Procedural Due Process Requirements in Bankruptcy Cases

(Excerpt)The Fifth Amendment of the United States Constitution guarantees that an individual will not be deprived “of life, liberty, or property without due process of law.” In the context of bankruptcy, procedural due process requirements are especially important because although bankruptcy tries to ensure that rights that exist outside of bankruptcy are maintained in bankruptcy, title 11 of the United States Code (the “Bankruptcy Code”) or other federal laws may require a different result. Given that the rights of an individual can be altered in bankruptcy proceedings, the adequacy of notice of the bankruptcy proceeding is of great importance. However, courts have had to grapple with determining the extent that procedural due process applies, including whether procedural due process requirements apply at all.In In re Motors Liquidation Company, the Bankruptcy Court of the Southern District of New York evaluated competing claims about whether procedural due process requirements applied and, if so, whether a showing of prejudice was needed in order to show that procedural due process rights had been violated. The court looked to the Supreme Court’s landmark procedural due process case Mullane v. Central Hanover Bank & Trust Corporation which, although not a bankruptcy case, defined procedural due process requirements and enunciated principles of general application. However, the Motors Liquidation court acknowledged that although there are requirements to be met for procedural due process to be satisfied, the standard is still a flexible one dependent upon on the facts and circumstances of every case.Part I of this article details the Mullane court’s understanding of procedural due process rights and requirements in a general sense. Part II discusses the application of Mullane’s principles in the bankruptcy context by the Motors Liquidation court as well as other federal courts. Part III explores the current state of the law regarding procedural due process requirements and its interaction with various provisions of the Bankruptcy Code. This article concludes that a court’s determination of whether procedural due process requirements have been met depends largely on the exigency of the circumstances and the practicality of actual notice to interested parties.