appellant brief -alan jacobs as trustee for the new century liquidating trust
TRANSCRIPT
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United States Court of Appealsfor the
Third Circuit
No. 14-3923
IN RE: NEW CENTURY TRS HOLDING, INC., et al.,
Debtors,
ALAN M. JACOBS, IN HIS CAPACITY AS LIQUIDATING TRUSTEE TO NEW CENTURY LIQUIDATION TRUST,
Appellant.
––––––––––––––––––––––––––APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE
BRIEF FOR APPELLANT and APPENDIXVolume I of II (Pages A-1 to A-38)
HAHN & HESSEN
488 Madison Avenue New York, New York 10022
(212) 478-7200
– and –
BLANK R OME
1201 Market Street, Suite 800
Wilmington, Delaware 19801(302) 425-6423
Attorneys for Appellant
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CORPORATE DISCLOSURE STATEMENT
Appellant Alan M. Jacobs is the liquidating trustee of the New Century
Liquidating Trust (the “Trust”), established pursuant to the confirmed liquidating
chapter 11 plan of New Century TRS Holdings, Inc., et al. (the “Debtors”). The
beneficiaries1 of the Trust are creditors holding allowed unsecured claims against
the Debtors. The Trust has no parent corporation.
1 The largest beneficiaries of the Trust are identified in the corporate disclosurestatement previously filed with this Court.
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TABLE OF CONTENTS
Page
CORPORATE DISCLOSURE STATEMENT ........................................... i
TABLE OF CONTENTS ............................................................................. ii
TABLE OF AUTHORITIES ....................................................................... iv
PRELIMINARY STATEMENT ................................................................. 1
STATEMENT OF BASIS FOR APPELLATE JURISDICTION ............... 8
STATEMENT OF ISSUES PRESENTED ON APPEAL ........................... 9
STATEMENT OF RELATED CASES AND PROCEEDINGS ................ 10
APPLICABLE STANDARD OF APPELLATE REVIEW ........................ 11
NATURE AND STAGE OF THE PROCEEDINGS .................................. 11
STATEMENT OF THE CASE AND FACTS ............................................ 14
SUMMARY OF THE ARGUMENT .......................................................... 18
ARGUMENT ............................................................................................... 20
I. THE DISTRICT COURT OVERSTEPPED ITS AUTHORITY
BY MAKING ADDITIONAL FINDINGS OF FACT AND
DRAWING OPPOSING INFERENCES FROM
THE RECORD ON APPEAL ........................................................... 20
II. THE DEBTORS’ BORROWERS ARE UNKNOWN
CREDITORS AND WERE CONSIDERED BY THE
DEBTORS WHEN PROVIDING CONSTRUCTIVE
NOTICE OF THE BAR DATE ......................................................... 22
A. The Bankruptcy Court Correctly Relied Upon Evidence
Establishing that the Debtors’ Borrowers Were Unknown
Creditors and that the Debtors Considered the Borrowers
in Providing Publication Notice .................................................. 24
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B. The District Court’s Finding That the Debtors Did Not
Consider Their Borrowers in Providing Publication
Notice is Unsupported by the Record ......................................... 26
III. NATIONWIDE NOTICE OF THE BAR DATE PROVIDED BY
PUBLICATION IN THE WALL STREET JOURNAL,SUPPLEMENTED WITH PUBLICATION IN THE ORANGE
COUNTY REGISTER WAS SUFFICIENT TO SATISFY DUE
PROCESS .......................................................................................... 29
A. The Bankruptcy Court Correctly Determined that the Debtors’
Publication of the Bar Date Was Sufficient ................................ 30
B. The District Court’s Holding is in Direct Contradiction to the
Record and Well-Established Law and Establishes a New,
More Onerous Standard for Satisfying Due Process .................. 36
IV. THE DISTRICT COURT’S SUGGESTION THAT NOTICE
WAS INSUFFICIENT NOTWITHSTANDING THE DEBTORS’
COMPLIANCE WITH FED. R. BANKR. P. 2002(A)(7) IS
REVERSIBLE ERROR ..................................................................... 41
V. THE DISTRICT COURT IMPROPERLY CONCLUDED
THAT THE BANKRUPTCY COURT DID NOT
“MEANINGFULLY CONSIDER” THE ADEQUACY
OF THE NOTICE PROVIDED ........................................................ 42
CONCLUSION ............................................................................................ 44
COMBINED CERTIFICATION ................................................................. 45
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TABLE OF AUTHORITIES
Page(s)
Cases:
Avellino & Bienes v. M. Frenville Co. (Matter of M. Frenville Co.),
744 F.2d 332 (3d Cir. 1984) ..................................................................... 39
Brown v. Seaman Furniture Co., Inc., 171 B.R. 26
(E.D. Pa. 1994) ........................................................................... 28, 29, 30, 35
Charter Int’l Oil Co. v. Ziegler (In re The Charter Co.), 113 B.R. 725
(M.D. Fla. 1990) ....................................................................................... 23, 37
Chemetron v. Jones, 72 F.3d 341 (3d Cir. 1995) ......................................... passim
City of New York v. New York, N.H. & H.R. Co., 344 U.S. 293
(1953) ........................................................................................................ 22
Cromwell v. New Century Liquidating Trust, No. 14-cv-00822 (SLR) ..... 10
Gentry v. Circuit City Stores, Inc. (In re Circuit City Stores, Inc.),
439 B.R. 652 (E.D. Va. 2010) .................................................................. 23, 34
Harvard Industries, Inc. v. Conway (In re Harvard Industries, Inc.), No.
91-404, 1995 Bankr. LEXIS 932 (Bankr. D. Del. June 20, 1995) ......... 30
In re Am. Home Mtg. Holdings, Inc., Case No. 07-11047
(Bankr. D. Del. Oct. 30, 2007) ................................................................. 41
In re Best Products Co., 140 B.R. 353 (Bankr. S.D.N.Y. 1992) ............ 29, 30, 33
In re BGI, Inc., 476 B.R. 812 (Bankr. S.D.N.Y. 2012) ...................... 30, 41, 42
In re Chicago Pacific Corp., 773 F.2d 909 (7th Cir. 1985) ......................... 30
In re Chicago, Milwaukee, St. Paul and Pacific Railroad Co.,
112 B.R. 920 (N.D. Ill. 1990) ............................................................... 30, 36
In re Credit-Based Asset Servicing and Securitization, LLC,
Case No. 10-16040, 2014 Bankr. LEXIS 4958
(Bankr. S.D.N.Y. Dec. 9, 2014) ......................................................... 39-40
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In re Delta Financial Corporation, Case No. 07-11880
(Bankr. D. Del. Mar. 19, 2008) ................................................................ 40
In re Gov’t Securities Corp., 107 B.R. 1012 (S.D. Fla. 1989) ................... 23, 30
In re Lehman Brothers Holdings, Inc., Case No. 08-13555(Bankr. S.D.N.Y. July 2, 2009) ................................................................ 40
In re Miller, 730 F.3d 198 (3d Cir. 2013) .................................................... 11
In re Neis, 723 F.2d 584 (7th Cir. 1983) ...................................................... 20, 21
In re O’Brien Envtl. Energy, Inc., 188 F.3d 116 (3d Cir. 1999) ................. 11
In re Phila. Newspapers, LLC, 690 F.3d 161 (3d Cir. 2012)....................... 11
In re Trans World Airlines, Inc., 145 F.3d 124 (3d Cir. 1998) ................... 11
IRS v. Pransky (In re Pransky), 318 F.3d 536 (3d Cir. 2003) ..................... 11
JELD-WEN, Inc. v. Van Brunt (In re Grossman’s Inc., et al.),
607 F.3d 114 (3d Cir. 2010) ..................................................................... 39
Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306
(1950) ........................................................................................................ 22
Russell v. New Century Liquidating Trust, No. 14-cv-00821 (SLR).......... 10
Silber v. Mabon, 18 F.3d 1449 (9th Cir. 1994) ........................................... 38
SLW Capital, LLC v. Mansaray-Ruffin (In re Mansaray-Ruffin),
530 F.3d 230 (3d Cir. 2008) ..................................................................... 23
Universal Minerals, Inc. v. C.A. Hughes & Company, 669 F.2d 98
(3d Cir. 1981) ........................................................................................... 20, 21
Vancouver Women’s Health Collective Soc. v. A.H. Robins Co.,
820 F.2d 1359 (4th Cir. 1987) ............................................................ 23, 33, 43
White v. Jacobs, as liquidating trustee of the New Century Liquidating
Trust, Case No. 13-01719 (SLR) (D. Del.) .............................................. 12
Wright v. Owens Corning, 679 F.3d 101 (3d Cir. 2012) .................... 38, 39
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Wright v. Placid Oil Co. (In re Placid Oil Co.), 107 B.R. 104
(N.D. Tex. 1989) ...................................................................................... 30
Statutes:
Fed. R. Bankr. P. 2002(a)(7) ...................................................................... 6, 7, 41, 42
28 U.S.C. § 158(a) ....................................................................................... 8
28 U.S.C. § 158(d) ....................................................................................... 8
28 U.S.C. § 1291 .......................................................................................... 8
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PRELIMINARY STATEMENT2
This is an appeal from an order of the United States District Court for the
District of Delaware (the “District Court”), which vacated an order of the United
States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”)
determining that the Debtors’ constructive notice of the claims bar date established
in their chapter 11 cases satisfied constitutional requirements of due process for
unknown creditors. The Bankruptcy Court held a full-day evidentiary hearing which
included testimony by Debtors’ counsel specifically detailing how the Debtors
“reasonably calculated” the means by which they would provide constructive notice
of the claims bar date to unknown creditors. After developing a full factual record,
the Bankruptcy Court concluded that the constructive notice of the bar date provided
by the Debtors via publication in the national edition of the Wall Street Journal and
the Orange County Register , a newspaper circulated in the region in which the
Debtors’ headquarters were located, was constitutionally sufficient notice for
unknown creditors. The District Court vacated the Bankruptcy Court’s decision on
the grounds that the adequacy of the notice provided was “not meaningfully explored
2 Capitalized terms not defined in this “Preliminary Statement” shall have themeanings ascribed to them below.
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and likely was not reasonably calculated to apprise appellants [former borrowers of
the Debtors]3 of the bar date.” The District Court’s decision is reversible error.
The Bankruptcy Court’s decision correctly begins with an analysis of the
procedures for and purposes of establishing a claims bar date in a bankruptcy case.
Recognizing the importance of enforcement of bar dates, the Bankruptcy Court
noted that the rule for establishing bar dates “contributes to one of the main purposes
of bankruptcy law, securing, within a limited time, the prompt and effectual
administration and settlement of the debtor’s estate.” The bar date is a means by
which finality can be achieved. It not only protects the interests of the debtor and
all of its diligent creditors who timely file claims, but also is essential to the
expeditious administration of a bankruptcy estate.
Against this backdrop and applying the rule promulgated by this Court in
Chemetron,4 the Bankruptcy Court undertook an extensive analysis of the means by
which the Debtors provided constructive notice of the bar date to unknown creditors.
It is well-settled that, for due process purposes, constructive notice of a bar date
provided to unknown creditors by publication is constitutionally sufficient. In
determining that the constructive notice of the Bar Date provided by publication
3 Prior to their 2007 chapter 11 filing, the Debtors were one of the largestoriginators of sub-prime mortgages in the United States.
4 Chemetron v. Jones, 72 F.3d 341 (3d Cir. 1995).
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satisfied the requirements of due process, the Bankruptcy Court first correctly
considered the testimony of the Debtors’ counsel that the Debtors considered their
borrowers initially to be account-debtors, not creditors, of the Debtors. As such, the
Debtors did not consider a borrower to be a creditor of the Debtors, unless and until
a borrower filed a complaint or some other form of grievance or commenced
litigation against the Debtors, at which time a borrower would have been considered
a potential litigation creditor. Accordingly, the Bankruptcy Court correctly
concluded that the Debtors, in their reasonable discretion, did not consider borrowers
generally to be known creditors of the Debtors. Instead, the Debtors considered their
borrowers, at best, to be unknown creditors entitled to publication notice of the Bar
Date.
After consideration of evidence and testimony submitted during the full-day
evidentiary hearing, the Bankruptcy Court also correctly determined that the
publication of the Bar Date in two newspapers satisfied the requirements of due
process for unknown creditors. The evidence demonstrates that the Debtors
published notice in the Wall Street Journal because it (i) was a newspaper of
nationwide circulation that would provide notice to the largest number of potential
unknown creditors nationwide, (ii) was a customary place to publish legal notices,
including bar date notices, and (iii) would provide nationwide notice to all types of
unknown creditors, whether institutional or individual creditors. The evidence
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further demonstrates that the Debtors published notice in the Orange County
Register because the Debtors (i) were concerned with the potential of unknown
claims being asserted by the Debtors’ former employees as a result of several recent
reductions in force, (ii) knew that the Orange County Register had been providing
extensive coverage of the Debtors’ chapter 11 proceedings, thereby reaching any
individuals who may have been reading it to keep track of the Debtors’ bankruptcy
cases, and (iii) was circulated in the location in which the Debtors’ central offices
were located.
The Bankruptcy Court also properly considered testimony establishing that
the Debtors considered the costs associated with providing publication notice of the
Bar Date in its analysis of the type and manner of publication notice to provide. The
evidence established, and the Bankruptcy Court correctly noted, that cost was a
concern because the Debtors were liquidating and, at the time the Bar Date Notice
was published, were particularly concerned about significant administrative costs
given the then-existing cash available to pay such expenses. The Bankruptcy Court
also rightly found that publication of the Bar Date Notice 39 days prior to the Bar
Date was appropriate because the Bar Date Order, consistent with the Bankruptcy
Rules, required the Bar Date Notice to be published no less than 30 days prior to the
Bar Date.
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Upon consideration of all of the relevant facts, evidence, and testimony, the
Bankruptcy Court correctly concluded that “the Debtors’ decision to publish the Bar
Date Notice in the national edition of the Wall Street Journal, supplemented with
notice in the Orange County Register , was reasonably calculated, under the
circumstances, to apprise interested parties nationwide of the Bar Date and afford
them an opportunity to file claims.”
Conversely, the District Court’s vacatur is reversible error for at least four
reasons. First, the District Court erred in concluding that the Debtors “apparently
did not consider their customers (borrowers) at all in connection with the question
of notice.” This conclusion simply is incorrect and contradicted by the record.
Second, the District Court erred in inferring that the notice provided was
“likely not reasonably calculated” to reach unknown creditors because it was
published in the Wall Street Journal. The Wall Street Journal, as the District Court
acknowledges, is a national newspaper and one where bar date notices are often
published. However, the District Court surmised, without any evidence, that the
Wall Street Journal is not one that “enjoy[s] broad circulation among less than
sophisticated, focused readers.” Further, the District Court erred in suggesting,
without any evidence, that consumer-mortgagors are “less than sophisticated,
focused readers.”
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The District Court’s decision disrupts well-settled case law holding that the
Wall Street Journal is an appropriate vehicle to provide constitutionally sufficient
notice to a nationwide audience of unknown creditors. Indeed, it is squarely at odds
with the constitutional standards that have guided bankruptcy practitioners for
decades in determining how to provide constructive notice to unknown creditors.
Moreover, the District Court’s reasoning has the perverse effect of requiring a debtor
to know that which is, by definition, unknown: the sophistication of its unknown
creditors. No court has imposed such an opaque requirement, and the District Court
cites to no authority to support its conclusion that notice was insufficient because a
debtor chose the wrong newspaper of national circulation, one that is not likely to
be read by a “less than sophisticated, focused” unknown creditor. If upheld, the
District Court’s decision also would have the disastrous effect of rendering invalid
every bar date order that, in reliance on the Third Circuit’s pronouncement in
Chemetron, provides for publication notice in much the same manner as the
publication notice provided in this case.
Third, the District Court’s conclusion that notice was insufficient because it
was not geographically widespread enough in light of the fact that the notice was
published 39 days prior to the claims bar date is unsupported in law. The District
Court cites to no authority for this conclusion, and Fed. R. Bankr. P. 2002(a)(7)
provides that notice of a claims bar date is sufficient if it is provided at least 21 days
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prior to the bar date. The requirement of at least 21 days notice is not linked to the
geographical reach of the notice. Allowing the District Court’s conclusion to stand
would render Fed. R. Bankr. P. 2002(a)(7) meaningless.
Finally, in light of the extensive record on which the Bankruptcy Court based
its well-reasoned decision, the District Court incorrectly concluded that the
adequacy of the notice provided was not “meaningfully explored” by the Bankruptcy
Court. The Bankruptcy Court held a full-day evidentiary hearing at which the
Bankruptcy Court considered evidence and testimony provided by Debtors’ counsel
and the Trustee (both of whom were subject to cross-examination by multiple
individual borrowers). That testimony established both the Debtors’ process to
determine how to provide constructive notice of the Bar Date and that the process
was reasonably calculated, under the circumstances, to provide notice to all
unknown creditors, including the borrowers. The District Court did not dispute the
Bankruptcy Court’s factual findings, nor did the District Court find any error in the
Bankruptcy Court’s conclusion that publication in the Wall Street Journal is
sufficient to reach a nationwide audience. The District Court nevertheless vacated,
apparently because the District Court believed that the Wall Street Journal is not
read by “less than sophisticated, focused readers,” despite the fact that it is one of
the most used publications for legal notices. The District Court’s decision is both
without evidentiary support and without legal basis. Since the Bankruptcy Court’s
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factual findings amply support its legal conclusions, the District Court’s decision
should be reversed, and the Bankruptcy Court’s decision should be reinstated.
STATEMENT OF BASIS FOR APPELLATE JURISDICTION
Appellant is Alan M. Jacobs, as liquidating trustee (the “Trustee”) of the New
Century Liquidating Trust (the “Trust”), established pursuant to a confirmed chapter
11 plan of New Century TRS Holdings, Inc., and its affiliated debtors (the
“Debtors”).5 The Trustee appeals from a final order entered by the District Court
on August 20, 2014, vacating an order entered by the Bankruptcy Court on August
30, 2013. The Trustee timely filed a notice of appeal on September 15, 2014. The
District Court had subject matter jurisdiction over the appeal under 28 U.S.C. §
158(a), and this Court has jurisdiction over this appeal under 28 U.S.C. §§ 158(d)
and 1291.
5 The Debtors are the following entities: New Century Financial Corporation(f/k/a New Century REIT, Inc.); New Century TRS Holdings, Inc. (f/k/a NewCentury Financial Corporation); New Century Mortgage Corporation (f/k/a JBEMortgage); NC Capital Corporation; Home123 Corporation (f/k/a The AnyloanCorporation, 1800anyloan.com, Anyloan.com); New Century Credit Corporation
(f/k/a Worth Funding Incorporated); NC Asset Holding, L.P. (f/k/a NC Residual IICorporation); NC Residual III Corporation; NC Residual IV Corporation; NewCentury R.E.O. Corp.; New Century R.E.O. II Corp.; New Century R.E.O. III Corp.;
New Century Mortgage Ventures, LLC (d/b/a Summit Resort Lending, TotalMortgage Resource, Select Mortgage Group, Monticello Mortgage Services, AdAstra Mortgage, Midwest Home Mortgage, TRATS Financial Services, EliteFinancial Services, Buyers Advantage Mortgage); NC Deltex, LLC; NCoral, L.P.;and New Century Warehouse Corporation.
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STATEMENT OF ISSUES PRESENTED ON APPEAL
1. Whether the Bankruptcy Court correctly determined that the
constructive notice of the Bar Date provided by the Debtors was reasonably
calculated, under the circumstances, to apprise all interested parties, in accordance
with the constitutional requirements of due process, where the Debtors provided
publication notice in a national newspaper and supplemented that notice with
publication in a local newspaper in the location where the Debtors’ main business
operations were located? A-24, A-37, Bankr. D.I. 10824, and Bankr. D.I. 10841.
2. Whether the Bankruptcy Court correctly determined, after a full
evidentiary hearing, that publication notice of the Bar Date in (i) the Wall Street
Journal (national edition), which provided notice to the widest audience of unknown
creditors nationwide and was determined to be a customary place to publish legal
notices, and (ii) the Orange County Register , which had been providing extensive
coverage of the Debtors’ bankruptcy cases in the location in which the Debtors’
primary operations were based was reasonably calculated, under the circumstances
of this case, to apprise all interested parties of the Bar Date? A-25 – A-37.
3. Whether the District Court erred in adding a requirement that, in order
to meet the constitutional standards necessary for due process, the “sophistication”
of the yet unidentified, unknown creditor must be considered? A-19 – A-20.
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4. Whether the District Court erred in suggesting that due process requires
a debtor to provide more than the 21 day notice period required by Rule 2002(a)(7)
of the Federal Rules of Bankruptcy Procedure “when the bar date is set so close to
the publication date[?]” A-20.
5. Whether the District Court erred in holding that the Bankruptcy Court
did not “meaningfully explore[]” the adequacy of the constructive notice provided
by the Debtors where the Bankruptcy Court held a full evidentiary hearing at which
the Bankruptcy Court considered evidence and testimony provided by Debtors’
counsel, which established the Debtors’ reasonable analysis of the facts of this case
to determine how to provide constructive notice of the bar date? A-20.
STATEMENT OF RELATED CASES AND PROCEEDINGS
Currently, there are two bankruptcy appeals pending before the District Court
(i) Russell v. New Century Liquidating Trust, No. 14-cv-00821 (SLR) and (ii)
Cromwell v. New Century Liquidating Trust, No. 14-cv-00822 (SLR). These
appeals turn, in part, upon the underlying Bankruptcy Court decision that is the
subject of this appeal. Briefing on those bankruptcy appeals has not commenced.6
6 By stipulation dated January 6, 2015, the Trustee and claimant Cromwellagreed to stay the appeal captioned as Cromwell v. New Century Liquidating Trust,
No. 14-cv-00822 (SLR) pending disposition of this matter.
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APPLICABLE STANDARD OF APPELLATE REVIEW
On an appeal from a bankruptcy case, the circuit court “stand[s] in the shoes
of the District Court and review[s] the Bankruptcy Court's decision.” IRS v. Pransky
(In re Pransky), 318 F.3d 536, 542 (3d Cir. 2003) (internal citations and quotations
omitted). This Court, therefore, “exercise[s] plenary review over the District Court’s
appellate review of the Bankruptcy Court’s decision and exercise[s] the same
standard of review as the District Court in reviewing the Bankruptcy Court’s
determinations.” In re Miller, 730 F.3d 198, 203 (3d Cir. 2013) (internal quotation
marks and citation omitted). Accordingly, this Court “review[s] the Bankruptcy
Court’s legal determinations de novo, its factual findings for clear error, and its
exercise of discretion for abuse thereof.” In re O’Brien Envtl. Energy, Inc., 188 F.3d
116, 122 (3d Cir. 1999) (citing In re Trans World Airlines, Inc., 145 F.3d 124, 130
(3d Cir. 1998)). Due process claims are reviewed de novo. See In re Phila.
Newspapers, LLC, 690 F.3d 161, 171 (3d Cir. 2012).
NATURE AND STAGE OF THE PROCEEDINGS
On April 2, 2012, the Trustee filed a motion (the “Global Constructive Notice
Motion”) seeking a determination that the Debtors (i) complied with the
requirements of the Bankruptcy Court’s Order Establishing Bar Dates for Filing
Proofs of Claim and Approving Form, Manner and Sufficiency of Notice Thereof ,
dated June 28, 2007 (the “Bar Date Order”), and (ii) provided constructive notice of
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the bar date (the “Bar Date Notice”) by publication that satisfied the requirements of
due process for all unknown creditors. See Bankr. D.I. 10824.7 On April 18, 2012,
appellees Ralph N. White and Molly S. White (the “Appellees”), among others, filed
an objection to the Global Constructive Notice Motion. See Bankr. D.I. 10841. On
April 20, 2012, the Trustee filed an omnibus reply in further support of the Global
Constructive Notice Motion and in response to the objections filed by the Appellees
and other pro se litigants. See Bankr. D.I. 10853.
On May 23, 2012, the Bankruptcy Court held an evidentiary hearing (the
“Evidentiary Hearing”) to consider the relief requested in the Global Constructive
Notice Motion and the objections filed thereto. Bankr. D.I. 10916. Appellee Ralph
N. White appeared at and participated in the Evidentiary Hearing. A-151 (Hr’g Tr.
9:11). The Debtors’ counsel provided testimony concerning the Debtors’
considerations in deciding the appropriate means of providing constructive notice of
the Bar Date (as defined below). A-196 – A-284 (Hr’g Tr. 54:4-142:21). At the
7 Record Citation Nomenclature:(a) A-___: Pages of the Appendix filed by Appellant.(b) Bankr. D.I.__: Items filed on the docket in the chapter 11 bankruptcy
case captioned as In re New Century TRS Holdings, Inc., et al., Case No.07-10416 (BLS) (Bankr. D. Del.).(c) Dist. D.I.__: Items filed on the docket in the bankruptcy appeal captioned
as White v. Jacobs, as liquidating trustee of the New Century LiquidatingTrust, Case No. 13-01719 (SLR) (D. Del.).
(d) Hr’g Tr.__: Transcript of the May 23, 2012 Evidentiary Hearing [Bankr.D.I. 10916] held before the Bankruptcy Court to consider the GlobalConstructive Notice Motion and the objections thereto.
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conclusion of the Evidentiary Hearing, the Bankruptcy Court took the matter under
advisement. A-317 (Hr’g Tr. 175:1-2).
On August 30, 2013, the Bankruptcy Court issued a memorandum decision
(the “Global Constructive Notice Decision”) and order (the “Global Constructive
Notice Order”), which, inter alia, determined that the Debtors (i) complied with the
requirements of the Bar Date Order, and (ii) published the Bar Date Notice in a
manner that was “reasonably calculated, under the circumstances, to apprise
interested parties nationwide of the Bar Date and afford them an opportunity to file
claims.” A-37 (Global Constructive Notice Decision, p. 17).
On September 13, 2013, the Appellees filed a notice of appeal of the Global
Constructive Notice Order. See Bankr. D.I. 11252.8
On August 20, 2014, the District Court issued a memorandum decision (the
“District Court Decision”) and order (the “District Court Order”) vacating the Global
Constructive Notice Order. A-20 (District Court Decision, p. 14).
On September 15, 2014, the Trustee timely filed this appeal of the District
Court Order. A-1 – A-3.
8 By order dated January 31, 2014, the Debtors’ chapter 11 cases and alladversary proceedings related thereto (excluding certain “Retained Matters”) weretransferred to Chief United States Bankruptcy Judge Brendan Linehan Shannon.
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STATEMENT OF THE CASE AND FACTS
On April 2, 2007, the Debtors (with the exception of New Century Warehouse
Corporation) filed voluntary petitions for relief under chapter 11 of the Bankruptcy
Code. On June 8, 2007, the Debtors filed a motion pursuant to Bankruptcy Rules
2002, 3003(c)(2) and 9007 requesting that the Bankruptcy Court fix the time within
which proofs of claim must be filed. A-43 – A-78 (Bankr. D.I. 1173). On June 28,
2007, the Bankruptcy Court entered the Bar Date Order, establishing August 31,
2007 at 5:00 p.m. (prevailing Pacific Time) as the last date and time for the filing of
proofs of claim by non-governmental units in the Debtors’ chapter 11 cases (the “Bar
Date”). A-79 – A95 (Bankr. D.I. 1721).
In accordance with the procedures in the Bar Date Order, the Debtors’ then
court-approved claims and noticing agent, XRoads Case Management Services LLC
(a) provided actual notice of the Bar Date to all known entities holding potential pre-
petition claims, and (b) published the Bar Date Notice in the Wall Street Journal
(national edition) and the Orange County Register . A-96 – A-114 (Bankr. D.I.
1861). On August 3, 2007, the Debtors filed the Affidavits of Publication of the Bar
Date Notice in the Wall Street Journal and in the Orange County Register with the
Bankruptcy Court. A-115 – A-121 (Bankr. D.I. 2148 and Bankr. D.I. 2149).
On November 22, 2008, the Appellees filed claim number 4073 in the
Debtors’ bankruptcy case as a secured and/or priority claim in the amount of
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$272,500.00, plus accruing interest. On or about January 21, 2009, the Appellees
filed claim number 4074 and claim number 4080, which are duplicates of claim
number 4073 (together, claim numbers 4073, 4074 and 4080 are referred to herein
as the “Claims”).
On November 20, 2009, the Bankruptcy Court entered an order confirming
the Debtors’ Modified Second Amended Joint Chapter 11 Plan of Liquidation (the
“Modified Plan”). Bankr. D.I. 9905.9 The Modified Plan adopted, ratified, and
confirmed the New Century Liquidating Trust Agreement, dated as of August 1,
2008, which created the Trust and appointed Alan M. Jacobs as Trustee of the Trust
and Plan Administrator of New Century Warehouse Corporation.
On August 13, 2010, the Trustee filed an objection to the Claims on the basis
that they (i) lacked merit, and (ii) were filed after the Bar Date.
On or about November 15, 2010, the Appellees commenced an adversary
proceeding against the Debtors by filing a complaint to determine the
9 The Bankruptcy Court entered an order confirming the Second Amended JointChapter 11 Plan of Liquidation of the Debtors and the Official Committee of
Unsecured Creditors Dated as of April 23, 2008 (the “Original ConfirmationOrder”). Bankr. D.I. 8596. On July 16, 2009, the District Court issued amemorandum opinion reversing the Original Confirmation Order. On July 27, 2009,the Bankruptcy Court entered an order granting the Trustee’s motion to preserve thestatus quo including maintenance of Alan M. Jacobs as liquidating trustee, planadministrator, and sole officer and director of the Debtors, pending entry of a finalorder consistent with the District Court’s memorandum opinion. Bankr. D.I. 9750.On September 30, 2009, the Trust filed the Modified Plan. Bankr. D.I. 9905.
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dischargeability of debt (the “Complaint”). On December 15, 2010, the Trustee filed
a motion to dismiss the Complaint (the “Motion to Dismiss”). On June 7, 2011, the
Bankruptcy Court issued a memorandum decision and order granting the Motion to
Dismiss, in part by dismissing Counts II, VIII, and XII of the Complaint for lack of
subject matter jurisdiction, and denying the remainder of the Motion to Dismiss (the
“Dismissal Decision”).10 A-122 – A-135. The Bankruptcy Court stated,
[a]lthough the Debtors arguably complied with the statedminimum requirements of the Bar Date Order, without a
more fully developed factual record, I am unable todetermine whether the publication notice was reasonablycalculated to provide notice to consumer mortgagors likethe Whites. At this stage in the proceeding, the Trusteehas not met his burden of proving that publication in onenational edition newspaper and one local newspaper issufficient to meet due process requirements as applied tothe Whites as unknown creditors.
A-135.
10 On June 16, 2011, the Appellees filed a motion for reconsideration of theDismissal Decision (the “First Reconsideration Motion”) with respect to Counts IIand VIII, which the Trustee opposed. White v. New Century TRS Holdings, Inc., etal., Case No. 10-55357 (BLS), Dkt Nos. 61 and 64. On December 6, 2013, the
Bankruptcy Court issued a memorandum decision and an order (together, the“Omnibus Order”) denying, among other things, the First Reconsideration Motion.White, Case No. 10-55357 (BLS), Dkt Nos. 128 and 129. On December 23, 2013,the Appellees filed a pleading which the Trustee interpreted in his opposition theretoas (i) a second motion for reconsideration of the Dismissal Decision, and (ii) amotion seeking reconsideration of the Omnibus Order to the extent that it denied theFirst Reconsideration Motion. White, Case No. 10-55357 (BLS), Dkt. Nos. 131 and134. The Trustee believes that no further briefing on this matter is contemplated.
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On or about July 29, 2011, claimant Helen Galope filed proof of claim number
4131 (the “Galope Claim”). On August 26, 2011, the Trustee filed an omnibus
objection to claims (the “Claim Objection”) requesting that the Bankruptcy Court
disallow and expunge, among others, the Galope Claim. Bankr. D.I. 10562. Ms.
Galope and other claimants filed responses in opposition to the Claim Objection, and
the Bankruptcy Court held an evidentiary hearing on December 13, 2011 to consider
whether the Galope Claim should be disallowed because it was filed after the Bar
Date. Bankr. D.I. 11256. On February 7, 2012, the Bankruptcy Court issued a
memorandum decision and order disallowing and expunging the Galope Claim,
which determined, in part, that the Debtors’ publication of the Bar Date Notice was
constitutionally adequate for Ms. Galope, who was an unknown creditor. Bankr.
D.I. 10725 and 10726.
On April 2, 2012, the Trustee filed the Global Constructive Notice Motion
seeking a determination, consistent with the February 7, 2012 memorandum decision
and order, that the Debtors’ publication of the Bar Date Notice was constitutionally
adequate for all unknown creditors, relief which was opposed by the Appellees and
others. Bankr. D.I. 10824. On May 23, 2012, the Bankruptcy Court held the
Evidentiary Hearing at which Appellee Ralph N. White participated and at which
the Trustee presented testimony of the Debtors’ counsel to substantiate the Trustee’s
contention that the Debtors “reasonably calculated” the means by which publication
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notice of the Bar Date would be provided to unknown creditors. The Bankruptcy
Court issued the Global Constructive Notice Decision and Order granting the relief
requested by the Trustee. Appellees appealed to the District Court, which vacated
the Global Constructive Notice Order. The District Court’s vacatur of the Global
Constructive Notice Order is the subject of this appeal.
SUMMARY OF THE ARGUMENT
The Bankruptcy Court correctly concluded, based upon prevailing legal
standards and the facts of this particular case, that the constructive notice of the Bar
Date provided by publication in the national edition of the Wall Street Journal and
the Orange County Register was sufficient to satisfy the requirements of due
process. In making this determination, the Bankruptcy Court correctly relied upon
an extensive evidentiary record establishing that the Debtors carefully considered
how and where to provide notice to their unknown creditors. The District Court
found no error in the Bankruptcy Court’s reliance upon this evidence, nor did the
District Court dispute the Bankruptcy Court’s finding that the notice provided by the
Debtors in this case was published in a newspaper that reached a nationwide
audience.
Nevertheless, the District Court vacated the Bankruptcy Court’s decision
apparently because the District Court believed that (i) the Debtors did not consider
their borrowers specifically in connection with the provision of notice to unknown
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creditors, (ii) the borrowers were unsophisticated, and (iii) the Wall Street Journal
was an insufficient forum in which to publish the Bar Date Notice because it likely
would not have reached unsophisticated unknown creditors. These new factual
findings by the District Court are improper given the District Court’s role as
appellate court and have no basis of support in the evidentiary record. Based on
these erroneous findings, the District Court establishes a new, more onerous legal
standard for satisfying due process when publishing notice of bar dates, a standard
that is contrary to well settled case law.
The District Court also apparently took issue with the timing of the publication
notice, noting that the publication notice provided should have been more
widespread because it was provided “so close” to the bar date. This conclusion is
belied by the plain language of the Federal Rules of Bankruptcy Proceedure.
Because the District Court’s decision omits or disregards key facts,
establishes new, unsupported facts and creates legal standards that do not comport
with that which is necessary to satisfy due process requirements, the District Court’s
decision should be reversed, and the Bankruptcy Court’s decision should be
reinstated.
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ARGUMENT
I. THE DISTRICT COURT OVERSTEPPED ITS AUTHORITY BY
MAKING ADDITIONAL FINDINGS OF FACT AND DRAWING
OPPOSING INFERENCES FROM THE RECORD ON APPEAL
As a threshold matter, sitting as an appellate court, the District Court “does
not sit as a finder of facts . . . as a court of review.” Universal Minerals, Inc. v. C.A.
Hughes & Company, 669 F.2d 98, 101-02 (3d Cir. 1981). Rather, the District
Court’s role is limited to a review of the Bankruptcy Court’s factual findings for
clear error, and the District Court cannot engage in additional fact-finding having
the effect of supplanting the Bankruptcy Court’s factual determinations in favor of
its own. See Universal, 669 F.2d at 104 (“A reviewing court may not substitute its
own findings for those of the primary tribunal merely because it finds other
inferences more likely.”); see also In re Neis, 723 F.2d 584, 589 (7th Cir. 1983)
(“[T]he district court may not accept the findings of the bankruptcy court and then
go on to make additional findings having the effect of contradicting the conclusions
of the bankruptcy court.”).
Here, the District Court does not dispute any of the Bankruptcy Court’s factual
findings and, in fact, accepts the facts found by the Bankruptcy Court. A-16 – A-
17; A-19 (District Court Decision, p. 10-11; 13, n.7) (“The bankruptcy court did not
abuse its discretion in determining that a notice placed in the Wall Street Journal
reached a nationwide audience”). Notwithstanding the District Court’s broad
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agreement with the Bankruptcy Court’s factual findings, the District Court proceeds
to infer from the record two brand new findings of fact, namely (i) that the Wall
Street Journal does not enjoy “a broad circulation among less than sophisticated,
focused readers” and (ii) the Debtors’ borrowers are unsophisticated persons.11 A-
19 – A-20 (District Court Decision, p. 13-14). These new findings are the lynchpin
“facts” upon which the District Court relies to vacate the Global Constructive Notice
Order. See id. However, the District Court was not free to infer from the record
these new findings of fact and, in doing so, committed reversible error. See
Universal, 669 F.2d at 104 (“The district court chose . . . to emphasize other facts
not mentioned in the bankruptcy court’s opinion and to draw opposing inferences
from the record. In so doing, the district court erred.”); Neis 723 F.2d at 590 (“[T]he
district court erred in engaging in additional fact finding and in basing its decision
on these additional facts.”).
Moreover, even if the District Court had the authority to make these new
findings, for the reasons set for the below, they are wholly unsupported by the well-
established evidentiary record and largely irrelevant to the inquiry regarding the
sufficiency of the publication notice in this case.
11 Similarly, the District Court suggests, without any evidentiary basis, that the USAToday enjoys a broader circulation among such “less than sophisticated, focusedreaders.”
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II.
THE DEBTORS’ BORROWERS ARE UNKNOWN CREDITORS
AND WERE CONSIDERED BY THE DEBTORS WHEN
PROVIDING CONSTRUCTIVE NOTICE OF THE BAR DATE
For notice purposes, bankruptcy law divides claimants into two types—
known creditors and unknown creditors. Chemetron, 72 F.3d at 346. While known
creditors must be provided with actual written notice of a debtor’s bankruptcy filing
and claims bar date, unknown creditors need only receive constructive notice by
publication. Id.
The requirements for providing constructive notice that satisfies due process
are firmly rooted in both existing Supreme Court and Third Circuit precedent. While
notice by publication has limitations, its use has been recognized as constitutionally
adequate. See City of New York v. New York, N.H. & H.R. Co., 344 U.S. 293, 296
(1953); see also Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314
(1950); Chemetron, 72 F.3d at 348 (“[I]n providing notice to unknown creditors,
constructive notice of the bar claims date by publication satisfies the requirements
of due process.”).
It is well-established that due process requires constructive notice that is
“reasonably calculated, under the circumstances, to apprise interested parties of the
pendency of the action and afford them an opportunity to present their objections.”
Mullane, 339 U.S. at 317; Chemetron, 72 F.3d at 347-48 (due process requires
notice that is “reasonably calculated to reach all interested parties, reasonably
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conveys all the required information, and permits a reasonable time for a response.”
(internal quotations omitted)). Whether a particular method of notice is reasonable
depends on the circumstances of the case. See SLW Capital, LLC v. Mansaray-
Ruffin (In re Mansaray-Ruffin), 530 F.3d 230, 239 (3d Cir. 2008); Gentry v. Circuit
City Stores, Inc. (In re Circuit City Stores, Inc.), 439 B.R. 652, 660 (E.D. Va. 2010).
The proper evaluation of whether notice satisfies due process is “whether a party
acted reasonably in selecting means likely to inform persons affected, not whether
each person actually received notice.” See Charter Int’l Oil Co. v. Ziegler (In re The
Charter Co.), 113 B.R. 725, 728 (M.D. Fla. 1990) (citations omitted).
Importantly, due process considerations and obligations to potential unknown
creditors must be “tempered by considerations of the costs and the effect of such
costs upon the estate and its creditors as a whole.” In re Gov’t Securities Corp., 107
B.R. 1012, 1021 (S.D. Fla. 1989). Moreover, bankruptcy courts are cognizant of the
fact that “[a] bankrupt estate’s resources are always limited and the bankruptcy court
must use discretion in balancing [the interests of all creditors] when deciding how
much to spend on notification.” Vancouver Women’s Health Collective Soc. v. A.H.
Robins Co., 820 F.2d 1359, 1364 (4th Cir. 1987).
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A.
The Bankruptcy Court Correctly Relied Upon Evidence
Establishing that the Debtors’ Borrowers Were Unknown Creditors
and that the Debtors Considered the Borrowers in Providing
Publication Notice
In making the determination concerning appropriate notice for this bankruptcy
case, the Debtors first determined that their borrowers generally were “unknown
creditors” entitled to constructive notice of the Bar Date. A “known creditor” is one
whose identity is either known or “‘reasonably ascertainable by the debtor[,]’” and
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 knowledge [of the debtor].’” Chemetron, 72 F.3d at 346 (internal
citations omitted).
With respect to borrowers for whom the Debtors’ originated loans, as set forth
in the Uhland Declaration and in Ms. Uhland’s testimony at the Evidentiary Hearing,
the Debtors’ borrowers were viewed generally as account-debtors, not known
creditors. A-203 – A-204; A-260 (Hr’g Tr. 61:17 – 62:4; Hr’g Tr. 118:2-20). The
borrowers were not considered to be known creditors of the Debtors unless and until
a particular borrower filed a complaint or commenced litigation, at which point they
were considered litigation creditors or potential creditors who were included on the
litigation schedule of creditors provided with actual notice of the Bar Date. A-216
– A-218 (Hr’g Tr. 74:4-5; Hr’g Tr. 76:6-8, 13-15). Accordingly, the Debtors, after
considering their likely classes of creditors, made the conscious decision that their
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borrowers, to the extent no complaint or litigation was filed, were not “known
creditors” and chose not to provide all of their borrowers (over a million) with
“individualized notice” of the Bar Date. A-203 – A-204 (Hr’g Tr. 61:17-62:9).
The Debtors did however consider borrowers to be unknown creditors in the
context of their decision to publish in a newspaper of nationwide circulation. To
that end, Debtors’ counsel testified that the Debtors had nationwide operations and
did business (with their borrowers) throughout the country. A-201 – A-202; A-234
– A-235 (Hr’g Tr. 59:18-60:1; Hr’g Tr. 92:18-93:6); A-139 (Uhland Declaration, ¶
5(b)). The Debtors had more than a million borrowers, and the Wall Street Journal
was selected, in part, because it was likely to reach the broadest audience. A-139
(Uhland Declaration, ¶ 5(c)). The Debtors also considered the fact that the Wall
Street Journal was a customary place to publish legal notices and reasonably
believed that publishing notice in a place where parties might expect to find it was
sufficient notice. A-202 (Hr’g Tr. 60:2-60:9). Thus, the Debtors specifically
considered their nationwide business operations and dealings (both with individual
borrowers and institutional creditors) in deciding to publish in the Wall Street
Journal.
Based upon this evidence, the Bankruptcy Court correctly concluded that the
Debtors considered their borrowers in connection with the decision as to where to
publish the Bar Date Notice, and, by choosing to publish in the Wall Street Journal,
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the Debtors reached a nationwide audience of unknown creditors, which necessarily
includes borrowers. A-30 (Global Constructive Notice Decision, p. 10). The
District Court did not dispute these facts and expressly found that the Bankruptcy
Court did not abuse its discretion in finding that the Wall Street Journal reached a
nationwide audience. A-16 – A-17; A-19 (District Court Decision, p. 10-11; 13,
n.7). Thus, the evidence establishes both that the Debtors had business operations
(and thus borrowers) nationwide, and that the Debtors provided publication notice
of the Bar Date in a newspaper that reached a nationwide audience, including
borrowers.
B. The District Court’s Finding That the Debtors Did Not Consider
Their Borrowers in Providing Publication Notice is Unsupported by
the Record
The District Court’s finding that the Debtors did not consider the borrowers
at all with respect to the question of notice is belied by the record upon which the
Bankruptcy Court appropriately relied. Specifically, the District Court overlooks
crucial testimony from Debtors’ counsel that specifically contradicts the District
Court’s conclusion that the Debtors did not consider their borrowers in connection
with the question of notice. On more than one occasion, Ms. Uhland was asked, in
various ways, if and how the Debtors considered the borrowers in their consideration
of providing notice of the Bar Date. On cross examination, one claimant stated,
“none of your decision was made to address any of possible homeowners . . . so that
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was really not addressed in your decision for publications.” A-247 (Hr’g Tr. 105:12-
15). Ms. Uhland unequivocally denied that statement, responding:
No, that’s not true. Because even though they were notknown creditors, they potentially could’ve been unknowncreditors that we would’ve sought to address for
publication notice.
A-247 (Hr’g Tr. 105:12-19).
Ms. Uhland further testified that the Debtors “didn’t consider the borrowers
as creditors . . . [but] [t]he borrowers were potential unknown creditors.” A-259 –
A-260 (Hr’g Tr. 117:5-118:1). The fact that the Debtors did not consider the
borrowers to be known creditors does not mean the Debtors did not consider the
borrowers in connection with the notice calculation. It simply means the Debtors
did not consider the borrowers to be known creditors. In fact, Ms. Uhland expressly
acknowledged that the borrowers were unknown creditors who were considered in
the Debtors’ calculation to determine the appropriate means of providing notice. On
cross-examination by Appellee Ralph White, Ms. Uhland specifically acknowledged
that the Debtors considered the borrowers in connection with their decision to
provide nationwide notice of the Bar Date:
Q: [F]or the most part, you didn’t really consider the borrowers at the time that you were doing the publicationnotice, either form [sic], whether it be the Wall StreetJournal or Orange County Register, you didn’t considerthe borrowers?
A: I said we didn’t consider the borrowers as creditorsof the entity, unless they had filed litigation.
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Q: Okay. Unless they had filed litigation. Okay. Asfar as the borrowers, did you take them into considerationat all when you filed your notices?
A: Yes. The borrowers were potential unknown
creditors, so therefore would’ve been affected by thenationwide publication notice in the Wall Street Journal.
Q: Okay. How did you consider the borrowers? Iknow unknown, but how and what stance did youconsider the borrowers?
A: As . . . potential unknown creditors who because New Century did business throughout the country, theywere potentially unknown creditors that could’ve been
located anywhere throughout the country. So therefore . .. a nationwide publication was appropriate.
A-259 – A-260 (Hr’g Tr. 117:6-118:1).
The record demonstrates that the Debtors made a conscious decision to treat
certain borrowers who had asserted claims against the Debtors as known creditors
entitled to actual notice and to treat all other borrowers, who were considered to be
account-debtors, as unknown creditors. The record further reflects that the Debtors
specifically considered the borrowers in the calculation of providing constructive
notice. Accordingly, the evidentiary record demonstrates that the Debtors
endeavored to provide notice to all unknown creditors, including borrowers, by
publication in the Wall Street Journal, a newspaper of nationwide publication that is
available at “any corner newspaper vendor.” See Brown v. Seaman Furniture Co.,
Inc., 171 B.R. 26, 27 (E.D. Pa. 1994). The District Court’s analysis ignores this
crucial evidence.
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III.
NATIONWIDE NOTICE OF THE BAR DATE PROVIDED BY
PUBLICATION IN THE WALL STREET JOURNAL,
SUPPLEMENTED WITH PUBLICATION IN THE ORANGE
COUNTY REGISTER WAS SUFFICIENT TO SATISFY DUE
PROCESS
As noted above and as the Bankruptcy Court correctly noted, courts have
routinely held that publication in national newspapers is sufficient notice to
unknown creditors and satisfies the requirements of due process, “especially where
supplemented . . . with notice in papers of general circulation in locations where the
debtor is conducting business.” Chemetron, 72 F.3d at 349 (publication in the New
York Times and the Wall Street Journal was sufficient even though creditors lived
in Cleveland); Brown, 171 B.R. at 27 (noting that national newspapers are sold
throughout the country and, therefore, are a reasonable means for alerting potential
unknown creditors of a claims bar date). Publication in dozens of newspapers where
a debtor conducts business can be “onerous, cumbersome, and unduly expensive”
and, therefore, is not required to satisfy the requirements of due process. In re Best
Products Co., 140 B.R. 353, 358 (Bankr. S.D.N.Y. 1992). Due process, therefore,
does not require a debtor to “publish notice in every newspaper a possible unknown
creditor may read . . . .” Chemetron, 72 F.3d at 348 (quoting Best Products, 140
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B.R. at 358). Rather, even publication notice in a single nationwide newspaper can
be constitutionally adequate notice.12
A. The Bankruptcy Court Correctly Determined that the Debtors’
Publication of the Bar Date Was Sufficient
The Bankruptcy Court reached the correct result after considering testimony
that established that the Debtors complied with the requirements of due process by
publishing the Bar Date Notice in the Wall Street Journal and the Orange County
Register . First, in an effort to afford notice to the widest possible population of
unknown creditors, including borrowers, the Debtors chose the Wall Street Journal
because it was a newspaper of national circulation. A-139 (Uhland Declaration, ¶
5(b)); A-201 (Hr’g. Tr. 59:18-20). The Debtors’ operations were nationwide, and
the Debtors considered the fact that there could have been unknown creditors in a
12 See also In re Chicago Pacific Corp., 773 F.2d 909, 913 (7th Cir. 1985) (notice published once in the Wall Street Journal was sufficient constructive notice ofhearing on reorganization plan); Brown, 171 B.R. at 27 (notice published in the localand national editions of the New York Times was sufficient to satisfy due process);In re Chicago, Milwaukee, St. Paul and Pacific Railroad Co., 112 B.R. 920, 922, 924(N.D. Ill. 1990) (publication notice in the Wall Street Journal regarding applicable
bar dates was “adequate under bankruptcy law and sufficient under the Due ProcessClause of the United States Constitution”); Gov’t Secs. Corp., 107 B.R. at 1021 (oneday publication in the Wall Street Journal was sufficient to satisfy due process);
Wright v. Placid Oil Co. (In re Placid Oil Co.), 107 B.R. 104, 106 (N.D. Tex. 1989)(publication of the bar date in the Wall Street Journal was sufficient notice tounknown creditor); In re BGI, Inc., 476 B.R. 812, 823-24 (Bankr. S.D.N.Y. 2012)(publication notice once in the New York Times sufficient for national retailer
bankruptcy); Harvard Industries, Inc. v. Conway (In re Harvard Industries, Inc.), No.91-404, 1995 Bankr. LEXIS 932, at *2 (Bankr. D. Del. June 20, 1995) (notice ofthe bar date in the New York Times for two consecutive business days was consistentwith due process).
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number of locations throughout the United States. A-139 (Uhland Declaration, ¶
5(b)); A-201; A-234 – A-235 (Hr’g. Tr. 59:19-20; 92:24 – 93:6). Moreover, the
Debtors considered the fact that the Wall Street Journal was a customary place to
provide legal notices such as the Bar Date Notice. A-140 (Uhland Declaration, ¶
5(e)); A-202; A-245 – A-246; A-265 – A-266 (Hr’g. Tr. 60:2-60:9; Hr’g Tr. 103:23-
104:5; Hr’g Tr. 123:20-124:5). Accordingly, the Debtors concluded that the Wall
Street Journal was an appropriate forum in which to publish the Bar Date Notice
based on the fact that all unknown creditors including, but not limited to, those
transacting business with the Debtors and individual creditors might look to the Wall
Street Journal as the standard place for publication of such notices. See id. The
Bankruptcy Court’s conclusion that this testimony was credible and justified the
Debtors’ decision to publish the notice in the Wall Street Journal is not clearly
erroneous and, indeed was accepted by the District Court. A-17 (District Court
Decision, p. 11). The Trustee submits that the inquiry can end here; constructive
notice was sufficient.
The evidence further demonstrates that the Debtors chose to supplement the
nationwide publication notice with a publication in the Orange County Register
because the Debtors (i) were concerned with the potential of unknown claims being
asserted by the Debtors’ former employees as a result of several reductions in force,
(ii) knew that the Orange County Register had been providing extensive coverage of
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the Debtors’ chapter 11 proceedings, thereby reaching any individuals who may
have been reading it to keep track of the Debtors’ bankruptcy cases, and (iii) was
circulated in the location in which the Debtors’ central offices were located. 13 A-
202 – A-203 (Hr’g Tr. 60:19-61:6). The Bankruptcy Court correctly found that the
Debtors reasonably considered various factors in an effort to afford the broadest
possible notice to all unknown creditors, and therefore, the constructive notice
provided by publication in the Wall Street Journal and the Orange County Register
13 The District Court, without evidence and in contrast to the testimony presented to the Bankruptcy Court, erroneously found that the Debtors’ only concernin publishing the Bar Date Notice in the Orange County Register was their
employees. A-19 (District Court Decision, p. 13). The District Court specificallynoted that “debtors chose The Orange County Register as the publication most likelyto provide notice to their workforce, not to unknown creditors such as the borrowerswho apparently resided throughout the United States.” Id., n.6. While the Debtorswere concerned with the potential for claims asserted by former employees holdingclaims unknown to the Debtors, the Debtors also selected the Orange County
Register because (i) it had been providing extensive coverage of the Debtors’ bankruptcy cases and, therefore, would reach unknown creditors who may have beenfollowing the Debtors’ cases, A-235 – A-236 (Hr’g Tr. 93:18-94:1), and (ii) it was
circulated in the location in which the Debtors’ primary operations were based andwhere it’s headquarters were located. A-252 (Hr’g Tr. 110:1-7). Based on thistestimony, the Bankruptcy Court correctly noted that the Orange County Register would have reached those who may have been reading it because that publicationwas providing extensive coverage of the Debtors’ bankruptcy cases and wascirculated in the location in which the Debtors’ principal offices were located. TheDistrict Court, however, failed to consider these facts.
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was constitutionally sufficient notice of the Bar Date. See Chemetron, 72 F.3d at
348-49.
In addition, part of the consideration in providing notice to unknown creditors
was the cost of publication, a factor considered by the Bankruptcy Court, but not
mentioned in the District Court Decision. See Vancouver, 820 F.2d at 1364 (cost is
a factor to consider when determining adequacy of notice). The testimony presented
to the Bankruptcy Court demonstrates that the Debtors considered the costs
associated with publication in choosing the Wall Street Journal and the Orange
County Register as the appropriate places to provide notice of the Bar Date. A-203
(Hr’g. Tr. 61:11-16); A-142 (Uhland Declaration, ¶ 6(c)). The Debtors had limited
resources, and early administrative costs and expenses associated with noticing the
case and preparing the Debtors’ schedules of assets and liabilities and statements of
financial affairs were significant. A-203 (Hr’g. Tr. 61:11-16). Additional
publication in “dozens of locations” where the Debtors had been conducting
business would have consumed a disproportionate share of the Debtors’ then-
existing limited assets. Id.; see Best Products, 140 B.R. at 358. Requiring the
Debtors to publish in a host of additional locations would have been “onerous,
cumbersome and unduly expensive” and is simply not required to comply with due
process. Id. Indeed, at the Evidentiary Hearing, the Bankruptcy Court specifically
considered and correctly rejected any argument that publication in additional
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locations was required to satisfy due process. A-312 – A-313 (Hr’g Tr. 170:19 –
171:1).
Facts similar to this case were addressed by the United States Bankruptcy
Court for the Eastern District of Virginia in In re Circuit City. In Circuit City, the
debtors, a national retail chain with stores throughout the United States, published
notice of the claims bar date in the national edition of the Wall Street Journal and
the Richmond Times-Dispatch, a local publication circulated where the debtors’
corporate headquarters were located and where the majority of their employees
worked. See Gentry, 439 B.R. at 655. When the adequacy of such constructive
notice was challenged by certain unknown claimants, the court expressly held that
publication notice was sufficient where the bar date notice was published both in a
nationally circulated newspaper and in a newspaper circulated in the location where
the debtors’ headquarters were situated. See id. at 660-61 (“Because notice by
publication was given to the unknown creditors, the notice was constitutionally
adequate.”).
In this case, as in Circuit City, the Debtors published the Bar Date Notice in
both the national edition of the Wall Street Journal and a local publication which
had been covering the Debtors’ bankruptcy extensively and was circulated in the
region where the Debtors’ central offices were located and where virtually all of the
loans originated by the Debtors were processed. A-203; A-252 (Hrg. Tr. 61:1-4;
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110: 1-7); A-141 (Uhland Declaration, ¶ 6(a)). As publication notice in national
newspapers, supplemented with a local publication circulated in the region where a
debtor’s central offices are located, is widely accepted as constitutionally sufficient
to satisfy due process requirements, the Debtors’ publication of the Bar Date Notice
in this case was sufficient to satisfy the requirements of due process. See Chemetron,
72 F.3d at 349; Brown, 171 B.R. at 27. As such, the Bankruptcy Court correctly
concluded that the requirements of due process were satisfied.
Finally, the Bankruptcy Court’s analysis necessarily included a discussion
about the nature and purpose of the claims bar date in bankruptcy cases. A-26; A-
35 – A-36 (Global Constructive Notice Decision, p. 6, 15-16). The Bankruptcy
Court noted that an overriding principle in bankruptcy is finality, and a claims bar
date provides that finality. A-35. It protects the interests of the debtor and creditors
because it allows the debtor to reasonably assume that, after passage of the bar date,
all claimants have come forward to assert their claims. A-36 (internal quotations
and citations omitted). This allows the debtor to calculate its liabilities for purposes
of effectuating a chapter 11 plan and eventually pay its creditors based upon a
finalized pool of claims. A-36. Permitting late claims of unknown creditors to be
asserted solely because a claimant did not have actual knowledge of the bar date
would render publication notice a meaningless mechanism. A-36. Cognizant of the
purpose of a bar date and the finality it is designed to provide, the Bankruptcy Court
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correctly determined that the constructive notice provided by publication in a
national newspaper, as supplemented by publication in a local newspaper circulated
in the location of the Debtors’ central business operations, was constitutionally
sufficient. The Bankruptcy Court’s conclusion is well-reasoned based on the
credible facts before the Court and not an abuse of the Court’s discretion.
B. The District Court’s Holding is in Direct Contradiction to the
Record and Well-Established Law and Establishes a New, More
Onerous Standard for Satisfying Due Process
The District Court’s decision fails to follow binding case law concerning the
sufficiency of nationwide notice of the Bar Date, makes certain findings that are not
supported by evidence, and imposes additional requirements that are not only
unrealistic but also are simply not necessary to satisfy due process.
The District Court’s decision rests largely on the District Court’s
unsubstantiated belief that the Debtors chosen publication, the Wall Street Journal,
was unlikely to have been read by unsophisticated persons and implies that the
Debtors’ borrowers were unsophisticated persons. A-19 – A-20 (District Court
Decision, p. 13-14). These findings are not supported by the record in this case, and
no court has given credence to such an argument. Indeed, at least one court has taken
the direct opposite view. See Chicago, 112 B.R. at 922, 924 (N.D. Ill. 1990)
(rejecting claimants’ argument that notice of the bar date in the Wall Street Journal
was constitutionally insufficient because, due to their poor education, they had never
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heard of the Wall Street Journal). Moreover, no court has held that publication in
the Wall Street Journal is insufficient to reach a nationwide audience, and the
District Court acknowledges that the “bankruptcy court did not abuse its discretion
in determining that a notice placed in The Wall Street Journal reached a nationwide
audience.” A-19 (District Court Decision, p. 13, n.7).
The District Court, nonetheless, takes issue with the Wall Street Journal
because, according to the District Court, it does not enjoy broad circulation among
less than sophisticated readers.14 From a practical perspective, the District Court’s
decision puts debtors in an untenable position of having to consider that which is
unknown, that is, the sophistication of its unknown creditors and what publications,
if any, they read. The requirements of due process do not require such an inquiry.
Rather, due process requires notice “reasonably calculated to reach all interested
parties.” Chemetron, 72 F.3d at 346. No case has held that nationwide notice was
insufficient because it failed to actually reach certain individuals, and in fact, at least
one court, quite rightly, has held precisely the opposite. See Charter, 113 B.R. at
14 It bears noting that the District Court’s entire ruling is predicated upon the
notion, completely unsubstantiated by the record, that the Debtors’ borrowers were“unsophisticated” and “less than focused.” Similarly unsubstantiated by the record
is the District Court’s suggestion that the USA Today enjoys a broader circulation
among such “less than sophisticated, focused readers.” Finally, the District Court’s
decision is entirely devoid of any legal authority establishing the appropriate
standard for determining when someone is “less than sophisticated” or what
newspapers are considered to be publications circulated among “less than
sophisticated” readers.
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728 (noting that the relevant inquiry is whether the party “acted reasonably in
selecting means likely to inform persons affected, not whether each person actually
received notice”); see also Silber v. Mabon, 18 F.3d 1449, 1453-54 (9th Cir. 1994)
(concluding that the standard for class notice is “best practicable,” rather than
“actually received” notice). The publication notice in this case was reasonably
calculated to reach the widest audience of unknown creditors and, therefore, satisfies
the requirements of due process.
The District Court Decision relies heavily on this Court’s decision in Wright
v. Owens Corning, 679 F.3d 101 (3d Cir. 2012) when determining, in contradiction
to well-established law, that publication notice must be sufficient for various
“groups” of unknown claimants. A-18 – A-19 (District Court Decision, p. 12-13).
However, the District Court applies an overbroad interpretation of this Court’s
holding in Wright. In Wright, this Court confirmed that, publication notice in
national newspapers ordinarily is sufficient to satisfy due process for unknown
creditors, particularly if it is supplemented by notice in local newspapers. Wright,
679 F.3d at 107-08. However, the factual circumstances that informed this Court’s
decision in Wright were entirely inapposite to this case. Wright involved a situation
where unknown creditors did not receive sufficient notice of a bar date because an
intervening change in the law, if applied retroactively, would have deprived them of
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an ability to assert a timely claim.15 On the other hand, this case involves a simple
situation in which the publication notice of the bar date has been invalidated because
it was allegedly unlikely to reach “unsophisticated” unknown creditors. What
Wright decidedly does not do is create different classes of unknown creditors entitled
to different treatment. Simply, Wright, does not support the District Court’s
decision.
Finally, the District Court’s decision, if upheld, has the potential to invalidate
on due process grounds every bar date order that provides for similar publication.
Specifically, in similar bankruptcy cases involving sub-prime lenders, originators,
and/or servicers, bankruptcy courts both within this Circuit and elsewhere have
approved publication notices quite similar to the notice provided in this case. See,
e.g., In re Credit-Based Asset Servicing and Securitization, LLC, Case No. 10-16040
15 At the time the claimants in Wright received constructive notice of the bardate, the then-prevailing test for determining if a claim had arisen was governed bythis Court’s decision in Avellino & Bienes v. M. Frenville Co. (Matter of M.Frenville Co.), 744 F.2d 332 (3d Cir. 1984). Under Frenville, the claimants inWright did not hold claims, and therefore, would not have taken any action to ensurethat their interests were protected. Wright, 679 F.3d at 108. After Frenville was
overruled by this Court in JELD-WEN, Inc. v. Van Brunt (In re Grossman’s Inc., etal.), 607 F.3d 114 (3d Cir. 2010), under the new test pronounced in Grossman’s, theWright claimants held claims which would have been discharged by theconfirmation order if Grossman’s was applied retroactively. To avoid this result,which would have deprived the Wright claimants of the ability to assert claimswithout having been provided constitutionally sufficient notice, this Court held inWright that, for this limited class of unknown creditors, publication notice wasinsufficient.
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(Bankr. S.D.N.Y. Dec. 9, 2010) (approving publication once in the Wall Street
Journal at least 28 days prior to the bar date for nationwide securitizer and servicer
of mortgage loans);16 Order Pursuant to Section 502(b)(9) of the Bankruptcy Code
and Bankruptcy Rule 3003(c)(3) Establishing the Deadline for Filing Proofs of
Claim, Approving the Form and Manner of Notice Thereof and Approving the Proof
of Claim Form, In re Lehman Brothers Holdings, Inc., Case No. 08-13555 (Bankr.
S.D.N.Y. July 2, 2009) (approving publication notice for pre-petition claims,
excluding program securities claims, once in two international newspapers and the
Financial Times for the largest chapter 11 case ever filed); Order Establishing
Deadline for Filing Proofs of Claim and Approving the Form and Manner of Notice
Thereof ,; Order Establishing Bar Dates for Filing Proofs of Claim and Approving
the Form, Manner and Notice Thereof , In re Delta Financial Corporation, Case No.
07-11880 (Bankr. D. Del. Mar. 19, 2008) (approving publication once in national
newspaper and a newspaper in the location of debtor’s headquarters); Order
Pursuant to Bankruptcy Rule 3003(c)(3) and Local Rule 2002-1(e) Establishing Bar
Dates for Filing Proofs of Claim and Approving the Form and Manner of Notice
16 In a decision dated December 9, 2014, the Bankruptcy Court for the SouthernDistrict of New York sustained a claim objection on the grounds that the claimants,also homeowner-mortgagors like the Appellees, did not file their claims prior to theexpiration of the bar date. See In re Credit-Based Asset Servicing and Securitization,LLC, Case No. 10-16040, 2014 Bankr. LEXIS 4958, at *7 (Bankr. S.D.N.Y. Dec. 9,2014). The Bankruptcy Court there concluded that the claimants were unknowncreditors who received sufficient publication notice of the bar date. Id. at*6.
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Thereof , In re Am. Home Mtg. Holdings, Inc., Case No. 07-11047 (Bankr. D. Del.
Oct. 30, 2007) (approving publication notice in one national and two local
newspapers for nationwide originator of mortgage loans).
In sum, the Bankruptcy Court’s decision accurately finds that the publication
notice provided in this case was constitutionally sufficient. Given that the District
Court Decision directly contradicts well-established principles of due process as it
relates to constructive notice and, instead, imposes requirements that simply are not
legally required to comply with due process standards, the District Court’s legal
conclusions are incorrect, and the Bankruptcy Court’s decision should be reinstated.