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Pate v. Tow

United States District Court, S.D. Texas, Houston Division

May 29, 2018

ALISHA PATE, et al, Appellants,
v.
RODNEY TOW, Trustee and DANIEL CLARK, IV, Appellees.

          ORDER

          THE HONORABLE ALFRED H. BENNETT UNITED STATES DISTRICT JUDGE.

         Before the Court is Appellants' Brief (Doc. #10). There is no appellee brief in this case. After reviewing counsel's arguments and the applicable legal authority, the Court affirms the Bankruptcy Court's decision. '

         I. Background

         The Appellants ("Pate and Thigpen") held claims for child support arrearages against the debtor in the underlying bankruptcy case, In re Clark, No. 12-31850. In the Bankruptcy Court's original order, Pate and Thigpen's late filed claims were to be distributed under 11 U.S.C. § 726(a)(3). See Doc. #2 at Ex. 1 & 2. Pate and Thigpen filed a motion to vacate the court's decision and hearings were held on March 4, 2015, and April 30, 2015. After the hearings, on June 12, 2015, the Bankruptcy Court issued an order vacating its original decision and allowed Pate and Thigpen's claims distribution status under 11 U.S.C. § 726(a)(2) rather than § 726(a)(3).

         Though Pate and Thigpen filed late proofs of claims in the bankruptcy proceedings, they argue that they should be given 11 U.S.C. § 726(a)(1) distribution priority which is reserved for timely filed proofs of claims. See § 726(a)(1)(A). Pate and Thigpen argue that they did not have proper notice for filing their claims because the Trustee's Final Report ("TFR") was mailed to the Illinois Department of Healthcare and Family Services ("IDHFS"), not to them individually. The TFR was sent by First Class Mail to IDHFS (the creditor listed on the bankruptcy matrix) on July 19, 2014. Doc. #2, Ex. 9 at 5. Pate and Thigpen argue that IDHFS was not their agent for purposes of sending notice of bankruptcy proceedings or the summary of the TFR, which is the basis upon which they now Appeal the Bankruptcy Court's decision.

         First, Pate and Thigpen allege that because IDHFS is not their agent for bankruptcy related process, that the ten (10) day claim filing deadline required by § 726(a)(1)(A) does not apply to them. Doc. #10 at 14. Second, Pate and Thigpen ask the Court to interpret § 726(a)(1)(A), and determine when the 10 day filing deadline is triggered. Doc. #10 at 23. Third, they argue that § 726(a)(1) violates due process if it is interpreted to deny status to a creditor who was never given notice. Id. at 26. Lastly, Pate and Thigpen argue that any amendment to the TFR resets the 10 day claim filing deadline of § 726(a)(1)(A). Doc. #10 at 30. Pate and Thigpen's first three arguments hinge on the Court's determination of what constitutes proper notice under the statute, and if due process was satisfied when notice was sent to IDHFS.

         II. Legal Standard A. Standard of Review

         In reviewing a bankruptcy court decision, a district court functions as an appellate court and applies the standards of review generally applied in federal courts of appeal. In re Webb, 954 F.2d 1102, 1103-04 (5th Cir. 1992). This Court will not set aside a bankruptcy court's findings of fact unless they are clearly erroneous. Fed.R.Bankr.P. 8013; In re McDaniel, 70 F.3d 841, 842-43 (5th Cir. 1995). A finding of fact is clearly erroneous if, after review of all the evidence, the Court is left with a firm and definite conviction that the bankruptcy court erred. In re McDaniel, 70 F.3d at 843. This Court reviews legal conclusions de novo. Id.; In re Herby's Foods, Inc., 2 F.3d 128, 130 (5th Cir. 1993).

         B. Notice

         The standard for adequate notice and the effect on timely and untimely filed claims in bankruptcy was addressed by the Fifth Circuit in Greyhound Lines, Inc. (In re Eagle) v. Rogers, 62 F.3d 730 (5th Cir. 1995). The court held that mailing notice to the last known address of a creditor satisfies due process because it is "reasonably calculated" to inform the creditor of the bar date for filing proofs of claims. Id. at 736. The Bankruptcy Rules "imply that correctly mailed notice creates a presumption that proper notice was given." Id. A creditor's denial of receipt alone does not rebut the presumption that proper notice was given; it raises an issue of fact. Id. at 735. Evidence that the notice was never mailed or that no other creditor received notice will rebut the presumption that proper notice was given. Id.

         III. Analysis

         The arguments asserted in this Appeal are contingent upon whether or not sending notice to IDHFS was reasonably calculated to give notice to Pate and Thigpen of the bankruptcy proceeding. It is clear from the record before the Court that IDHFS had notice of the bankruptcy proceedings on June 6, 2013. Doc. #2, Ex. 2 at 37; Doc. #3, Ex. 8 at 25. Also, IDHFS was mailed the TFR on July 19, 2014, as documented in the Certificate of Notice. Doc. #2, Ex. 9. The record also reveals that both Pate and Thigpen used IDHFS to enforce child support payments on their behalf. However, when IDHFS received notice of the bankruptcy proceedings it did not notify Pate or Thigpen. Doc. #2, Ex. 2 at 41-42. Moreover, Pate and Thigpen argue that IDHFS was not their agent, that notice sent to IDHFS was inadequate to satisfy due process, and was ineffective to trigger the 10 day filing deadline under § 726(a)(1)(A).

         A. Due Process

         IDHFS is a receiving and disbursing agent for child support payments. See 750 Ill. Comp. Stat. 5/705 (West 2007). The Bankruptcy Court found that both Pate and Thigpen reside in Illinois and have sought enforcement of unsatisfied child support orders through the State of Illinois. Doc. #3, Ex. 2 at 928, n.l. Therefore, it would be proper for IDHFS to be listed in the bankruptcy matrix as the creditor to notify of claims for child support arrearages enforceable by the State of Illinois on behalf of Pate and Thigpen in the bankruptcy proceeding.[1] To satisfy due process, the trustee may rely on the addresses provided by the debtor for mailing notice of the bankruptcy proceedings. See DeVore v. Marshack (In re DeVore),223 B.R. 193, 196-97 (9th Cir. BAP 1998); accord Greyhound Lines v. Rogers (In re Eagle Bus. Mfg., Inc.),62 F.3d 730, 734-36 (5th Cir. 1995) ("[A] creditor who failed to keep the debtor apprised of changes in her mailing address was 'herself to blame' for not receiving notice" . . . and the bankruptcy trustee reasonably served the addresses on the court's matrix which the debtor provided.). IDHFS was listed on the Bankruptcy Court's matrix, and received the TFR. Doc. #2, Ex. 9. Additionally, Pate and Thigpen expressly authorized IDHFS to file proofs of claims on their behalf. Doc. #3, Ex. 2 at 321-34. The Bankruptcy Court correctly determined that IDHFS was an agent for Pate and Thigpen. The court was also correct in concluding that "actual notice is irrelevant" in triggering ...


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