Memorandum of Decision Re: Due Process
Wells Fargo Bank holds deeds of trust to the real property at 2325 Second Street and 225 Wabash Street, Eureka, California. When it made the loans secured by these properties in 1978, the properties were owned by the debtor. As part of marital dissolution proceedings in 1980, the debtor gave his former wife a junior deed of trust to the properties. In 1986, the wife foreclosed and became the owner after trustee's sale. The debtor then filed a Chapter 11 petition and brought an adversary proceeding in this court to avoid the transfer to the wife as fraudulent. On September 2, 1987, a judgment was entered avoiding the transfer. On August 5, 1987, the Court confirmed the debtor's plan of reorganization. Wells Fargo claims that the plan improperly treats its liens, and that it was denied notice and an opportunity to object to the plan. By motion it seeks either an order requiring the debtor to amend his plan or a declaration that the plan is not binding on it. Because Wells Fargo is such a large entity, it assigned administration of the loan to a servicing agent, IMCO. The debtor scheduled Wells Fargo as a creditor at the address of the local branch which made the loan. This was the address stated at the top of the deeds of trust. However, the branch only identified an unsecured credit card debt as being owed to the bank and filed only an unsecured claim based on that debt. The debtor filed a proof of service showing service of the disclosure statement, plan, and notice of confirmation hearing on both IMCO and Wells Fargo on April 2, 1987. Wells Fargo denies that IMCO received these papers. It admits receiving them itself but says that due to its size it could not identify its secured claim. Wells Fargo admits that IMCO had informal knowledge of both the bankruptcy proceedings and the attempt to avoid the transfer to the debtor's former spouse, but asserts that such informal notice is insufficient to satisfy due process requirements.
Some courts have held that a confirmed plan of reorganization binds even creditors with no knowledge of the proceedings. See Matter of Safeguard Co. (Bkrtcy.W.D.Pa.1983) 35 B.R. 44, 47, and cases cited therein. However, for purposes of this motion the Court assumes that principles of due process require that a creditor receive notice before it is bound by the terms of a plan. Reliable Elec. Co. v. Olson Const. Co. (10th Cir.1984) 726 F.2d 620; In re Moseley (Bkrtcy.C.D.Cal.1987) 74 B.R. 791. For the reasons stated below, the Court finds that Wells Fargo did receive notice adequate to satisfy due process concerns. The debtor's proof of service shows that IMCO was served with the plan and hearing notice, thereby creating a presumption that IMCO had notice. Hagner v. United States (1932) 285 U.S. 427, 430. While denial of receipt may rebut the presumption, the Court can still draw the inference of receipt notwithstanding denial. Russell, Bankruptcy Evidence Manual (West 1987), sec. 301.7. The Court draws such an inference from two facts. First, the correspondence between IMCO and the debtor reflects an officiousness on the part of IMCO demonstrating that it was more interested in obstructing the debtor's reorganization efforts than it was in cooperating. Second, the Foreclosure Officer for IMCO declares that IMCO never received notice from the debtor of the bankruptcy filing when a review of the correspondence between IMCO and the debtor clearly shows there was such notice. The debtor's letter of May 26, 1987, specifically mentions the bankruptcy proceedings; IMCO's response of June 5, 1987, acknowledges receipt of the May 26 letter. Even if Wells Fargo had successfully rebutted the presumption that IMCO received proper notice, it would not prevail here. Wells Fargo does not dispute that all relevant papers were served on the branch that originated the loan; this branch's address is at the top of each of the deeds of trust. The Court disagrees with the argument that this notice was insufficient. Due process does not require the debtor to unravel the Byzantine internal mysteries of every behemoth creditor. The debtor is only required to take reasonable steps to notify the creditor. In this case, the debtor did so by sending notices to the branch which made the loan at the address stated on the deed of trust. What happened after that is Wells Fargo's problem, not the debtor's. A creditor is not to be excused from its mistakes on grounds that it is too big to comply with bankruptcy law. In re Stucka (Bkrtcy.C.D.Cal.1987) 77 B.R. 777, 783. Bankruptcy Rule 2002(g) provides a mechanism for a large creditor to specify where notices are to be sent; had IMCO been less officious and more cooperative, it could have avoided the present situation. Wells Fargo's argument that it was not a creditor and therefore is not bound by the plan has no currency. The debtor was at all times the obligor on the notes secured by the deeds of trust. IMCO was informed in writing of the debtor's suit to avoid the transfer to his former spouse; it either had actual knowledge of the intended treatment of the lien if the transfer was avoided, or could have easily determined it in time to allow Wells Fargo/IMCO to participate meaningfully in the confirmation process. If Wells Fargo can show that the debtor knew of its internal problems and manipulated them to his advantage, it might be able to obtain a judgment revoking the order of confirmation for fraud pursuant to section 1144 of the Bankruptcy Code. Pursuant to Bankruptcy Rule 7001(5), such relief must be sought by adversary proceeding, not by motion. The Court notes procedurally that there is no provision in section 1127 of the Code which would allow the Court to compel modification, and that Bankruptcy Rule 7001(6) requires that dischargeability disputes be resolved by adversary proceeding. The instant motion must be denied for the reasons set forth above. Pursuant to Bankruptcy Rule 9021, a separate order denying the motion will be entered.
Dated: January 20, 1988 _______________________ ALAN JAROSLOVSKY U.S. BANKRUPTCY