UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-10670
In the Matter of: KENDAVIS HOLDING COMPANY; KENDAVIS INDUSTRIES
INTERNATIONAL, INC., Debtors.
JAMES A. CHRISTOPHER,
Appellee,
VERSUS
KENDAVIS HOLDING COMPANY,
Appellant.
Appeal from the United States District Court
for the Northern District of Texas
April 23, 2001
Before STEWART, PARKER, Circuit Judges, and GOLDBERG, Judge.*
ROBERT M. PARKER, Circuit Judge:
Kendavis Holding Company (“Kendavis”) appeals from the
district court’s order reversing the bankruptcy court’s final
judgment. Kendavis claims that Appellee James Christopher’s
*
Judge of the United States Court of International Trade, sitting
by designation.
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knowledge of its previous bankruptcy proceedings was sufficient
notice to satisfy due process requirements and justify the
discharge of Christopher’s claim against the company for loss of
pension benefits.
I.
James Christopher worked for Unit Rig & Equipment Company from
1954 until 1977, except for a three-year period in which he worked
for Unit Rig & Equipment Company Canada. Both companies are
subsidiaries of Kendavis Holding Company, and each had a separate
pension plan. Qualified employees working for the United States
subsidiary participated in the American pension plan, and employees
working for Unit Rig Canada were eligible for benefits from the
Canadian pension plan.
In February of 1985, creditors brought an involuntary
bankruptcy proceeding against Kendavis under Chapter 11. Kendavis
excluded the pension beneficiaries from its bankruptcy schedules
and decided not to inform the beneficiaries of the proceedings.
During the course of negotiating a plan for reorganization,
Kendavis agreed to take twenty million dollars out of a surplus in
the American pension plan for the benefit of its creditors.
Kendavis sent Christopher a letter dated October 18, 1985 stating
its intention to terminate the pension plan and assuring
Christopher that his benefits under the plan would not be affected.
Christopher later acknowledged that he knew about the bankruptcy
through local newspaper articles.
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On November 24, 1986, the bankruptcy court approved the
reorganization plan and discharged any remaining claims. The court
also issued an injunction against any additional claims arising
before the effective date of the plan.
Christopher elected benefits under the American pension plan
in 1989. He attempted to collect pension benefits under the
Canadian plan in 1995, but learned that Kendavis terminated the
plan years before. On October 3, 1996, Christopher filed suit
against Kendavis in federal district court in Oklahoma. He claimed
that he received less than his full benefits under the American
pension plan and that Kendavis wrongfully rejected the benefits to
which he was entitled under the Canadian pension plan. Kendavis
argued that Christopher’s claim arose before the effective date of
its Chapter 11 reorganization and moved to reopen the bankruptcy
proceedings.
The bankruptcy court reopened the case on April 30, 1997. The
court held that Christopher’s claim was discharged by its 1986
Order of Confirmation and assessed $40,000 in sanctions against
Christopher for violating its injunction. Christopher appealed to
the district court. The district court reversed, concluding that
discharge of Christopher’s claim for pension benefits violated his
right to adequate notice as required by constitutional due process
even though he knew of Kendavis’s bankruptcy proceedings. See
Christopher v. Kendavis Holding Co. (In re Kendavis Holding Co.),
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2000 WL 769226 (N.D. Tex. June 14, 2000).
II.
We review the bankruptcy court’s findings of fact under the
clearly erroneous standard and decide issues of law de novo. See
Henderson v. Belknap (In re Henderson), 18 F.3d 1305, 1307 (5th
Cir. 1994). We review the bankruptcy court’s imposition of
sanctions for abuse of discretion. See Perkins Coie v. Sadkin (In
re Sadkin), 36 F.3d 473, 475 (5th Cir. 1994).
The paramount issue on appeal is whether Christopher’s
knowledge of the bankruptcy proceeding satisfied due process
requirements and justified the discharge of his claim for pension
benefits under 11 U.S.C. § 1141(d).1 Section 1141 provides for the
discharge of any claim arising before the date of a plan’s
confirmation unless the claim is excepted from discharge under
1
This case raises other questions concerning potential pension
claims against a bankruptcy estate that were not submitted as
issues on appeal. This opinion should not be construed as
resolving any issues other than the issues raised herein. See,
e.g., Patterson v. Shumate, 504 U.S. 753 (1992) (holding that an
anti-alienation clause in an ERISA-qualified pension plan excludes
the plan from a beneficiary’s bankruptcy estate); Pension Benefit
Guarantee Corp. v. Pritchard (In re Esco Mfg. Co.), 33 F.3d 509
(5th Cir. 1994), withdrawn on reh’g, 50 F.3d 315 (5th Cir. 1995)
(requiring the bankruptcy trustee to assume the obligations of
terminating a pension plan under ERISA); Pension Benefit Guarantee
Corp. v. Pritchard (In re Esco Mfg. Co.), 50 F.3d 315 (5th Cir.
1995) (holding that the bankruptcy trustee had no power to
terminate the pension plan as successor to the rights of the plan
sponsor and thus was not responsible for claims against the estate
regarding the plan’s termination because the plan administrator,
not the plan sponsor, was responsible for terminating the plan
under ERISA).
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section 523. Section 523(a)(3)(A) precludes discharge of claims
that a debtor neglected to list or schedule. However, even when
the debtor fails to list a claim, the claim may nonetheless be
discharged if the “creditor had notice or actual knowledge of the
case in time for . . . timely filing.” 11 U.S.C. § 523 (a)(3)(A).
While Christopher’s knowledge of Kendavis’s bankruptcy would
presumably require discharge of his claim under the Bankruptcy
Code, Christopher raises a question of due process that must be
resolved on constitutional grounds. See Sequa Corp. v. Christopher
(In re Sequa Corp.), 28 F.3d 512, 516 (5th Cir. 1994); Grossie v.
Sam (In re Sam), 894 F.3d 778, 781 (1990). See generally 8 COLLIER
ON BANKRUPTCY ¶ 1141.06 (Lawrence P. King ed., 15th ed. 2000).
Kendavis argues that this Court set forth a bright-line rule in In
re Sam and In re Sequa Corp. Kendavis contends that actual
knowledge of the pendency of a bankruptcy case will always satisfy
standards of constitutional due process as long as the creditor has
an opportunity to timely file his claim. Because Christopher knew
about the bankruptcy proceedings in time to meet the filing
deadlines, Kendavis contends that we are bound by precedent to
conclude that Christopher’s claim was discharged without further
analysis of the factual circumstances.
Protection of an individual’s due process right to adequate
notice requires more than the cursory review that Kendavis
suggests. In Mullane v. Central Hanover Bank & Trust Co., the
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Supreme Court articulated the standard for adequate notice:
An elementary and fundamental requirement of due
process in any proceeding which is to be accorded
finality is notice 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. The notice must be of such
nature as reasonably to convey the required information,
. . . and it must afford a reasonable time for those
interested to make their appearance. But if with due
regard for the practicalities and peculiarities of the
case these conditions are reasonably met the
constitutional requirements are satisfied.
339 U.S. 306, 314-15 (1950) (citations omitted). Under the Supreme
Court’s standard, we must analyze the particular facts of each case
and determine whether the method used to notify an individual was
reasonably certain to inform the individual of a proceeding that
could affect his rights. See id. at 315.
A potential litigant who knows about a legal proceeding
usually has adequate notice that his rights could be jeopardized
and should take steps to protect his rights. Nevertheless, an
ordinarily valid form of notice may “fail to satisfy due process
because of the circumstances of the defendant.” Boddie v.
Connecticut, 401 U.S. 371, 380 (1971). We therefore assess the
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sufficiency of notice against the backdrop of the factual
circumstances in each case. See Mullane, 339 U.S. at 314.
Kendavis’s suggestion that an individual’s knowledge of a
bankruptcy proceeding always qualifies as adequate notice obviates
the Supreme Court’s analysis in Mullane and misinterprets this
Court’s holdings in In re Sam and In re Sequa Corp.
In In re Sam, 894 F.2d 778, 779 (5th Cir. 1990), the claimant
filed a section 1983 suit against the debtor during the debtor’s
bankruptcy proceedings. Although the debtor did not list the
claimant as a creditor, the debtor sent the claimant’s attorney a
Notice of Automatic Stay. See id. at 779. The notice did not
disclose the bar date for filing remaining claims against the
estate. See id. The claimant’s attorney first became aware of the
bar date after it passed. See id. On appeal, we concluded that
the claimant, through his attorney, received adequate notice that
“his section 1983 claim against [the debtor] was affected by [the
debtor’s] bankruptcy . . .,” and that the claimant had sufficient
time to inquire as to the bar date. Id. at 781. In re Sam does
not support the proposition that discovery of a bankruptcy case is
adequate notice in all circumstances.
In In re Sequa Corp., 28 F.3d 512, 513-14 (5th Cir. 1994), the
debtor filed for bankruptcy under Chapter 11. He and other
investors sought to purchase insurance companies from Sequa
Corporation (“Sequa”) during the pendency of his bankruptcy case.
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See id. at 513. Sequa filed suit against the debtor in New York
for claims arising from the transaction. See id. at 514. During
the New York litigation, the bankruptcy court confirmed the
debtor’s Chapter 11 plan. See id. The debtor then filed an
adversary proceeding in the bankruptcy court seeking discharge of
Sequa’s claims. See id. The court held that the postpetition
claims were discharged by the confirmation order. See Christopher
v. American Universal Ins. Group, Inc. (In re Christopher), 148
B.R. 832 (Bankr. N.D. Tex. 1992).
On appeal, Sequa argued that postpetition creditors were
entitled to formal notice of important dates and filing deadlines
under the Due Process Clause. See id. at 515. We concluded that
formal notice is not required for postpetition claims. See id. at
518-19. We further determined that the evidence of Sequa’s actual
knowledge satisfied both prongs of the In re Sam analysis-(1) the
notice apprised the claimant of the pendency of an action affecting
his rights, and (2) the notice allowed sufficient time to permit
the claimant to present his objections. See In re Sam, 894 F.3d at
782. In reaching this conclusion, we reviewed the evidence that
showed the extent of Sequa’s knowledge regarding the bankruptcy
case. See In re Sequa Corp., 894 F.2d at 518. The evidence
clearly established that Sequa possessed sufficient knowledge to
impose a duty on the company to protect its rights in the
bankruptcy court. See id. at 519. We limited our holding to
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“postpetition plaintiffs in [Sequa’s] position.” See id. at 519.
In re Sequa Corp. does not espouse a rule that would preclude
further consideration of the context in which a creditor learns of
a bankruptcy proceeding. As established by the Court in Mullane,
adequate notice is notice reasonably calculated, given the factual
circumstances, to inform claimants of a proceeding that affects
their rights. See Mullane, 339 U.S. at 314-15. See also In re
Sadkin, 36 F.3d at 475-76 (holding that a claimant’s actual
knowledge constituted adequate notice of the debtor’s amended list
of exemptions based on the circumstances of the case); Otto v.
Texas Tamale Co., Inc. (In re Texas Tamale Co., Inc.), 219 B.R. 732
(Bankr. S.D. Tex. 1998) (analyzing the factual context to determine
whether the creditor’s knowledge of the proceedings was adequate
notice). We therefore apply the fact-intensive analysis required
by Mullane to determine whether Christopher’s knowledge of the
bankruptcy case was sufficient to charge him with the burden of
asserting his claim. See Mullane, 339 U.S. at 314.
During the pendency of the bankruptcy proceedings, Kendavis
decided to terminate its American pension plan to satisfy certain
debts. Kendavis sent a letter to Christopher assuring him that the
termination of the Kendavis pension plan would have no affect on
his vested pension benefits. The letter did not mention the
bankruptcy proceeding, but Christopher learned about the case
through local newspaper articles.
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Despite Christopher’s actual knowledge of Kendavis’s
bankruptcy proceeding, an unrepresented person in his position
should not be expected to file a claim in the bankruptcy court to
protect his rights. An employer owes a fiduciary duty to the
beneficiaries of a pension plan when an employer seeks to recoup
surplus funds by terminating the plan. See Bussain v. RJR Nabisco,
Inc., 223 F.3d 286, 295-96 (5th Cir. 2000) (citing 29 U.S.C. §
1104(a)). Christopher therefore acted reasonably by relying on
Kendavis’s assurance that his pension benefits were not in
jeopardy. The fact that the letter does not specifically refer to
the bankruptcy proceeding does not diminish the effect of the
message. Any concern that the bankruptcy case may have affected
Christopher’s right to pension benefits was reasonably dissipated
by Kendavis’s letter.
Due process requires, at the very least, a debtor to refrain
from assuring potential claimants that their rights will not be
adversely affected during bankruptcy proceedings. This is
especially true when the debtor is a large corporation who owes a
fiduciary duty to the individual claimant. Although Kendavis may
not have harbored any deceptive intent by assuring Christopher that
his rights would not be affected, “fundamental notions of fairness
and due process” dictate that we not place the burden on
Christopher to come forward with his claim. United States v.
Henderson, 707 F.2d 853 (5th Cir. 1983) (holding that the
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requirements of due process were not satisfied by notices of
foreclosure that misrepresented Mississippi law). Before he was
deprived of his claim for pension benefits, Christopher was
entitled to notice that would reasonably apprise him “of the
pendency of the action and afford [him] the opportunity to present
[his] objections.” Mullane, 339 U.S. at 314. In these limited
circumstances, perfunctory knowledge of the bankruptcy proceeding
did not constitute adequate notice to satisfy constitutional due
process requirements.
Accordingly, we hold that the bankruptcy court’s confirmation
order did not discharge Christopher’s claim. Because his claim for
pension benefits was not discharged, Christopher did not violate
the bankruptcy court’s injunction. The bankruptcy court’s
imposition of sanctions was therefore an abuse of the court’s
discretion. The district court’s order is affirmed.
AFFIRMED
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