Newspaper Notice to Unknown Creditors: Still the Only Process that is Due

When our firm filed the first Catholic diocese bankruptcy case in 2004, the debtor provided notice of the claim process to holders of potential future claims by publishing advertisements in various newspapers around the country.  For decades, bankruptcy debtors and other parties facing potential future tort claim liability have relied primarily on newspapers to provide “publication” notice to claimants whose identities and locations are not known.  Given the steady decline in newspaper circulation over the past 10 years, however, I have wondered when, if ever, a court might retreat from the Supreme Court’s holding, in Mullane v. Central Hanover Bank & Trust Co., 339 US 306 (1950), that publication in a newspaper of national circulation provides notice to unknown creditors sufficient to comply with their due process rights.

The issue recently was tested in a case before the United States Bankruptcy Court for the Eastern District of Virginia, In re AMF Bowling Worldwide, Inc., Case No. 12-36495-KRH.  In that case, a tort claimant from Texas who failed to file a claim by the applicable deadline challenged the adequacy of “publication” notice in Virginia and national newspapers.  During the pendency of the bankruptcy, in January 2013, the claimant was injured by an intoxicated minor who allegedly was served alcohol at a bowling alley owned by the Debtor in Tarrant County, Texas. In April 2013, the Texas Alcoholic Beverage Commission (TABC) commenced an investigation into whether the minor had been served alcohol at the Debtor’s establishment and what effect that might have on the Debtor’s liquor license. That investigation was closed prior to confirmation of the Debtor’s bankruptcy plan, which became effective in July 2013. The Debtor provided notice of an August 15, 2013 administrative claims bar date to known creditors (which did not include the claimant), and also published notice of the deadline in the Wall Street Journal and Richmond Times Dispatch. The claimant did not see that notice and did not file a claim.

On March 18, 2014, approximately seven months after the bar date, the claimant filed a lawsuit against the Debtor for her injuries resulting from the January 2013 accident. In subsequent proceedings in which the Debtor sought a ruling that the claim had been discharged, the Bankruptcy Court found the TABC investigation did not provide sufficient information for the Debtor to realize that a claim might be asserted against it, and thus the claimant was an “unknown creditor.” As a result, the Court held, the claimant received adequate notice of the bar date by publication in the Wall Street Journal, and her untimely claim was discharged.  In so ruling, the Court found that newspaper publication notice is still sufficient under Mullane and the Fourth Circuit’s decision in In re J.A. Jones, Inc., 492 F3d 242, 249 (4th Cir 2007), stating: “With the widespread use of computers, smartphones, and tablets, newspapers are more readily available to consumers today than perhaps at any point in history—and certainly more easily accessible than they were in 1950, when the Supreme Court decided Mullane.  If newspapers are no longer a constitutionally sufficient means by which to provide notice to unknown creditors; that is not an issue for this Court to decide.”  Although the issue is likely to continue to be the subject of ongoing debate, at least one court believes the precipitous decline in newspaper print media has not diminished the effectiveness of publication notice to unknown creditors.  Indeed, the Court concluded that such notice may arguably be more effective than ever before.

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