Document Type
Research Memorandum
Publication Date
2016
Abstract
(Excerpt)
Courts have frequently held that notice to employees of the final day to file a proof of claim (the “bar date”), for purposes of satisfying constitutional due process requirements, may be satisfied by publication. To determine whether proper notice was served, bankruptcy courts distinguish between known and unknown creditors. While a known creditor must be provided with actual notice of a bar date, notice to an unknown creditor is satisfied by constructive notice, for example publication in a newspaper. In the context of the employer-employee relationship, it may seem counterintuitive that a creditor-employee would constitute an “unknown” creditor but pervasive case law, including the recent In re Nortel decision, makes evident that the existence of an employment relationship between a debtor and a creditor is not sufficient to establish “known creditor” status upon an employee.
This article examines discusses the requirements of Rule 3003(c) of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) and the due process concerns the rule implicates. Part I-A discusses subsection (c)(3) Rule 3003, which generally prohibits the filing of proofs of claim subsequent to the expiration of a bar date. Part I-B outlines the distinction between “known creditors” and “unknown creditors” for purposes of providing constitutionally adequate notice. Part II provides a case study of the Virginia Bankruptcy Court’s ruling in In re U.S. Airways, a case in which the debtor-employer was a multinational corporation, and where the court held that because the creditor-employee’s claims were not “reasonably ascertainable,” the creditor-employee was unknown for notice purposes. Part III provides a case study of the Delaware Bankruptcy Court’s more recent ruling in In re Nortel, a case also involving a multinational debtor-employee, but where the court held that because the creditor-employees identities were not reasonably ascertainable the creditor was unknown for notice purposes. Finally, Part IV concludes by providing a comparison of the alternate applications of the reasonably ascertainable standard in In re Nortel and in In re U.S. Airways.