Transcontinental Refrigerated Lines, Inc. ex rel. Young v. New Prime, Inc. (In re Transcontinental Refrigerated Lines, Inc.)

494 B.R. 816, 2013 WL 2480883, 2013 Bankr. LEXIS 2361
United States Bankruptcy Court, M.D. Pennsylvania·Decided June 10, 2013·No. Bankruptcy No. 5-08-bk-50578-JJT; Adversary No. 5-10-ap-00092-JJT·Published·Cited by 2 cases

Opinion

OPINION

JOHN J. THOMAS, Bankruptcy Judge.

The liquidating trustee under a confirmed bankruptcy plan has initiated a multi-count litigation against a number of defendants in the hope of creating a fund for the beneficiaries of the plan. While the litigation has moved slowly through a number of preliminary skirmishes, I thought best to articulate, after notice, the scope of the bankruptcy court’s jurisdiction. On my own motion, I have summoned the parties to file briefs on the issue and they have so done. There are two pivotal issues present here. My first concern is the scope of my jurisdiction which should be articulated presently in light of the holdings of Stern v. Marshall, — U.S. -, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011) and Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989). Furthermore, whatever jurisdiction the bankruptcy court may possess may very well be narrowed by the fact that this current litigation arises post-confirmation. Binder v. Price Waterhouse & Co., LLP (In re Resorts Intern., Inc.), 372 F.3d 154 (3rd Cir.2004).

The Complaint filed by the liquidating agent identifies 10 counts all arising out of prepetition activities. These counts fit into three general categories: fraud and conspiracy to commit fraud; fraudulent conveyances under § 548 of the Bankruptcy Code; and breach of fiduciary duty.1

[819]*819When identifying the jurisdictional reach of the bankruptcy court in a post-confirmation setting, the inquiry first requires that the various counts be identified as within the jurisdictional scope of 28 U.S.C. § 1334(b), for otherwise, this Court has no jurisdiction to address the matters before it. If within that parameter, then analysis must be made whether these counts are core or non-core. The analysis is important because, if core, the district court clearly has the jurisdiction to address the issues raised even if confirmation has already occurred. In re Seven Fields Development Corp., 505 F.3d 237, 265 n. 26 (3rd Cir.2007). The question would remain, though, whether the bankruptcy court, an Article I court, can adjudicate the issues.

The § 548 counts alleging fraudulent transfers clearly arise in the bankruptcy. Actions of that nature invoke substantive rights created by Title 11 and are core bankruptcy matters. In re Guild & Gallery Plus, Inc., 72 F.3d 1171, 1178 (3rd Cir.1996). The bankruptcy court is statutorily empowered to make findings of fact and conclusions of law and to issue an order of final adjudication. 28 U.S.C. § 157(b)(1). Nevertheless, in the absence of the consent of the parties, a final decision in matters where the parties have a seventh amendment right to a trial by jury, must be adjudicated by an Article III court and not an Article I court. Executive Benefits Insurance Agency, Inc. v. Arkison (In re Bellingham Ins. Agency, Inc.), 702 F.3d 553, 565 (9th Cir.2012), Waldman v. Stone, 698 F.3d 910 (6th Cir.2012). At least one circuit court has concluded that consent to adjudication by the bankruptcy court is not even possible and that the bankruptcy court simply cannot address the litigation. Ortiz v. Aurora Health Care, Inc. (In re Ortiz), 665 F.3d 906, 915 (7th Cir.2011).

Running parallel to this discussion of bankruptcy court authority to conduct a hearing on certain core matters is its standing to provide a jury trial to those parties entitled to same. Granfinanciera, 492 U.S. at 53, 109 S.Ct. 2782 (“the question whether the Seventh Amendment permits Congress to assign its adjudication to a tribunal that does not employ juries as factfinders requires the same answer as the question whether Article III allows Congress to assign adjudication of that cause of action to a non-Article III tribunal.”)

Defendants do not forfeit their right to a trial by jury should they be so entitled, notwithstanding that these counts may be core bankruptcy matters. Id. at 36, 109 S.Ct. 2782. Granfinanciera specifically concluded that fraudulent conveyance defendants retained the right to a trial by jury. Id. at 64, 109 S.Ct. 2782. It was in response to Granfinanciera that Congress enacted 28 U.S.C. § 157(e) authorizing the bankruptcy court to conduct jury trials with the authorization of the district court and the consent of the parties. The district court has tacitly authorized the bankruptcy judges to conduct jury trials. Standing Order of Reference in Bankruptcy Matters, Standing Order No. 00-3 (M.D.Pa. September 11, 2000). The parties have not explicitly consented to the bankruptcy court conducting a jury trial, [820]*820although presumably, the plaintiff implicitly did so by filing the Complaint in the bankruptcy court asking for a jury trial. Statutorily, the bankruptcy court cannot make proposed findings of fact and conclusions of law to the district court except in “non-core matters.” 28 U.S.C. § 157(c)(1). Accordingly, should the defendants demand a jury trial and not consent to such being conducted by this bankruptcy court, then I do not appear to have the capacity to adjudicate the § 548 (core) counts, unless I assume, as in Bellingham, that the power to “hear and determine” cases includes the power to issue proposed findings of fact and conclusions of law. Bellingham, 702 F.3d at 566. On the other hand, should the litigants consent to that trial being conducted by this Court, these counts could be litigated here.

As to the remaining counts, further inquiry is necessary.

Claims against others that existed prepetition are generally considered to be non-core related matters. Beard v. Braunstein, 914 F.2d 434 (3rd Cir.1990). Furthermore, the Seventh Amendment to the United States Constitution guarantees the right to a jury trial in suits at common law.2 Should the counts articulated identify such “suits,” then a jury trial is required unless waived. In our Circuit, “[a] bankruptcy court cannot conduct a jury trial in a non-core proceeding.” Id. at 443. As our Court of Appeals explained:

The Seventh Amendment limitations on the review of jury findings are not compatible with section 157(c)(1), which requires that any contested finding by the bankruptcy court must be reviewed de novo. By the Seventh Amendment, any fact found by a jury cannot be reviewed de novo.

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Transcontinental Refrigerated Lines, Inc. ex rel. Young v. New Prime, Inc. (In re Transcontinental Refrigerated Lines, Inc.), 494 B.R. 816, 2013 WL 2480883, 2013 Bankr. LEXIS 2361 (Pa. 2013).

494 B.R. 816 (Transcontinental Refrigerated Lines, Inc. ex rel. Young v. New Prime, Inc. (In re Transcontinental Refrigerated Lines, Inc.)) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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