Germain v. Connecticut Nat. Bank
| Decision Date | 24 March 1993 |
| Docket Number | D,No. 303,303 |
| Citation | 988 F.2d 1323,28 C.B.C.2d 947 |
| Parties | , 28 Collier Bankr.Cas.2d 947, 24 Bankr.Ct.Dec. 183, Bankr. L. Rep. P 75,191 Thomas M. GERMAIN, Trustee for the Estate of O'Sullivan's Fuel Oil Co., Inc., Plaintiff-Appellee, v. The CONNECTICUT NATIONAL BANK, Defendant-Appellant. ocket 92-5046. |
| Court | U.S. Court of Appeals — Second Circuit |
Janet C. Hall, Hartford, CT (Linda L. Morkan, Robinson & Cole, of counsel), for appellant.
Thomas M. Germain, Edward C. Taiman, Jr., Germain & Associates, Hartford, CT, on the brief, for appellee.
Before: MESKILL, Chief Judge, OAKES and McLAUGHLIN, Circuit Judges.
This case involves the interaction of the Seventh Amendment to the Constitution and the United States Bankruptcy Code, 11 U.S.C. § 101 et seq. (Bankruptcy Code). The Connecticut National Bank ("CNB" or "the Bank") appeals from the judgment of the United States District Court for the District of Connecticut, Dorsey, J., affirming the bankruptcy court's decision to grant the bankruptcy trustee's request for a jury trial. CNB, a creditor of the bankrupt, argues that a Chapter 7 trustee does not have a constitutional right to try before a jury its claims against the Bank because the claims arose post-petition and implicate provisions of the Bankruptcy Code. Thomas M. Germain, the trustee of the bankrupt's estate (the Trustee), counters that because his claims are legal in nature and because he seeks only legal relief in the form of money damages, he is entitled to a jury trial under the Seventh Amendment. We agree with the Trustee and therefore affirm the decision of the district court but in so doing we assume that the Trustee has waived his right subsequently to seek equitable subordination of CNB's claim on the basis of the same alleged misconduct that is to be litigated before a jury.
O'Sullivan's Fuel Oil Co., Inc. (the debtor) was in the business of retailing and transporting heating oil within Connecticut and other parts of the United States. On January 18, 1984 the company filed a voluntary petition for protection under Chapter 11 of the Bankruptcy Code. In 1986 the bankruptcy court converted the case to a Chapter 7 proceeding on a motion by a creditor not a party to the present action, and at that point Thomas Germain became the trustee of the debtor's estate. Six months later CNB filed its proof of claim in bankruptcy court. Then, on May 29, 1987, after another six months, the Trustee commenced suit against CNB in Connecticut state court, stating six causes of action, five of which are still pending. 1 The predicate misconduct is alleged to have occurred from about November 1983 to August 24, 1984, but both the district and bankruptcy courts have found that no meaningful cause of action arose until some time after the bankruptcy petition was filed.
After the commencement of the suit, CNB removed it to bankruptcy court where it now resides. The Trustee filed a request for a jury trial and subsequently moved to have the action withdrawn from bankruptcy court under 28 U.S.C. § 157(d) based in part on this request. The motion was stayed pending a determination of whether the Trustee's action constituted a "core proceeding" under 28 U.S.C. § 157(b). 2 The district court adopted the bankruptcy court's recommendation that the action was The underlying lawsuit alleges essentially that CNB used its power as the debtor's primary lender to exercise control of the debtor to its detriment. Thus, prior to the filing of the voluntary petition CNB allegedly threatened to file a petition for involuntary bankruptcy against the debtor unless management of the company was turned over to CNB's handpicked man, James Tisdale. The Bank then allegedly strongly recommended to the debtor's principal stockholder that the debtor file a voluntary petition. After the petition was filed, CNB allegedly resisted all efforts to have James Tisdale and his brother Charles removed by threatening to terminate post-petition financing, threatening to force the debtor out of business and threatening to convert the proceeding from Chapter 11 to Chapter 7. In addition, the Trustee claims that CNB encouraged the Tisdales to create a corporation to take over the debtor's assets and forced the debtor to hire a law firm and insurance company of the Bank's choice. The Trustee's complaint charges that although the Tisdales relinquished control of the debtor on August 24, 1984, during their short tenure they irreparably wasted the debtor's assets. Ultimately, the debtor's business was destroyed and liquidation became inevitable.
indeed "core" but nevertheless affirmed that court's decision that the Trustee was entitled to a jury trial. This appeal followed
The Trustee has asked for money damages alleging that CNB's acts constitute (1) tortious interference with the debtor's business, (2) coercion and duress, (3) breach of the contractual duty of good faith, (4) unfair or deceptive business practices, and (5) misrepresentation. We do not consider the merits of these underlying claims but only whether their nature and context entitle the Trustee to a jury trial.
DISCUSSION
In any action commenced in a federal court, "the right to a jury trial ... is to be determined as a matter of federal law." Simler v. Conner, 372 U.S. 221, 222, 83 S.Ct. 609, 610, 9 L.Ed.2d 691 (1963) (per curiam). CNB, in opposing a jury trial, presents a federal constitutional argument that proceeds in roughly two steps. The Bank asserts first that the Trustee's claims are not legal in nature and therefore that the Seventh Amendment does not apply. If, however, they are determined to be legal in nature, CNB would nevertheless have us hold that the Trustee is not entitled to a jury trial either because he has voluntarily waived his right to one or because, under the "public rights" doctrine, his complaint states only violations of public rather than private rights. We find none of these arguments convincing.
Before directly addressing the Bank's substantive arguments, we must first discuss the relationship between the Trustee's claims and the bankruptcy proceedings. This discussion, although preliminary in nature, constitutes a great portion of our opinion because the relationship of the claims is integral to each of appellant's arguments and is at the crux of the appeal. The remainder of the opinion will draw on the reasoning and conclusions set out in this section.
Resolution of the Trustee's action is not required in order to determine whether to allow CNB's claim as a creditor in the bankruptcy proceeding. The Trustee asks for money damages to compensate the estate for the destruction of the debtor's business. If he wins, the estate is enlarged, and this may affect the amount the Bank and its fellow creditors ultimately recover on their claims, but it has no effect whatever on the allowance of the Bank's claims. Thus, a court could allow the Bank's claim before hearing argument on the Trustee's complaint, and this chronology would be both logical and consistent with the Bankruptcy Code.
This situation differs from those treated in some leading Supreme Court cases relied on by the Bank. In both Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966), and Langenkamp v. Culp, 498 U.S. 42, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990) (per curiam), reh'g denied, 498 U.S. 1043, 111 S.Ct. 721, 112 L.Ed.2d 709 (1991), the issue was whether the trustee may void a preferential transfer without a jury trial. Under the Bankruptcy Code a court must disallow "any claim of any entity from which property is recoverable" because of a preferential transfer or fraudulent conveyance. 11 U.S.C. § 502(d). 5 Thus, before a claim may be allowed, a court must resolve any preference issues that the trustee might raise.
In denying each respective creditor a jury trial both the Langenkamp and Katchen Courts referred to the process of allowing and disallowing claims. See 498 U.S. at 43, 111 S.Ct. at 331; 382 U.S. at 336, 86 S.Ct. at 476. The Bank argues that this process is triggered as soon as a proof of claim is filed. We agree that the filing of a proof of claim is a necessary condition--the claims-allowance process can hardly begin before a claim is made--however, it is not a sufficient condition. For instance, 28 U.S.C. § 157(b)(5) requires bankruptcy litigants to try any personal injury or wrongful death action in the district court. This strongly suggests that these litigants are entitled to a jury trial in such an action even after a proof of claim has been filed in bankruptcy court. The very phrase "claims-allowance process" suggests that the resolution of the dispute in which a jury trial is sought must affect the allowance of the creditor's claim in order to be part of that process. A preference action does so; lender liability actions generally do not. Therefore suits like the Trustee's action in this case which would augment the estate but which have no effect on the allowance of a creditor's claim simply cannot be part of the claims-allowance process. 6
The Bank contends that the...
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