Opinion
Bankruptcy No. 06-30009, Bankruptcy No. 07-30012, Adversary No. 08-3003.
May 7, 2008
MEMORANDUM OPINION WITH RESPECT TO RIGHT TO JURY TRIAL
Dawn Prosser, Debtor Jeffrey Prosser's nondebtor wife, asserted a right to a jury trial in several adversaries filed by the Chapter 11 Trustee of related Debtors Innovative Communication Company, LLC ("ICC"), Case No. 06-30008, and Innovative Communication Corporation ("New ICC"), Case No. 07-30012. In one of the adversaries, Adv. No. 08-3010, James P. Carroll, the Chapter 7 Trustee of Jeffrey Prosser's individual case is also a plaintiff.
RE: Prosser Adversary No. 08-3002, Dawn Prosser's Motion to Stay Action (Doc. No. 10)
Dawn Prosser's motion to stay Adv. No. 08-3002 asserts that the action should be stayed because she demanded a jury trial in her answer (Doc. No. 6) to the Complaint and does not consent to this court conducting a jury trial and entering a final order. She also seeks a stay on the ground that a motion to withdraw the reference has been filed so it would be a waste of time and would prejudice her constitutional rights if this court proceeded. We note first that the filing of a motion to withdraw the reference does not remove jurisdiction from the bankruptcy court and the bankruptcy court will proceed with the case until and unless the reference is in fact withdrawn. Because of the seriousness of the issue raised, however, and because this court has the discretion to abstain if abstention would be in the best interests of all concerned, we will examine whether to abstain pending. In this regard we first consider whether the subject of the Trustee's complaint in Adv. No. 08-3002 is one that is subject to a jury trial.
The Complaint is styled as an action to "Recover Fraudulent Transfer of Palm Beach Property and Related Claims." The defendants are Debtor Jeffrey Prosser and Dawn Prosser, his wife, a nondebtor. The Complaint seeks recovery of real property and improvements thereto located at a residence in Palm Beach, Florida, which was conveyed from New ICC to the Prossers for no consideration.
The Seventh Amendment provides that "(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 held that "suits at common law" refers to "suits in which legal rights are to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized, and equitable remedies were administered.'" Granfinanciera v. Nordberg, 492 U.S. 33, 41 (1989) quoting Parsons v. Bedford, 7 L.Ed. 732 (1830). While the Seventh Amendment seeks to preserve the right to a jury trial as it existed in 1791, the Amendment also applies to an action brought to enforce statutory rights that are analogous to common-law causes of action ordinarily decided in English law courts in the late 18th century. 492 U.S. at 42.
In Granfinanciera, the Supreme Court developed a three step process for analyzing whether a party had a right to a jury trial in a bankruptcy case: (1) compare the statutory action to 18th century actions brought in the courts of England prior to the merger of the courts of law and equity; (2) examine the remedy sought and determine whether it is legal or equitable in nature; and (3) if these two factors indicate that a party is entitled to a jury trial, the court must decide whether Congress may assign and has assigned resolution of the relevant claim to a non-Article III adjudicative body that does not use a jury as factfinder. Id. at 42.
In Granfinanciera, the court addressed the issue of "whether a person who has not submitted a claim against a bankruptcy estate has a right to a jury trial when sued by the trustee in bankruptcy to recover an allegedly fraudulent monetary transfer." Id. at 36. The Supreme Court noted that actions to recover preferential or fraudulent transfers were often brought at law in late 18th century England. Id. at 43. Second, the Court held that because the trustee was only seeking return of money, the action was properly heard by law courts. Id. at 48. Finally, the Court held that where a person has not filed a claim against the estate, a jury trial in a fraudulent conveyance action is permissible. Id. at 49.
While the Court observed that some courts have held that there is no Seventh Amendment jury trial right in a suit for the equitable remedy of setting aside an alleged fraudulent conveyance of real estate, the Court found such holdings questionable in light of its own holding in Whitehead v. Shattuck, 138 U.S. 146 (1891), that where an action is simply for the recovery and possession of specific real or personal property or a money judgment, the action is one at law. Granfinanciera, 492 U.S. at 47 n. 5.
After discussing Granfinanciera, the Court of Appeals for the Third Circuit stated in 1994 that "every court of appeals to have considered the issue, albeit prior to Granfinanciera, held that any attempt to remedy a fraudulent conveyance of real property through set aside or avoidance was a matter for the equity courts and that no right to a jury trial attached." In re Pasquariello, 16 F.3d 525, 530 (3d Cir. 1994). Yet, the Court of Appeals also noted that since the Court's holding in Granfinanciera, bankruptcy and district courts have found that the Seventh Amendment requires a jury trial in suits to set aside fraudulent transfers of real property. Id. at n. 9. The Court of Appeals also asserted that the Supreme Court made a distinction between the equitable remedy of setting aside a fraudulent conveyance of real estate and an action to recover a fraudulent conveyance of a determinative sum of money. Id. at 530.
Furthermore, the court stated that even if were to determine that Granfinanciera did reject the consensus of the courts of appeals regarding the remedial nature of an action to avoid a fraudulent conveyance of real property, it would still need to be proven that Congress could not assign the claim to a non-Article III adjudicative body that does not use a jury as factfinder. Id. at 531. The court then stated that "Congress's plan regarding granting a right to a jury trial in such core proceedings is unclear." Id. In fact, the court cited the 1984 Amendments to the Bankruptcy Code which authorized bankruptcy judges to hear and determine all core proceedings and specifically stated that "proceedings to determine, avoid, or recover fraudulent conveyances' are core proceedings." Id. Because Pasquariello involved an allegedly fraudulent transfer of real estate, the court held that it was unclear as to whether the party was entitled to a jury trial in an adversary proceeding. Id. Thus, the court refused to issue a writ of mandamus to review the district court's decision denying the transferee's motion to withdraw its reference of jurisdiction from the bankruptcy court in order to get a jury trial in the district court. Id.
In an action to set aside a sale of vehicles and amusement rides due to fraud and fraudulent conveyance, a court granted a motion to quash the buyer's demand for a jury trial. FDIC v. Sanders, 785 F.Supp. 528, 528-30 (W.D. Pa. 1992). Specifically, the court noted that Granfinanciera only addressed the transfer of a fixed sum of money which was unquestionably legal. Id. at 529. Because the buyer here did not seek monetary relief, he was not entitled to a jury trial. Id.
In In re Roberts, 126 B.R. 678, 679 (Bankr.W.D.Pa. 1991), the Chapter 7 trustee sought to recover postpetition fraudulent transfers of estate property. The court noted that although the action was brought under 11 U.S.C. § 549, the trustee was actually claiming that the diversion of estate property constituted a fraudulent transfer. Id. at 682. The court noted that even though the action to avoid the transfers was a core proceeding pursuant to 28 U.S.C. § 157, it did not necessarily mean that the movants were not entitled to a jury trial. Id. at 681. Moreover, actions to recover fraudulent transfers were brought at law and tried by juries in the courts of England prior to the merger of law and equity. Id. at 682. Furthermore, to the extent that the claim sought monetary relief, it was an action at law. Id. However, even though the trustee also sought to have the mortgage declared null and void, an equitable remedy, that did not affect the right to a jury trial. Id. Thus, the court ordered that the request for jury trial was to be granted and that the district court should hear the case. Id. at 683.
In Pasquariello the Court of Appeals, in analyzing Granfinanciera, examined the three-part test the Supreme Court set forth therein to determine whether a person who has not filed a claim against a bankruptcy estate was entitled to a jury trial. That is, (1) compare the statutory fraudulent transfer action to 18th century actions prior to the merger of law and equity; (2) examine the remedy to determine whether it is legal or equitable, which the court deemed to be more important than (1); and (3) if (1) and (2) on balance indicate a right to a jury trial, the court must decide whether Congress assigned the resolution to a "non-Article III adjudicative body that does not sue a jury as factfinder." Pasquariello, 16 F.3d at 529, quoting Granfinanciera, 492 U.S. at 42. Prior to Granfinanciera, courts of appeals addressing the issue decided that actions to "remedy a fraudulent conveyance of real property through a set aside or avoidance" was a matter for courts of equity and, therefore, no jury trial right attached. The court in Pasquariello noted that Granfinanciera distinguished actions to set aside transfers of real property as opposed to actions to recover money and held that because the trustee in Granfinanciera only sought the equitable remedy of setting aside the alleged fraudulent conveyance of real estate by a bankruptcy debtor, there was no right to a jury trial. Pasquariello, 16 F.3d at 530. The court in Pasquariello noted that the Supreme Court in Granfinanciera "repeatedly emphasized" that the action therein "involved an `action to recover an alleged fraudulent conveyance of a determinate sum of money,'" which an 18th century court of equity would not have adjudicated. 16 F.3d at 530 quoting Granfinanciera, 492 U.S. at 46-47 (emphasis added). In Pasquariello the plaintiff sought legal and equitable remedies and therefore it was unclear, for purposes of issuance of a writ of mandamus, whether or not there was a right to jury trial.
Dawn Prosser has not filed a formal proof of claim in these related bankruptcies. However, the action is, in essence, one to recover estate property, a core matter. The Complaint alleges that the Prossers' residence was purchased by New ICC, through Debtor who controlled New ICC, then transferred to the Prossers, again through Debtor, for no consideration. Dawn Prosser, in her answer to the complaint, demands a jury trial, denies that the action is a core proceeding, asserts that this court has no jurisdiction over her or the subject matter, denies responsibility for the transfer, and raises other defenses. We find that Mrs. Prosser has no right to a jury trial with respect to this action which is an action to recover estate property of which she has possession along with or through her Debtor husband, the party who is alleged to have engaged in this fraudulent transfer. The determination of property of the estate is a basis of bankruptcy court jurisdiction and if in fact the transfer from New ICC to the Prossers is established to have been fraudulent, it is within this court's core jurisdiction to effect the return of estate property for the benefit of all creditors of the New ICC bankruptcy estate.
RE: New ICC Adversary No. 08-3003, Demand for Jury Trial Asserted in Answer to Amended Complaint
Dawn Prosser's answer to the Complaint in this adversary proceeding is virtually identical to the answer she filed at Adv. No. 08-3002. Her demand for a jury trial with respect to this adversary proceeding is denied for the same reasons we deny it with respect to Adv. No. 08-3002.
RE: New ICC Adversary No. 07-3010, Demand for Jury Trial Asserted in Answer to Amended Complaint
Adversary 07-3010 is an action under § 542 for turnover of all estate property purchased by the defendants with New ICC's funds and seeks, inter alia, imposition of a constructive trust and a preliminary and permanent injunction. Dawn Prosser filed a motion to dismiss the Complaint at Document Number 76. Nowhere in the motion does she request a jury trial. An Amended Complaint was filed before Mrs. Prosser filed her motion to dismiss. It is not clear whether her answer is directed to the original or amended Complaint but it is the first response she filed in Adv. 07-3010 and it does not assert a right to a jury trial. The trustee asserts that her demand was not timely and that alone constitutes a waiver of the right to jury trial if one exists. The motion to dismiss was filed the same day the Amended Complaint was filed but nearly two months after the initial Complaint was filed. This court denied her motion to dismiss the Complaint on March 10, 2008, Doc. No. 166. On March 17, 2008, Doc. No. 175, her counsel filed an answer to the Complaint with a demand for a jury trial. Because the answer was filed timely in relation to the entry of the order denying Mrs. Prosser's motion to dismiss, we will overrule the Trustee on this particular ground. However, the relief sought by the Trustee is purely equitable and therefore there is no right to jury trial with respect to this adversary proceeding.
We note that the docket does not link to any docket number as required by Local Rules and/or ECF Procedures and does not state that it is an answer to the Amended Complaint, although the document itself is titled as an answer to the Amended Complaint.
As with respect to Adversary Numbers 08-3002 and 08-3003, the Trustee seeks return of property to the estate. Determination of whether or not property is estate property is clearly subject to the bankruptcy court's jurisdiction in the first instance. and subject to a jury trial right unless Congress has "permissibly withdrawn jurisdiction . . . and assigned it exclusively to non-Article III tribunals sitting without juries," 914 F.2d at 438, quoting Granfinanciera, 492 U.S. at 49, as long as the claim asserts a public right. 492 U.S. at 34. Here, the action is to recover bankruptcy estate property, for the benefit of creditors of New ICC's estate, and is not one to collect a money judgment. This bankruptcy court has jurisdiction over estate property, wherever located, and the subject matter jurisdiction to effectuate its return to the estate.
At a hearing on Mrs. Prosser's right to jury trial, her attorney relied on Beard v. Braunstein, 914 F.2d 434 (3d Cir. 1990), but that was an action to recover rents which sounds in contract. The trustee's action in that case clearly sought a money judgment, traditionally one a law. Counsel also cited In re Asousa Partnership, 276 B.R. 55 (Bankr.E.D.Pa. 2002), but in that case the court refused to abstain from a claims allowance procedure, particularly because the outcome of the chapter 11 reorganization depended on the outcome of the litigation before it. Likewise, in the case at bench, the adversary proceedings seeking to reclaim fraudulently transferred property is essential to the reorganization of New ICC.
Appropriate orders will be entered.
ORDER DENYING DAWN PROSSER'S MOTION TO STAY ACTION RELATED TO PALM BEACH PROPERTY AND WITH RESPECT TO ASSERTED RIGHT TO JURY TRIAL
AND NOW, this 7th day of May, 2008, for the reasons stated in the foregoing Memorandum Opinion, it is ORDERED that the motion to stay is DENIED and Dawn Prosser's assertion of right to jury trial is OVERRULED.
It is FURTHER ORDERED that the Chapter 11 Trustee shall serve a copy of the Memorandum Opinion and this Order on all parties in interest who do not receive electronic notice and shall file a certificate of service forthwith. IN THE DISTRICT COURT OF THE VIRGIN ISLANDS BANKRUPTCY DIVISION DIVISION OF ST. THOMAS AND ST. JOHN Related to Related to Related to Related to
IN RE INNOVATIVE COMMUNICATION Bankruptcy No. 07-30012 CORPORATION Chapter 11 Debtor Stan Springel James P. Carroll Plaintiffs/Trustees v. Adversary No. 07-3010 Jeffrey J. Prosser, Dawn Prosser, Doc. No. 124, Motion to Justin Prosser, Michael J. Prosser, Compel Compliance With Court Orders Sybil G. Prosser, Michelle LaBennett, and to Compel Production of Documents Lyndon A. Prosser Doc. No. 211, Chapter 11 Trustee's Brief re Dawn Prosser's Asserted Right to a Jury Trial Stan Springel Plaintiff v. Adversary No. 08-3003 Dawn Prosser Doc. No. Doc. No. 7, Answer to Defendant Complaint asserting right to jury trial Doc. No. 19, Chapter 11 Trustee's Brief RE Dawn Prosser's Asserted Right to Jury TrialORDER WITH RESPECT TO ASSERTED RIGHT TO JURY TRIAL
AND NOW, this 7th day of May, 2008, for the reasons stated in the foregoing Memorandum Opinion, it is ORDERED that Dawn Prosser's assertion of right to jury trial is OVERRULED.It is FURTHER ORDERED that the Chapter 11 Trustee shall serve a copy of the Memorandum Opinion and this Order on all parties in interest who do not receive electronic notice and shall file a certificate of service forthwith.