In re Mozer

• Decision Date: 20 May 1981
• Docket Number: Bankruptcy No. 80 M 2525.
• Citation: 10 BR 1002
• Parties: In re Phillip Charles MOZER, Debtor. Steven L. ZIMMERMAN, Trustee in Bankruptcy, Plaintiff, v. Phillip Charles MOZER, United Bank of Denver, N.A., a National Banking Association, and First National Bank of Denver, a National Banking Association, Defendants.
• Court: U.S. Bankruptcy Court — District of Colorado

10 B.R. 1002 (1981)

In re Phillip Charles MOZER, Debtor Steven L. ZIMMERMAN, Trustee in Bankruptcy, Plaintiff, v. Phillip Charles MOZER, United Bank of Denver, N.A., a National Banking Association, and First National Bank of Denver, a National Banking Association, Defendants.

Bankruptcy No. 80 M 2525.

United States Bankruptcy Court, D. Colorado.

May 20, 1981.

Jay S. Horowitz of Denver, Colo., for the plaintiff, Steven L. Zimmerman, Trustee.

Carl A. Eklund, James B. Holden and Arthur H. Bosworth, II, Denver, Colo., for Phillip Mozer.

Thomas D. Birge of Denver, Colo., for First National Bank of Denver.

MEMORANDUM OPINION

JOHN P. MOORE, Bankruptcy Judge.

THE MATTER here before me arises upon Defendants' demand for a jury trial. The underlying proceeding is a complaint to set aside as fraudulent certain conveyances made by the debtor, Phillip Charles Mozer. The parties agree that no jury right attaches to the first claim for relief. The Plaintiff, however, contends that there is likewise no right to a jury trial on the second claim, which is based on 11 U.S.C. § 544 and Colorado Revised Statutes, 1973, §§ 38-10-111 and 38-10-117. Defendants Mozer and First National Bank of Denver maintain that the second claim carries with it a right to trial by jury, and request trial to a jury. In addition, First National Bank of Denver moves that I abstain from deciding the jury issue, and either certify the question to the Supreme Court of Colorado, or order Plaintiff to proceed in a state court. I will do neither.

Abstention from the exercise of federal jurisdiction is the exception, not the rule.

Abdication of the obligation to decide cases can be justified . . . only in the exceptional circumstances where the order to the parties to repair to the state court would clearly serve an important countervailing interest. Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), at 96 S.Ct. 1244, citing County of Allegheny v. Frank Mashuda Co., 360 U.S. 185, 79 S.Ct. 1060, 3 L.Ed. 1163 (1959).

This conclusion was also adopted by the United States District Court for the District of Colorado in Goldman v. Knecht, 295 F.Supp. 897 at 901 (1969). The court in Goldman refused to abstain from a decision involving the Colorado vagrancy statute, stating that a federal court should invoke the doctrine of abstention only in narrowly limited special circumstances. 295 F.Supp. at 901, supra. I find that the facts in the case at hand present none of the compelling reasons for which federal courts have abstained from their duty to hear and decide cases, such as avoidance of an unnecessary decision of a federal constitutional question or avoidance of unnecessary friction in Federal-State relationships. Goldman, supra, at p. 900, citing Railroad Commission of Texas v. Pullman, 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941).

Likewise, argumentatively assuming I have authority to certify this question, certification to the Supreme Court of the State of Colorado would not be proper in this case. As will be seen, I do not believe that state law on the point to be decided here is so murky as to obstruct a federal court from finding a solution to the state question presented. But even where there is doubt as to local law, resort to certification is not obligatory, but rather "rests in the sound discretion of the federal court." Lehman Brothers v. Schein, 416 U.S. 386, 94 S.Ct. 1741, 40 L.Ed. 215 (1974). I have decided to exercise my discretion to retain and decide all aspects of the pending question of jury trial rights.

The starting place for analysis of right to jury trial in bankruptcy court is 28 U.S.C. § 1480, which reads:

(a) Except as provided in subsection (b) of this section, this chapter 28 USCS §§ 1471 et seq. and title 11 do not affect any right to trial by jury, in a case under title 11 or in a proceeding arising under title 11 or arising in or related to a case under title 11, that is provided by any statute in effect on September 30, 1979.

Attempts at construction of this section have resulted in confusion and conflicting interpretations. Some commentators and courts have taken the point of view that since the 1978 amendments to Title 28 reflect a general desire to abolish the cumbersome "summary — plenary" distinction, the sole inquiry under § 1480 is "whether the Seventh Amendment to the United States Constitution provides a right to jury trial on the contested issues." Busey v. Fleming, 8 B.R. 746, 3 CBC 2d 589, (Bkcy.N.D.Georgia, 1980). Also in accord, Brown v. Frank Medor Buick, Inc., 8 B.R. 450, 3 CBC 2d 817 (Bkcy.W.D.Virginia, 1981); Levy, Trial by Jury Under the Bankruptcy Reform Act of 1978, 12 Conn.L.Rev. 1.

In my opinion, the above interpretations fly in the face of the intent of Congress in enacting § 1480, as that intent is expressed in the pertinent legislative history. The House Report discussing § 1480(a) states that it:

continues any current right of litigants in bankruptcy cases, and cases related to bankruptcy cases, such as plenary actions, to a jury trial. H.R.Rep.No.595, 95th Cong., 1st Sess. 448 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6404;

The Senate report concurs that "any current right of a litigant" in a bankruptcy case or proceeding is continued under § 1480(a). S.Rep.No.989, 95th Cong., 2d. Sess., 157 U.S.Code Cong. & Admin.News 1978, pp. 5787, 5943, (1978). Another telling indication of intent is found at H.R.Rep. 595, supra, p. 12, U.S.Code Cong. & Admin. News 1978, p. 5973, which explains:

Proposed section 1480 requires that the right of jury trial be preserved as it is under present law. Bankruptcy courts will be required to hold jury trials to adjudicate what are under present law called "plenary suits", that is, suits that are brought in State or Federal Courts other than the bankruptcy courts. (emphasis added)

These expressions of intent leave no doubt that Congress intended a bankruptcy court's analysis of a jury demand to begin with an inquiry as to whether, on September 30, 1979, the matter before the court would have been categorized as a "plenary" or "summary" suit. Any interpretation omitting this step would result in an expansion of the jury trial right beyond its September 30, 1979, boundaries. Clearly, the legislative intent was to continue existing rights, and not to fashion new or broader ones.¹

The first step in this analysis, then, is to decide whether the matter at hand would have been classified as a "plenary" or a "summary" suit on September 30, 1979. The claim upon which a jury determination is sought alleges that conveyances made by Mozer to a certain trust were invalid under Colorado law, and seeks to set aside those conveyances pursuant to 11 U.S.C. § 544(b). In order to discover the nature of this type of action had it been brought prior to the enactment of the Bankruptcy Code, it is necessary to determine in which section of the former Bankruptcy Act Plaintiff would have turned. According to House Report 595, 95th Cong., 1st Sess. (1977) at 370, subsection 544(b) is derived from former § 70(e) of the Bankruptcy Act (former 11 U.S.C. § 110(e)). Clearly, under the former Act, the trustee would have proceeded under § 70(e) in his action to recover property that was the subject of an allegedly voidable transfer. Actions under § 70(e) were considered plenary actions, as they fell into the category of "suits brought by the bankruptcy receiver or trustee against third persons concerning property not in the possession of the bankruptcy court." 2 Collier on Bankruptcy, (14th Ed., 1976) ¶ 23.02, at p. 438.

The next step is to determine in which court this plenary suit could have been brought. Had this suit been brought as a plenary action under former § 70(e), it could have been tried in either the United States District Court for the District of Colorado, or the proper Colorado state court. Section 70(e)(3) stated:

For the purposes of such recovery or of the avoidance of such transfer or obligation, where plenary proceedings are necessary, any State court which would have had jurisdiction if bankruptcy had not intervened and any court of bankruptcy shall have concurrent jurisdiction.

Under former § 23(b), most plenary suits could be brought only where the bankrupt might have brought them if bankruptcy had never occurred. This meant that for most plenary suits, federal district court was not an available forum unless the standard requisites for federal jurisdiction were present. However, § 23(b) contained an exception for plenary actions under §§ 60(b), 67(e), and 70(e). This exception was reflected in § 70(e)(3), quoted above. Although the latter subsection gives jurisdiction to "any court of bankruptcy," these words have consistently been interpreted in case law and practice as a Congressional grant of jurisdiction to "the United States District Courts sitting, not as bankruptcy courts, but as courts of first instance."² 2 Collier, supra, at p. 605, 14th Ed. As Collier goes on to say,

These exceptions, engrafted on § 23b, make it clear that plenary suits under the sections specified are taken out of the restrictive provisions of § 23 and are cognizable by federal district courts irrespective of whether the general requirements of jurisdiction exist. This grant of federal jurisdiction is allowed a case under 70e to be heard in federal district court regardless of whether or not defendant consented. 2 Collier, supra, at p. 609.

Thus the hypothetical issue of consent is immaterial to the question of where this action might have been heard.

It has been suggested that because the grounds upon which the subject transfer is allegedly voidable arise out of state law, there would have been no federal jurisdiction. This argument is refuted by the discussion above and by case law.³ Regardless of whether the basis for voidability is state or federal law, the action itself would have been brought under §...