Memorandum of Decision Re: Untimely Dischargeability Action

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re ROBERT and VALERY McKEE,                                                                              No. 1-90-00894        Debtors. ___________________________/ SECURITY UNION TITLE INSURANCE COMPANY,        Plaintiff,    v.                                                                                                                           A.P. No. 1-90-0255 ROBERT and VALERY McKEE,        Defendants. ______________________________/
Memorandum of Decision
     In April, 1985, debtors Robert and Valery McKee purchased a substantial amount of acreage. The sellers carried back a note for $630,000.00 secured by a deed of trust to the property. Later that year, the McKees sold a portion of the property and themselves carried back a note for $185,000.00 secured by the property. This latter security interest was of course junior to the interest of the original seller, but the senior lien was "somehow not picked up" by the title company handling the escrow. Accordingly, a title policy was issued insuring the McKee deed of trust as a first position lien when in fact it was junior to the lien of the original seller.      In 1988, the McKees sold their note to Jerome Strauss and his wife. In 1989, the Strausses sold the note to the Bill Freeman & Co. Profit Sharing Plan. In 1990, the note went into default and when Freeman started to foreclose, it learned that it did not have the senior lien. It accordingly made demand on the title insurer, now known as defendant Security Union Title Insurance Company. By this adversary proceeding, Security Union seeks to have its claims against the McKees declared nondischargeable. Security Union's insured, the Bill Freeman & Co. Profit Sharing Plan, was duly scheduled as a creditor and received the relevant notices. Security Union concedes that it is charged with notice of the bankruptcy as of September 14, 1990, when its agent received a letter from Redwood Empire Title Company stating "Robert McKee and his wife are currently under a Chapter 11 Bankruptcy." The bar date for 523(c) actions was October 2, 1990; the claims bar date was November 1, 1990. This action was filed on November 16, 1990; Security Union filed its proof of claim November 15, 1990.      Pursuant to section 523(a)(3)(A), the claim of Security Union is nondischargeable, even if no fraud was involved on the part of the McKees, if Security Union did not have actual knowledge of the bankruptcy in time to file a proof of claim. Pursuant to section 523(a)(3)(B), the claim is nondischargeable if the McKees did commit fraud and Security Union did not have actual knowledge of the bankruptcy in time to file a 523(c) action. For the reasons stated below, the court finds that Security Union did have timely actual knowledge, and accordingly grants the McKees' motion for summary judgment.      In In re Dewalt, 107 B.R. 719 (9th Cir.BAP 1989), the court held that actual knowledge of the bankruptcy one week before the 523(c) bar date was enough notice to bar a late dischargeability action. In Matter of Sam, 894 F.2d 778 (5th Cir.1990), knowledge 18 days before the expiration of the bar date was held to be sufficient. In neither case, knowledge of the bar date was required. It is clear to the court that the 18 days afforded to Security Union were sufficient to allow it to file a timely action, or at least request a timely extension. Any diligent creditor, knowing that it is becoming involved in an ongoing bankruptcy proceeding, would immediately take steps to insure that it did not lose its rights by the expiration of a bar date. Security Union was not diligent, and must suffer the consequences.      It is a very simple matter to file a proof of claim. All one needs is the name of the debtor and the case number (the latter probably isn't even necessary) and a one-page form which can be amended later. This court is the only bankruptcy court within a radius of at least 200 miles from the McKees' residence. If 18 days (or even a week) is sufficient time to file a dischargeability adversary proceeding, 48 days is certainly enough time to file a simple proof of claim. A creditor's due process rights are not violated by disallowance of its late claim when the creditor had actual knowledge of the case in time to file a timely claim, even if the creditor did not have knowledge of the bar date. In re Coastal Alaska Lines, Inc., 920 F.2d 1428 (9th Cir.1990).      Because the court finds that Security Union had actual knowledge of the bankruptcy on its own in time to file both a timely dischargeability proceeding and timely proof of claim, it need not discuss whether Security Union, as subrogee of its insured, is charged with whatever knowledge its insured had. However, the court notes that any ruling to the contrary would be inconsistent with the fresh start provisions of the Code and could create havoc with both the plan confirmation process and the distribution of estate assets.      For the foregoing reasons, the court will grant the debtors' motion for summary judgment. Counsel for the McKees shall submit an appropriate form of judgment dismissing this adversary proceeding, with prejudice. The McKees shall recover any costs of suit.
Dated: April 6, 1991                                                                              _______________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy