Opinion
Adversary No. 02-8125, Civil No. 03-1117 ADM
April 11, 2003
Matthew R. Burton, Esq., and Brian F. Leonard, Esq., Leonard, O'Brien, Wilford, Spencer Gale, LTD., Minneapolis, MN, for Plaintiff.
Patrick C. Summers, Esq., Mackall, Crounse Moore, PLC, Minneapolis, MN, and Jason S. Brookner, Esq., Andrews Kurth, L.L.P., Dallas, TX, for Defendant.
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
This matter is before the undersigned United States District Judge pursuant to Defendant Onyx Acceptance Corporation's ("Onyx") Motion to Withdraw the Reference [Docket No. 1]. The Motion originates from a Complaint filed in the Bankruptcy Court for the District of Minnesota by Plaintiff Brian F. Leonard, as Trustee for the estate of Securities Resolution Corporation, f/k/a Miller Schroeder Financial, Inc. ("the Trustee"), alleging preferential transfers under 11 U.S.C. § 547(b) and 550(a), in the amount of $75,000. Onyx denied the Trustee's averments and brought the instant Motion seeking a jury trial in the District Court. For the reasons stated below, Onyx's Motion is denied without prejudice.
II. BACKGROUND
Due to the rather unusual procedural progression of the suit, the case is also currently on appeal, to be transferred shortly to the district court, from the Bankruptcy Court's entry of summary judgment against Onyx. The present Motion, however, was timely made prior to disposition of the case on the Bankruptcy Docket.
On March 25, 2003, Onyx elected the appeal be heard by the district court [Adversary Docket No. 23].
As required by Local Rule of Bankruptcy Court 5011-1, Onyx initially moved the Bankruptcy Court to stay all adversary proceedings pending resolution of its Motion to Withdraw the Reference. The Bankruptcy Court denied this request and ordered the withdrawal Motion referred to the District Court for consideration. Motion to Stay Proceedings; Minute Sheet [Adversary Docket Nos. 7, 14].
Subsequently, on February 25, 2003, the Trustee filed a Motion for Summary Judgment, which the Bankruptcy Court heard and granted, ordering Onyx pay the Trustee $75,000. Order Granting Motion for Summary Judgment [Adversary Docket No. 20]. Onyx appealed this ruling and the Bankruptcy Court stayed the Judgment Order against Onyx to await disposition of the appeal. See Notice of Appeal; Order Granting Motion to Stay Judgment Order [Adversary Docket Nos. 22, 31].
III. DISCUSSION
Onyx argues withdrawal of the reference is necessary because of its Seventh Amendment right to a jury trial. The Trustee contends Onyx has waived this right and that, even assuming withdrawal is appropriate, the timing is not, such that the matter should remain in the bankruptcy forum until trial is a certainty.
Pursuant to 28 U.S.C. § 157(d), the district court may withdraw a case on its own motion or timely motion of any party "for cause shown." 28 U.S.C. § 157(d). A party's right to a jury trial is cause for withdrawal of the reference. In re Dooley Plastic Co., Inc., 182 B.R. 73, 81 (D.Mass. 1994). The Supreme Court has established that a defendant in a preference action such as this is entitled to a trial before a jury, as guaranteed by the Seventh Amendment of the Constitution.
Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 47-65 (1989). The trial may be held in the Bankruptcy Court only with "the express consent of all the parties," and Onyx does not consent. 28 U.S.C. § 157(e). Thus, unless Onyx has waived its right of jury trial, the Motion to Withdrawal the Reference and afford trial in the District Court must be granted. See O'Neill v. New England Road, Inc., No. 3:99MC 309 SRU, 2000 WL 435507, at *5 (D. Conn. Feb. 28, 2000).
The Trustee argues Onyx has submitted to the jurisdiction of the Bankruptcy Court by asserting the equivalent of a counterclaim against the estate and thereby waiving its jury trial rights. See, e.g., id. (reciting the general rule that "counterclaims filed in an adversary proceeding instituted by a chapter 11 trustee as claims against the bankruptcy estate . . . divest a defendant of the right to a jury trial"); In re Warmus, 252 B.R. 584, 587 (Bankr.S.D.Fla. 2000) (holding same).
To support its theory that Onyx has made a claim against the estate, the Trustee relies on the general prayer for relief at the conclusion of the Answer in which Onyx requests "the Court . . . (iii) award Onyx reasonable attorney's fees and costs incurred in defending against the Complaint; and (iv) grant such other and further relief as may be just and proper." Answer at 4 [Adversary Docket No. 6].
This standard language, however, does not purport to assert a counterclaim and cannot fairly be read as a submission to the jurisdiction of the Bankruptcy Court. As Onyx notes, to hold otherwise would subject all litigants requesting the discretionary award of costs to an automatic waiver of the entitlement to a jury trial, even without any assertion of a formal claim. See F.R.Bankr.P. 7054(b) (providing for costs to the prevailing party at the discretion of the court). Secondly, a summary, general demand for attorneys' fees in the prayer for relief does not constitute a proper claim for a grant of attorneys' fees, as required by the relevant procedural rules. In re DeMaio, 158 B.R. 890, 892-93 (Bankr. D. Conn. 1993) ("Statements made in a prayer are insufficient to satisfy the requirement that attorneys' fees be stated as a claim."); see F.R.Bankr.P. 7008(b) ("A request for an award of attorneys' fees shall be pleaded as a claim. . . ."); Fed.R.Civ.P. 8(a) (listing rules for pleading a "claim"; incorporated by reference in Bankruptcy Rule 7008(a)). Accordingly, the request for costs and fees contained in the "wherefore" conclusion of the Answer does not set forth a counterclaim against the estate and does not constitute a waiver of the right to a jury trial.
Onyx's right to trial in the District Court, however, does not necessitate immediate granting of its Motion. As noted above, summary judgment has already been granted in this dispute and an appeal is presently pending. Withdrawal of the reference at this juncture, after a final order from the Bankruptcy Court and a corresponding appeal, would frustrate the interests of judicial economy and unnecessarily divert the appellate process. See In re Powelson, 878 F.2d 976, 983 (7th Cir. 1989) (expressing that sua sponte withdrawal of the reference after appeal is taken is disfavored and in conflict with bankruptcy statutory objectives); In re Dow Corning Corp., 255 B.R. 445, 474 (E.D. Mich. 2000) (same); see also In re Keene Corp., 182 B.R. 379, 385 (S.D.N.Y. 1995) (immediate withdrawal based solely on the right to a jury trial runs counter to judicial economy). More significantly for purposes of this Motion, deferral is appropriate because the issue is premature. Id.; Hayes v. Royala, Inc., 180 B.R. 476, 477 (E.D.Tex. 1995) (stating, "this court will not grant a motion to withdraw until it is readily apparent that Plaintiffs' case will require a trial").
Removal to the District Court need not occur until the case becomes trial-ready, as the bankruptcy court may preside over pre-trial motions and "do everything right up to . . . the actual conduct of the jury trial." Barlow Peek, Inc. v. Manke Truck Lines, 163 B.R. 177, 179 (D.Nev. 1993). If and when the suit proceeds to trial, the Motion will be ripe for disposition granting the withdrawal. Hayes, 180 B.R. at 477. Therefore, the Motion is denied without prejudice and Onyx may resubmit its request at such a time as jury trial is set to commence.
IV. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS HEREBY ORDERED that Onyx's Motion to Withdraw the Reference [Docket No. 1] is DENIED WITHOUT PREJUDICE.