In re Checkmate Stereo & Electronics, Ltd.
| Decision Date | 15 June 1982 |
| Docket Number | No. CV 81-920.,CV 81-920. |
| Citation | 21 BR 402 |
| Parties | In re CHECKMATE STEREO & ELECTRONICS, LTD., Debtor. John S. PEREIRA, Trustee in Bankruptcy, Plaintiff, v. CHECKMATE COMMUNICATIONS CO., INC., and/or Checkmate Communications, Ltd. and/or Checkmate Stereo & Co., Inc. and/or Checkmate Automotive and Gerald Wren, Jr. and Gerald Wren, Sr., Defendants. In re CHECKMATE MARKETING CO., INC., Debtor. John S. PEREIRA, Trustee in Bankruptcy, Plaintiff, v. CHECKMATE COMMUNICATIONS CO., INC., et al. Defendants. |
| Court | U.S. District Court — Eastern District of New York |
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Robert P. Herzog, New York City, for trustee.
Ballon, Stoll & Itzler by Ronald S. Itzler, New York City, for defendants.
Defendants/appellants appeal from a judgment of the bankruptcy court entered against them in these consolidated actions in February, 1981.
John Pereira, trustee in bankruptcy (trustee) of the two debtor corporations, Checkmate Stereo & Electronics, Ltd. (Stereo) and Checkmate Marketing Co., Inc. (Marketing), brought an action against the corporate defendants (Checkmate corporations), and their principals/owners, Gerald Wren, Jr. (Wren or Wren, Jr.), and Gerald Wren, Sr. (Wren, Sr.), pursuant to 11 U.S.C. §§ 541, 544, and 548. The complaints filed on behalf of Stereo and Marketing set forth seven counts. The first alleged that the defendants conspired with an actual intent to hinder, impede, delay, and defraud the creditors and fraudulently conveyed assets belonging to Stereo and Marketing to themselves. The second, third, and fourth counts alleged that these same transfers occurred under circumstances constituting constructive fraud. The fifth count sought attorney's fees. The sixth count alleged a basis for an award of punitive damages. The seventh count alleged usurpation of the good will of the debtor corporations and conversion of the trademark "Checkmate." In addition, the Stereo complaint contained an allegation of breach of duty and usurpation of corporate opportunity by Wren.
The defendants entered a general denial and demanded a jury trial. The jury demand was struck by the bankruptcy court as untimely.
A nine day trial commenced on December 2, 1980. At the conclusion of the plaintiff's case, count seven of both complaints and the claim asserted solely against Wren in the Stereo complaint were dismissed. At the end of the trial, the judge issued an opinion setting forth the basis for an entry of judgment for the plaintiff on its remaining claims other than that for punitive damages.
The bankruptcy court found that on September 30, 1979, Stereo and Marketing were insolvent but possessed substantial assets and engaged in an active business. 9 B.R. 585, at 591-592 (Bkrtcy.1981). By May 15, 1980, when the trustee entered the separate premises of the two debtors to take over their assets, he found that Marketing's assets totalled $500 in cash and Stereo's assets consisted of an assortment of used inventory and some pledged accounts receivable. The assets that had belonged to the debtors were found to be the property of the Checkmate corporations all of which had been owned and operated by Wren and/or Wren, Sr. during this time. Id.1
The bankruptcy court directed that the properties that were the subject of the fraudulent conveyances and which could be turned over to the bankrupts' estates, be so turned over. Id. at 620-622. In addition, a money judgment equal to the value of that property that could not be located was to be entered against the defendants pursuant to 11 U.S.C. § 550. Id.
Wren alone was found liable for the value of property transferred directly to him, namely, two automobiles and a total of $12,785.16 in cash. Id. at 622. A subsequent ruling by the bankruptcy judge resulted in the inclusion in the judgment of an award of attorney's fees in the amount of $40,000.00.
Appellants timely filed an appeal raising two major points on which they claimed error in the proceeding below: 1) that they were erroneously denied a jury trial; 2) that the trustee failed to sustain his burden of proof by clear and convincing evidence. Six points of less significance denominated as numbers 3 through 8 on the appeal were also raised by defendants; 3) that they were prejudiced by the bankruptcy judge's reliance on the New York Debtor and Creditor Law which they claim was neither pleaded nor argued; 4) that a judgment erroneously was entered against Wren for monies transferred to him after the bankruptcy petition was filed on April 28, 1980; 5) that the circumstances underlying entry of an award of $3,500 against Wren were not properly before the bankruptcy court; 6) that the bankruptcy judge erroneously failed to recuse herself; 7) that the award of counsel fees was excessive; and 8) that irrelevant evidence was erroneously admitted.2
On October 8, 1980, during the course of a pretrial conference a question was raised as to defendants' jury demand and the fact that defendants' answer with the endorsed demand was not in the court's file, nor indicated on the docket. Counsel for the trustee did admit that the answer with the jury demand had been served timely upon him on June 30, 1980. The next day, October 9, the defendants filed their answer. On October 10, the trustee moved to strike the jury demand as untimely and thus waived under Rule 39 of the Federal Rules of Civil Procedure (FRCP). Alternatively, the trustee argued that even if the jury demand were not waived on this procedural ground, the issues to be tried were equitable, not legal, and thus defendants had no substantive right to a jury trial. Defendants argued that the judge had discretion to excuse the late filing and stated that their failure to file was due to more than mere inadvertence.
On November 25, 1980, the bankruptcy judge granted the trustee's motion based upon the untimely filing.3 She stated in her memorandum opinion:
The rule in the Second Circuit is clear that an untimely request for a jury trial must be denied unless some cause beyond mere inadvertence is shown. It is reversible error for the Court to excuse the untimeliness of a jury demand. Galella v. Onassis, 487 F.2d 986, 996-7 (2d Cir. 1973); Noonan v. Cunard Steamship Co., Ltd., 375 F.2d 69, 70 (2d Cir. 1967). An amendment to a complaint does not revive the right to demand a jury trial, except with respect to issues which are raised for the first time by the amendment. Lanza v. Drexel & Co., 479 F.2d 1277, 1310 (2d Cir. 1973).
The defendants now claim that the bankruptcy judge erred in finding that the jury demand was not timely filed. Alternatively, they claim that even if the demand was untimely, the bankruptcy judge erroneously held that such a failure constitutes a waiver.
In support of their first contention that the jury demand in fact was timely filed, defendants point to the bankruptcy court docket sheet, on which there now appears an entry number 7a dated June 30 indicating a timely filing of the answer and jury demand.
Defendants should know that this argument is meritless and that this entry was not on the docket sheet at the time it was examined by the bankruptcy judge on October 8, 1981. That docket entry was erroneously made following the discussion on this question before the bankruptcy judge on October 8. Counsel for the trustee, during the discussion, wrote "rec'd mail 6/30", the date on which he had received defendants' answer, on a copy of that document and handed it up to the bench. It was this copy of the answer with counsel's notation that was erroneously docketed as entry number 7a.
Defendants' second contention is not however as easily disposed of. There is some validity to their argument that an untimely filing does not constitute a waiver and that all of the cases cited by the bankruptcy judge in her opinion ordering the jury demand struck refer to situations in which a jury demand was not timely served. Those cases are clear in requiring timely service of the jury demand. An inadvertent failure to make that demand does not permit a judge to exercise discretion under FRCP 39(b)4 to excuse the waiver. Reefer Express Lines v. Arkwright-Boston, 87 F.R.D. 133, 135 (S.D.N.Y.1980).
The bankruptcy judge based her decision upon Interim Bankruptcy Rule 9001 which is in turn based upon and substantively identical to Rule 38 of the Federal Rules of Civil Procedure.
Rule 38 provides in pertinent part:
Fed.R.Civ.P. 38(b), (d).5
On its face, Rule 38(b) (and Bankruptcy Rule 9001(a)) requires only timely service of a jury demand. The Second Circuit has discussed, although not decided, the waiver question raised by a failure to file. In Rosen v. Dick, 639 F.2d 82 (2d Cir. 1980), the trustee argued that the defendant had waived his right to a jury trial where the docket sheet had not been marked to indicate filing and where only the plaintiff (not other defendants) had been served. The Court, at one point stated that the "improper or incomplete notations on the docket sheet, which is under the court clerk's exclusive control, will not constitute a waiver for failure to file, so long as the party complies with the terms of Rule 5(d)." Id. at 89. This statement gives us pause because although the factual circumstances of Rosen differ from the circumstances before this Court, the Second Circuit does suggest by this statement that Rule 38(b) must be read with Rule 5(d) so...
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