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UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ALASKA

In re
EMIL C. JOHNSON,

Debtor(s)

Case No. F96-00219-HAR
Chapter 13

MEMORANDUM DECISION GRANTING MOTION TO RECONSIDER DISALLOWANCE
OF CLAIMS OF STATE OF WASHINGTON,
DSHS

On May 19, 1997, the court entered an order disallowing the claims of the State of Washington, DSHS (Docket Entry 44), supported by a Memorandum Decision Disallowing Claims Of State Of Washington, DSHS (Docket Entry 43). I gave the State of Washington 30 days to move to reconsider since, after the hearing, I noticed that DSHS was using a different address than the one that appeared on the mailing matrix. A motion to reconsider was filed on June 2, 1997 (Docket Entry 46).

After receiving the notice for reconsideration, I took a further look at the file and see that DSHS may indeed not have received initial notice of the bankruptcy, or notice of the § 341 meeting. It probably received notice before the claims bar date for governmental agencies expired. The facts are these:

This chapter 13 case was filed on March 26, 1996.
The initial mailing matrix filed by the debtor did not contain the name or address of DSHS.
The Notice Of Commencement Of Case Under Chapter 13 Of The Bankruptcy Code, Meeting Of Creditors, And Fixing Of Dates was filed on March 27, 1996 (Docket Entry 4), and mailed to the mailing matrix, which did not include DSHS. The notice advised parties of the date of the first meeting of creditors, May 2, 1996. It also gave a deadline for claims filing of July 31, 1996, although the government has 180 days from the date of commencement of the bankruptcy, or until about September 23, 1996.
Debtor filed an amended mailing matrix on May 14, 1996 (Docket Entry 14), which included the following address:
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In its motion to reconsider, DSHS acknowledges that its office at 101 S. King Street received debtor's Notice Of Application For Order for an extension of time to file schedules and a plan dated April 23, 1996 (Docket Entry 7) on April 26, 1996, and the Olympia office on May 9, 1996 (the mailing matrix to the S. King address apparently contained the case number for the debtor's DSHS case in the State of Washington, even if that was not the office assigned to handle his case).

The debtor filed a Chapter 13 Plan on June 12, 1996 (Docket Entry 18).
The debtor entered a stipulation with the Alaska Child Support Enforcement Division, which was filed on October 17, 1996 (Docket Entry 20).
The debtor filed a proof of claim for DSHS on November 1, 1996 (POC No. 4), and gave notice of the filing on November 1, 1996 (Docket Entry 23).
A notice of the Chapter 13 plan confirmation hearing was mailed on December 5, 1996, but debtor used the wrong mailing matrix (the original one that did not contain DSHS) (Docket Entries 26 and 27) [ in our district, unlike others, the debtor's attorney or the debtor mails out the notice and copies of the plan] .

The upshot is that:
DSHS did not receive a notice of the bankruptcy filing giving the date of the § 341(a) meeting and a notice of the necessity of filing a proof of claim. Nor did it get a copy of the plan and notice of the hearing.
On the other hand, DSHS did receive some notice that Johnson was in a chapter 13 case by virtue of the notice it received on April 26, 1996, or at the latest May 9, 1996, that he was seeking an extension of time to file schedules and a plan.

There are two principles involved. The first principle is that, notwithstanding the time limits set forth in FRBP 3002(c)(1), and the restrictions on extending that time limit found in FRBP 9006(b)(3), there are due process for allowing such claims. See, In re B.C. Enterprises, Ltd., 160 BR 827, 830 (Bankr D AZ 1993); 3 Collier On Bankruptcy, ś 501.01[ 5] [ C] (Matthew Bender 15^th Ed). B.C. Enterprises cited In re Hobdy, 130 BR 318, 320 (9^th Cir BAP 1991) for the proposition that "[ d] ue process requires a creditor receive notice of any bankruptcy to be accorded finality."

The second principle is that, despite the lack of formal notice, if 5 ABR 17 a creditor learns about the bankruptcy in time to file a proof of claim, or make inquiry about the need to file a proof of claim, lack of formal notice is not a defense. See, In re Coastal Alaska Lines, Inc., 920 F2d 1428 (9^th Cir 1990) , a chapter 7 case in which the creditor was not on the matrix, but received copies of the notice of creditors' meeting, schedules and petition after inquiring of the debtor's attorney. The notice said no proof of claim need be filed since it was a "no asset" case. Later, a notice was sent to parties on the mailing matrix to file a proof of claim because assets had been discovered and there would be a distribution. The creditor, who never got on the mailing matrix, did not receive this notice. With respect to the creditor's due process argument, the court noted that, although the creditor did not receive formal notice because it was omitted from the schedules and mailing matrix, it had ample knowledge of the bankruptcy to have taken steps to protect itself. Thus, its due process rights were not impinged.

Subsequently, the 9^th Circuit in In re Pacific Atlantic Trading Co., 33 F3d 1064, 1068 (9^th Cir 1994) distinguished Costal Alaska on the grounds it dealt with 11 USC § 726(a)(2), and the court had not considered a perceived conflict between FRBP 3002(c) and § 726(a)(1). Pacific Atlantic was superceded by the Bankruptcy Reform Act of 1994, Pub.L No. 103-394, which clarified the treatment of tardily filed claims. See, 11 USC § 502(9) and In re Lang, 196 BR 528 (Bankr D AZ 1996).

The holding in Coastal Alaska regarding informal notice is still good law. In addition, for cases filed before October 23, 1994, the effective date of the 1994 Act, late filed chapter 13 governmental claims were deemed untimely. In re Osborne, 76 F3d 306 (9^th Cir 1996).

Coastal Alaska cited a chapter 13 case, In Matter of Gregory, 705 F2d 1118, 1123 (9^th Cir 1983), in support of its due process holding. The creditor in Gregory, received notice from the court that the debtor had filed bankruptcy, the creditor did not receive a copy of the plan, but only an ambiguous notice. The plan, in fact, was to pay creditor's class nothing. The court held that the holder of a large, unsecured claim is under constructive or inquiry notice that its claim might be effected, and ignored the bankruptcy proceeding at its peril.

Applying the law to this case, debtor did not provide DSHS adequate notice by failing to provide for notice of the filing of the case (DSHS 5 ABR 18 did not get notice of the § 341 meeting or the need to file a proof of claim) or of the confirmation process (DSHS did not get a copy of the plan or notice of the confirmation hearing). Viewing this matter from DSHS's perspective, it did know it was on a mailing matrix by virtue of debtor's motion to extend time to file schedules and a plan, but it had received no other notice. It could reasonably have presumed that it would be notified about the time limits in the case.

Although a state agency such as DSHS must be presumed to be somewhat experienced and knowledgeable about bankruptcy matters, it did not have sufficient reason, in this case, to act out of the ordinary. It was, in effect, lulled into believing it was on the mailing matrix. DSHS was not, under these facts, put on inquiry notice and due process requires allowance of its late filed claim. In re B.C. Enterprises, Ltd., 160 BR at 831 ("a creditor who has knowledge of the case is not put on inquiry notice about every matter").

The reasoning of B.C. Enterprises controls this case and I find the facts are distinguishable from Gregory and Coastal Alaska. Therefore, I will grant the motion to reconsider, and allow the DSHS amended proof of claim, Proof of Claim No. 5, filed on December 16, 1996, for $4,492.84 (priority), superseding Proof of Claim No 4 for $100 filed by the debtor on DSHS's behalf. In a prior memorandum decision, Memorandum Decision Disallowing Claims of State of Washington, DSHS entered on May 19, 1997, I noted a question about the priority status of the DSHS claim:

The priority [ claimed by DSHS] is apparently based on 11 USC § 507(a)(7). There is an unexplained difference in 11 USC § 507(a)(7) (dealing with priority of distribution of spousal support claims) and § 523(a)(5) (dealing with their dischargeability). For some reason, § 507(a)(7) excludes assigned claims, whereas § 523(a)(5) includes spousal support claims assigned to a state for collection. See, 4 Collier on Bankruptcy, ś 507.09[ 2] (15^th ed). DSHS may not be a priority creditor. But, see, In re Beverly, 196 BR 128 (Bankr WD Mo 1996), in which the court held that a non-dischargeable chapter 13 support claim was a priority claim, even though it had been assigned for collection to a state agency.

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