Beard v. Braunstein

• Citation: 914 F.2d 434
• Decision Date: 21 September 1990
• Docket Number: No. 90-3100,90-3100
• Parties: , 23 Collier Bankr.Cas.2d 1247, Bankr. L. Rep. P 73,625 Phillip E. BEARD, Trustee for Greater Pittsburgh Business Development Corp. v. Melvin A. BRAUNSTEIN, an individual, d/b/a M.A. Braunstein Co., Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 434

914 F.2d 434

59 USLW 2242, 23 Collier Bankr.Cas.2d 1247,

Bankr. L. Rep. P 73,625

Phillip E. BEARD, Trustee for Greater Pittsburgh Business

Development Corp. v. Melvin A. BRAUNSTEIN, an individual, d/b/a M.A. Braunstein

Co., Appellant.

No. 90-3100.

United States Court of Appeals,

Third Circuit.

Argued Aug. 14, 1990.

Decided Sept. 21, 1990.

David Abrams (argued), Abrams & Mazer, Monroeville, Pa., for appellant.

Paul R. Rennie (argued), Stonecipher, Cunningham, Beard and Schmitt, Pittsburgh, Pa., for appellee.

Before MANSMANN, GREENBERG and SEITZ, Circuit Judges.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

Philip E. Beard, trustee in bankruptcy of the Greater Pittsburgh Business Development Corp., brought an adversary proceeding in the Bankruptcy Court for the Western District of Pennsylvania against Melvin A. Braunstein. Greater Pittsburgh had filed a Chapter 7 bankruptcy petition on January 14, 1985, and Beard was its trustee. Beard styled his complaint as one "to Recover Money of the Estate and for Declaratory Judgment." The object of the action was to recover rents from Braunstein for the use of two buildings in Braddock, Pennsylvania, owned by Greater Pittsburgh, and to obtain a declaratory judgment that an alleged option held by Braunstein to buy one of the buildings was invalid. Jurisdiction was pleaded under 28 U.S.C. Sec. 1334(b) and Beard asserted that the action was a core proceeding under 28 U.S.C. Sec. 157(b). Before answering, Braunstein moved to dismiss the action on the ground that the case was not a core proceeding and the bankruptcy court did not have jurisdiction, but this motion was denied by the bankruptcy court by an order entered February 24, 1986. In the order denying the motion to dismiss, the bankruptcy court, pursuant to 28 U.S.C. Sec. 157(b), determined that the action was a core proceeding. Braunstein then answered and, though he had not filed a proof of claim, counterclaimed, denying liability, requesting a dismissal of the action, and seeking damages allegedly caused by the poor condition of one of the buildings. In his answer and counterclaim, Braunstein asked for a trial by jury. During discovery, the bankruptcy court imposed a $420 sanction on Braunstein on account of his insufficient answers to interrogatories.

While the matter was pending in the bankruptcy court Beard filed an amended complaint, following which Braunstein again moved to dismiss the action for lack of jurisdiction, a motion predicated on his contention that this was not a core proceeding under 28 U.S.C. Sec. 157(b)(2). Alternatively Braunstein requested, pursuant to 28 U.S.C. Sec. 1334(c)(2), that the court abstain from hearing the case. This motion was denied in both aspects. The case was ultimately tried in the bankruptcy court without a jury and an opinion and order favorable to Beard on the merits were entered on April 20, 1987. Braunstein then appealed to the district court which, by a memorandum and order of January 25, 1990, in all respects affirmed the bankruptcy court. Braunstein then appealed to this court.

Braunstein asserts that he was improperly denied a jury trial as guaranteed by the Seventh Amendment. We agree and thus

we will vacate the order in favor of Beard on the merits of the case. Braunstein also complains that he was denied due process in the proceedings resulting in the sanctions but we will affirm on this point. ¹

FACTS

The germane facts are not complicated. Prior to filing the bankruptcy petition, Greater Pittsburgh leased portions of the two buildings involved, the Brandywine building and the Beer Distributor building to Braunstein. The first Brandywine lease was for six years, was dated March 1, 1982, and covered 7,300 square feet at a rent of $730 per month. The second Brandywine lease was for three years, was dated April 1, 1982, and covered 5,000 additional square feet at a rent of $375 per month. The second lease included an option by which Braunstein could extend it at an increased rent. In his complaint, Beard claimed that Braunstein had failed to pay rent for the Brandywine leaseholds for October 1982, October 1984, November, 1984, and October 1985, and had failed to pay the increased rent due after the expiration of the three-year lease. Beard also asserted that Braunstein was liable for rent for space that he had been occupying in the building but that had not been leased to him. Subsequently, Beard amended his contentions to assert that the rent for the Brandywine building had not been paid through January 1986, when the building was sold to another person. In his answer and counterclaim, Braunstein claimed certain set-offs, mostly on account of the allegedly poor condition of the premises.

The Beer Distributor lease was for two years, was dated January 4, 1983, and covered 12,000 square feet at a rent of $1,250 per month. Beard alleged that Braunstein continued to occupy the Beer Distributor building after the expiration of the lease on a month-to-month basis, but had failed to make rental payments since October 1984. Beard also alleged that Braunstein had an option to purchase the building but that the option was invalid. In his answer and counterclaim, Braunstein responded that he had exercised the option on November 16, 1984, and that he had ceased to pay rent because of the condition of the premises.

The bankruptcy court conducted a bench trial and reserved decision. In an opinion of April 20, 1987, the bankruptcy court found that the rent had not been paid; that Braunstein was entitled to set-offs for services he had performed, though not by reason of the condition of the premises; and that Braunstein was liable for additional rent for occupying more space than the leases provided in the Brandywine building. Furthermore, though Braunstein was no longer seeking to purchase the Beer Distributor building, the court found his option invalid. In its opinion, the bankruptcy court adhered to its earlier finding that this was a core proceeding, but stated that if it was not, its conclusions were its recommended findings of fact. On April 28, 1987, Braunstein appealed to the district court.

On January 25, 1990, the district court issued its opinion determining that the case was a core proceeding within 28 U.S.C. Sec. 157(b)(1) and, on the merits, finding no errors. Thus, by order of January 25, 1990, it affirmed the orders of the bankruptcy court from which Braunstein had

appealed. On February 19, 1990, Braunstein appealed to this court.

DISCUSSION

The principal issue on this appeal involves Braunstein's claim that he had a right to a jury trial. Beard responds that "[o]nce it is concluded that a matter is a core proceeding, automatically there is no right to a jury trial." Brief at 25 (emphasis in original). Beard's position, however, is not reconcilable with the Supreme Court's recent decision in Granfinanciera S.A. v. Nordberg, --- U.S. ----, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989), in which it held that, under the Seventh Amendment,

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 ... notwithstanding Congress' designation of fraudulent conveyance actions as 'core proceedings' in 28 U.S.C. Sec. 157(b)(2)(H).

109 S.Ct. at 2787.

Thus, we are required to engage in a deeper analysis than proposed by Beard of the requirements of the Seventh Amendment, which provides:

In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law.

In Parsons v. Bedford, 28 U.S. (3 Pet.) 266, 7 L.Ed. 732 (1830), the Supreme Court explained that:

The phrase 'common law,' found in this clause, is used in contradistinction to equity, and admiralty, and maritime jurisprudence.... By common law [the framers meant] not merely suits, which the common law recognized among its old and settled proceedings, but suits in which legal rights were to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized, and where equitable remedies were administered; or where, as in admiralty, a mixture of public law, and of maritime law and equity was often found in the same suit.

Id. at 274-75.

More recently, the Supreme Court has explained that:

Although 'the thrust of the Amendment was to preserve the right to jury trial as it existed in 1791,' the Seventh Amendment also applies to actions 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, as opposed to those customarily heard by courts of equity or admiralty.

Granfinanciera, 109 S.Ct. at 2790.

Beard styled his action as one to "recover money [i.e. property] of the estate," thus attempting to characterize it as a statutory action under 11 U.S.C. Sec. 542(b) ("... an entity that owes a debt that is property of the estate and that is matured, payable on demand, or payable on order, shall pay such debt to, or on order of, the trustee ..."). ²

Granfinanciera prescribes a three-part analysis to determine whether there is a right to a jury trial in a statutory action.

'First, we 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. Second, we examine the remedy sought and determine whether it is legal or equitable in nature.' The second stage of this analysis is more important than the first. If on balance, these two factors indicate that a party is entitled to a jury trial under the Seventh Amendment, we 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 a...