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In re Clark

United States Court of Appeals, Fifth Circuit

April 23, 2019

In Re: Daniel Clark, IV, Debtor
v.
RODNEY D. TOW, Trustee; DANIEL CLARK, IV, Appellees ALISHA PATE; YVONNE CLARK-THIGPEN, Appellants

          Appeal from the United States District Court for the Southern District of Texas

          Before KING, SMITH, and WILLETT, Circuit Judges.

          PER CURIAM:

         Alisha Pate and Yvonne Clark-Thigpen assert claims for child support arrearages against Daniel Clark. Although Clark filed for bankruptcy, Pate and Clark-Thigpen claim that they never received notice of his bankruptcy case. As a result, they argue they were denied the opportunity to file timely proofs of claim. The bankruptcy court found that the Illinois Department of Healthcare and Family Services, from which Pate and Clark-Thigpen had sought child support enforcement services, had received timely notice and ultimately afforded their claims distribution status under 11 U.S.C. § 726(a)(2). The district court affirmed the bankruptcy court's decision. Pate and Clark-Thigpen now appeal to this court. We AFFIRM.

         I.

         Daniel Clark owes Alisha Pate and Yvonne Clark-Thigpen large sums of child support-$58, 257 and $242, 550, respectively. Pate and Clark-Thigpen both sought enforcement services from the Illinois Department of Healthcare and Family Services (the "Department") for their child support claims. Thus, when Clark filed for Chapter 7 bankruptcy, he listed the Department as an unsecured creditor in his bankruptcy schedules. Clark also listed Pate in his bankruptcy schedules, but he provided the wrong address. And he omitted Clark-Thigpen entirely.

         Pate and Clark-Thigpen contend that they never received notice of the bankruptcy case as required by Federal Rule of Bankruptcy Procedure 2002(a). Nor did they receive a summary of the trustee's final report as required by Rule 2002(f). Instead, the Chapter 7 trustee mailed the summary of the trustee's final report to all creditors, including the Department, on July 19, 2014. The report stated that, after the payment of Clark's secured and administrative claims, only $71, 028.27 remained in his estate. The trustee distributed that remaining amount to two of Clark's five unsecured priority creditors who had timely filed proofs of claim, as required by 11 U.S.C. §§ 507 and 726(a).

         Pate and Clark-Thigpen argue that they should have been included in this group of priority creditors but were denied the opportunity to participate in the bankruptcy proceedings because the trustee never provided them with notice of the bankruptcy case or his final report. Instead, on August 4, 2014, they each learned of the bankruptcy case from another of Clark's ex-wives. Upon learning of the bankruptcy, each woman contacted the Department. Christine Schmidt, the Department's bankruptcy manager, told them that the Department would file the proofs of claim for them. Schmidt filed the claims on August 12, 2014. On each proof of claim, Schmidt listed the Department as the creditor and stated that the basis of the claim was "[c]hild support arrears owed thru [sic] [the Department]."

         The trustee objected to Pate's and Clark-Thigpen's proofs of claim as tardily filed, which the bankruptcy court sustained after a hearing. Thus, the bankruptcy court denied priority status to Pate's and Clark-Thigpen's claims under § 726(a)(1), but it allowed them to proceed as general unsecured claims pursuant to § 726(a)(3). Pate and Clark-Thigpen moved for reconsideration. After another hearing, the bankruptcy court granted the motion in part. It allowed Pate's and Clark-Thigpen's claims as tardily-filed claims entitled to distribution under § 726(a)(2), as opposed to § 726(a)(3), finding that the Department had withheld notice of the bankruptcy from them. But it again declined to allow the claims under § 726(a)(1). During these proceedings, the Department filed a statement asserting that it was a creditor entitled to file a proof of claim.

         Classifying Pate's and Clark-Thigpen's claims under § 726(a)(2) has the same effect as classifying them under § 726(a)(3)-they are still unable to recover due to the lack of funds in Clark's estate. Pate and Clark-Thigpen appealed to the district court, which affirmed the bankruptcy court's decision. They now appeal to this court.

         II.

         When reviewing an appeal from a district court's review of a bankruptcy court's ruling, we apply "the same standard of review to the bankruptcy court decision that the district court applied." Living Benefits Asset Mgmt., L.L.C. v. Kestrel Aircraft Co. (In re Living Benefits Asset Mgmt., L.L.C.), 916 F.3d 528, 532 (5th Cir. 2019) (quoting Galaz v. Galaz (In re Galaz), 765 F.3d 426, 429 (5th Cir. 2014)). "Thus, this court reviews factual findings for clear error and legal conclusions de novo." Id. (quoting Galaz, 765 F.3d at 429).

         III.

         Pate and Clark-Thigpen first contest the bankruptcy court's application ...


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