In the United States Bankruptcy Court

for the Southern District of Iowa


CHAD E. CLARK
CHRISTINA R. CLARK
Bankruptcy No. 04-06745
Debtor(s). Chapter 7

UNITED STATES TRUSTEE Adversary No. 06-30142
Plaintiff(s)
vs.
CHAD E. CLARK
CHRISTINA R. CLARK
Defendant(s)

ORDER RE: MOTION TO TAKE DEFAULT


This matter came before the undersigned on February 9, 2007 for a telephonic hearing on United States Trustee's Motion to Take Default Regarding Complaint to Revoke Discharge. Plaintiff U.S. Trustee was represented by Attorney Robert Gainer. Debtors/Defendants did not appear. This is a core proceeding pursuant to 28 U.S.C. 157(b)(2)(A) and (J).

STATEMENT OF THE CASE

U.S. Trustee's complaint seeks to revoke Debtors' discharge based on their failure to turn over tax refund money. As Debtors have not appeared or answered, U.S. Trustee requested default judgment. The Court set this for hearing to determine sufficiency of service before default judgment is entered.

Debtors filed their Chapter 7 case on November 1, 2004. Discharge entered on February 9, 2005. On Trustee's motion, the Court ordered Debtors to turn over $925.86 in non-exempt tax refunds on March 16, 2006. U.S. Trustee filed its complaint herein on July 5, 2006 to revoke Debtors' discharge for failure to obey the order and failure to turn over the tax refunds.

U.S. Trustee filed a Certificate of Service stating that the Summons and Complaint were mailed to Debtors at 807 West Briggs, Fairfield, Iowa 52556, and to their attorney, Brent Cleveland, at 335 E 4th Street, Ottumwa, Iowa 52501. These addresses for the parties conform with the addresses listed in Debtors' bankruptcy case, No. 04-06745. The docket in this action shows several pieces of mail sent to Debtors at the same address were returned undeliverable, including copies of the original summons (Doc. 5), the notice and bar date for the Motion for default judgment (Doc. 18), and the notice of the February 9, 2007 hearing (Doc. 21). Neither Debtors not their attorney have filed an answer or appearance in this action.

CONCLUSIONS OF LAW

An essential element of justice is notice of suit and opportunity to be heard. Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 318 (1950). Notice must be "reasonably calculated to reach interested parties." Id.

The Federal Rules of Civil Procedure generally require personal service upon defendants. See Fed. R. Civ. Proc. 4. Service may be effected by U.S. Mail only with the acknowledgment of the defendant. If the defendant fails to acknowledge receipt of the summons and complaint, personal service must be effected. See generally Fed. R. Civ. Proc. 4(c)(2)(C)(ii), (d)(1), (d)(3).

In Bankruptcy Court, Rule 7004 governing service of process in adversary proceedings significantly abbreviates the procedures by permitting service of a summons and complaint by first class mail. Unlike the Federal Rules of Civil Procedure, no acknowledgement of receipt of service is required under the Federal Rules of Bankruptcy Procedure. In re Braden, 142 B.R. 317, 319 (Bankr. E.D. Ark. 1992).

Under Rule 7004(b)(1), service of the summons and complaint may be made upon an individual defendant by "mailing a copy of the summons and complaint to the individual's dwelling house or usual place of abode." The use of the abbreviated procedure of service by mail in bankruptcy proceedings requires a higher standard of care when serving a party defendant. In re Barry, 330 B.R. 28, 33 (Bankr. D. Mass. 2005). "Mailing to a respondent's 'last known address' is not sufficient to effect service under this rule if the respondent is not living at that address at the time service is attempted." Id.

Where the defendant is a debtor, Rule 7004(b)(9) is applicable. This provides that service may be made by first class mail:

Upon the debtor, after a petition has been filed by or served upon the debtor and until the case is dismissed or closed, by mailing a copy of the summons and complaint to the debtor at the address shown in the petition or to such other address as the debtor may designate in a filed writing.

Fed. R. Bankr. P. 7004(b)(9). Service shall also be made on the debtor's attorney, if the debtor is represented by an attorney, whenever service is made on the debtor under this rule. Fed. R. Bankr. P. 7004(g).

Rule 4002(a)(5) states that one of debtor's duties is to file a statement of any change of the debtor's address. Debtors were reminded of this requirement in the Order Regarding Duties of Debtors filed in their bankruptcy case on November 1, 2004 (Doc. 2).

In this case, although the discharge entered on February 9, 2005, the case remained open when the U.S. Trustee filed its complaint to revoke discharge. Service of the summons and complaint were made on Debtors and their attorney at the addresses listed in Debtors' Chapter 7 bankruptcy case. U.S. Trustee argues that service of the summons was effective under Rule 7004(b) and, in the absence of an answer by Debtors, default judgment is appropriate.

Generally, where notice is sent to the address listed by the debtor in the bankruptcy petition, due process is satisfied. In re Villarreal, 304 B.R. 882, 886 (B.A.P. 8th Cir. 2004). It is the debtor's responsibility to maintain a current mailing address on file with the court at all times during the pendency of a bankruptcy case. In re Araujo, 292 B.R. 19, 23 (Bankr. D. Conn. 2003). "Thus, service is effective on a debtor even if mailed to the wrong address, if the address to which it is mailed is the last listed by the debtor in a filed writing." Id.at 24; In re Coggin, 30 F.3d 1443, 1450 (11th Cir. 1994). Rule 7004(b)(9) does not require proof of actual receipt. In re Vincze, 230 F.3d 297, 299 (7th Cir. 2000).

One court has noted, however, that a discharge in bankruptcy is not a suspended sentence or parole. In re Martinez, 232 B.R. 458, 461 (Bankr. C.D. Cal. 1999). The debtors' duty to keep the court informed of their addresses ends after discharge is entered and the case is closed. Id. After that time, debtors no longer must continue to check in with and inform the court or creditors of their whereabouts. Id.

DEFAULT JUDGMENT

A party is not entitled to default judgment as of right. In re Jones Truck Lines, Inc., 63 F.3d 685, 686 (8th Cir. 1995). Rather, the decision calls for the court's exercise of sound judicial discretion. In re McArthur, 258 B.R. 741, 746 (Bankr. W.D. Ark. 2001).

A hearing on the merits is favored by the policies underlying the Federal Rules of Civil Procedure. Default is disfavored and should be a rare judicial act. This principle is well settled. The granting of a default is a harsh measure to be resorted to in extreme circumstances.

Id.(citations omitted); Jones Truck Lines, 63 F.3d at 688.

Bankruptcy courts have taken a conservative approach and refrain from granting default judgment motions, especially when the defendant is the debtor in a bankruptcy case. McArthur, 258 B.R. at 746. When deciding whether to grant a default judgment, the court should consider:

the amount of money potentially involved; whether material issues of fact or issues of substantial public importance are at issue; whether the default is largely technical; whether plaintiff has been substantially prejudiced by the delay involved; and whether the grounds for default are clearly established or are in doubt. Furthermore, the court may consider how harsh an effect a default judgment might have, or whether the default was caused by a good-faith mistake or by excusable or inexcusable neglect on the part of the defendant.

Id.at 747; Chao v. Sauve, 2004 WL 503819, *2 (N.D. Iowa 2004); 10A Wright, Miller & Kane, Federal Practice & Procedure 2685.

ANALYSIS

U.S. Trustee served the summons and complaint on Debtors at the address shown in their bankruptcy petition. This is procedurally sufficient under Rule 7004(b)(9). However, U.S. Trustee is not entitled to default judgment as of right.

This action seeks to revoke Debtors' discharge. The denial of a debtor's discharge is a harsh sanction, In re Sendecky, 283 B.R. 760, 763 (B.A.P. 8th Cir. 2002), as is the grant of a default judgment. Granting the U.S. Trustee's motion would result in Debtors losing their discharge without having actual notice of this action. All indications in the file show that Debtors have not been at the address the U.S. Trustee used for mailing the summons since before this action was commenced. Also, the Court notes that the U.S. Trustee filed the adversary complaint herein more than 16 months after Debtors received their discharge, and then requested default judgment five months later. Any delay caused by a denial of the default judgment will not prejudice the U.S. Trustee.

Debtors have the duty to report any change of address while their Chapter 7 case is pending. In this case, however, the case has now remained open for more than two years after the discharge was entered. The last activity in the bankruptcy case occurred almost four months prior to the filing of the U.S. Trustee's complaint. Considering the amount of time that has passed since discharge entered and the fact that mailings to Debtors have been returned undeliverable, the Court is not willing to impose the harsh consequence of a default judgment revoking Debtors' discharge.

WHEREFORE, U.S. Trustee's Motion to Take Default Regarding Complaint to Revoke Discharge is DENIED.

FURTHER, considering the time that has passed since Debtors filed their bankruptcy petition and received their discharge, the U.S. Trustee is directed to serve the summons and complaint on Debtors in accordance with Rule 7004(b)(1), in order to give Debtors adequate notice of this proceeding and opportunity to respond.

FURTHER, judgment shall enter accordingly.

DATED AND ENTERED: February 23, 2007

Paul J. Kilburg
U.S. Bankruptcy Judge