Bankruptcy Rule 7004(h) After Espinosa : A Timely Distinction Between Constitutional and Statutory Service

In a contested matter or adversary proceeding, Federal Rule of Bankruptcy Procedure 7004(h) sets forth the requisites for service on an “insured depository institution.” Subject to three exceptions, a motion or complaint must be served by certified mail on an officer of these statutorily defined institutions. In a Chapter 13 case, a debtor may attempt to strip-off a wholly unsecured junior mortgage via a motion under § 506(a) pursuant to Rule 3012, a plan provision in accordance with § 1322(b)(2), an adversary proceeding, or some combination. This article focuses on how a debtor's failure to satisfy Rule 7004(h) affects the validity of valuation and strip-off order, judgment, or plan provision in light of the Supreme Court's decision in United Student Aid Funds, Inc. v. Espinosa. By recognizing the frequently obscured distinction between the statutory (i.e., rule-based) and constitutional standards of due process, Espinosa effectively limits the legal consequences of noncompliance with Rule 7004(h): failure to serve in accordance with Rule 7004(h) entitles the mortgagee to relief from a valuation and strip-off order prior to plan confirmation, but only constitutionally defective service can render a confirmed plan void for lack of due process pursuant to Federal Rule of Civil Procedure 60(b)