Court Opinion

ID: 8996440
Source: CourtListenerOpinion
Date Created: 2022-11-27 12:39:40.850813+00
Date Added: 2024-06-11T17:11:03.738464
License: Public Domain

LAY, Chief Judge,
dissenting.
Although the majority acknowledges that the notice requirements of Bankruptcy Rules 3007 and 2002(a) were violated, they apply the harmless error rule to excuse those violations. I respectfully dissent.
On December 21, 1989, the bankruptcy court entered an order disallowing the Po-indexters’ claim against the bankrupt estate, as recommended by the Trustee at the direction of the Debtor. The finality of the order was conditioned upon the Claimants’ failure to submit a “written application” for modification within ten days. The following day, the Claimants sent a letter to the court requesting a hearing on the matter. This letter was never filed by Claimants or the court, and the Debtor was never sent notice of its existence. Although the Debtor had every reason to believe the order disallowing the claim be*941came final December 31, 1989, the court today finds that the Claimants’ letter constituted a proper “written application,” and that the December 21, 1989 order did not become final.1
Upon receipt of the Claimants’ letter, the bankruptcy court scheduled a hearing on the Trustee’s objections for February 6, 1990. Contrary to the mandate of Bankruptcy Rule 3007, that “[a] copy of the objection with notice of the hearing thereon shall be mailed or otherwise delivered to ... the debtor ... at least 30 days prior to the hearing,” the Debtor was never sent notice of this hearing. The notice requirement of Bankruptcy Rule 2002(a) was also violated because the Trustee and Claimants presented the court with a proposed settlement at the February 6, 1990 hearing. Rule 2002(a) provides that “the clerk, or some other person as the court may direct, shall give the debtor ... not less than 20 days notice by mail of ... the hearing on approval of a compromise or settlement of a controversy ... unless the court for cause shown directs that notice not be sent....”
At the February 6, 1990 hearing, the Trustee pointed out the Debtor’s absence to the court. Following the determination that the Debtor was not represented,2 the court agreed to permit the Trustee to “send a copy [of the order] to Mr. Johnson and see if he’ll file something_” J.App. at 47. The court entered the order approving the settlement on February 15, 1990. The Debtor claims not to have received notice of this order from the Trustee until twenty-four hours before the period for response expired.3 Due to its failure to procure legal counsel, the Debtor filed a motion for rehearing pro se on February 26, 1990. The majority affirms the bankruptcy court’s dismissal of this motion on the ground that corporations must be represented by counsel in bankruptcy proceedings.
Due process requires that all interested parties “receive notice of any bankruptcy proceeding which is to be accorded finality.” In re Hobdy, 130 B.R. 318, 320 (BAP 9th Cir.1991) (citing In re Toth, 61 B.R. 160, 165 (Bankr.N.D.Ill.1986)); see also Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950). The Supreme Court has held that such notice must be “reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” Mullane, 339 U.S. at 314, 70 S.Ct. at 657.
It is undisputed that the Debtor never received notice of the February 6, 1990 hearing. The majority finds the error in the district court’s holding that the notice requirement had not been violated because the bankruptcy court had shown cause, under Rule 2002(a), for the failure to send the Debtor notice of the hearing.4 Rule 2002(a) requires that notice must be sent “unless the court for cause shown directs that notice not be sent....” It is clear from the transcript of the February 6, 1990 hearing that the bankruptcy court never attempted to justify the failure to send the debtor notice. In fact, the court did not evidence great concern at the absence of the debtor or its representative.5
*942The denial of the debtor’s right to notice and the opportunity to be heard on claims against the bankrupt estate is “the denial of due process which is never harmless error.” Republic Nat’l Bank v. Crippen, 224 F.2d 565, 566 (5th Cir.1955); see also In re Boomgarden, 780 F.2d 657, 660 (7th Cir.1985); In re Myers, 412 F.2d 785, 786 (3d Cir.1969).
To now urge that the Debtor’s objection would not have made any difference in the approval of the settlement constitutes sheer improper speculation. Due process affording procedural notice and hearing is not such a trivial device that can or should be obviated by hindsight rationalizations.

. The majority concedes the unconventionality of the bankruptcy court’s methods, yet speculates that this practice might serve to motivate claimants to respond more quickly to objections.

. The Claimants’ attorney suggested the court need not concern itself with Mr. Johnson: "He’s not a party to it. He’s not a creditor. He’s nothing.” J.App. at 46. The bankruptcy judge admitted she did not know whether Johnson had "standing.” Id.

. The Debtor apparently sought a rehearing under Rule 9023, which requires motions to be filed within ten days of the court's order. As the majority points out, a Rule 3008 motion for reconsideration of an order allowing a claim entered without contest may be entered over a year after entry of the order.

. The majority also notes the district court’s failure to address the notice requirement of Rule 3007, which does not contain a waiver provision.

. The district court also erred in suggesting that by permitting the Trustee to send Mr. Johnson a copy of the order, the bankruptcy court “sought to protect the debtor’s interest.” Unlike the December 21, 1989 order conditionally disallow*942ing the Claimants’ claim, the February 15, 1990 order approving the settlement was final. Sending notice of the final order can scarcely be described as protecting the Debtor’s interests.