Contributed by Dana Hall
A short bankruptcy tale for our loyal readers – a mortgage loan servicing company files a proof of claim against a chapter 13 debtor asserting a secured claim against the debtor’s personal residence. The debtor objects to the claim and serves notice of the objection at the address listed on the proof of claim. The claimant does not respond, and the court enters an order expunging the claim. The court later confirms the debtor’s plan and enters a discharge order. So ends the story for our doleful loan servicer and the takeaway is that you should always check your mail, right? Wrong. In Monk v. LSI Title Company of Oregon, LLC (In re Monk), the United States Bankruptcy Court for the District of Oregon held that service of a claim objection must comply with Bankruptcy Rule 7004(b)(3) and, accordingly, a debtor serving a claim objection on a corporation or partnership must address such notice to an officer or designated service agent – even if this additional addressee information is not included on the claimant’s proof of claim or contained in the debtor’s business records.
Although the facts in Monk are, more or less, set forth in the short story above, a couple of additional facts – both of which weigh against a ruling in favor of the claimant – should be noted. The trustee in Monk listed the claimant on the debtor’s schedules, and the claimant seemingly received notice of the bar date and bankruptcy case because it timely filed a proof of claim. Additionally, service of the objection and notice using the addressee information listed on the proof of claim complied with the bankruptcy court’s local rules, requiring that such documents be mailed to the claimant at its “current filed address.” Notwithstanding these facts, the court found that the trustee failed to comply with Bankruptcy Rules 9014(b) and 7004(b)(3), that the claimant’s claim had, accordingly, not been discharged, and that the claimant was permitted to foreclose on the former debtor’s residence.
Rule 9014(b) governs service of any motion initiating a contested matter and provides that such motion shall be served in the manner provided for service of a summons and complaint under Rule 7004. Rule 7004, in turn, provides that when service is made on a corporation, partnership, or other unincorporated association, such service must be made by “mailing a copy of the [objection] 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 . . . .” Bankruptcy Rule 3007, on the other hand, specifically governs objections to claims and subsection (a) of that rule provides that a claim objection must be “mailed or otherwise delivered to the claimant, the debtor or debtor in possession, and the trustee at least 30 days prior to the hearing.” In Monk, the trustee argued that because Rule 3007 governs claim objections and specifically addresses notice of such objections, Rules 9014(b) and 7004 are inapplicable. The claimant, on the other hand, argued that because a claim objection is a contested matter, Rule 7004(b)(3), as made applicable by Rule 9014(b), governs service of the debtor’s objection.
Recognizing that bankruptcy courts throughout the country have come down on both sides of the issue, the Monk court relied on In re Levoy – controlling precedent in the Ninth Circuit – in finding that Rule 9014(b) provides the manner in which service of a claim objection should be made, while Rule 3007(a) merely supplements Rule 9014(b) by providing more specific information regarding who should receive notice of the hearing on the objection. The court noted that “Rule 3007 is not a substitute for service of the objection to claim . . . [and] [t]he fact that a claim objection is initiated by an objection rather than a motion does not remove the matter from the service requirements of Rule 9014(b).” The court also rejected the trustee’s argument that due process had been satisfied because the objection was mailed to the claimant and was not returned, demonstrating that the claimant had received actual notice of the objection. Although the so-called “mailbox rule” may have been sufficient to create an inference that the claimant had received the notice, it was not sufficient to create an inference that an individual charged with responding to service had received the notice. Further, the court found that the language of the local rules did not change this outcome because “no local rule can contradict the Federal Rules by replacing the service locations in Federal Rule 7004.”
The Monk court’s reasoning is consistent with the reasoning of most other courts that have reached the same conclusion. Many other courts, however, have come down on the opposite side of the issue and have focused their attention on the language of Rule 9014(a), which states that “[i]n a contested matter not otherwise governed by the [Bankruptcy Rules], relief shall be requested by motion . . . .” These courts’ opinions suggest that claim objections are not motions and, therefore, are “otherwise governed” by Rule 3007(a) within the meaning of Rule 9014(a). A number of these courts also have found that a claimant who specifies a service address in his or her proof of claim is estopped from asserting that he or she was not properly served and that a claimant’s identification of an addressee on the claimant’s proof of claim results in the implied appointment of that addressee as the service agent.
A number of bankruptcy courts have also wrestled with the issue of whether Rule 7004(b)(3) requires a debtor to identify a named individual for purposes of service, as opposed to simply addressing the notice to the attention of “authorized officer or service agent.” In In re Schoon, for example, the United States Bankruptcy Court for the Northern District of California held that notice of a debtor’s motion, addressed to the attention of “President” at one of the debtor’s creditors, was insufficient. The court there stated that its ruling “merely requires a little extra effort to determine the name of the president or other officer.” Although this might be true in the context of a single claim objection or motion affecting the rights of a very limited number of parties, the “extra effort” required of a debtor may be quite significant in a large chapter 11 case, where a single omnibus objection often affects the rights of hundreds of claimants. A number of other courts have considered the problems inherent in requiring a debtor to independently determine the identity of a claimant’s responsible service agent and have, consequently, held that Rule 7004(b)(3) does not require a movant to identify a named officer or agent. See, e.g., In re C.V.H. Transp., Inc.
The decision in Monk certainly does not resolve the rift among courts on the above issues, but it does serve as a useful example of the relatively simple steps that a debtor can take to avoid suffering the same fate as the debtor in Monk. Although a debtor may have to expend significant time and effort to determine the name of the appropriate agent or officer and doing so might, as a result, not be feasible, a debtor can still gain some degree of protection by addressing all corporate notices to the “authorized agent or officer” at each corporate claimant. Doing so would seemingly satisfy the requirement of Rule 7004(b)(3) in many jurisdictions and may inoculate a debtor against the unfortunate consequences suffered by the debtor in Monk.