Opinion
Case No. 99-10158-SSM, Adversary Proceeding No. 99-1129
December 8, 1999
Richard A. Bartl, Esquire, Tyler, Bartl, Burke Albert, PLC, Alexandria, VA, Of Counsel for Plaintiff
Thelma L. Mathis and Harry R. Mathis, Stafford, VA, for Defendants, Pro se
MEMORANDUM OPINION AND ORDER
Before the court is a "Motion Objecting to Pre-Trial Order of November 16, 1999, and Motion for Reconsideration" filed by the defendants, Thelma L. Mathis and Harry R Mathis, on November 29, 1999. Upon reviewing the motion, the court concludes that oral argument is not required, and the court will rule without holding a hearing.
A.
This is an action by a bankruptcy trustee (a) to set aside a transfer of real property from the debtor to herself and her husband as tenants by the entirety and (b) to sell the property. Thelma L. Mathis filed a voluntary chapter 7 petition in this court on January 13, 1999. Robert O. Tyler, Jr., the plaintiff, is the trustee appointed in her case. The present action was commenced on May 25, 1999, and names as defendants the debtor and her husband, Harry R. Mathis. Avoidance of the transfer is sought under § 544(b), Bankruptcy Code, and §§ 55-80 and 55-81, Code of Virginia. Alternatively, sale of the property is sought under § 363(h), Bankruptcy Code. In their answer, the debtors demand a trial by jury.
Section 544(b), Bankruptcy Code, provides in pertinent part:
[T]he trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim[.]
Sections 55-80 and 55-81, Code of Virginia, provide as follows:
§ 55-80. Void fraudulent acts; bona fide purchasers not affected. Every gift, conveyance, assignment or transfer of, or charge upon, any estate, real or personal, every suit commenced or decree, judgment or execution suffered or obtained and every bond or other writing given with intent to delay, hinder or defraud creditors, purchasers or other persons of or from what they are or may be lawfully entitled to shall, as to such creditors, purchasers or other persons, their representatives or assigns, be void. This section shall not affect the title of a purchaser for valuable consideration, unless it appear that he had notice of the fraudulent intent of his immediate grantor or of the fraud rendering void the title of such grantor.
§ 55-81. Voluntary gifts, etc., void as to prior creditors. Every gift, conveyance, assignment, transfer or charge which is not upon consideration deemed valuable in law, or which is upon consideration of marriage, by an insolvent transferor, or by a transferor who is thereby rendered insolvent, shall be void as to creditors whose debts shall have been contracted at the time it was made, but shall not, on that account merely, be void as to creditors whose debts shall have been contracted or as to purchasers who shall have purchased after it was made. Even though it is decreed to be void as to a prior creditor, because voluntary or upon consideration of marriage, it shall not, for that cause, be decreed to be void as to subsequent creditors or purchasers.
The cause of action under § 363(h) becomes an issue only if the trustee is not successful in recovering the property under his avoidance causes of action. If the trustee is successful, then the recovered property becomes part of the bankruptcy estate, and the trustee is free to sell it without having to satisfy the requirements under § 363(h) for sale both of the estate's interest and a co-owner's interest in property.
A scheduling order entered at the outset of the case required all discovery to be completed within 120 days from the date of the summons. A pretrial conference was held on November 16, 1999, for the purpose of setting a trial date. The defendants, who are representing themselves, were present in person. The court set the trial for January 21, 2000, without a jury, and required trial exhibits to be filed with the clerk, and exchanged between the parties, by January 7, 2000. These dates were embodied in a pretrial order dated November 16, 1999, and entered on the docket the same day. On November 29, 1999, the defendants filed the present motion for reconsideration.
As a threshold matter, the court observes that the motion for reconsideration is filed outside the ten-day period allowed under F.R.Bankr.P. 9023 and Fed.R.Civ.P. 59(e) for a motion to alter or amend an order. A similar time limit does not apply to motions under F.R.Bankr.P. 9024 and Fed.R.Civ.P. 60(b) for relief from a judgment or order, but relief under Rule 9024 typically requires a showing of "exceptional circumstances." Dowell v. State Farm Casualty Automobile Ins. Co., 993 F.2d 46, 48 (4th Cir. 1993). To the extent that the motion seeks postponement of the trial date in order to allow an opportunity for mediation, the court concludes that exceptional circumstances have not been shown justifying the requested relief.
In their answer, the defendants requested that the matter be assigned to mediation. Whether a matter is referred to mediation is discretionary with the court and is necessarily based to some extent on an educated guess as to whether the delay occasioned by the mediation process would be offset by the increased likelihood of settlement. Settlement, of course, serves the public interest in that it reduces expense to the parties and conserves judicial resources. Inherent in the concept of mediation, however, is the willingness by all parties to consider reasonable compromises. In reviewing the various pleadings filed by the defendants in this and other adversary proceedings to which they are parties, the court can only conclude that the defendants have such an adamant sense of the righteousness of their own cause that mediation would have only a marginal chance of success. In this district, the practice is to set adversary proceedings for trial as early as possible consistent with the need to conduct discovery and adequately prepare. Given the competing interests, the court concludes that delaying the trial of this adversary proceeding would not serve the public interest.
B.
The defendants also seek relief from the discovery cutoff to take the deposition of Charles Halt, who was not identified as a trial witness by the trustee until after the discovery cutoff date had passed. Given the late identification of the witness, and the strong interest in avoiding trial by ambush, the court concludes that good cause exists to allow the deposition to be taken and will extend discovery to December 30, 1999, for that sole purpose.
C.
The final issue involves the demand for jury trial. No provision of the Bankruptcy Code confers a general right of jury trial with respect to controversies arising in a bankruptcy case. It is true that under 28 U.S.C. § 1411(a), a bankruptcy case does not "affect any right to trial by jury . . . under applicable nonbankruptcy law with regard to a personal injury or wrongful death tort claim.' But since the present adversary proceeding is not one for personal injury or wrongful death, 28 U.S.C. § 1411 (a) does not apply.
Such claims, in any event, are excluded from a bankruptcy court's "core" jurisdiction, 28 U.S.C. § 157(b)(2)(B), and must be tried in the district court. 28 U.S.C. § 157(b)(3).
Additionally, 28 U.S.C. § 157(e) provides:
(e) If the right to a jury trial applies in a proceeding that may be heard under this section by a bankruptcy judge, the bankruptcy judge may conduct the jury trial if specially designated to exercise such jurisdiction by the district court and with the express consent of all the parties.
This statutory provision does not, however, create any right of jury trial; it simply authorizes a bankruptcy judge to conduct a jury trial "[i]f the right to jury trial applies," and the other conditions of the statute are met. In this district, no bankruptcy judge has been specially designated to conduct a jury trial. Accordingly, if a right to jury trial were determined to exist, the trial would have to be conducted by the district court.
Despite the lack of an express statutory right to a jury trial in bankruptcy proceedings, such a right exists if the action being tried is one in which, under the Seventh Amendment to the Constitution of the United States, a right to jury trial would exist in a nonbankruptcy forum. Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989). Under the Seventh Amendment, "[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved." The Supreme Court has consistently held that the term "suits at common law" refers to suits in which legal rights were being determined, as distinguished from those in which equitable rights alone were being determined. Granfinanciera, 492 U.S. at 41, 109 S.Ct. at 2790. In Granfinanciera, the trustee had brought a fraudulent conveyance action against a party who had not filed a proof of claim in the bankruptcy case. The Supreme Court determined that, at the time the Seventh Amendment was adopted, a fraudulent conveyance action to recover a determinate sum of money was maintainable only at law, and on that basis ruled that the defendant had a right to a jury trial on its defenses.
In the present action, the trustee's fraudulent conveyance action, which is brought under § 544(b), Bankruptcy Code and § 55-80 and § 55-81, Code of Virginia, does not seek recovery of a determinate sum of money but rather the setting aside of a transfer. Section 544(b) simply allows the trustee to take advantage of any applicable state law remedy that would have been available to the debtor's creditors. Sections 55-80 and 55-81, Code of Virginia, allow creditors to reach property that a debtor has transferred either with intent to defraud creditors or without valuable consideration. In Virginia, suits by creditors under §§ 55-80 and 55-81 and their statutory predecessors have historically been brought in equity. See, e.g., Solenberger v. Strickler's Adm'r, 110 Va. 273, 65 S.E. 566 (1909) ("There can be no doubt that a court of equity has jurisdiction of a bill filed by a creditor in order to clear away conveyances made . . . to hinder, delay and defraud . . . creditors."). See also 9A Michie's Jurisprudence of Va. and W. Va., "Fraudulent and Voluntary Conveyances" § 78 ("It has been held that a fraudulent conveyance, transfer or charge in the form of a deed, deed of trust, decree or judgment can be set aside only in a court of equity."). While it appears that theoretically a fraudulent conveyance action could be maintained at common law, see Jetco, Inc. v. Bank of Virginia, 209 Va. 482, 165 S.E.2d 276 (1969) ("[I]t has long been the rule in this jurisdiction that courts of law and courts of equity have concurrent jurisdiction over alienations made in fraud of creditors"), this court has found no case law suggesting that at the time the Seventh Amendment was adopted, an action in Virginia to set aside a conveyance of real property as a fraudulent transaction could only be brought in the common-law courts. Indeed, as the Virginia courts early recognized, "[T]he remedy in equity is frequently more beneficial than at law, by means of its power to compel discovery, and to cause fraudulent deeds and securities to be cancelled, or conveyances to be made; thus effectually putting an end to future litigation." Garland v. Rives, 25 Va. (4 Rand) 282 (1826). An action under § 363(h), Bankruptcy Code, to sell the interest both of a debtor and of a co-owner in property is analogous to a state law partition action, which in Virginia is likewise brought in equity. See 14A Michie's Jurisprudence, "Partition" § 13. Although partition was originally a common-law remedy, Lowry v. Noell, 177 Va. 238, 13 S.E.2d 312 (1941), courts of equity in both England and Virginia have from an early date exercised jurisdiction over partition suits, even in the absence of statute, "from the extreme inconvenience and difficulty of proceeding at law." Wisely v. Findlay, 24 Va. (3 Rand.) 361 (1825).
Section 363(h), Bankruptcy Code, provides in pertinent part as follows:
[T]he trustee may sell both the estate's interest . . . and the interest of any co-owner in property in which the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant by the entirety, only if —
(1) partition in kind of such property among the estate and such co-owners is impracticable;
(2) sale of the estate's undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such co-owners;
(3) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs the detriment, if any, to such co-owners; and
(4) such property is not used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power.
The court concludes, therefore, that the relief sought by the trustee is not of a character that, at the time the Seventh Amendment was adopted, could have been maintained only in a court of law. Accordingly, there is no Seventh Amendment right to jury trial and the demand for jury trial will be stricken.
ORDER
For the foregoing reasons, it is
ORDERED:
1. The motion for reconsideration, which the court treats as a motion under F.R.Bankr.P. 9024 is granted in part and denied in part. Relief from the pretrial order of November 16, 1999, is granted to allow the defendants, no later than December 30, 1999, and on not less than fivebusiness days notice to the witness and the plaintiff, to take the deposition of Charles Halt. In all other respects the motion is denied.
To the extent the defendants construe the pretrial order as precluding them from filing a motion for summary judgment, they are mistaken. The pretrial order does not set a cutoff date for pretrial motions, including motions for summary judgment. Such motions may be filed at any time, consistent with the time limits set forth in Local Bankruptcy Rule 9013-1 and the published Motions Day Procedure for Alexandria Division.
2. The defendants' demand for jury trial is stricken.
3. The clerk will mail a copy of this order to counsel for the plaintiff and to the defendants.