734 F.2d 1094 (5th Cir. 1984), 83-1244, Matter of Adams

Docket Nº:83-1244.
Citation:734 F.2d 1094
Party Name:In the Matter of Ray Bryan ADAMS, Jr., Bankrupt. Z.D. BONNER, Plaintiff-Appellee, v. Ray Bryan ADAMS, Jr., Defendant-Appellant.
Case Date:June 25, 1984
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 1094

734 F.2d 1094 (5th Cir. 1984)

In the Matter of Ray Bryan ADAMS, Jr., Bankrupt.

Z.D. BONNER, Plaintiff-Appellee,

v.

Ray Bryan ADAMS, Jr., Defendant-Appellant.

No. 83-1244.

United States Court of Appeals, Fifth Circuit

June 25, 1984

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[Copyrighted Material Omitted]

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Campbell, Davidson & Morgan, William C. Davidson, Jr., Austin, Tex., for defendant-appellant.

Alvis & Carssow, Robert W. Swanson, Austin, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Western District of Texas.

Before POLITZ, RANDALL and JOLLY, Circuit Judges.

RANDALL, Circuit Judge:

Defendant-appellant, Ray Bryan Adams, appeals from a judgment of the district court affirming a judgment of the bankruptcy court. Both the bankruptcy court and the district court held that a debt owed by Adams to plaintiff-appellee, Z.D. Bonner, was not dischargeable in bankruptcy. 1 We affirm.

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I.

On May 6, 1975, the judges of the United States District Court for the Western District of Texas adopted a local rule pursuant to rule 927 of the Rules of Bankruptcy Procedure, 2 requiring attorneys for bankrupts to file with the clerk of court a "label matrix" containing the names and addresses of all creditors. The rule provides:

ORDER REQUIRING ATTORNEYS FOR BANKRUPTS TO SUBMIT LISTING

OF CREDITORS ON MASTER FORM

It is the order of the Court that all attorneys for bankrupts or debtors-in-possession will file with the Clerk of the Court in each of the Divisions of the Western District of Texas, a Label Matrix (zerox No. 3R 1998) or a similar master listing of the names and complete addresses of all creditors (secured and unsecured); the bankrupts; the attorneys; and other interested parties. The zip code will also be included on each of the addresses.

Effective June 1, 1975, and thereafter, the Clerk of the Court will refuse filings of petitions unless accompanied by a master listing suitable for duplication. Effective on the date of this order and thereafter until June 1, 1975, the list may be submitted three days after date of filing of petitions.

This order is made in accordance with the Rules of Bankruptcy Procedure,--Rule 927.

Dated at San Antonio, Texas, May 6, 1975.

This order was not filed with the Administrative Office of the United States Courts as directed by Bankruptcy rule 927. Nor did this order appear in any published collection of local rules of the Western District of Texas.

Adams filed a voluntary petition for bankruptcy on September 1, 1977. At the time of the filing of the petition, Adams owed Bonner the sum of $17,378.05 plus interest. With his petition, Adams filed Schedule A-3 of unsecured creditors as required by section 7(a)(8) of the Bankruptcy Act, 11 U.S.C. Sec. 25(a)(8) (1976), 3 and rule 108 of the Rules of Bankruptcy Procedure. 4 Bonner's name and address were listed correctly on the Schedule A-3 filed by Adams. Adams also filed a label matrix as required by the local rule. However, on the label matrix, Bonner's address was incorrectly listed. As a result, Bonner did not receive

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official notice of Adams' bankruptcy. 5 Neither did Bonner have actual knowledge of the bankruptcy proceeding within the time to file his proof of claim. On July 9, 1979, Bonner filed an objection to the discharge of his claim.

After a hearing, the bankruptcy court held that Adams' debt to Bonner was nondischargeable under section 17(a)(3) of the Bankruptcy Act, 11 U.S.C. Sec. 35(a)(3) (1976). 6 Determining that the label matrix is a part of the bankruptcy schedule and that a creditor who is omitted or incorrectly listed on the label matrix is not "duly scheduled" within the meaning of section 17(a)(3), the bankruptcy court found that the indebtedness owing to Bonner was not "duly scheduled" and that Bonner had neither notice nor actual knowledge of the bankruptcy proceeding within the time for the proof or the allowance of his claim. The district court affirmed the judgment of the bankruptcy court. From the district court's judgment, Adams appeals.

II.

It is well settled that if a debtor lists incorrectly the name or address of a creditor in the required schedules, so as to cause the creditor not to receive notice, that creditor's debt has not been "duly scheduled" within the meaning of section 17(a)(3), and if the creditor has no actual knowledge of the bankruptcy proceeding, the creditor's debt is not dischargeable. Venson v. Housing Authority of City of Atlanta, 337 F.2d 616 (5th Cir.1964); 1A Collier on Bankruptcy p 17.23 n. 25 (14th ed. 1978). Section 17 of the Bankruptcy Act provides that "[a] discharge in bankruptcy shall release a bankrupt from all provable debts, whether allowable in full or in part, except as ... (3) have not been duly scheduled in time for proof and allowance ... unless such creditor had notice or actual knowledge of the proceedings in bankruptcy." The obvious purpose of section 17(a)(3) is to except debts from discharge where the creditor has been deprived of participating in or filing his claim in the bankruptcy proceeding because of improper scheduling. Thus, if the rule adopted by the district court is a proper and valid rule and if that rule makes the label matrix a part of the bankruptcy schedules, then the failure of Adams to "duly schedule" Bonner's debt would require that we affirm the judgment of the district court. Adams, however, argues that the local rule is not valid and that the district court misinterpreted its rule as making the label matrix part of the bankruptcy schedules. Adams also argues that he has been denied due process.

The Rules of Bankruptcy Procedure, 7 in accordance with the Judicial Code, 8 clearly empower district courts to promulgate housekeeping rules for the bankruptcy courts. Local rules are promulgated by district courts primarily to promote the efficiency of the court, Lance, Inc. v. Dewco Services, Inc., 422 F.2d 778, 784 (9th Cir.1970), and such local rules have the same force and effect as law, and are

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binding upon the parties and the court until changed in the appropriate manner. Smith v. Ford Motor Co., 626 F.2d 784, 796 (10th Cir.1980). The legislative history of 28 U.S.C. Sec. 2071 illustrates that a "broad rulemaking power was intended," H.R.Rep. No. 308, 80th Cong., 1st Sess., at A169 (1947); similarly, courts have held that a broad discretion exists in adopting rules to promote efficiency in the court. Martinez v. Thrifty Drug and Discount Co., 593 F.2d 992 (10th Cir.1979); Lance, Inc. v. Dewco Services, Inc., supra. This rulemaking power, however, is not without limits. The district court's bankruptcy rulemaking power is first limited by the provisions of rule 927. Therefore, a local rule cannot be inconsistent with the Rules of Bankruptcy Procedure. The court's rulemaking power is also limited by the provisions of 28 U.S.C. Sec. 2071. Accordingly, a local rule cannot be inconsistent with "Acts of Congress." Finally, the court's bankruptcy rulemaking power is limited by the Bankruptcy Rule Enabling Act, 28 U.S.C. Sec. 2075. 9 Thus, a local rule must be procedural, and cannot abridge, enlarge, or modify any substantive right. 10

Adams first argues that the local rule here in question is not a local rule at all because the order does not purport to be a local rule. This argument is without merit. By its own terms, the order issued by the district court purports to be a local rule. The order is adopted by a majority of the judges of the court, as required by rule 927, and the order specifically states that "[t]his order is...

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