## Facts

- Reliable Electric Company, Inc. was an electrical subcontractor on Olson Construction Company’s project and later became a Chapter 11 debtor.
- Reliable performed work from June to December 1979 and left the project on December 26, 1979, alleging Olson breached the subcontract.
- Reliable filed a voluntary Chapter 11 petition on January 30, 1980.
- Reliable’s creditor schedules did not list Olson as a creditor; Olson appeared only under “Accounts Receivable.”
- Reliable’s counsel informed Olson’s counsel by telephone at some point that Reliable had filed Chapter 11, but Olson received no plan-related materials or court notices.
- Reliable sued Olson in state court on November 9, 1980; Olson removed the case to bankruptcy court and counterclaimed for damages based on Reliable’s alleged prepetition breach.
- Reliable filed a reorganization plan in January 1981; the bankruptcy court mailed voting, objection, and confirmation-hearing notices to scheduled creditors, and Olson received none of these notices.
- The plan was confirmed on February 11, 1981, with confirmation notice sent to scheduled creditors but not to Olson.
- After trial of the subcontract dispute, the bankruptcy court entered judgment for Olson for $10,378.
- Reliable sought to treat Olson’s judgment as a prepetition unsecured claim compromised and discharged under the confirmed plan; the bankruptcy court and district court rejected that request due to lack of notice, and Reliable appealed.

## Issues

1. Whether a Chapter 11 plan confirmation discharges a prepetition unsecured claim under 11 U.S.C. § 1141 when the creditor had general knowledge of the bankruptcy case but did not receive reasonable notice of the confirmation hearing.
2. Whether discharging such a claim without reasonable confirmation-hearing notice violates the Fifth Amendment’s due process requirements.

## Decision

- The Tenth Circuit affirmed the district court and bankruptcy court.
- Olson’s prepetition claim was not discharged by confirmation of Reliable’s Chapter 11 plan.
- General awareness of the Chapter 11 case did not substitute for reasonable notice of the confirmation hearing.
- Discharging a claim without reasonable notice of the confirmation hearing would violate due process.

## Legal Principles

- Although 11 U.S.C. § 1141 broadly binds creditors and provides for discharge upon Chapter 11 plan confirmation, discharge cannot be applied in a manner that violates the Fifth Amendment.
- Due process requires notice reasonably calculated, under the circumstances, to inform an interested party of a proceeding that may affect its property rights and to provide an opportunity to be heard.
- For Chapter 11, reasonable notice includes notice of the confirmation hearing and related deadlines that allow a creditor to vote on the plan and file objections.
- A creditor’s general knowledge that a reorganization exists does not, by itself, satisfy due process when the creditor is omitted from schedules and not provided formal confirmation-related notice.

## Conclusion

The court held that a creditor omitted from the debtor’s schedules and not given reasonable notice of the Chapter 11 confirmation hearing cannot have its prepetition claim discharged by the confirmed plan, even if the creditor knew generally that the bankruptcy case was pending.


Reliable Elec. Co. v. Olson Constr. Co., 726 F.2d 620 (10th Cir. 1984)