemetron, 72 F.3d at 347. By contrast, 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 debtor's] knowledge." Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 317, 70 S.Ct. 652, 94 L.Ed. 865 (1950). As one bankruptcy court has explained:
Typically, a known creditor may have engaged in some communication with a debtor concerning the existence of the creditor's claim. This communication by itself does not necessarily make the creditor known. Direct knowledge based on a demand for payment is not, however, required for a claim to be considered "known." A known claim arises from facts that would alert the reasonable debtor to the possibility that a claim might reasonably be filed against it.In re Drexel Burnham Lambert Grp. Inc., 151 B.R. 674, 681 (Bankr. S.D.N.Y. 1993), aff'd, In re Drexel Burnham Lambert Grp. Inc., 157 B.R. 532 (S.D.N.Y. 1993); see also In re Arnold Print Works, Inc., 47 B.R. 288, 289 (Bankr. D. Mass. 1985) (finding creditor must be considered a "known creditor" even though the claim was disputed by the debtor and "should have been listed by the Debtor on the schedules at least as a disputed or potential claim" where the creditor sent letters and made telephone calls to the debtor concerning the debt).
NASIC introduced evidence to establish that it was a known creditor of the Foxsons. The Indemnity Agreement, which both Bret and Amy signed, identifies NASIC as a Surety. Between 2016 and 2018, NASIC issued seven sets of performance and payment bonds on behalf of B&B as a subcontractor for various construction contracts. Beginning in July 2019—the same month that Amy filed her bankruptcy case—NASIC sent letters to B&B and the Foxsons regarding claims made against the performance bonds relating to B&B's performance under the Bonded Contracts. An October 28, 2019 letter from Mr. McKee, as Vice President for NASIC, sent to Bret (and copied to Amy) specifically discusses the indemnification provisions of the Indemnity Agreement and Bret, Amy, and B&B's joint and several liability under that agreement.
Conversely, the Foxsons have repeatedly maintained that they did not know NASIC was a creditor with a claim under the Indemnity Agreement. They argue that their personal liability derived from the Indemnity Agreement and not from the NASIC Bonds. Bret testified that at the time Amy filed for bankruptcy, B&B had copies of the NASIC Bonds but not the Indemnity Agreement. Amy testified that she filed bankruptcy in part because of liability under the Indemnity Agreement, but she acknowledges that she received correspondence from NASIC regarding claims made under the NASIC Bonds.
See Amy Foxson Declar. at ¶ 14; Bret Foxson Declar. at ¶ 20 (Amy "did not list NASIC as a creditor, despite the fact that NASIC issued certain of the bonds, because my liability was a function of the Indemnity Agreement, not the bonds, which only created liabilities for [B&B]."); see also Amy Foxson Declar. at ¶ 15; Bret Foxson Declar. at ¶ 21 (Amy "did not use the address for NASIC because, again, my liabilities were to NAS, not to NASIC, which is the company that issued the subject bonds.").
Whether or not the Foxsons were certain of who they were ultimately liable to under the Indemnity Agreement, or what address they should include for NAS or NASIC on Amy's Schedules, they were both aware of and recipients of letters (and for Bret, telephone calls) from NASIC regarding claims made on the NASIC Bonds and discussing their liability to NASIC as indemnitors under the Indemnity Agreement. NASIC was therefore a known creditor of Amy and Amy had a duty to list NASIC as a creditor on her initial schedules (even though she disputed their claim) and to later amend those schedules as she received further communications from NASIC regarding their claims against her (to the extent she was previously unaware of those claims).
C. Notice or Actual Knowledge of Amy's Bankruptcy Case
Once the Court determines (as it has here) that NASIC was not listed or scheduled (as those terms are defined by § 521(a)(1) of the Bankruptcy Code and Bankruptcy Rule 1007(a)(1)), the burden shifts to the Debtor to show that NASIC as creditor had timely notice or actual knowledge of the bankruptcy case. In re Fauchier, 71 B.R. at 215. Because NASIC was a known creditor, it was entitled to actual notice of the bankruptcy filing and applicable bar date. In re J.A. Jones, Inc., 492 F.3d at 249 (citing Chemetron, 72 F.3d at 346); In re Taylor, 2009 WL 3398711, at *5 ("Notice or actual knowledge of a bankruptcy case is described as knowledge of facts sufficient to apprise the creditor that a case was actually filed, and where the proceeding is pending.") (cleaned up); Mullane, 339 U.S. at 314, 70 S.Ct. 652. The Debtor has advanced four separate arguments that NASIC had notice or actual knowledge of Amy's Bankruptcy Case, which the Court will examine in turn.
Notice sent to JW Surety Bonds. The Debtor argues that a notice sent from the bankruptcy court in Amy's Bankruptcy Case to North American Surety at the Pipersville, PA address of JW Surety Bonds, apparently because of its tenuous transactional relationship with NASIC, was somehow sufficient to provide notice to NASIC. In support of this argument, the Debtor relies upon (a) the fact that no mail was returned to the bankruptcy court as undeliverable, and (b) the testimony given by Mr. Weisbrot as the President of JW Surety Bonds that JW Surety Bonds forwarded at least one bankruptcy notice received in Bret's case to NASIC.
There is no presumption of receipt upon mailing in this instance, however, because NASIC was not listed or scheduled in Amy's Bankruptcy Case, and the bankruptcy notices in Amy's Bankruptcy Case could not be sent to NASIC by name or at its correct address. A notice that is properly addressed, stamped and mailed is presumed to have been fully delivered to the party to whom it was addressed. In re Weiss, 111 F.3d 1159, 1172-73 (4th Cir. 1997); Fed. Deposit Ins. Corp. v. Schaffer, 731 F.2d 1134, 1137 n.6 (4th Cir. 1984). However, as is the case here, "[i]f the proper and correct address was not used the presumption cannot be activated." In re Am. Props., Inc., 30 B.R. 239, 243-44 (Bankr. D. Kan. 1983); see also In re Cunningham, 506 B.R. 334, 341 (Bankr. E.D.N.Y. 2014) (collecting cases); In re Linzer, 264 B.R. 243, 250-51 (Bankr. E.D.N.Y. 2001) ("As a fundamental matter of due process lists or schedules of creditors serve no useful purpose unless they include the addresses last known to the debtor to which notices may be sent.") (quoting 3 Collier on Bankruptcy, ¶ 523.13, p. 523-79 (15th Ed., rev. 1999)). Additionally, through the testimony of Mr. McKee, NASIC affirmatively disputes that it received notice of Amy's Bankruptcy Case from JW Surety Bonds. Mr. Weisbrot testified that his company received a bankruptcy notice regarding Bret's Bankruptcy Case, not that JW Surety Bonds forwarded notice to NASIC regarding Amy's Bankruptcy Case.
Because the there is no presumption here that NASIC received notice of Amy's Bankruptcy Case, and because the Debtor has not established that JW Surety Bonds sent any notice of Amy's Bankruptcy Case to NASIC, the Debtor has not shown that NASIC had notice or actual knowledge of Amy's bankruptcy through notices sent from the bankruptcy court to JW Surety Bonds.
The July 2019 Telephone Call to Wes Pumphrey. The Debtor next contends that a July 2019 telephone call between the Debtor and Mr. Pumphrey (the bond broker who helped obtain the NASIC Bonds and who was identified as NASIC's attorney-in-fact on the Bonded Contracts), was sufficient to impute notice to NASIC.
In the context of a bankruptcy case, "it has generally been held that notice to a creditor's attorney of a bankruptcy filing will be sufficient if the attorney received knowledge of it while representing his client in enforcing a claim against the debtor." In re Hitt, 2008 WL 924528, at *2 (Bankr. E.D.N.C. Apr. 3, 2008) (cleaned up); In re Fauchier, 71 B.R. at 215 ("an attorney who has represented a creditor in state court proceedings does not, by virtue of that relationship alone, represent the creditor with respect to the same debt in a federal bankruptcy proceeding"); In re Robertson, 13 B.R. at 733 ("Notice or actual knowledge will be imputed to a creditor when it comes to someone who has clear authority to act for the creditor and which provides ample opportunity (for the creditor) to participate in the bankruptcy proceeding.") (cleaned up).
Here, although Mr. Pumphrey is identified as NASIC's attorney-in-fact on the NASIC Bonds, there is no evidence before the Court that Mr. Pumphrey was retained by NASIC as an attorney to represent it in connection with enforcing any claim against Bret or Amy related to the Indemnity Agreement or NASIC Bonds. Instead, the undisputed evidence shows only that Mr. Pumphrey was hired by Bret as a bond broker who helped procure surety bonds for B&B's projects.
Further, there is no argument or evidence that the Debtor gave Mr. Pumphrey "facts sufficient to apprise the creditor that a case was actually filed, and where the proceeding is pending" such that it would constitute actual notice of the bankruptcy filing. By Mr. Pumphrey's own testimony, he had no recollection of Amy ever having filed for bankruptcy. Therefore, even if Mr. Pumphrey were considered an agent of NASIC's sufficient to impute knowledge to NASIC, the July 2019 conversation was not sufficient to provide notice or actual knowledge of Amy's Bankruptcy Case. See In re Taylor, 2009 WL 3398711, at *5; In re Menaker, 603 B.R. 628, 637 (Bankr. C.D. Cal. 2019) ("An open-ended statement by a debtor regarding his/her intent to file bankruptcy in the future is not a substitute for notice that the debtor actually has filed a bankruptcy case, the date of such filing, the court in which such case has been filed, and the bar date set in that case for filing proofs of claim."); In re Stratton, 29 B.R. 93, 95 (Bankr. W.D. Ky. 1983) ("The unsubstantiated rumor relating to the debtors' financial condition is insufficient to be generally equivalent to legal notice sufficient to permit the creditor to be apprised as to the time and place of the bankruptcy filing and to participate in its administration.").
The Debtor has not shown that Mr. Pumphrey is an attorney-agent of NASIC sufficient to impute notice or actual knowledge of Amy's Bankruptcy Case to NASIC, and that even assuming arguendo such an agency relationship did exist, Mr. Pumphrey did not have facts sufficient to substitute for notice or actual knowledge of Amy's Bankruptcy Case.
The July 20, 2019 Meeting with Sandy Spring Bank. The Debtor argues that NASIC learned of Amy's Bankruptcy Case during a July 20, 2019 meeting among Bret, Amy, and Sandy Spring Bank to discuss Amy's personal bank account, the ComfortTech business account, and her bankruptcy, but presented no evidence in support on this point. The Debtor simply argues that any knowledge that Sandy Spring Bank had (which is entirely speculative) should be imputed to Sandy Spring Insurance, as a subsidiary of Sandy Spring Bank, which should then be imputed to NASIC, because Sandy Spring Insurance was identified as a "representative" of NASIC per the Surety Agreement. The Debtor does not cite any imposing authority for such an almost ridiculously attenuated chain of imputation of knowledge, nor is the Court aware of any such authority.
A September 5, 2019 Email from Harry McKee, an NAS Employee. Finally, the Debtor suggests that a September 5, 2019 email from Mr. McKee to Bret allows an inference that NASIC had notice or actual knowledge of Amy's Bankruptcy Case. This communication, however, does not contain the slightest evidence that Mr. McKee had any actual knowledge about Amy's Bankruptcy Case, and therefore cannot create an inference regarding NASIC's notice or actual knowledge. See Othentec Ltd. v. Phelan, 526 F.3d 135, 140 (4th Cir. 2008) ("The nonmoving party cannot create a genuine issue of material fact through mere speculation or the building of one inference upon another. Rather, a nonmoving party must produce some evidence (more than a "scintilla") upon which a jury could properly proceed to find a verdict for the party producing it, upon whom the onus of proof is imposed.") (cleaned up); Thompson Everett, Inc. v. Nat'l Cable Adver., L.P., 57 F.3d 1317, 1323 (4th Cir. 1995) ("While we have recognized generally that when considering a motion for summary judgment, the district court must draw any permissible inference from the underlying facts in the light most favorable to the party opposing the motion, we hasten to add that those inferences must, in every case, fall within the range of reasonable probability and not be so tenuous as to amount to speculation or conjecture.") (cleaned up).
In this email, Harry McKee is identified as a Claims Expert and Vice President of Claims Corporate Solutions for Westport Insurance Corporation. The subject line of the email provides: "Forrester Construction; Pax River; Kite Pharma." Id. The body of the email provides: "Mr. Foxson: Wes Pumphrey and I spoke earlier this afternoon. Please give me a call tomorrow so that we can discuss these three projects. Thank you." Id.
D. In Time for NASIC to Timely File a Claim
Because NASIC was a known creditor of the Foxsons and was not listed or scheduled in Amy's Bankruptcy Case and did not have notice or actual knowledge of Amy's filing, the Court need not examine whether NASIC received notice or had actual knowledge of Amy's Bankruptcy Case in time for the timely filing of a proof of claim. See generally In re Taylor, 2009 WL 3398711, at *6 (collecting cases regarding reasonable notice periods under § 523(a)(3)). The record shows that NASIC did not have notice or actual knowledge of Amy's Bankruptcy Case until May 14, 2020—months after Amy received her discharge and her bankruptcy case was closed.
Conclusion
NASIC, as a known creditor of the Foxsons, was not listed or scheduled in Amy's Bankruptcy Case. NASIC did not have notice or actual knowledge of Amy's Bankruptcy Case in time for NASIC to timely file a proof of claim. NASIC's claim was therefore not discharged in Amy's Bankruptcy Case pursuant to 11 U.S.C. § 523(a)(3). In light of the foregoing, it is, by the United States Bankruptcy Court for the District of Maryland,
ORDERED, that NASIC's Motion for Summary Judgment is GRANTED.
SO ORDERED