## Facts

- In 1985, Berk was hired by Brooks Fashion Stores, Inc. (Brooks).
- Berk alleged that Brooks orally agreed to pay her salary plus a guaranteed 25% bonus.
- Berk further alleged that Brooks later orally agreed to place her in a new position beginning in 1987, at the same salary and guaranteed 25% bonus.
- In 1986, Berk received extremely negative performance reviews and disputed them.
- In January 1987, Brooks terminated Berk’s employment.
- In December 1987, Brooks filed for Chapter 11 bankruptcy protection.
- In March 1989, the bankruptcy court confirmed Brooks’s Chapter 11 plan of reorganization.
- Berk did not receive formal (individualized) notice of the bankruptcy proceeding and did not file a proof of claim in the Chapter 11 case.
- In 1991, Berk sued Brooks in state court for libel and breach of contract based on alleged defamatory performance evaluations and nonpayment of compensation (salary and bonuses).
- The state-court action was removed to the bankruptcy court.
- The bankruptcy court ruled that Berk was an “unknown creditor” who was not entitled to individualized notice, found Brooks lacked sufficient notice that Berk intended to sue, and held Berk’s claims were discharged by plan confirmation.
- Berk appealed the bankruptcy court’s ruling to the United States District Court for the Southern District of New York.

## Issues

1. Was Berk a “known” creditor entitled to actual, individualized notice of Brooks’s Chapter 11 case (and related deadlines), or an “unknown” creditor for whom notice by publication satisfies due process?
2. If Berk was an unknown creditor, were her preconfirmation libel and breach-of-contract claims discharged by confirmation of Brooks’s Chapter 11 plan, barring her 1991 lawsuit?

## Decision

- The district court affirmed the bankruptcy court.
- Berk was properly treated as an unknown creditor for notice purposes.
- Because Berk was an unknown creditor, she was not entitled to individualized notice; constructive notice by publication was constitutionally sufficient.
- Berk’s libel and breach-of-contract claims arose before confirmation and were discharged by the confirmed plan, so her postconfirmation lawsuit could not proceed.

## Legal Principles

- Due process requires notice reasonably calculated to inform interested parties; known creditors are entitled to actual notice, while unknown creditors may be given notice by publication.
- A creditor is “known” only if the debtor knows of the creditor’s identity and claim (or the claim is reasonably ascertainable through reasonably diligent efforts); a debtor’s awareness of workplace disagreements or objections does not, by itself, make a later lawsuit reasonably ascertainable.
- Where an unknown creditor receives constitutionally adequate constructive notice, confirmation of a Chapter 11 plan can discharge the creditor’s preconfirmation claims even if the creditor did not receive individualized notice and did not file a proof of claim.
- A confirmed Chapter 11 plan has broad binding effect and generally bars later efforts to pursue discharged preconfirmation claims against the reorganized debtor.

## Conclusion

The district court held that Berk’s prepetition employment disputes—her objections to negative reviews and her demand for unpaid compensation—did not make her a known creditor whose claim was reasonably ascertainable to Brooks for individualized notice purposes. As an unknown creditor, Berk was subject to constructive notice by publication, and confirmation of Brooks’s Chapter 11 plan discharged Berk’s preconfirmation libel and breach-of-contract claims, barring her later state-court action.


Berk v. Brooks Fashion Stores, Inc. (In re Brooks Fashion Stores, Inc.), 1994 U.S. Dist. LEXIS 4779, 1994 WL 132280 (1994)