Notice Requirements and Addressing the Correct Creditor
Lou Jones Breakfast Club
Presented by Attys. Holbus and Jon A. Olson on November 9, 2010
CLICK HERE for the full .pdf version with appendix.
I. In General
a. When trying to provide notice or service of process to creditors, debtors' ability to do so properly becomes difficult in a world where creditors have a couple dozen similarly-named subsidiaries or shell companies in existence, and they have hundreds (if not thousands) of offices scattered throughout the country. Debtors' counsel find themselves trapped in an absurdly comical game of hide-and-seek, trying to pin down elusive creditors that seem to deliberately hide behind complex and opaque corporate structures. The point of this presentation is to TRY to un-muddy the waters somewhat.
b. Under ordinary due process requirements, creditors operating business with national or global branches, various departments or divisions, etc. receive adequate notice when one such branch or department receives notice, because these creditors bear responsibility to have adequate systems in place to funnel legal notices to the appropriate personnel within the business entity. In re Frontzak, 2009 Bankr. LEXIS 3817 (Bankr. N.D. Ill. Dec. 2, 2009).
c. Federal Rules of Bankruptcy Procedure set a heightened floor for notice, and failure to meet these standards violates the creditor's due process rights. In re Hanson, 397 F.3d 482, 486 (7th Cir. Wis. 2005). This has been overruled in United Student Aid Funds, Inc. v. Espinosa, 130 S. Ct. 1367 (U.S. 2010) which ruled that a violation of the Bankruptcy Rules was not sufficient to set aside a judgment when the creditor had actual notice and failed to object.
II. Schedules D-H, Creditor Mailing Matrix
a. Debtor shall use the address appearing on any two or more communications (e.g. billing statement, collection letters, etc.) received in the 90 days prior to filing the bankruptcy case. 90 day period does not apply to creditors who would be in violation of non-bankruptcy law by sending communications, in which case, the address appearing on the two most recent communications shall be used. 11 U.S.C. § 342(c)(2).
i. In the unlikely event that the creditor has not communicated with the debtor twice in the 90 days preceding and the creditor does not fall under § 342(c)(2)(B) - use any known address that can be located: the creditor's registered agent, addresses appearing on pending litigation, or the most recent communication received by the debtor outside of the 90 day period.
ii. Many billing statements and communiqués from creditors have more than one address on them, such as a return address, a payment address, an address for correspondence, or an address specifically for bankruptcy correspondence. When presented with options (and the options are clearly labeled), avoid using payment addresses unless it's your only option, as correspondence sent to payment addresses are routinely discarded. Bankruptcy correspondence addresses are preferred. When in doubt, simply list all of the addresses appearing on the communication.
b. Creditors may provide preferred addresses to be used in all Chapter 7 and Chapter 13 cases in all bankruptcy courts or in specific bankruptcy courts. They register with the National Creditor Registration Service the preferred address and all addresses that they want to be over-ridden. If address on matrix matches an over-ridden address, the Bankruptcy Noticing Center (BNC) sends notice to the preferred address instead. 11 U.S.C. § 342(f). BNC mailing is by first class mail, so it cannot satisfy FRBP 7004(h) unless one of the exceptions is in place.
c. Effective July 12, 2010, BNC will not issue notices to creditor addresses identified as invalid (incomplete address, moved to foreign address, moved and left no forwarding address, forwarding order expired, or post office box closed).
d. Except as provided for in § 523, a discharge is good against the world, whether a pre-petition debt was scheduled or not. In re Guseck, 310 B.R. 400, 402 (Bankr. E.D. Wis. 2004).
e. Listing the debtor's lawsuits on the Statement of Financial Affairs alone does not satisfy the requirement under FRBP 2002. Plaintiff/creditors must be listed on a schedule of creditors and the mailing matrix. Tidwell v. Smith (In re Smith), 379 B.R. 315, 321 (Bankr. N.D. Ill. 2007).
f. Credit reports are excellent for finding long-lost and forgotten debts. Compare the credit report with recently received billing statements. For any that you can match via account numbers, substitute the credit report address with the billing statement address to be compliant under § 342(c)(2).
g. When listing a debt that is being pursued by a collection agency, list both the collection agency and the original creditor, especially since it's not always easy to distinguish between ordinary collection agencies and junk debt buyers.
III. Notices After the Initial Filing
a. In any individual case, a creditor can serve the court and the debtor a notice of a preferred address to be used. That address shall be used in all future notices within 7 days of receipt. 11 U.S.C. § 342(e).
b. Except in cases where the Trustee has issued a notice of no assets/dividends, and such notice is not later superseded by a contrary notice, a filed proof of claim shall stand as a notice of preferred address from the creditor. Fed. R. Bankr. P. 2002(g)(1).
c. Where a claimant lists the representative of a minor child or incompetent person, if that creditor's notice of preferred address differs from that appearing on schedules / mailing matrix, both addresses must be used. Fed. R. Bankr. P. 2002(g)(3).
IV. Proving Adequate Notice in Stay or Discharge Violations
a. Punitive damages cannot be awarded unless notice requirements of § 342 are followed (except, in the case of improper notices, creditors are deemed notified if they have procedures in place to funnel notices to a person or department, see FRBP 2002(g)(5)). 11 U.S.C. § 342(g).
b. Faxing notice to creditor's attorney-of-record in a post-petition state court claim constitutes adequate notice. In re Thongta, 401 B.R. 363, 369 (Bankr. E.D. Wis. 2009).
c. Although the creditor has a duty to terminate and reverse damages resulting from a stay violation, it could not be sanctioned for willful violation since it was not noticed pursuant to § 342 (appears that notice was sent to addresses appearing on a credit report). In re Tillett, 2010 Bankr. LEXIS 1342 (Bankr. E.D. Va. Apr. 23, 2010).
V. Contested Matters
a. "While no summons is issued and served upon the "defendant" in a contested matter, service of a pleading initiating a contested matter is made in the same manner as service of a summons and complaint in an adversary proceeding." Dean v. Global Fin. Credit, LLC (In re Dean), 359 B.R. 218, 221 (Bankr. C.D. Ill. 2006).
b. Contested matters include motion to hold someone in contempt (In re Teknek, LLC, 512 F.3d 342, 345 (7th Cir. Ill. 2007)), objection to proof of claim (In re Myron, 2010 Bankr. LEXIS 285 (Bankr. N.D. Ind. Jan. 20, 2010)), § 722 Redemption (In re Wright, 2009 Bankr. LEXIS 271 (Bankr. N.D. Ind. Feb. 17, 2009)), modification of utility service deposit (In re Martinez, 2008 Bankr. LEXIS 2293 (Bankr. N.D. Ind. Sept. 5, 2008)), motion to dismiss (In re Weems, 359 B.R. 919, 920 (Bankr. N.D. Ind. 2007)), and motion for relief from automatic stay (Reischel v. Mfrs. & Traders Trust Co., 222 Fed. Appx. 521 (7th Cir. Wis. 2007)).
c. Although a determination of value does not need an adversary proceeding, one is required to strip a wholly unsecured junior mortgage. In re Ginther, 427 B.R. 450 (Bankr. N.D. Ill. 2010). Compare to In re Stassi, 2009 Bankr. LEXIS 3527 (Bankr. C.D. Ill. Nov. 12, 2009), which suggests Chapter 13 Plan would have been adequate, but only if it had been served pursuant to FRBP 7004.
VI. Adversary Proceedings
a. Summons and Complaint shall be served in a manner authorized by FRCP 4, all subsequent documents and pleadings shall be served in a manner authorized by FRCP 5. In addition to FRCP 4, summons and complaint may be served by first class prepaid postage in the following manner:
b. Individuals: address to their dwelling house or usual place of abode, or place where they regularly conduct business or profession. If the individual is an infant or incompetent, to the dwelling/abode or place of business of the person prescribed by the law of the state in which service is made when an action is brought against the defendant. Fed. R. Bankr. P. 7004(b)(1)-(2).
c. Domestic or Foreign Corporation, Partnership, or Unincorporated Association: address to an officer, managing agent, general agent, authorized agent by law, or authorized agent by appointment. If agent is authorized by statute and the statute requires, also address to the defendant. Fed. R. Bankr. P. 7004(b)(3).
i. Wisconsin Department of Financial Institutions has a searchable database which can provide registered agents at https://www.wdfi.org/apps/CorpSearch/Search.aspx?.
ii. All companies doing business in Wisconsin are required to register with the DFI and will have a registered agent for service of process on file with the department. Wis. Stat. § 180.1501. However, there are a number of activities that do not constitute business transactions under this section, such as maintaining or defending lawsuits, maintaining bank accounts, selling through independent contractors, lending money or acquiring indebtedness / mortgages / security interests in property, and owning property. Thus, it is possible for a Wisconsin mortgage loan to be owned and/or serviced by a company that is not required to register to do business in Wisconsin.
iii. Additionally, you may encounter a debtor who incurred a debt in a foreign state from a creditor who does not transact business in Wisconsin and is not registered with the DFI.
iv. Satisfying Fed. R. Bankr. P. 7004(b)(3) on foreign corporations requires determining which state the corporation is organized under, and searching the corporate records of that state to locate the registered agent. You can find links to most states' databases at http://www.llrx.com/columns/roundup29.htm.
v. Named individuals not necessary for service, so long as the mail is addressed to the attention of the officer or agent by reference to his title. Moglia v. Lowitz & Sons (In re Outboard Marine Corp.), 359 B.R. 893, 900 (Bankr. N.D. Ill. 2007). In fact, naming a specific individual might create more of a problem for a debtor trying to achieve proper service:
In order for a plaintiff to ascertain an officer or managing or general agent of a corporation, he must do a search of state records. Some corporations do not keep those records updated, and frequently, officers change during a company's fiscal year without the immediate updating of the annual report filed with the secretary of state to reflect those changes. In such a scenario, if a plaintiff was to list "John Doe" as the officer or managing or general agent of a corporation, and John Doe was no longer in that capacity because the corporation failed to update its records, service of process would be defective under this logic. Inaccurate corporate records would unfairly render otherwise adequate and proper service invalid. The Court rejects the argument that Bankruptcy Rule 7004(b)(3) requires a plaintiff to take the extra step of searching state records in order to ascertain the specific name of a corporate officer or managing or general agent, and then serve that individual by name as such officer or agent. Id.
vi. "ATTENTION: Highest Ranking Officer, or Managing or General Agent" is acceptable. In re Speichert, 2007 Bankr. LEXIS 4543 (Bankr. N.D. Ind. Oct. 3, 2007).
vii. Service must be sent to a particular individual, not an entire department. "Attn: Bankruptcy Department" does not satisfy FRBP 7004(b)(3). In re Wright, 2009 Bankr. LEXIS 271 (Bankr. N.D. Ind. Feb. 17, 2009).
viii. Service need not be made on an attorney, even if they have entered an appearance. In re Edmonds, 2008 Bankr. LEXIS 2503 (Bankr. N.D. Ind. Sept. 12, 2008). Service to an attorney does not meet the requirements of FRBP 7004(b)(3) without evidence that the attorney is appointed by the creditor to accept service. In re Rae, 286 B.R. 675, 677 (Bankr. N.D. Ind. 2002).
ix. Service of a contested matter is not proper if the address appearing on the creditor's proof of claim is used and that address does not conform to FRBP 7004(b)(3). In re Sunde, 2007 Bankr. LEXIS 3704 (Bankr. W.D. Wis. Oct. 2, 2007). In contrast, there is a line of cases that holds that a creditor cannot present an address that notices should be sent to (as is done on the proof of claim form) and then argue it was not properly served when that address is used. In re Village Craftsman, 160 B.R. 740, 745 (Bankr. D.N.J. 1993). In Sunde, Judge Martin makes a distinction between notice and service.
d. Insured Depository Institution (any FDIC-insured bank or savings association): address to an officer of the institution by certified mail, or first class mail to its attorney if the attorney has made an appearance. Confirm FDIC-insured status at http://www3.fdic.gov/idasp/. This requirement can be waived by court order in response to an application, or by the creditor's voluntary waiver. Fed. R. Bankr. P. 7004(h).
i. "While service upon a registered agent may well satisfy the requirements of [FRBP 7004(b)(3)] with respect to an entity, service upon a registered agent does not constitute service upon an "officer of the institution" as required by [FRBP 7004(h)]. Stewart v. JPMorgan Chase Bank (In re Stewart), 408 B.R. 215, 218 (Bankr. N.D. Ind. 2009).
ii. Wholly owned subsidiary of an FDIC-insured company which is not itself FDIC-insured does not entitle the subsidiary to heightened notice requirement under FRBP 7004(h). Fleet Credit Card Servs. v. Tudor (In re Tudor), 282 B.R. 546, 550-551 (Bankr. S.D. Ga. 2002).
VII. Sources of Confusion
a. Two different companies can have the exact same name if they are organized in different states and the name hasn't already been trademarked.
b. Complex corporate structures - different entities with similar names. The following is a basic corporate structure glossary. There are many names given to different organizational structures, depending on ownership, holdings and purpose. It is important to keep in mind that an organization is either a formally organized entity, or it is not. If it is formally organized, there will be a designated agent for service.
· Parent. A formally organized entity that holds an ownership interest in another entity (subsidiary). The Parent company may have its own line of business, which may or may not be related to the business of the subsidiary.
· Subsidiary. A formally organized entity that is owned, at least in part, by another company (parent). In large corporate structures, a subsidiary might also be a parent company for another company down the line.
· Holding Company. A formally organized entity that exists primarily to own other companies. Similar to a parent company, but usually without its own line of business.
· Division. Usually (but not always) an informally organized part of another company. The division may have its own books and records, but is usually not formally organized (no filing with the State. If you are dealing with a company that is called a division, there is usually another company name that you will need to find. For example, "ABC, a division of XYZ Corp."
· Shell or Dummy Company. A formally organized entity that will usually not have any assets of business of its own. These sorts of companies are used to shield information regarding ownership, holdings, etc. It is important to realize that these entities are actual companies, at least on paper. Corporate existence can be challenged based on inadequate capitalization and other grounds, but that is an expensive fight, and may not be relevant from a debtor's standpoint.
· Good Standing. It is useful to determine whether a company is in good standing, either with its state of organization, or in the state(s) where it is registered to do business. While the requirements for maintaining good standing are minimal, they are sometimes overlooked or ignored. If a company is not in good standing, it is technically not able to transact business. While courts will usually allow time for a company to get reinstated, raising the fact that a company is not in good standing might provide additional time in a litigation matter.
c. Discussion Questions:
i. Debtor's counsel seeks to file an adversary complaint against Chase. Mortgage documents indicate Chase Home Finance is the mortgage and note holder. Proof of claim is filed by Chase Bank. Chase Bank is FDIC-insured, requires service under 7004(h). Chase Home Finance is not FDIC-insured, requires service under 7004(b)(3). How should counsel proceed? (Assume the deadline to file the adversary is approaching, not leaving enough time to submit a QWR to determine whether Chase Home Finance sold the note to Chase Bank and/or object to the proof of claim.)
ii. Debtor files bankruptcy and properly lists all creditors pursuant to § 342(c)(2). Post-petition, debtor receives a collection letter from one of his creditors in violation of the automatic stay, but the address on the post-petition letter does not match the address appearing on schedules or on pre-petition billing statements. Does the debtor have to chase down (provide notice) to each new address before he can prove actual notice and move for sanctions? How can the debtor prove that the creditor at the address on the post-petition letter is the same creditor listed on schedules, and not a different division or subsidiary?
d. When searching WI DFI database, making sure that you are searching for the right company.
i. Searching for "Associated Bank" on the WI DFI web-site yields nothing. You have to know to look for "Associated Banc-Corp" or wade through 467 search results for "Associated".
e. When serving a mortgage company on a contested matter or adversary proceeding, it's helpful to know who's who in the industry to know whose conduct is at question or whose rights are sought to be modified.
i. Mortgage Originator - the lender whose name appears on the mortgage and note (remember, the mortgage establishes the real estate as security for the loan; the note is a promissory note outlining the terms of loan repayment).
ii. Mortgage Holder - present owner of the mortgage; has the right to foreclose.
iii. Note Holder - present owner of the note; usu. (but not always) the same as the mortgage holder.
iv. Mortgage Servicer - party that accepts payment on behalf of the note holder, also responsible for holding / distributing escrow funds.
v. MERS - electronic registry that tracks ownership of mortgages and notes, set-up to reduce costs associated with recording assignments.
vi. Not sure who's who in your particular mortgage? Send a Qualified Written Request (sample is attached to appendix) under RESPA to the mortgage servicer. 12 U.S.C. § 2605(e).
VIII. Miscellaneous
a. Mailing of a properly addressed document with sufficient postage carries with it a presumption of delivery/receipt. This can be rebutted. Defects in the address do not eliminate the presumption, but make rebuttal easier. However, a signed return of service or lack of returned undeliverable mail strengthens the presumption. Moglia v. King Marine, Inc. (In re Outboard Marine Corp.), 369 B.R. 353, 359 (Bankr. N.D. Ill. 2007).
b. Most districts allow a Motion to Limit Notice (sample is attached to appendix) or a Motion for Special Matrix, which appears to be born out of Fed. R. Bankr. P. 9007 & 9013. This can help save movants money in postage and printing by restricting notice of motions to affected creditors. Without a doubt, parties adversely affected by a motion must receive notice. By practice, I've always given notice to favorably affected parties, too, so I leave it up to each of the judges to hint at their policies whether these parties are required to receive notice. Use common sense when determining if a creditor is affected or unaffected by your motion or amended plan. Hopefully it goes without saying, but do not exclude creditors from receiving notice without filing a motion to limit notice, and should the judge deny your motion, you will subsequently need to serve notice to all creditors.
c. On the other hand, for amended Chapter 13 Plans, Local Rule 3015.2 mandates use of the new model form "Notice and Request to Modify Chapter 13 Plan" which has the FRBP 2002(a)(5) notice embedded in it. There is a limit notice provision embedded at paragraph 2(B) for pre-confirmation amendments, and only adversely-affected creditors need to be noticed (note: the model plan contains the necessary notice to creditors about amendments pursuant to Local Rule 3015(b)). You can limit notice on post-confirmation amendments, too, but the model form is insufficient - you'll need to file a separate motion. Also worth noting is that Fed. R. Bankr. P. 3015(g) does not distinguish between adversely-affected creditors and favorably-affected creditors, suggesting that you can only limit notice of post-confirmation amendments to completely unaffected creditors.
