Summary

In a 14 page opinion published June 7, 2011, Judge Carey ruled that publication of notice in only two newspapers was insufficient information to grant a motion to dismiss based on adequacy of notice. Judge Carey’s opinion is available here (the “Opinion”).

Background

New Century TRS Holdings, Inc. (the “Debtor”), filed voluntary petitions for bankruptcy on April 2, 2007 and the claims Bar Date was established as August 31, 2007. On July 23, 2007, the claims agent published a notice of the Bar Date in The Wall Street Journal and The Orange County Register. Opinion at *3. On November 22, 2008, the plaintiffs in the adversary proceeding that gave rise to this opinion (the “Whites”) filed a claim. The Trustee for the Debtor objected to the claim on August 13, 2010, and the Whites filed this adversary complaint on November 10, 2010, requesting the Court cancel their mortgage note. After the Court consolidated the adversary proceeding and the claim, the Trustee filed a Motion to Dismiss (1) for lack of subject matter jurisdiction and (2) for asserting claims after the bar date.

Judge Carey’s Opinion

Judge Carey began his discussion of the Motion to Dismiss by examining the subject matter jurisdiction of the Bankruptcy Court. Ultimately determining that because the Debtors “did not, at the time of the bankruptcy filing, and do not now, have any interest in the Note or Mortgage,” the Courts lacks subject matter jurisdiction to order rescission or cancellation of the Mortgage. Opinion at *7. Judge Carey then granted this portion of the Motion to Dismiss.

Judge Carey then turned to the Motion to Dismiss as far as it pertained to the late-filed claims. The Whites argued that they did not receive adequate notice of the bar date, and therefore, their claims should not be barred. The Trustee argued that as the Whites were unknown claimants, publication of the bar date in the two newspapers was sufficient to satisfy the requirements of due process. Opinion at *12-13. Judge Carey cites extensively to Chemetron Corp. v. Jones, 72 F.3d 341 (3d Cir. 1995), in discussing the adequacy of service.

In Chemetron, the debtors published notice in The New York Times, The Wall Street Journal and seven local newspapers, satisfying the Third Circuit that the debtors had met their due process burden. In the instant case, Judge Carey held that the Trustee has not proved that publication in one national newspaper and one local newspaper is sufficient to meet due process requirements. Opinion at *14. He then denied the remainder of the Motion to Dismiss.

  A Motion to Dismiss is an extreme remedy, and while courts are willing to grant them, they do so infrequently and only when there is a very strong argument in support of the motion. If there is any doubt, as there was in this case, the court will err on the side of caution and deny the motion, particularly when there are numerous unknown facts