In re Kroh Bros. Development Co.
Decision Date | 07 October 1988 |
Docket Number | Adv. No. 87-0482-1-11.,Bankruptcy No. 87-00640-1-11,87-01265-1-11 |
Citation | 91 BR 889 |
Parties | In re KROH BROTHERS DEVELOPMENT COMPANY, Kroh Brothers Equity Company, Debtors. KROH BROTHERS DEVELOPMENT COMPANY, Kroh Brothers Equity Company, Plaintiffs, v. Robert D. BAZAN, et al., Defendants. |
Court | U.S. Bankruptcy Court — Western District of Missouri |
George M. Bock, Frank Wendt, Peter R. Barr, Slagle & Bernard, Kansas City, Mo., for defendants.
Gerald F. Munitz, Nachman, Munitz & Sweig, Ltd., Chicago, Ill., and James E. Bird, Thomas Franklin, Polsinelli, White, Vardeman & Shalton, Kansas City, Mo., for debtors and plaintiffs.
Arthur B. Federman, Linde, Thomson, Langworthy, Kohn & VanDyke, P.C., Kansas City, Mo., for Chairman of Creditor's Committee.
David S. Kurts, Mayer, Brown & Platt, Chicago, Ill., and Edward E. Schmitt, Dietrich, Davis, Dicus, Rowlands, Schmitt & Gorman, Kansas City, Mo., for Creditor's Committee.
The plaintiffs, have filed an application for jury trial on the issues asserted in defendants' counterclaim. The question addressed by this Court is whether a right to jury trial exists in a compulsory counterclaim action. This Court concludes that no right to jury trial exists because the compulsory counterclaim is a core proceeding, and therefore is not entitled to a trial by jury.
The underlying complaint in this action is a complaint based on 11 U.S.C. §§ 547 and 548, and declaratory judgment to avoid the transfer of partnership and mortgage interests. It is clear that the underlying complaint is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(F) and (H).
Kroh Brothers Development Corporation (KBDC), Kroh Brothers Equity Corporation (KBEC), an individual named Robert D. Bazan, and a corporation known as Chocolate Soup, formed a Missouri limited partnership, Watts Mill Associates, Limited Partnership (Watts Mill Assocs.), on December 1, 1983, for the purpose of acquiring, owning, and operating certain real property improved by a shopping center located in Jackson County, Missouri, commonly described as the Watts Mill Shopping Center. KBDC and KBEC are the debtors-in-possession in these bankruptcy cases. KBDC was the sole general partner while Bazan and Chocolate Soup were the sole limited partners of Watts Mill Assocs. These parties entered into a series of agreements on which this adversary proceeding is based.
Defendants' counterclaim seeks damages and other relief by reason of plaintiffs' fraud, oppression, negligent misrepresentations, breach of fiduciary duty, breach of contract, and breach of constructive trust based on these series of agreements. Plaintiffs have filed an application for jury trial on the issues raised in defendants counterclaim which application is the subject of this order.
1. Whether defendants' counterclaim is a core proceeding?
2. If the counterclaim is a core proceeding is there a right to a jury trial?
Federal Rule of Civil Procedure 13(a) requires a party to raise as a counterclaim any claim against the opposing party that "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim." In re Beugen, 81 B.R. 994 (Bkrtcy.N.D.Cal.1988), citing, United States v. Heyward — Robinson Co., 430 F.2d 1077, 1081 (2d Cir.1970), cert. denied, 400 U.S. 1021, 91 S.Ct. 582, 27 L.Ed.2d 632 (1971). Under the logical relationship test, the claim and counterclaim in this case arise from the same transaction. Both claims turn on the parties' respective rights and duties under the series of agreements.
Defendants assert and this Court agrees that this Court has jurisdiction over the counterclaims asserted pursuant to Rule 13(a) of the Federal Rules of Civil Procedure, Bankruptcy rule 7013, and principles of ancillary jurisdiction because the counterclaims arise out of transactions which are included in the transactions that are the subject of the debtors' complaint.
In 28 U.S.C. § 157(b)(1), Congress provided that "bankruptcy judges may hear and determine all . . . core proceedings arising under title 11, or arising in a case under title 11 . . . ".
"It has been held that a counterclaim arising out of the same transaction as that which gave rise to the proof of claim is a core proceeding." 1 Collier on Bankruptcy P3.01, p. 3-44 (15th ed. 1987). "Where a creditor of the estate files a proof of claim and the estate counterclaims against him, or where the estate brings an action against a creditor and the creditor counterclaims asserting a setoff, it is entirely appropriate for the action to be classified as a core proceeding. Matter of Honeycomb, Inc., 72 B.R. 371 (Bkrtcy.S.D.N.Y.1987), quoting, Interconnect Telephone Services v. Farren, 59 B.R. 397 (S.D.N.Y.1986).
Both parties have consented to the bankruptcy court as the forum in which to litigate their claims. The plaintiffs/debtors by filing a petition in bankruptcy and the defendants/creditors by filing their proof of claim in this bankruptcy proceeding. See Peters v. Lines, 275 F.2d 919, 925 (9th Cir.1960); In re Sun West Distributors, Inc., 69 B.R. 861, 864-65, 15 BCD 649 (Bkrtcy.S.D.Cal.1987) ( ); In re Honeycomb, Inc., 72 B.R. 371 (Bkrtcy.S.D.N.Y. 1987). Both Bazan and Chocolate Soup, Inc., filed a proof of claim in this case on February 11, 1988, therefore, they have consented to try their compulsory counterclaim as a core proceeding. Because of its integral connection to the bankruptcy case, this Court finds that defendants' counterclaim is a core proceeding.
The courts are split on the issue of whether a bankruptcy court may conduct a jury trial.
One view is that jury trials are not permitted in "core" proceedings. In re Global Intern'l Airways Corp., 81 B.R. 541 (W.D. Mo.1988), citing, In re I.A. Durbin, Inc., 62 B.R. 139, 145 (S.D.Fla.1986); In re Mansker, 60 B.R. 803, 806 (Bkrtcy.D.Mass.1986); In re Duncan, 51 B.R. 71, 72 (Bkrtcy.D. Md.1985); In re Baldwin-United Corp., 48 B.R. 49, 56 (Bkrtcy.S.D.Ohio 1985). Global, citing, In re Mansker, 60 B.R. 803, 806 (Bkrtcy.D.Mass.1986); In re Duncan, 51 B.R. at 72, In re Baldwin-United Corp., 48 B.R. 49, 56 (Bkrtcy.S.D.Ohio 1985). See also, In re Portage Associates, Inc., 16 B.R. 445 (Bkrtcy.N.D.Ohio 1982); In re Mauldin v. Peoples Bank of Indianola, 52 B.R. 838 (Bkrtcy.N.D.Miss.1985); In re Best Pack Seafood v. Barnes, 45 B.R. 194 (Bkrtcy.D.Me.1984); Hauytin v. Grynberg, 52 B.R. 657 (Bkrtcy.D.Colo. 1985); Chase and Sanborn Corp. v. Bank of Credit and Commerce Int'l, 54 B.R. 43 (Bkrtcy.S.D.Fla.1985). In re I.A. Durbin, Inc., 62 B.R. 139, 145 (S.D. Fla.1986). The majority of courts do not allow jury trials in cases involving core matters. In re I.A. Durbin, Inc., 62 B.R. 139, 145 (S.D.Fla.1986).
"The other view looks to the nature of the cause of action rather than the summary/plenary, core/noncore distinctions. If the cause of action is legal in nature, a jury trial is permissible, while if it is equitable,...
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