In re Bennett, Bankruptcy No. 91-03017

• Decision Date: 17 August 1992
• Docket Number: Bankruptcy No. 91-03017,Adv. No. 92-60049A.
• Citation: 154 BR 126
• Parties: In re Donald R. BENNETT, Debtor. Donald R. BENNETT and Robert E. Littlefield, Jr., as Chapter 12 Trustee, Plaintiffs, v. GENOA AG CENTER, INC., Richard Sharp, Sandra Sharp, Douglas Van Benschoten, Marjorie Van Benschoten and Farm Credit of Western New York, ACA, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of New York

154 B.R. 126 (1992)

In re Donald R. BENNETT, Debtor Donald R. BENNETT and Robert E. Littlefield, Jr., as Chapter 12 Trustee, Plaintiffs, v. GENOA AG CENTER, INC., Richard Sharp, Sandra Sharp, Douglas Van Benschoten, Marjorie Van Benschoten and Farm Credit of Western New York, ACA, Defendants.

Bankruptcy No. 91-03017, Adv. No. 92-60049A.

United States Bankruptcy Court, N.D. New York.

August 17, 1992.

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Hinman, Howard & Kattell, Binghamton, NY, for plaintiffs; M. Elizabeth Bradley, of counsel.

Williamson, Clune & Stevens, Ithaca, NY, for defendants, Genoa Ag Center, Inc., Richard Sharp, Sandra Sharp, Douglas Van Benschoten and Marjorie Van Benschoten; Robert J. Clune, of counsel.

Karpinski, Stapleton & Fandrich, P.C., Auburn, NY, for Farm Credit of Western New York, ACA; Mark H. Fandrich, of counsel.

MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER

STEPHEN D. GERLING, Bankruptcy Judge.

The instant adversary proceeding was commenced on March 6, 1992 by Donald R. Bennett ("Debtor") and Robert E. Littlefield, Jr., Esq., the Chapter 12 Trustee ("Trustee") (collectively the "Plaintiffs) against Genoa Ag Center, Inc. ("Genoa"), Richard and Sandra Sharp ("Sharps"), Douglas and Marjorie Van Benschoten ("Van Benschotens") and Farm Credit of Western New York, ACA ("Farm Credit").¹

An Amended Adversary Complaint was filed on March 10, 1992. On April 9, 1992, Genoa, the Sharps, and the Van Benschotens filed their joint Answer and demanded a jury trial. On April 16, 1992, Farm Credit filed its Answer, but did not demand a jury trial.

On June 2, 1992, Debtor and the Trustee moved for permission to file and serve a Second Amended Complaint, which motion was granted by the Court on June 18, 1992. On July 1, 1992, Farm Credit filed its Answer to the Second Amended Complaint, asserting a counterclaim. On August 10, 1992, Genoa, the Sharps and the Van Benschotens filed their Answer to the Second Amended Complaint.²

The Court directed all parties to brief the issue of whether Genoa, the Sharps, and the Van Benschotens are entitled to a jury trial before this Court. All parties filed memoranda of law on this issue.

FACTS

Rather than reiterate the alleged facts herein, the Court assumes familiarity with its Memorandum-Decision, Findings of Fact, Conclusions of Law and Order dated June 18, 1992. See In re Bennett, 142 B.R. 616 (Bankr.N.D.N.Y.1992).

The Second Amended Complaint contains eleven causes of action which may be summarized as follows:

1. Plaintiffs seek a determination that certain obligations owed by the Debtor to Genoa ("the Genoa obligations") are void based on their allegedly usurious interest rates. Accordingly, the Debtor requests a return of all payments made on these obligations.³

2. Plaintiffs seek a determination that all payments made on the Genoa obligations are preferences pursuant to Code § 547 and request a return of all such payments pursuant to Code § 550.

3. Plaintiffs seek a determination that all payments made on the Genoa obligations are fraudulent conveyances pursuant to Code § 548 and §§ 273 and 276 of the New York Debtor and Creditor Law ("NYD & CL). Therefore, the Debtor requests the return of all such payments made within six years of the commencement of this case pursuant to Code § 550.

4. Plaintiffs request money damages for alleged tortious interference by Genoa relative to a contract for the sale of certain real property. Plaintiffs seek punitive and consequential damages based on said tortious interference.

5. Plaintiffs seek a determination as against Genoa and Farm Credit that a foreclosure sale relative to certain real property was a fraudulent conveyance under Code § 548 and §§ 273 and 276 of NYD & CL. Debtor further seeks as against Genoa a return of all property sold at that foreclosure sale.

6. Plaintiffs seek a declaration that Debtor's obligation to Farm Credit is void due to the imposition of an interest rate of 18.7% in violation of 12 U.S.C. § 2016 and, therefore, the foreclosure sale was without consideration and, therefore, was both a preference and fraudulent.

7. Plaintiffs seek a determination that had Farm Credit applied the correct rate of interest, the funds from a sale of part of Debtor's property would have cured Debtor's default. Thus, Plaintiffs seek an additional determination that Farm Credit should not have continued with the preferential and fraudulent foreclosure sale.⁴

8. Plaintiffs seek actual and punitive damages against Farm Credit for denying Debtor the right of redemption at the time of the foreclosure sale, in violation of 12 U.S.C. § 2219a 9. Plaintiffs seek treble damages against Genoa, the Sharps and the Van Benschotens for various violations of 18 U.S.C. § 1961, et seq. (the "RICO" statute).⁵

10. Plaintiffs request that any adequate protection payments this Court may order Debtor to pay to Genoa be returned upon resolution of this proceeding.

11. Plaintiffs seek damages for breach of contract by Genoa relative to a contract for the sale of certain real property and the reduction and release of specifically identified liens thereon.

Except as noted below, Genoa, the Sharps, and the Van Benschotens have demanded a jury trial for the resolution of all causes of action, excluding the sixth, seventh and eighth, as those claims pertain solely to Farm Credit. Genoa, the Sharps and the Van Benschotens assert that they are entitled to a jury trial because all causes of action asserted against them are either core or consensual non-core and are otherwise appropriate jury issues due to the alleged legal nature of the claims.

Genoa alleges that since it filed a claim against the bankruptcy estate, a jury trial may not be conducted on causes of action two, three and five.⁶ In any event, Plaintiffs oppose a jury trial for all causes of action, except the fourth and ninth. Plaintiffs assert that the remaining causes of action are equitable in nature and not appropriate for jury trial.

DISCUSSION

A. Right to a Jury Trial in Bankruptcy Court

The U.S. Supreme Court has, to date, expressly declined to rule on the constitutionality of a jury trial conducted in bankruptcy court. See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 63-65, 109 S.Ct. 2782, 2802, 106 L.Ed.2d 26 (1989). There is, however, a split of authority among the circuit courts of appeal which have addressed the issue.

Several circuit courts have held that a bankruptcy court simply does not have the authority to conduct a jury trial. See, e.g., In re United Missouri Bank of Kansas City, N.A., 901 F.2d 1449 (8th Cir.1990); In re Kaiser Steel Corp., 911 F.2d 380 (10th Cir.1990); In re Baker & Getty Fin. Services, Inc., 954 F.2d 1169 (6th Cir.1992); In re Grabill Corp., 967 F.2d 1152 (7th Cir.). In the Second Circuit, however, it has been determined that bankruptcy court jury trials of core proceedings are not unconstitutional where the underlying issue is legal in nature, thus guaranteeing that right pursuant to the seventh Amendment. See In re Ben Cooper, Inc., 896 F.2d 1394, 1403-1404 (2d Cir.1990).

B. Core Proceedings

Bankruptcy courts are courts of limited jurisdiction and can only finally determine those categories of cases authorized by statute. See 28 U.S.C. § 157(b); Matter of Majestic Energy Corp., 835 F.2d 87, 89 (5th Cir.1988). Where jurisdiction is not so authorized, the court's decisions are without effect. See id. Accordingly, before a determination can be made as to whether a jury trial is appropriate in a particular case, it must first be determined whether the bankruptcy court has the appropriate jurisdiction.

Congress has provided that "bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11 . . ." 28 U.S.C. § 157(b)(1). In light of this provision, a bankruptcy court may only enter final orders with respect to core proceedings. See In re Ben Cooper, 896 F.2d at 1402-1403. "As a general rule, a matter that arises directly in a bankruptcy case under bankruptcy law is a core proceeding, and a matter that arises under nonbankruptcy law and happens to be of issue in a bankruptcy case merely because . . . one of the parties to the dispute is a debtor . . . usually is not a core proceeding." In re Sokol, 60 B.R. 294, 296 (Bankr.N.D.Ill.1986) (citation omitted).

Congress has specifically identified certain types of proceedings as core under 28 U.S.C. § 157(b)(2). That list, however, is not exclusive. See In re STN Enterprises, 73 B.R. 470, 478-479 (Bankr.D.Vt.1987). In fact, § 157(b)(2) contains two notoriously broad provisions which are often referred to as "catch all" provisions. See, e.g., In re Northeast Dairy Cooperative Federation, Inc., 72 B.R. 663, 675 (Bankr.N.D.N.Y. 1987). The first, 28 U.S.C. § 157(b)(2)(A), includes as core proceedings all "matters concerning the administration of the estate." The second, 28 U.S.C. § 157(b)(2)(O), identifies "other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or equity security holder relationship . . ." as core proceedings.

There has, however, been some dispute as to the proper application of 28 U.S.C. § 157(b)(2). While some courts have held that § 157(b)(2) should not be interpreted literally and broadly in light of the Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), see, e.g., Matter of Honeycomb, Inc., 72 B.R. 371, 373 (Bankr. S.D.N.Y.1987), this Court, relying on the statute's legislative history, has previously adopted a contrary application. See In re SPI Communications & Marketing, Inc., 112 B.R. 507, 510 (Bankr.N.D.N.Y.1990); rev'd 114 B.R. 14 (N.D.N.Y.1990).

Significantly, the Court of Appeals for the Second Circuit has agreed that "the legislative history of § 157 indicates that Congres...