In re Kleather, Bankruptcy No. 96-35676.
| Decision Date | 09 April 1997 |
| Docket Number | Bankruptcy No. 96-35676. |
| Citation | 208 BR 406 |
| Parties | In re Kevin KLEATHER, Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
COPYRIGHT MATERIAL OMITTED
Brian H. Ward, Miller & Luring, Troy, Ohio, for Debtor Kevin Kleather.
Alan J. Statman, Reisenfeld & Statman, Cincinnati, Ohio, for Creditor Fifth Third Bank of Western Ohio.
George W. Ledford, Englewood, Ohio, Chapter 13 Trustee.
DECISION AND ORDER GRANTING IN PART AND DENYING IN PART FIFTH THIRD BANK OF WESTERN OHIO'S MOTION FOR RELIEF FROM STAY
This court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334, and the standing General Order of Reference entered in this District on July 30, 1984. Motions to terminate, annul, or modify the automatic stay are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(G). The following Decision and Order constitutes the court's findings in accordance with Federal Rule of Bankruptcy Procedure 7052(a).
This matter is before the court upon the Motion for Relief from Automatic Stay Doc. # 13-1 and Supplemental Memorandum in Support Doc. # 20-1 by Fifth Third Bank of Western Ohio ("Movant"), the Chapter 13 Trustee's Response Doc. # 17-1, and the Debtor's Memorandum in Opposition Doc. # 18-1 and Supplemental Memorandum in Opposition Doc. # 21-1.
The court conducted a hearing on the above pleadings on February 18, 1997. After careful consideration of the parties' pleadings, the arguments presented at the hearing, and an independent examination of the legal principles in question, the court is now prepared to issue its decision in this matter.
As the parties agreed at trial, the facts appurtenant to this dispute are essentially uncontested. The Debtor, Mr. Kevin Kleather, maintains a checking account with the Movant, Fifth Third Bank of Western Ohio ("Fifth Third Bank"). This account existed both prepetition and postpetition. On April 22, 1994, Debtor borrowed $36,000 from Movant, offering as security on the transaction the funds in the checking account in question. On December 5, 1996, the Debtor petitioned this court for bankruptcy relief under Chapter 13 of the United States Bankruptcy Code, 11 U.S.C. §§ 101, et seq. (1994) (the "Bankruptcy Code"). At that time, the outstanding balance on the loan was $12,694.50, and the balance of the checking account was $9,136.55.
Debtor listed this debt in his Schedules at the time of the petition, but problems arose in properly identifying the correct address at which to notify Movant of the bankruptcy. In the petition, Debtor listed Movant's claim by the address of the Consumer Loan department of Movant's parent holding company, Fifth Third Bank in Cincinnati, Ohio. That address is different from the address contained in the loan document, but is the return address listed on the monthly loan statements sent by Movant. Movant stipulated at the February 18, 1997 hearing that this address did appear on the statements, and that the address is that of a payment center at the parent holding company, which processes payments for affiliate banks on a contract basis. Movant also stipulated that this is where the Debtor mailed his payments.
Movant alleges that because of the confusion regarding the addresses, notice of the bankruptcy petition did not reach Movant's bank until some time after the initial petition date of December 5, 1996. Movant applied an administrative freeze to the checking account on January 15, 1997, approximately six weeks after the petition date. In the interim period, Movant continued to process checks and deposits, and the balance of the checking account fluctuated greatly, at one time being as low as $1,944.23. At the time of the administrative freeze, the balance of the checking account exceeded the balance at the time of the petition, $9,136.55. Movant administratively froze this amount, $9,136.55, and permitted the Debtor continued access to the remainder in the account.
At the February 18, 1996 hearing, Movant Fifth Third Bank raised several independent yet interrelated issues. First, Movant challenged the notice in these proceedings, raising the question of whether notice of the order for relief upon a parent holding company, at an address where the Movant conducts its usual business, is sufficient to comply with the requirements of due process in general and the Bankruptcy Code in specific. Next, the Movant questions the proper application of setoff against a checking account when the balance of the account has fluctuated greatly since the date of the petition. This appears to be an issue of first impression in the courts, and is made more complicated by both the preceding issue of notice and the Supreme Court's recent ruling regarding set-off and administrative freezes in Citizens Bank of Maryland v. Strumpf, ___ U.S. ___, 116 S.Ct. 286, 133 L.Ed.2d 258 (1995). Last, Movant contends that Debtor's postpetition use of the checking account is a violation of the rules regarding the use of cash collateral. Once again, this issue is dependent on the question of notice, especially in light of the Debtor's argument that the cash collateral prohibitions in the Bankruptcy Code may be waived by inaction on the part of the security holder. The court will address each of the Movant's contentions in turn.
As an initial matter, the court must address Movant Fifth Third's contention that notice was improper as it was sent to the Consumer Loan department of Movant's parent holding company, Fifth Third Bank in Cincinnati, Ohio. Movant contends that absent proper notice to the address on Debtor's loan documents, Movant cannot be held accountable for its failure to apply an administrative freeze earlier in these bankruptcy proceedings.
A debtor in bankruptcy is required to file a list of creditors, including both the name and address of the creditors. See 11 U.S.C. § 521(1) (1994); Fed.R.Bankr.P. 1007(a)(1). From that list, creditors are sent notice of the pendency of bankruptcy proceedings. 11 U.S.C. § 342(a) (); Fed. R.Bankr.P. 2002(f)(1) (); Fed.R.Bankr.P. 2002(g) (); see also 11 U.S.C. § 301 ().
In the case at bar, it is uncontested that the Debtor listed Movant's address as that of the parent holding company, Fifth Third Bank in Cincinnati, Ohio, and that the address in question is where the notice of the order for relief was sent. Movant admits that this is the address for payments contained on the Debtor's loan statements, and that this is where Debtor sent his payments. It is also clear from the facts at bar that Movant did not apply an administrative freeze on Debtor's checking account until approximately six weeks after the petition was filed. No explanation was offered by the Movant for this delay, other than to point out that Movant and its parent holding company are legally separate entities, and that the Movant's address appears on the loan documents themselves. Movant argues that the Debtor's failure to use the address on the loan documents should excuse Movant's failure to apply an administrative freeze to the account earlier, and that the end result should be that Movant should be deemed to have preserved its original setoff rights, discussed infra.
"The purpose of requiring a debtor to list his creditors with their proper addresses is to permit notice to be given to the creditors of the bankruptcy filing so that they may have an opportunity to avail themselves of the rights afforded them by the Bankruptcy Code." In re Frankina, 29 B.R. 983, 985 (Bankr.E.D.Mich.1983) (citing Birkett v. Columbia Bank, 195 U.S. 345, 350, 25 S.Ct. 38, 39-40, 49 L.Ed. 231 (1904)). While the Bankruptcy Code provides no guidance as to what is the proper address of a creditor, the law is clear that such an address must be one at which notice or service would be reasonably calculated to comply with constitutional notions of due process. Id.; see also Ford Motor Credit Co. v. Weaver, 680 F.2d 451, 456 (6th Cir.1982). In addition, it has been held that "where a creditor challenges the accuracy of a listed address, the burden should properly fall upon the creditor to establish that the address provided by the debtor was so incorrect as to fall short of this threshold." In re Walker, 125 B.R. 177, 180 (Bankr.E.D.Mich.1990) (citing Hill v. Smith, 260 U.S. 592, 595, 43 S.Ct. 219, 220, 67 L.Ed. 419 (1923)).
As the Sixth Circuit has stated in interpreting the parallel section under the Bankruptcy Act:
In deciding whether a debt is duly scheduled, the extent to which the schedule fulfills the purpose of the Bankruptcy Act is a significant factor. The purpose of the scheduling requirement is to enable creditors to receive timely notice of bankruptcy proceedings which may affect their interests. Consequently, an error in listing a creditor\'s residence or address does not necessarily cause the debt to not be duly scheduled.
Weaver, 680 F.2d at 456 (citations omitted).
The determining factor in Weaver is whether the creditor is scheduled in a manner that is reasonably calculated to provide him with notice of the bankruptcy proceeding. Id. at 455-56; see also In re Frankina, 29 B.R. at 985. Thus the central question is one of due process. Weaver, 680 F.2d at 456. In Weaver, after determining the address in question was incorrect, the Sixth...
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