United States District Court, S.D. Texas, Houston Division
HONORABLE ALFRED H. BENNETT UNITED STATES DISTRICT JUDGE.
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. '
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).
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.
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.
Legal Standard A. Standard of
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).
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.
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).
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. 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 ...