Potential Claimants Get 'Redo' on Adequacy of Bar Date Notice

What constitutes constitutionally adequate notice to a debtor’s unknown creditors of the deadline for filing proofs of claim? In White v. Jacobs (In re New Century TRS Holdings), Civ. No. 13-1719-SLR (D. Del. Aug. 19, 2014), the U.S. District Court for the District of Delaware concluded that the adequacy of the notice provided to unknown creditors had not been meaningfully explored by the bankruptcy court and likely was not reasonably calculated to apprise them of the bar date. As a result, the district court determined that due process required a “redo” and the decision of the bankruptcy court—that the single publication of the bar date in the national edition of The Wall Street Journal and a local newspaper in the county of the debtors’ main office was constitutionally sufficient—had to be vacated and the matter remanded for further proceedings.

The debtors, New Century TRS Holdings and its affiliates, were in the business of originating, refinancing and servicing home mortgages. Molly S. and Ralph N. White, pro se appellants, were parties to a consumer mortgage loan with one of the debtors. The bankruptcy court had entered a bar date order establishing a deadline for filing proofs of claim. Notice of the bar date was mailed to parties on the master mailing matrix maintained by debtors’ counsel and published in the national edition of The Wall Street Journal and the Orange County (Calif.) Register. More than a year after the bar date, the Whites filed proofs of claim. The trustee objected to their claims on the grounds that they lacked merit and were filed beyond the bar date. The Whites also commenced an adversary proceeding asserting the same claims. In ruling on the trustee’s motion to dismiss the adversary complaint, the bankruptcy court concluded that the debtors had arguably complied with the minimum requirements of the bar date order, but without a more fully developed factual record the court was unable to determine whether the publication notice was reasonably calculated to provide notice to consumer mortgagors like the Whites. As a result, at that stage of the proceedings, the trustee had not met his burden of proving that publication in one national newspaper and one local newspaper was sufficient to meet due process requirements as applied to the Whites as unknown creditors. Subsequently, the bankruptcy court ruled in response to the trustee’s objection to a claim by another borrower, after an evidentiary hearing, that the notice by publication was constitutionally adequate.