In re American Solar King

• Decision Date: 02 June 1992
• Docket Number: Adv. No. 92-6032-FM.,Bankruptcy No. 86-60527-FM
• Citation: 142 BR 772
• Parties: In re: AMERICAN SOLAR KING, Debtor. FAIRWAY INVESTMENTS TRUST, LTD. and the United States of America ex rel Fairway Investments Trust, Ltd., Plaintiffs, v. Stanley W. WRIGHT, Individually and as Trustee, and Fidelity and Deposit Company of Maryland, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Texas

142 B.R. 772 (1992)

In re: AMERICAN SOLAR KING, Debtor FAIRWAY INVESTMENTS TRUST, LTD. and the United States of America ex rel Fairway Investments Trust, Ltd., Plaintiffs, v. Stanley W. WRIGHT, Individually and as Trustee, and Fidelity and Deposit Company of Maryland, Defendants.

Bankruptcy No. 86-60527-FM, Adv. No. 92-6032-FM.

United States Bankruptcy Court, W.D. Texas, Austin Division.

June 2, 1992.

Charles D. Olson, Kathleen M. French, Olson & Olson, L.L.P., Waco, Tex., for plaintiffs, Fairway Investments Trust, Ltd. and the U.S. ex rel. Fairway Investments Trust, Ltd.

Doug Young, Scanlan & Buckle, P.C., Austin, Tex., for defendants, Stanley W. Wright, individually and as trustee, and Fidelity and Deposit Co. of Maryland.

MEMORANDUM OPINION ON THE PLAINTIFFS' REQUEST FOR JURY TRIAL UNDER 28 U.S.C. § 1411(a)

FRANK R. MONROE, Bankruptcy Judge.

A hearing was held on May 20, 1992 on the Plaintiffs' request for a jury trial pursuant to 28 U.S.C. § 1411(a). Plaintiffs allege that Defendant Wright, while he was acting Chapter 7 Trustee in this case, breached his fiduciary obligations as Trustee regarding estate property upon which Plaintiff Fairway claims a lien. Plaintiffs have sued Defendant Wright and his bonding company for damages.

This Court has jurisdiction of this case pursuant to 28 U.S.C. §§ 1334(b) and (d), 28 U.S.C. §§ 157(a) and (b)(1), 28 U.S.C. § 151, and the standing Order of Reference existing in this District. For reasons set forth later in this Memorandum, this adversary proceeding is a core proceeding under 28 U.S.C. § 157(b)(2)(A). Based upon the record, the arguments of counsel, the cases presented by the parties, and the Court's own independent research, the Court enters this Memorandum Opinion.

ISSUES

The Court must determine first, the nature of its jurisdiction to try the cause of action at hand, and second, whether the parties are entitled to a jury trial.

DISCUSSION

Jurisdiction. The action at hand, involving the alleged misconduct of the Defendant Wright in administering the Debtor's estate while he served as Trustee, is a core proceeding under 28 U.S.C. § 157(b)(2)(A). In re Brenner, 119 B.R. 495, 496 (Bankr.E.D.Pa.1990); see also In re Balboa Improvements, Ltd., 99 B.R. 966, 970 (9th BAP 1989) (Court analogized suit over claim of misconduct by debtor's attorney to actions against a court-appointed trustee, stating "the bankruptcy court is responsible for resolving issues affecting the administration of the estate."); In re Campbell, 13 B.R. 974, 976 (Bankr.D.Idaho 1981) (Lessor sued trustee to recover payment for storage and maintenance of potato crop in state court; bankruptcy court denied permission to sue in state court because "courts other than the appointing court have no jurisdiction to entertain suits against the trustee, without leave from that appointing court, for acts done in his official capacity and within his authority as an officer of the court."); In re Tri-State Hoists, Inc., 1991 WL 193733 (Bankr. E.D.Pa.1991) (not reported in B.R.) ("An action seeking to hold a trustee liable for acts in this official capacity is a proceeding which concerns the administration of the Debtor's estate, and therefore is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A)").

An adversary proceeding must be brought for recovery against a trustee's bond. Bankruptcy Rules 2010(b) and 9025. Rule 2010(b) provides "a proceeding on the trustee's bond may be brought by any party in interest in the name of the United States for the use of the entity injured by the breach of the condition."¹ Procedurally, Plaintiffs have not completely complied with this Rule, but that is not at issue at present. Rule 9025 states that:

"Whenever the Code or these rules require or permit the giving of security by a party, and security is given in the form of a bond or stipulation or other undertaking with one or more sureties, each surety submits to the jurisdiction of the court, and liability may be determined in an adversary proceeding governed by the rules in Part VII."

Bankruptcy Rule 9025.

Other courts have held "that a proceeding against a bankruptcy trustee's bond must be filed as an adversary proceeding." In re O'Connell, 82 B.R. at 120 (district court affirmed bankruptcy court's decision that an adversary proceeding must be brought due to operation of Rule 2010(d) now Rule 2010(b) to sue trustee on his fidelity bond in order to pursue payment on a judgment obtained against trustee due to his breach of contract on a sale of estate assets).

Further, Plaintiff Fairway previously sued these Defendants on the same alleged cause of action in the United States District Court for the Western District of Texas in the Waco Division. The United States District Judge presiding over that suit dismissed it on the basis that the action presented was a core proceeding which should be heard by the Bankruptcy Court.

Given the prior suit and being the court which appointed the Defendant Wright as Trustee of the Debtor's case, the Court concludes that it has core jurisdiction to try the action presented.

Jury Trial. As for the second issue, Plaintiffs have requested trial by jury pursuant to 28 U.S.C. § 1411(a) which provides:

"Except as provided in subsection (b) of this section, this chapter and title do not affect any right to trial by jury that an individual has under applicable nonbankruptcy law with regard to a personal injury or wrongful death tort claim."

28 U.S.C. § 1411(a).

The question then becomes whether a right to jury trial exists for proceedings which do not involve the two causes of action specified in § 1411(a). Two recent United States Supreme Court cases do not resolve the question of whether Congress has authorized a bankruptcy court to conduct a jury trial. See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989) (The Court did not determine whether Congress authorized bankruptcy courts to hold jury trials in fraudulent conveyance suits and only decided that a defendant in such an action was entitled to a jury trial when it had not filed a proof of claim in the case.); Langenkamp v. Culp, ___ U.S. ___, 111 S.Ct. 330, 112 L.Ed.2d 343 (1991), reh'g denied, ___ U.S. ___, 111 S.Ct. 721, 112 L.Ed.2d 709 (1991) (depositors who filed proofs of claim waived right to jury trial for bankruptcy trustee's preference actions against them).

Section 1411(a) does not authorize bankruptcy courts to hold jury trials. To see its real meaning it must be analyzed together with 28 U.S.C. § 157(b)(2)(0), which excepts from core proceedings the determination of personal injury tort or wrongful death claims. The combined effect of these two sections is only that bankruptcy courts are not to try personal injury and wrongful death tort claims. The jury rights of the litigants thereto are specifically preserved and those matters are statutorily made non-core. 28 U.S.C. § 1411 does not grant bankruptcy courts the power to try jury trials. It, together with § 157(b)(2)(A), only excepts personal injury and wrongful death tort claims from bankruptcy core jurisdiction (with a specific statement that jury trial rights are not affected). If Congress felt it was empowering bankruptcy courts to hold jury trials through this provision, surely it would have made it clear as such would have been a departure from the law as it existed under the prior Bankruptcy Act. There is simply no provision in Title 11 or Title 28 which grants jury trial powers to bankruptcy courts in core proceedings such as the one at bar. Other courts of greater influence have reached the same result.²

Neither does the exception contained in 28 U.S.C. § 959(a)³ allowing suit without leave of the bankruptcy court and without affecting a litigant's right to trial by jury provide any relief to the Plaintiffs. It is not applicable to actions against the trustee for events occurring while collecting, administering, or liquidating the estate because such actions do not constitute carrying on the debtor's business as required by § 959(a). See In re Campbell, 13 B.R. at 976 ("Merely collecting, taking steps to preserve, and/or holding assets, as well as other aspects of administering and liquidating the estate, do not constitute `carrying on business' as that term has been judicially interpreted."); In re Balboa Improvements, Ltd., 99 B.R. at 970 (suit was based upon damages caused by fiduciary's alleged misconduct in administering the estate and was not based upon actions in carrying on the debtor's business, making § 959 not applicable); Anderson v. United States, 520 F.2d 1027, 1029 n. 1 (5th Cir. 1975) (§ 959 does not apply to a non-operating trustee). The claims supporting the Complaint do not involve events related to the Defendant Wright's carrying on of the Debtor's business but are allegations of his misconduct in administering the estate; thus, the exception provided by § 959(a) is not applicable.

We must now analyze the Plaintiffs' right to have a jury to see if this Court can exercise the core jurisdiction it has been granted.

In Granfinanciera, the Court set forth a three-pronged test to determine whether a right to jury trial under the Seventh Amendment⁴ exists for the fraudulent conveyance action there presented. The Court stated:

"`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.\' . . . 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 factfinder."

Granfinanciera, 492 U.S. at 42, 109 S.Ct. at 2790 (citations omitted).

Congress's ability to supplant a commonlaw claim having a right to...