In re Edwards

• Decision Date: 16 August 1989
• Docket Number: 3-89-0036.,Adv. No. 3-88-0069,Bankruptcy No. 3-88-00621
• Citation: 104 BR 890
• Parties: In re Charles Pender EDWARDS, III, C.P. "Bud" Edwards, "Bud" Edwards, Debtor. Charlyne E. HADEN, Plaintiff, v. C.P. EDWARDS, III, Individually, and as executor of the Estate of C.P. Edwards, Jr., and Flora Jane Massengill Edwards and as Liquidating Trustee for the Edwards Companies, Defendant. Charlyne E. HADEN, Plaintiff, and John M. Neal, Trustee, Intervenor, v. C.P. EDWARDS, III and Fifth Third Bank, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

104 B.R. 890 (1989)

In re Charles Pender EDWARDS, III, C.P. "Bud" Edwards, "Bud" Edwards, Debtor.

Charlyne E. HADEN, Plaintiff, v. C.P. EDWARDS, III, Individually, and as executor of the Estate of C.P. Edwards, Jr., and Flora Jane Massengill Edwards and as Liquidating Trustee for the Edwards Companies, Defendant.

Charlyne E. HADEN, Plaintiff, and John M. Neal, Trustee, Intervenor, v. C.P. EDWARDS, III and Fifth Third Bank, Defendants.

Bankruptcy No. 3-88-00621, Adv. Nos. 3-88-0069, 3-89-0036.

United States Bankruptcy Court, E.D. Tennessee.

August 16, 1989.

Miller & Martin, Lawrence R. Ahern, III, Shelley D. Rucker, Chattanooga, Tenn., Heiskell, Donelson, Bearman, Adams, Williams & Kirsch, Richard J. McAfee, Chattanooga, Tenn., Hodges, Doughty & Carson, Dean B. Farmer, Knoxville, Tenn., for plaintiff.

Lon V. Boyd, Kingsport, Tenn., for debtor.

Paine, Swiney and Tarwater, D. Michael Swiney, Knoxville, Tenn., for defendant, Fifth Third Bank.

Morton, Lewis, King & Krieg, John M. Neal, Knoxville, Tenn., for intervenor, John M. Neal, Trustee.

MEMORANDUM AND RECOMMENDATION TO DISTRICT COURT SUGGESTING WITHDRAWAL OF REFERENCE OF ADVERSARY PROCEEDINGS WHERE ISSUES ARE, IN PART, NONCORE RELATED AND JURY TRIAL IS DEMANDED

RICHARD S. STAIR, Jr., Bankruptcy Judge.

The court has before it two adversary proceedings initiated by Charlyne E. Haden (Plaintiff or Haden). Adversary Proceeding No. 3-89-0036 was commenced by Haden against the debtor (her brother) and Fifth Third Bank (Bank) by the filing of a complaint on February 15, 1989. Adversary Proceeding No. 3-88-0069 originated by way of a complaint filed February 6, 1985, by Haden against the debtor in the Chancery Court for Sullivan County, Tennessee. The state court proceeding was removed to the Bankruptcy Court on May 9, 1988, pursuant to 28 U.S.C.A. § 1452 (West Supp.1989) and Fed.R.Bankr.P. 9027. The two adversary proceedings were consolidated for trial by an order entered July 13, 1989. Also, on July 13, 1989, an order was entered authorizing John M. Neal, Trustee, to intervene in Adversary Proceeding No. 3-89-0036. Due to the substantially identical nature of the two adversary proceedings, all future discussion in this Memorandum will focus on Haden's complaint filed in Adversary Proceeding No. 3-89-0036.

I

Haden's complaint is grounded upon nine separate counts:¹ Counts I through VII assert state law causes of action against the Bank including fraud, negligent misrepresentation, breach of contract, and negligence; Count VIII asserts objections to the debtor's discharge grounded upon 11 U.S.C.A. § 727(a)(3), (4) and (5) (West 1979); and Count IX requests a determination that any debt found to be owing Haden by the debtor be determined nondischargeable under 11 U.S.C.A. § 523(a)(2)(A) and (4) (West 1979 and Supp.1989).

Haden, alleging joint misconduct by the debtor and the Bank in connection with numerous transactions involving property in which she claims an interest, seeks the following relief: judgment against the Bank for compensatory and punitive damages in the amounts of $10,000,000 each; establishment of a claim against the debtor in the amount of $10,000,000; and a judgment denying the debtor's discharge, or, alternatively, a determination that her claim against the debtor is excepted from discharge. Haden requests a jury trial on all issues. She consents to the entry of final orders and judgments by the bankruptcy judge. 28 U.S.C.A. § 157(c)(2) (West Supp.1989), discussed infra.

The debtor filed his answer to Haden's complaint on May 5, 1989. He did not initially demand a jury. However, in response to an Amended Complaint filed by Haden on July 11, 1989, the debtor, on July 12, 1989, filed an amended answer wherein he demands a jury.

The Bank, on April 14, 1989, filed a motion seeking dismissal of Plaintiff's claims against it averring that the bankruptcy court lacks subject matter and personal jurisdiction. The court, in a Memorandum Opinion filed June 15, 1989, determined that Counts I through VII of Haden's complaint allege some form of joint conduct or intertwined behavior between the Bank and the debtor in which both allegedly acted improperly and in concert. 100 B.R. 973. Accordingly, pursuant to the authority of a number of cases, including Kelley v. Nodine (In re Salem), 783 F.2d 626 (6th Cir. 1986), the court found that Counts I through VII of Haden's complaint assert noncore "related" causes of action thus providing the bankruptcy court with jurisdiction to hear Plaintiff's Bank related claims.² In its June 15, 1989 Memorandum, the court observed that its determination that Haden's claims against the Bank are cognizable in the bankruptcy court in no way resolves the issue of her entitlement to a jury trial. In re Edwards, 100 B.R. at 982.

Subsequent to the entry of this court's order denying its Motion To Dismiss, the Bank, on June 29, 1989, filed its answer. In addition to responding to those claims asserted against it in Counts I through VII of the complaint, the Bank reiterates its contention that the bankruptcy court lacks subject matter jurisdiction. The Bank further states that it does not consent to the entry of final orders and judgments by the bankruptcy judge and demands a jury to try all issues.³

This Memorandum is generated sua sponte by the court in an effort to deal with the substantive and procedural quagmire engendered by the Bank's jury demand. The jury demand problem is raised to a constitutional level by the Bank's express lack of consent to the entry of final orders and judgments by the bankruptcy judge. The jury demands by Haden and the debtor appear to pose lesser problems.

II

An analysis of the June 23, 1989 Supreme Court decision in Granfinanciera, S.A. v. Nordberg, Creditor Trustee For the Estate of Chase & Sanborn Corp., ___ U.S. ___, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989) (Chase & Sanborn), indicates that the jury demands of Haden and the debtor may be ineffective, notwithstanding that Haden's claims against both the Bank and the debtor may sound in whole or in part in law. Under the authority of Chase & Sanborn, Haden, who filed a proof of claim on July 7, 1988, has arguably waived her right to a jury trial.⁴ The debtor, by the filing of his bankruptcy petition, voluntarily subjected himself to the equitable powers of the bankruptcy court and, assuming, arguendo, the right to a jury trial in the first instance, he has also arguably waived that right.⁵ No such argument can be made with respect to the Bank's jury demand. It has filed no claim against the debtor's estate and, under the authority of Chase & Sanborn, it is entitled to a jury trial under the Seventh Amendment. This court cannot provide that jury trial.

III

Bankruptcy jurisdiction and procedure, as mandated by Congress through enactment of the Bankruptcy Amendments and Federal Judgeship Act of 1984 (BAFJA), Pub.L. No. 98-353, is governed by §§ 1334 and 157 of title 28 of the United States Code. Section 1334 provides in material part:

Bankruptcy cases and proceedings

(a) Except as provided in subsection (b) of this section, the district court shall have original and exclusive jurisdiction of all cases under title 11.

(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.

(c)(1) Nothing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11.

(2) Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction. Any decision to abstain made under this subsection is not reviewable by appeal or otherwise. . . .

28 U.S.C.A. § 1334 (West Supp.1989).

Section 157 provides in material part:

Procedures

(a) Each district court may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district.

(b)(1) 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, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title.

. . . .

(3) The bankruptcy judge shall determine, on the judge\'s own motion or on timely motion of a party, whether a proceeding is a core proceeding under this subsection or is a proceeding that is otherwise related to a case under title 11. A determination that a proceeding is not a core proceeding shall not be made solely on the basis that its resolution may be affected by State law.

(4) Non-core proceedings under section 157(b)(2)(B) of title 28, United States Code, shall not be subject to the mandatory abstention provisions of section 1334(c)(2).

(5) The district court shall order that personal injury tort and wrongful death claims shall be tried in the district court in which the bankruptcy case is pending, or in the district court in the district in which the claim arose, as determined by the district court in which the bankruptcy case is pending.

(c)(1) A bankruptcy judge may hear a proceeding that is not a core proceeding but

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