Case Name: In the Matter of Alan J. FADEN; Harriet B. Faden, Debtors. Alan J. FADEN; Harriet B. Faden, Appellants, v. INSURANCE COMPANY OF NORTH AMERICA, Appellee
Court: United States Court of Appeals for the Fifth Circuit
Jurisdiction: United States
Decision Date: 1996-10-09
Citations: 96 F.3d 792
Docket Number: Nos. 95-20020, 95-20622
Parties: In the Matter of Alan J. FADEN; Harriet B. Faden, Debtors. Alan J. FADEN; Harriet B. Faden, Appellants, v. INSURANCE COMPANY OF NORTH AMERICA, Appellee.
Judges: Before POLITZ, Chief Judge, and GOODWIN and DUHÉ, Circuit Judges.
Reporter: West's Bankruptcy Reporter
Volume: 200
Pages: 792–799

Head Matter:
In the Matter of Alan J. FADEN; Harriet B. Faden, Debtors. Alan J. FADEN; Harriet B. Faden, Appellants, v. INSURANCE COMPANY OF NORTH AMERICA, Appellee.
Nos. 95-20020, 95-20622.
United States Court of Appeals, Fifth Circuit.
Oct. 9, 1996.
Rehearing Denied Nov. 7, 1996.
Carolyn A. Taylor, Hughes, Watters & As-kanase, Houston, TX, for appellants.
Thomas Joseph Lutkewitte, Favret, De-marest, Russo & Lutkewitte, New Orleans, LA, for appellee.
Before POLITZ, Chief Judge, and GOODWIN and DUHÉ, Circuit Judges.
. Circuit Judge for the Ninth Circuit, sitting by designation.

Opinion:
DUHÉ, Circuit Judge:
Alan J. and Harriet B. Faden appeal rulings by , the bankruptcy court, affirmed by the district court, declaring non-dischargea-ble a debt owed to Insurance Company of North America ("INA") because of a failure of notice, 11 U.S.C. § 523(a)(3), and granting an award of attorney's fees and costs to INA. We affirm.
BACKGROUND
In 1984 Alan Faden invested in a Texas limited partnership known as Kentex Thoroughbred Ltd. No. 1. He financed most of this investment, executing an INA surety bond, an Investor Bond Indemnification and Pledge Agreement, and related investment documents. Following. default in payment, INA secured a state judgment against Mr. Faden.
In August 1991 Alan and Harriet Faden filed a Chapter 7 petition in bankruptcy. Appellants' counsel asked them to provide INA's correct address, among others, for their petition. The appropriate mailing address appeared throughout Alan Faden's investment documents with INA as "c/o Waite Hill Services, Inc., 1000 Virginia Center Parkway, Richmond, Virginia 23295."
The debtors, however, failed to provide this information to counsel. Thus, the burden of obtaining the correct address fell on counsel's secretary, who resorted to the telephone book for INA's address. The address for INA listed in the Southwestern Bell Business White Pages for the Greater Houston Area during March 1991 through March 1992 was: "INA . see CIGNA Companies-CIG-NA Property & Casualty Companies.... CIGNA Companies . 1360 Post Oak Boulevard." Counsel's secretary sent the notice to this address, but made an error in transcribing CIGNA's suite number.
INA never received notice. The Fadens received a bankruptcy discharge in December 1991. After learning of the Fadens' discharge, INA filed adversary proceedings alleging that because the Fadens failed to properly notify INA, the debts owed to INA were non-disehargeable pursuant to 11 U.S.C. § 523(a)(3).
The bankruptcy court agreed with INA and found that "Man Faden was not forthcoming with his counsel as to his creditors' addresses," and that his "testimony was vague and not credible as to why he did not make a good faith effort to provide a correct address for this creditor." In addition, the court found that as a joint debtor Harriet Faden was also obligated to provide INA proper notice. The Fadens then moved for reconsideration, arguing for the first time that the court should allow an out-of-time amendment to include INA The bankruptcy judge denied the motion.
The district court affirmed. The Fadens appealed to this Court. The bankruptcy court then entered an Amended Judgment awarding INA attorney's fees and costs incurred in connection with the adversary proceedings. The district court again affirmed and the Fadens timely appealed. We consolidated the two appeals for our disposition.
DISCUSSION
A Standard of Review
The bankruptcy court's findings of fact "will not be set aside unless clearly erroneous." Matter of Delta Towers, Ltd., 924 F.2d 74, 76 (5th Cir.1991). However, "when a finding of fact is premised on an improper legal standard, that finding loses the insulation of the clearly erroneous rule." Matter of Fabricators, Inc., 926 F.2d 1458, 1464 (5th Cir.1991). "Conclusions of law, on the other hand, are subject to plenary review on appeal." Id.
B. Section 523(a) (S)
Section 523(a)(3)(A) of the Bankruptcy Code penalizes a debtor for failing to list all of his creditors and debt on applicable schedules. The statute provides:
A discharge . does not discharge an individual debtor from any debt . neither listed nor scheduled under section 521(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit . timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing.
11 U.S.C. § 523(a)(3)(A) (emphasis added). "The burden is on the debtors to complete their schedules accurately." Matter of Springer, 127 B.R. 702, 707 (Bankr.M.D.Fla.1991). In addition, the burden of proof rests with the debtor to show that a creditor had "notice or actual knowledge" under section 523(a)(3). U.S., Small Business Admin. v. Bridges, 894 F.2d 108, 111 (5th Cir.1990).
The bankruptcy court held that Appellants' notice fell short of the constitutional due process requirement to provide notice reasonably calculated under the circumstances. An adjudication that purports to determine the rights of adverse parties will not be accorded finality unless all affected individuals are given notice reasonably calculated to apprise them of the pendency of the proceeding and the scope of their rights, together with information sufficient to pro vide them with an opportunity to prepare and present a response. Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950). In determining the constitutional adequacy of the notice, Mullane made clear that "whether a particular method of notice is reasonable depends on the particular [factual] circumstances." Tulsa Professional Collection Services, Inc. v. Pope, 485 U.S. 478, 484, 108 S.Ct. 1340, 1344, 99 L.Ed.2d 565 (1988).
In this case, Mr. Faden had reliable information in his original investment documents with INA and in INA's correspondence with and suits against him, yet failed to provide any of this information to his attorney. Importantly, INA's Investor Bond Indemnification and Pledge Agreement clearly indicates an INA address where notice should be sent. Despite this readily available information, the Fadens made no attempt to provide any address to their counsel. The bankruptcy court was thus correct in holding that Appellants did not reasonably calculate their notice under the circumstances.
Appellants argue that the mailing of notice to CIGNA (INA's parent) as listed in the current Houston telephone book was an act reasonably calculated to notify INA of the Fadens' bankruptcy proceeding. According to Appellants, a telephone directory is a proper source for determining a creditor's address. While reliance on a telephone directory may be reasonable in some circumstances, it did not suffice here because Appellants could have easily referenced their own files to find the requisite information. "Although a bankrupt is not required to exhaust every possible avenue of information in ascertaining a creditor's address, he must exercise reasonable diligence in accurately scheduling his debts." Matter of Robertson, 13 B.R. 726, 731 (Bankr.E.D.Va.1981).
C. Robinson Factors
When debtors fail to schedule creditors properly, a bankruptcy court may permit out-of-time amendments, "but only if exceptional circumstances and equity so require[ ]." Matter of Stone, 10 F.3d 285, 289 (5th Cir.1994). Appellants therefore argue that the bankruptcy court erred by not allowing an out-of-time amendment to include INA. The decision to reopen a bankruptcy case and allow amendment of schedules is committed to the sound discretion of the bankruptcy judge and will not be set aside absent abuse of discretion. In re Jones, 490 F.2d 452 (5th Cir.1974).
Our decision in Robinson v. Mann, 339 F.2d 547 (5th Cir.1964), is the touchstone for determining whether a debt is discharge-able under section 523(a)(3). Stone, 10 F.3d at 290. Robinson identified three relevant factors in evaluating whether a debtor's failure to list a creditor properly will prevent discharge of the unscheduled debt: (1) the reasons the debtor failed to list the creditor; (2) the amount of disruption that would likely occur; and (3) the prejudice suffered by the listed creditors and the unlisted creditor in question. Robinson, 339 F.2d at 550.
Under Robinson's first factor, "a court should not discharge a debt under section 523(a)(3) if the debtor's failure to schedule that debt was due to intentional design, fraud, or improper motive. If the failure is attributable solely to negligence or inadvertence, however, equity points toward discharge of the debt." Stone, 10 F.3d at 291 (citations omitted). "The burden is on the debtor . to demonstrate absence of fraud or intentional design." Springer, 127 B.R. at 708.
In evaluating the debtors' motives, we owe deference to the critical role bankruptcy judges play in making credibility determinations. See Fed.R.Civ.P. 52(a); Bankr.R. 8013. In this case, the bankruptcy court unequivocally found that Mr. Faden's reasons for failing to provide adequate notice were incredulous.
The Court finds that Alan Faden's testimony was vague and not credible as to why he did not make a good faith effort to provide a correct address for this creditor. Indeed, this Court finds that Debtors demonstrated very little effort to provide counsel with proper addresses as to any of their creditors. However, INA is the only creditor which has pursued the matter.
The court also found that "Alan Faden was not forthcoming with his counsel as to his creditors' addresses." Thus, instead of indicating mere inadvertence, the debtor's testimony suggested to the court that he intentionally or recklessly avoided supplying INA's proper address. Because no evidence suggests that this finding was clearly erroneous, the bankruptcy court did not abuse its discretion in declaring the debt non-dis-chargeable.
In In re Matter of Smith, 21 F.3d 660, 665 (5th Cir.1994), we similarly denied equitable relief. There, debtors first claimed that they could not "find" the creditor in order to properly schedule it. Then, two and one half years later, debtors scheduled the creditor, but listed the wrong address.
The bankruptcy court found that the debtors could have learned [the creditor's] correct address by picking up the telephone and concluded that it could not condone such 'a lack of diligence on the part of the debtor.' Coupled with the fact that the debtors apparently failed properly to schedule a number of other creditors for several years, their error with regard to [this creditor] can hardly be termed mere negligence or inadvertence."
Id. at 664. As in Smith, the bankruptcy court in this case believed that Appellants were more than negligent in the failure to properly schedule INA. Moreover, like Smith, the bankruptcy court found that the Fadens' irresponsibility extended to other creditors as well.
Although Smith went on to also find that prejudice had resulted, we have held that a deficiency under Robinson's first factor alone permits a court in the exercise of its sound discretion to deny relief. "As our distinguished colleagues in the Sixth, Seventh, and Eleventh Circuits have determined, a court should not discharge a debt under section 523(a)(3) if the debtor's failure to schedule that debt was due to intentional design, fraud, or improper motive." Stone, 10 F.3d at 291 (citing In re Soult, 894 F.2d 815, 817 (6th Cir.1990); Matter of Baitcher, 781 F.2d 1529, 1534 (11th Cir.1986); In re Rosinski 759 F.2d 539, 542 (6th Cir.1985); Matter of Stark, 717 F.2d 322, 323-24 (7th Cir.1983)). Thus, even absent prejudice, equitable action should not be taken in cases where the debtor's failure to properly schedule a creditor is a result of more than "mere negligence or inadvertence." Therefore, despite the slight prejudice to INA, we find no abuse of discretion in the bankruptcy court's refusal to reopen the case.
We acknowledge, of course, that "section 523(a)(3) must be construed with an eye toward the equitable principles which underlie bankruptcy law." Stone, 10 F.3d at 290. In fact, the enactment of section 523(a)(3) legislatively overruled an earlier Supreme Court decision requiring strict construction of the no-notiee ground for non-dischargeability. Id. However, there are limits to section 523(a)(3)'s elasticity. When a bankruptcy judge, after listening to all of the testimony, finds that a debtor shirked his responsibility to provide notice to his creditors, this Court cannot then usurp the role of the bankruptcy judge and mandate its own equitable relief. We instead must defer to the bankruptcy court's findings relevant to the Robinson factors and review only for abuses of discretion.
D. Harriet Faden
Harriet Faden filed a joint Chapter 7 petition with her husband, characterizing the debt owed to INA as joint debt. However, because Mrs. Faden did not sign the INA investment documents and was not named in the INA suit against her husband, she argues that INA failed to state a claim against her. This argument is unconvincing. By filing for protection under the Code as a joint debtor, she assumed the obligation to comply with the Code requirements for 11 U.S.C. § 523. Therefore, the bankruptcy court correctly held that the INA debt was non-dis-ehargeable as to both Harriet and Alan Faden.
CONCLUSION
For the foregoing reasons, the judgments of the district court, affirming the judgments of the bankruptcy court, are AFFIRMED.
. Therefore, it is irrelevant whether the deficient notice may have resulted from a subsequent secretarial error since Appellant's true error was in not providing his counsel with the proper information in the first place.
. It is unclear whether Appellants seek to make an independent challenge to the bankruptcy court's award of attorney's fees to INA. However, given our affirmance of the bankruptcy court's decision on the merits, we can find no basis (and Appellants have offered none) for reversing the bankruptcy court's judgment on this issue.