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In re Corango Resources, Ltd.

United States District Court, E.D. Michigan, Southern Division
May 2, 1990
No. 89-70527 (E.D. Mich. May. 2, 1990)

Opinion

No. 89-70527

May 2, 1990


Bankruptcy Courts — Jury Trials — Core Proceedings — Preferences. — Bankruptcy courts have the power to conduct jury trials in core matters. The Bankruptcy Code has no specific bar to this use of authority. Moreover, the power had existed explicitly before the United States Supreme Court struck down the original jurisdictional provisions of the Code. After the 1984 Amendments, however, it is fair to say that the power to conduct jury trials in core matters is implied in the grant of authority to bankruptcy courts. This scheme does not offend the Constitution. Under Article III scrutiny, the power given here to bankruptcy judges is no more expansive than that given to some other Article I judges. So too, the authority to preside over jury trials is no more expansive than the clear authority of bankruptcy judges to enter final orders in core matters. Under Seventh Amendment analysis, the ban against factual review of jury findings will not be breached because there is no de novo review of facts in core matters.


See 28 U.S.C. § 151 at ¶ 4001, 28 U.S.C. § 157 at ¶ 4030, 28 U.S.C. § 1334 at ¶ 4101, 28 U.S.C. § 4011 at ¶ 4165, and Sec. 547(b) at ¶ 9529.

Plaintiff, C.E. Grogan, Trustee for debtor Corango Resources, Ltd. (Corango), filed this preference action in bankruptcy court against defendant A A Energy Properties, Ltd. (A A) On January 9,1990, A A moved for the withdrawal of the case on the grounds that there had been a proper jury demand and the bankruptcy court has no jurisdiction to conduct a jury trial in a preference action. The Trustee does not oppose the motion. After reviewing the relevant literature and cases on the question, the Court is satisfied that the bankruptcy court does have jurisdiction to preside over a jury in a preference action. Accordingly, the Court will deny defendants' motion to withdraw the reference sua sponte.

II.

The question of whether bankruptcy courts have jurisdiction to conduct jury trials in core proceedings has been much debated of late. See, e.g., In re Ben Cooper, 896 F.2d 1394 (2d Cir. 1990); In re Cinematronics, Inc., No. 88-0055R (S.D. Cal. March 14, 1990); Cyr, The Right to Trial By Jury in Bankruptcy: Which Judge is to Preside?, 63 Am. Bankr. L. J. 53 (1989). Gibson, Jury Trials In Bankruptcy: Obeying the Commands of Article III and the Seventh Amendment, 72 Minn. L. Rev. 967 (1988). A majority of courts have held that the bankruptcy courts do have jurisdiction to conduct jury trials. See Citibank, N.A. v. Park-Kenilworth Industries, 109 B.R. 321 (N.D. Ill. 1989). The Court is satisfied that this is the correct view.

A.

In 1978, Congress enacted a comprehensive restructuring of the bankruptcy system. Bankruptcy Reform Act of 1978, Pub.L. No. 95-589, 92 Stat. 2549 (1978) (the Act). The Act replaced the former bankruptcy referee system with a national system of bankruptcy courts with greatly expanded powers. One of the powers conferred on the new bankruptcy courts was the authority to conduct jury trials. 28 U.S.C. § 1480 (repealed 1984).

The Supreme Court invalidated many of the powers conferred on bankruptcy courts under the Act in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982). In a plurarity opinion, four members of the Court held that the bankruptcy courts' exercise of the full range of jurisdiction granted by the Act would violate the Constitution because bankruptcy judges did not have Article III salary protection or life tenure. The plurality noted that unlike other Article I courts and administrative agencies, the Act vested all the "essential attributes" of the judicial power of the United States in the bankruptcy courts, such as

all ordinary powers of district courts including the power to preside over jury trials, the power to issue declaratory judgments, the power to issue writs of habeas corpus, and the power to issue any order, process, or judgment appropriate to the enforcement of any of the provisions of Title 11. . . .
Id. at 85.

Following Northern Pipeline, the Judicial Conference directed the Administrative Office of the Courts to promulgate an interim model bankruptcy rule for adoption by the various district courts which would address some of the Supreme Court's concerns. The Conference promulgated the Emergency Rule of Reference (Emergency Rule), which, inter alia, withdrew from the bankruptcy courts the power to conduct jury trials. Emergency Rule § (d)(1)(D). Subsequently, the Conference drafted a set of revised Bankruptcy Rules, which were approved by the Supreme Court and Congress and enacted into force in August 1983. Rule 9015 governed the procedure for demanding and conducting jury trials. Some courts interpreted Rule 9015 to reinstate the right to a jury trial in the bankruptcy court.

Rule 9015 was repealed in 1987 because the Judicial Conference found that district courts were citing it as substantive support for the right of bankruptcy courts to conduct jury trials. The Conference found this inconsistent with the admonition in 28 U.S.C. § 2075 that the rules should not be construed to abridge, enlarge, or modify any substantive rights. The Conference noted that "in the event that the courts of appeals or the Supreme Court define a right to a jury trial in any bankruptcy mattes [sic], a local rule in substantially the same form of Rule 9015 can be adopted pending amendment of these rules." Committee Note to the Abrogation of Bankr. R. 9015, quoted in Gibson, Jury Trials in Bankruptcy, 72 Minn. L. Rev. at 1030 n. 296.

In 1984, Congress passed the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-343, 98 Stat. 333 (1984) (1984 Amendments). Interestingly, the 1984 Amendments did not definitively resolve the unsettled status of jury trials, in the bankruptcy courts. The only arguably relevant section was codified at 28 U.S.C. § 1411(a), which provides:

Except as provided in subsection (b) of this section, this chapter and title 11 do not affect any right to trial by jury that an individual has under applicable non-bankruptcy law with regard to a personal injury or wrongful death claim.

Section 1411 has been interpreted to guarantee a right to a jury trial in the district court in personal injury and wrongful death cases. In re McCormick, 67 B.R. 838, 841-42 (D. Nev. 1985). However the 1984 Amendments are silent as to the available fora for jury trials in other matters. Gibson, Jury Trials in Bankruptcy, 72 Minn. L. Rev. 989-90.

With its grant of certiorari in Granfinanceria S.A. v. Nordberg, 835 F.2d 1341 (11th Cir.), cert. granted, 108 S.Ct. 2818 (1988), there was some hope that the Supreme Court would finally resolve the issue of bankruptcy jury trials. Cyr, The Right to Trial By Jury in Bankruptcy. Which Judge is to Preside?, 63 Am. Bankr. L. J. 53 (1989). However, the Supreme Court dashed these hopes when it expressly declined to reach the question in its subsequent opinion. Granfinanceria v. Nordberg, 106 L.Ed.2d 26, 55 (1990). In Granfinanceria, the Supreme Court held that persons who had not submitted a claim against a bankruptcy estate have a Seventh Amendment right to a jury trial when sued by the trustee to recover an allegedly fraudulent conveyance. Although there is some language in the decision suggesting that the Supreme Court would not be adverse to bankruptcy courts presiding over jury trials, id. at 53-54, courts interpreting the opinion have generally concluded that the question remains open. See, e.g., In re Ben Cooper, 896 F.2d 1394 (2d Cir. 1990).

B.

Three possible barriers to bankruptcy courts conducting jury trials have been identified: the Bankruptcy Act, Article III, and the Seventh Amendment. None of the arguments in favor of prohibition are persuasive.

1.

Some courts have held that because the 1984 Amendments to the Bankruptcy Act did not explicitly endorse bankruptcy courts conducting jury trials, the Act should be interpreted to withhold such authority. See, e.g., In re I.A. Durbin, Inc., 62 B.R. 139, 146 (S.D. Fla. 146); In re Brown, 56 B.R. 487, 490 (Bankr. M.D. Md. 1985). The inference is unwarranted. If Congress intended to specifically abrogate the bankruptcy courts' power to conduct jury trials, it could have so provided by simply incorporating subsection (d)(1)(D) of the Emergency Rule into the 1984 Amendments, as it did with virtually all of the other provisions of the Rule. Daily v. First Peoples Bank of New Jersey, 76 B.R. 963, 967 (D.N.J. 1987), In re McCormick, 67 Bankr. at 842; In re Gaildeen, 59 Bankr. at 405. In fact, at the time the 1984 Amendments were enacted, Rule 9015 was in force, which had been construed to grant bankruptcy courts the right to hold jury trials. Surely, if Congress had intended to alter an existing bankruptcy rule with which it disagreed, it would have done so explicitly. Id.

Other courts have found independent statutory authority to conduct jury trials in title 28 of the U.S. Code. 28 U.S.C. § 151 provides that "[e]ach bankruptcy judge, as a judicial officer of the district court, may exercise the authority conferred under this chapter with respect to any action, suit, or proceeding. . . ." Section 157(b) grants bankruptcy judges the power "to hear and determine all cases under title 11 and all core proceedings under title 11, or arising in a case under title 11." This extremely broad grant of authority has been held to be sufficiently broad as to confer on the bankruptcy courts a right to conduct jury trials. In re Ben Cooper, 896 F.2d 1394; Citibank, 109 Bankr. at 328; In re McCormick, 67 Bankr. at 842; In re Gaildeen, 59 Bankr. at 406.

2.

Some courts have held that Article III stands as an independent constitutional impediment to bankruptcy courts conducting jury trials, citing Marathon Pipeline, 458 U.S. at 85. See, e.g., In re Proehl, 36 B.R. 86, 87 (W.D. Va. 1984). In re Brown, 56 Bankr. at 490; In re American Energy, 50 B.R. 175, 181 (Bankr D.N.D. 1985); The Court does not read Marathon so broadly. Marathon's mention of the power of bankruptcy courts to conduct jury trials was not intended to reflect the Court's disapproval of that practice in particular. Rather it was cited as only one of the many powers exercised by the bankruptcy courts under the 1978 Act which, when taken together, encompassed virtually all of the judicial powers exercised by Article III judges It was this aggregation of judicial powers in the hands of Article I judges that the Marathon court held violated the Constitution. Citibank, 109 Bankr. at 329; In re McCormick, 67 B.R. 840; In re Gaildeen Industries, Inc., 59 B.R. 402, 406-07 (N.D. Cal. 1986); Daily, 76 Bankr. at 967-68; Cyr, Trial By Jury In Bankruptcy, 63 Am. Bankr. L. J. at 58-59; Gibson, Jury Trials in Bankruptcy, 72 Minn. L. Rev. at 1038-39.

Professor Gibson cites two examples of Article I courts whose exercise of the power to conduct jury trials was explicitly held to be constitutional: the municipal courts of the District of Columbia, Pernell v. Southall Realty, 416 U.S. 363, 383 (1974), and the United States magistrates, Fields v. Metro Area Transit Auth., 743 F.2d 890, 894 (D.C. Cir. 1984); Geras v. Lafayette Display Fixtures, 742 F.2d 1037, 1039 (7th Cir. 1984). Gibson, Jury Trials in Bankruptcy, 72 Minn. L. Rev. at 1039-40. She argues that the polices underlying Article III are not offended by such Article I courts presiding over jury trials. Assuming that Article III was intended to insulate judges from the pressures of the coordinate branches, juries could be expected to be more immune from such pressure than any government appointee, even those with life tenure. Id. at 104243. If there is no constitutional problem with bankruptcy judges otherwise entering final judgments in core bankruptcy matters, a fortiori there should be no constitutional problem with them presiding over juries. See also In re Ben Cooper, 896 F.2d 1394.

3.

Finally it has been observed that the Seventh Amendment bars bankruptcy courts from holding jury trials because no reviewing court may reexamine facts found by a jury. See, e.g., Cyr, Trial By Jury In Bankruptcy, 63 Am. Bankr. L. J. at 59-63. Since 28 U.S.C. § 157(c)(1) provides that the findings of fact and conclusions of law of bankruptcy courts in non-core proceedings are reviewable by the district court de novo, the Seventh Amendment is offended by the bankruptcy court holding jury trials. While this argument may be valid as to non-core proceedings, it has no application to core proceedings, where the findings of the bankruptcy court are reviewable only for clear error. 28 U.S.C. § 158. Since a jury verdict in core proceedings are subject to the same level of appellate review as are findings of the district court, the Seventh Amendment is not violated by the bankruptcy court's conducting jury trials in core proceeding. Daily, 76 B.R. 968; In re Reda, 60 B.R. 178, 182 (Bankr. N.D. Ill. 1986).

III.

In addition to finding that bankruptcy courts may conduct jury trials in core proceedings, the Court is also of the view that bankruptcy courts ought to conduct such trials when duly demanded by the parties. Diversion of these types of trials to the bankruptcy court would foster an improved distribution of resources among the district courts and its adjuncts. It would reduce the burdens on the district courts and decrease delay and expense to the litigants. In re McCormick, 67 Bankr. at 843. Moreover, bankruptcy courts have a special expertise in these matters which would ensure both accuracy and fairness in the proceedings. Finally, consolidation of all bankruptcy matters before a specialized court was one of the primary goals of the 1978 Bankruptcy Act. Bifurcating jury trials from other matters before the bankruptcy court would threaten the policies economy and specialization which underlay Congress' 1978 reforms. Gibson, Jury Trials in Bankruptcy, 72 Minn. L. Rev. at 1027 n. 288.

IV.

Accordingly, A A's motion to withdraw reference of the trustee's preference action from the bankruptcy court is DENIED. If either of the parties wish expedited review of this Order, the Court will certify the question for interlocutory review.

SO ORDERED.


Summaries of

In re Corango Resources, Ltd.

United States District Court, E.D. Michigan, Southern Division
May 2, 1990
No. 89-70527 (E.D. Mich. May. 2, 1990)
Case details for

In re Corango Resources, Ltd.

Case Details

Full title:In re Corango Resources, Ltd

Court:United States District Court, E.D. Michigan, Southern Division

Date published: May 2, 1990

Citations

No. 89-70527 (E.D. Mich. May. 2, 1990)

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