Chapter 3 New Media Creates New Expectations for Bankruptcy Notice Programs

• Jurisdiction: United States

3. New Media Creates New Expectations for Bankruptcy Notice Programs

Written by:

Jeanne C. Finegan

GCG Inc.; Lake Oswego, Ore.

Craig E. Johnson

GCG Inc.; Lake Success, N. Y.

For decades, creditors in chapter 11 cases have generally received notice of the proceedings in one of two ways: directly by first-class mail or indirectly by publication in a national newspaper. Over the past five years, however, a flood of on-demand media has forever altered the way American consumers receive information, which has important implications relating to the design of notice programs. Consumers no longer watch network television news in real time or faithfully browse a daily newspaper. Instead, they view several digital media outlets simultaneously, including online newspapers and blogs, email, social media sites and smartphone applications.¹ It is a behavior that has been referred to as "concurrent media usage,"² and it has created a challenging communication environment for lawyers, judges and debtors, who must think about notice in an entirely new way.

Within this changing technological environment, one of the fundamental underpinnings of the Bankruptcy Code remains constant: A debtor must provide notice to all of its creditors and parties in interest of the commencement of its bankruptcy case and certain dates and deadlines during the case. Failure to provide a claimant with notice may preclude the discharge of its claim,³ thereby denying the debtor one of the core benefits of bankruptcy.

The U.S. Supreme Court held in Mullane v. Central Hanover Bank & Trust Co.⁴ that notice must be "reasonably calculated" to apprise interested persons of a pending legal action. Through Mullane, the Court provided an approach to notice that is guided by intent and practicality. It is this same intent and practicality that should guide today's notice programs that incorporate more modern media channels.

A. Publication Notice to Unknown Creditors

At first glance, the notice requirements in a bankruptcy proceeding are quite broad. Section 102(1) (A) of Code requires that notice be "appropriate in the particular circumstance."⁵ The two traditional means of noticing are notice by direct mail to the intended recipient and publication of the notice in a newspaper, magazine or other medium likely to come to the attention of the person entitled to notice.⁶ Notice by direct mail, or "actual notice," must be given to all "known" creditors.⁷ Where there are "unknown" creditors, debtors commonly rely on notice by publication, or "constructive notice," to cover any potential deficiencies in actual mailed notice.⁸ Publication of notice is employed at the discretion of the court pursuant to Bankruptcy Rules 2002(l) and 9008.⁹

Courts recognize that constructive notice will be imperfect,¹⁰ but the publication notice program must be designed reasonably to reach the greatest number of interested parties; otherwise, it constitutes a "mere gesture" and does not afford a creditor the protections of due process.¹¹ For example, the U.S. Bankruptcy Court for the District of Delaware held that a notice placed in one national and one local California newspaper covering the debtor's headquarters was not reasonably calculated to provide notice to injured creditors residing in Florida.¹² Conversely, the U.S. Bankruptcy Court for the Southern District of New York found that a notice published in the national editions of The New York Times, USA Today and The Wall Street Journal along with 12 regional Texas newspapers was sufficient notice to cover an unknown Texas creditor.¹³

B. Noticing Experts: Targeted Notice

Utilizing an experienced legal notice expert can help practitioners employ the most appropriate media to target desired audiences. The role of a notice expert is to assist the parties in designing a media outreach plan, implement that plan and provide expert testimony when necessary regarding the appropriateness of the plan. Media programs take various forms and may use national and local newspapers and magazines, plus television, radio, press releases, Internet banner advertisements and other forms of outreach to deliver a message to potential creditors.

Outreach programs designed by recognized notice experts rely on scientific analyses of nationally syndicated media research data, which provides insight regarding demographic characteristics, values and lifestyle habits, product and brand preferences, and media consumption habits of the targeted audience.¹⁴ While such research is used primarily by advertising agencies to select appropriate media for a targeted advertising campaign, by employing these same research tools a notice expert is able to measure the percentage of a potential creditor group that can be reached by a publication program and the percentage of that target group who will have the opportunity to view the publication. This metric, embraced by courts in both the class-action and bankruptcy context,¹⁵ is commonly referred to as a "reach and frequency" analysis.

The calculation of reach-and-frequency requires the use of sophisticated and proprietary data and software. Net reach is the average percentage of a target population exposed to a notice, while frequency is the average number of times that an individual has the opportunity to view the notice. Employing a...