In re Glenn

• Decision Date: 24 May 2006
• Docket Number: Bankruptcy No. 02 B 40851.,Adversary No. 04 A 4493.
• Citation: 359 B.R. 200
• Parties: In re: Patrick GLENN, Debtor Frances Gecker, Chapter 7 Trustee, Plaintiff, v. James P. Gierczyk, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

359 B.R. 200

In re: Patrick GLENN, Debtor Frances Gecker, Chapter 7 Trustee, Plaintiff, v. James P. Gierczyk, Defendant.

Bankruptcy No. 02 B 40851.

Adversary No. 04 A 4493.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

May 24, 2006.

As Amended June 7, 2006.

Janice A Alwin, Gordon E. Gouveia, Steven B. Towbin, Shaw, Gussis, Fishman, Glantz, Chicago, IL, Brian M. Graham, SmithAmundsen LLC, Chicago, IL, for defendant.

Micah R Krohn, Frank/Gecker LLP, Chicago, IL, for plaintiff.

Memorandum Opinion

Bruce W. BLACK, Bankruptcy Judge.

This case is now before me on the plaintiff Trustee's motion to strike certain paragraphs of the Defendant's amended answer and to strike the Defendant's jury demand on all remaining counts of the complaint. The pertinent facts are not in dispute.

FACTS

The Trustee filed a five-count complaint on December 29, 2004. Counts I and II alleged an actual fraudulent transfer and a constructive fraudulent transfer, respectively. The Defendant timely filed his answer on June, 10, 2005 and did not make a jury demand at that time or within the subsequent ten days (as required by Rule 38 of the Federal Rules of Civil Procedure, as made applicable through Rule 9015 of the Federal Rules of Bankruptcy Procedure).

On January 12, 2006, following a period of discovery, the Trustee filed an amended complaint seeking turnover of alleged property of the estate (Counts VI and VII) as well as alleging a willful violation of the automatic stay (Count VIII). On January 18, 2006, fact discovery was closed on Counts I and II. Thereafter, the Defendant timely filed his amended answer, which included revisions to the original answers to Counts I and II, two new affirmative defenses, and jury demands to Counts I and II as well as VI through VIII.

Counts I and II seek to recover alleged fraudulent transfers to the Defendant. For present purposes, the facts behind these two counts are not important. Counts VI seeks to recover the proceeds from the Defendant's sale of property that was held by "PGG, Inc." ("PGG"). PGG, an Illinois corporation, was involuntarily dissolved on April 1, 2000. When the Debtor's bankruptcy petition was filed, all the shares of the dissolved PGG were held, in equal parts, by the Debtor and the Defendant. Thereafter, the Trustee succeeded to the Debtor's interest pursuant to section 541(a) of the Bankruptcy Code.¹ Count VII seeks to recover the Debtor's shareholder interest in "PGI, Inc." ("PGI"). Count VIII seeks sanctions for the Defendant's alleged violation of the automatic stay stemming from the sale of property held by PGG.

DISCUSSION

The jury demand for Counts VI through VIII was timely filed. The jury demand for Counts I and II was not. I will first consider the request to strike the demand which was timely, beginning with Count VIII.

COUNT VIII

In Count VIII the Trustee seeks to strike the Defendant's jury demand for the Trustee's charge of violations of the automatic stay, pursuant to section 362(k)(1).² Under section 362(k)(1), "an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages." Perhaps surprisingly, there is little case law on whether a party to such a dispute is entitled to a jury trial.

The most recent opinion of the United States Supreme Court considering the right to jury trial in the bankruptcy context is Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989). In that case the Court held that a party was guaranteed a jury trial in an adversary proceeding over an alleged fraudulent transfer. The Court came to this conclusion even though Congress, in section 157 of the Judicial Code,³ had labeled fraudulent conveyance actions as core proceedings which could be resolved by a bankruptcy judge. The Granfinanciera opinion suggests that the issue before me regarding Count VIII may not be resolved simply by pointing out that section 362(k)(1) creates a cause of action that was unknown to the common law:

Although `the thrust of the Amendment was to preserve the right to jury trial as it existed in 1791,' the Seventh Amendment also applies to actions brought to enforce statutory rights that are analogous to common-law causes of action ordinarily decided in English law courts in the late 18th century, as opposed to those customarily heard by courts of equity or admiralty.

Id. at 42, 109 S.Ct. 2782.

The Defendant argues that, because the Trustee seeks money damages in Count VIII, the count is analogous to a common law cause of action and he is, therefore, entitled to a jury trial. Once again, the question is not so easily resolved under Granfinanciera, which sets forth the required analysis when considering whether, a statutorily created cause of action is subject to a Seventh Amendment right to jury trial:

The form of our analysis is familiar. `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.' The second stage of this analysis is more important than the first. 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.

Id. at 42, 109 S.Ct. 2782 (internal citations and footnote omitted).

Regarding the first inquiry, the cause of action for violating the automatic stay under section 362(k)(1) does not appear to have had a counterpart in eighteenth century England. Indeed, I am not aware of anything resembling the automatic stay in English law at that time, so it is not surprising that there was no way to redress its violation. Thus, this first inquiry points to roots in neither law nor equity. The second inquiry, directed at the remedy asserted, points definitely in this case toward the courts of law rather than the courts of equity. The Trustee seeks money damages — both compensatory and punitive. She does not seek an injunction or any other historically equitable remedy. Accordingly, I conclude that these first two factors, on balance, indicate that the Defendant is entitled under the Seventh Amendment to a jury trial on Count VIII. But the inquiry under Granfinanciera is not over. I must next examine whether "Congress may assign and has assigned" the matter to the bankruptcy court.

That Congress has assigned the section 362(k)(1) cause of action to this court appears reasonably clear. Section 157(b)(2)(G) of the Judicial Code (28 U.S.C.) defines core matters to include "motions to terminate, annul, or modify the automatic stay." Although motions to enforce the stay are not listed, the omission does not appear significant.⁴ Nevertheless, as Granfinanciera itself shows, mere inclusion as a core matter under section 157 of the Judicial Code does not end the jury trial inquiry. The cause of action at issue there-recovery of fraudulent conveyances-is also listed in section 157. See 28 U.S.C. § 157(b)(2)(H). Yet, the Court found that a jury trial is guaranteed in such cases.

Congressional treatment of violations of the automatic stay appears to differ from its treatment of fraudulent conveyances in at least one significant way: jurisdiction over fraudulent conveyance actions is granted concurrently to the District Court and the state courts, but jurisdiction over stay violations is granted exclusively to the District Court. See Halas v. Platek, 239 B.R. 784 (N.D.Ill.1999). Accordingly, I conclude that Congress has attempted to assign violations of the automatic stay to the bankruptcy court.

It remains only to consider whether Congress may assign such matters to the bankruptcy court without running afoul of the Seventh Amendment. The Granfinanciera opinion succinctly states the issue there, which is the, same as the issue here:

The sole issue before us is whether the Seventh Amendment confers on petitioners a right to a jury trial in the face of Congress' decision to allow a non-Article III tribunal to adjudicate the claims against them.

Granfinanciera at 50, 109 S.Ct. 2782. Citing one of the Court's earlier opinions, Atlas Roofing Co. v. Occupational Safety and Health Review Comm'n, 430 U.S. 442, 97 S.Ct. 1261, 51 L.Ed.2d 464 (1977), the opinion goes on to state that Congress may create new statutory causes of action analogous to common law actions and deny jury trials in them only "in cases where `public rights' are litigated." Granfinanciera at 51, 109 S.Ct. 2782. Thus, the question here becomes whether Count VIII asserts-and section 362(k)(1) protects"public rights" rather than "private rights."

The "public rights" doctrine appears originally to have been confined to controversies to which the federal government was a party.⁵ More recently, the doctrine has expanded. In Granfinanciera Justice Brennan's majority opinion equates "public rights" for jury trial purposes with the "public rights" doctrine in cases over whether Congress can assign matters to non-Article III tribunals. After referring to "that class of `public rights' whose adjudication Congress may assign to administrative agencies or courts of equity sitting without juries," id. at 53, 109 S.Ct. 2782 (emphasis added), the opinion summarizes the issue:

The crucial question, in cases not involving the Federal Government, is whether `Congress, acting for a valid legislative purpose pursuant to its constitutional powers under Article I, [has] create[d] a seemingly `private' right that is so closely integrated into a public regulatory scheme as to be a matter appropriate for agency resolution with limited involvement by the Article III judiciary.'. . If a statutory right is not...