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Getting Noticed in the Digital Age: Delaware Bankruptcy Court Finds Email Notice Satisfies Due Process but Not Rule 2002

In re Cyber Litigation Inc., 2021 WL 4927550 (Bankr. D. Del. Oct. 21, 2021)

In this Memorandum Opinion, Judge Goldblatt of the Delaware Bankruptcy Court considered whether a bar date notice sent via email to the principal of an unsecured creditor was sufficient to disallow the creditor’s untimely proof of claim. The Court ultimately concluded that the email notice comported with constitutional due process standards but did not meet the requirements of Bankruptcy Rule 2002, which instructs that such notices be provided to creditors by mail. As a result, the debtor’s timeliness objection was overruled.

The unsecured creditor, Hansen Networks, was the primary IT service provider for the debtor and the largest unsecured creditor with a claim just under $300,000. Approximately one month after passage of the general bar date, in March 2021, Hansen Networks informed the debtor it had not received notice of this date.

In May 2021, Hansen Networks and the Debtor filed a stipulation as to certain facts, including that the bar date notice had been sent to inaccurate Hansen Networks mail and email addresses and therefore was not received, and that formal service on Hansen Networks was ineffective. The stipulation preserved, however, the debtor’s ability to enforce the bar date “on any other grounds that such proof of claim was not timely filed,” thereby permitting the debtor to offer separate reasons as to why the bar date could properly be enforced against Hansen Networks. Opinion at 6.

Relying on this language, the debtor subsequently objected to Hansen Network’s claim on the ground that it was untimely, arguing, among other things, that separate service made by mail and email on the principal of Hansen Networks, David Hansen, was sufficient to also bind the company. Hansen Networks opposed the motion, primarily asserting that Mr. Hansen never received the bar date notice allegedly served on him. Following an evidentiary hearing on the matter, the Court concluded that the claims agent had mailed the notice to an incorrect address in Puerto Rico where Mr. Hansen no longer resided at the time the notice was sent. Thus, the only remaining question was whether email notice to Mr. Hansen’s active email account, in itself, provided adequate notice to creditor Hansen Networks.

In determining whether the notice was sufficient, the Court first assessed whether the email notice comported with due process. In this regard, the Court found the “critical question” was whether an email sent to an email address actively used by Mr. Hansen would be reasonably calculated to reach him, and thus Hansen Networks. Opinion at 14. The Court concluded that it was. As the Court explained, under established agency law principles, “there is no question that sending an email to Mr. Hansen is a means that might be employed by someone who wanted to provide appropriate notice to Hansen Networks.” Opinion at 13. Thus, the requirements of due process were satisfied.

The Court next considered whether the debtor’s notice via email complied with the requirements of the Bankruptcy Rules. Specifically, the debtor was obligated to follow Bankruptcy Rule 2002(a), which requires “at least 21 days’ notice by mail” of certain events, including the time fixed for filing proofs of claim. Opinion at 16. On this point, the Court found that the debtor’s email notice fell short. In reaching this result, the Court emphasized that “the clear import of the Bankruptcy Rules [] is that a creditor is entitled to receive notice of the bar date by mail, at the address required by Bankruptcy Rule 2002(g).” Opinion at 16. Because Mr. Hansen never received actual mail notice, the Court found “the requirements of the bankruptcy rules have not been satisfied.” Opinion at 16–17. As a result, the Court reluctantly concluded that “the bar date may not be enforced against Hansen Networks in the absence of a showing that the error was a harmless one.” Opinion at 17.

The Court ultimately found that the error was not harmless. As the Court explained: “In the absence of a showing that the creditor obtained actual, subjective knowledge of the bar date, the Court is unable to conclude that the failure to meet the specific requirements of the rules may be treated as a no-harm-no-foul situation.” Opinion at 17. Although the Court expressed strong skepticism as to the veracity of Mr. Hansen’s testimony, it nonetheless accepted Mr. Hansen’s avowals that he was not aware of the bar date. Accordingly, the Court deemed the error not a harmless one.

Takeaway: The required notice to creditors of certain bankruptcy events pursuant to Rule 2002 cannot be accomplished via email. However, email notice may be deemed harmless error where it provides the creditor with actual, subjective knowledge of the event.