Souther v. Bacon County Health Services Inc. (In re Matrix Imaging Services Inc.)

479 B.R. 182
CourtUnited States Bankruptcy Court, S.D. Georgia
DecidedAugust 22, 2012
DocketBankruptcy No. 10-20371; Adversary No. 11-02016
StatusPublished
Cited by3 cases

This text of 479 B.R. 182 (Souther v. Bacon County Health Services Inc. (In re Matrix Imaging Services Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. Georgia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Souther v. Bacon County Health Services Inc. (In re Matrix Imaging Services Inc.), 479 B.R. 182 (Ga. 2012).

Opinion

OPINION AND ORDER SUSTAINING DEMANDS FOR & JURY TRIAL, STRIKING DEFENDANT’S PRAYER FOR ATTORNEY’S FEES, AND FIXING TIME FOR FILING AMENDED COUNTERCLAIM

JOHN S. DALIS, Bankruptcy Judge.

This matter came on for hearing in the Bankruptcy Court after the United States District Court for the Southern District of Georgia (“District Court”) denied a motion by Defendant Bacon County Health Services Inc. (“Bacon County”) to withdraw the reference for this adversary proceeding.1 The motion was denied without prejudice, the District Court noting that the Bankruptcy Court had not determined whether this adversary proceeding is core or non-core under 28 U.S.C. § 157.

In the District Court, Bacon County argued that it had a right to a jury trial on all counts alleged in the Complaint and that no jury trial is available in the Bankruptcy Court. The chapter 7 trustee (“Trustee”) countered that Bacon County had waived any right to a jury trial by pleading setoff as an affirmative defense and by asking for attorney’s fees in its Answer, thereby making a claim against [186]*186the bankruptcy estate and invoking the Bankruptcy Court’s equitable jurisdiction.

At the hearing, I heard argument on the following three questions: (1) whether the adversary proceeding is core or non-core, (2) whether Bacon County has a right to a jury trial, and (3) whether I have the authority to enter a final order under Stern v. Marshall, — U.S. —, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). At the close of the hearing, I took the matter under advisement.

I now conclude that all eight counts of the Complaint are non-core. I further conclude that Bacon County’s “affirmative defense” of setoff is in substance a counterclaim that is core. The entire adversary proceeding will be tried before a jury, because the rights of action pleaded in the Complaint are triable of right by a jury and because both Bacon County and the Trustee have made a jury trial demand. Finally, I conclude that Stem v. Marshall has no direct application to this adversary proceeding.

FINDINGS OF FACT

According to the Complaint, this adversary proceeding arises out of two contracts between Bacon County and Matrix Imaging Services Inc. (“Matrix”), the Debtor in the underlying chapter 7 case. The Trustee alleges that “the parties agreed that Matrix would perform all MRI imaging studies and nuclear studies for certain patients, and, in return Bacon County would reimburse Matrix for Matrix’s services.” (Compl. ¶ 8, ECF No. 1.)2 The Trustee further alleges that Bacon County breached both contracts. (Id. ¶¶ 9-10.) Bacon County did not file a proof of claim in the bankruptcy case.

The Complaint sets forth eight counts: (I) breach of the MRI agreement; (II) breach of the exclusivity agreement under the MRI agreement; (III) breach of the nuclear studies agreement; (IV) money had and received; (V) negligence; (VI) breach of fiduciary duty and confidential relations; (VII) bad faith attorney’s fees under O.C.G.A. § 13-6-11; and (VIII) contractual attorney’s fees under the MRI agreement. (Id. ¶¶ 57-89.) In addition to the attorney’s fees and costs, the Trustee seeks a judgment in the amount of $443,100. (Id. ¶ (a)-(h).)

The prayer for relief also includes a demand for a jury trial:

WHEREFORE, Plaintiff prays the following:
(b) That Plaintiff has a trial by jury on all issues so triable;
(d) That Plaintiff recovers all damages against Defendant in such an amount that a jury determines from the evidence that the Plaintiff is entitled to recover under law.

(Id. ¶¶ (b), (d) (emphasis added).)

Apparently overlooking the demand for a jury trial in the Complaint, Bacon County filed an Answer in which it asserted that the Trustee’s adversary proceeding was non-core within the meaning of 28 U.S.C. § 157 and further, that Bacon County did not consent to entry of a final order or judgment by the bankruptcy court. (Answer ¶ 5, ECF No. 7.) Concurrently, Bacon County also filed a separate jury demand (ECF No. 8) and a 16-page motion to withdraw the reference (ECF No. 9), both of which were transmitted to the District Court.3

[187]*187The Trustee, seemingly unaware that he himself had made a jury demand, responded in District Court in opposition to Bacon County’s motion to withdraw the reference, arguing in a 19-page reply that Bacon County’s jury demand should be stricken on the ground that Bacon County had subjected itself to the jurisdiction of the Bankruptcy Court for all purposes by pleading setoff as an affirmative defense and by including a request for attorney’s fees in its answer. (Pl.’s Resp. 2, ECF No. 51-1.)4 In a gesture obviously intended to drive home this point — that the assertion of setoff and request for attorney’s fees constituted a claim against the bankruptcy estate — the Trustee also filed in this adversary proceeding a purported answer to Bacon County’s “counterclaims” (ECF No. 23), notwithstanding that there is no counterclaim of record.

The litigation continued in the District Court. Bacon County filed a reply and the Trustee responded with a surreply, both parties oblivious to their essential accord that both have demanded a jury trial. To this day, neither party has evinced any awareness of the Trustee’s jury demand.

CONCLUSIONS OF LAW

I. All Counts in the Complaint Are Non-Core.

The district courts have jurisdiction “of all civil proceedings arising under title 11, or arising in or related to cases under title 11.” 28 U.S.C. § 1334(b). The district court may provide for referral of any and all such cases and proceedings to the bankruptcy court. 28 U.S.C. § 157(a). In the Southern District of Georgia, the District Court has provided for referral under a standing order, In re Jurisdiction of the United States Bankruptcy Court for the Southern District of Georgia, (July 13, 1984).

Bankruptcy judges may hear and determine all bankruptcy cases, but otherwise may enter final orders and judgments only in “core proceedings arising under title 11, or arising in a case under title 11.” 28 U.S.C. § 157(b)(1) (emphasis added). A proceeding “arises under” title 11 when it invokes a substantive right created by the Bankruptcy Code. Lawrence v. Goldberg, 573 F.3d 1265, 1270 (11th Cir.2009). A proceeding “arises in” a case under title 11 when it involves administrative-type matters that could only arise in the bankruptcy context. Cont’l Nat’l Bank of Miami v. Sanchez (In re Toledo),

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Bluebook (online)
479 B.R. 182, Counsel Stack Legal Research, https://law.counselstack.com/opinion/souther-v-bacon-county-health-services-inc-in-re-matrix-imaging-services-gasb-2012.