In re A.P.I., Inc.

• Decision Date: 29 April 2005
• Docket Number: No. 05-30073.,05-30073.
• Citation: 324 B.R. 761
• Parties: In re A.P.I. INC., Debtor.
• Court: U.S. Bankruptcy Court — District of Minnesota

324 B.R. 761

In re A.P.I. INC., Debtor.

No. 05-30073.

United States Bankruptcy Court, D. Minnesota.

April 29, 2005.

James L. Baillie, Fredrikson & Byron PA, Minneapolis, MN, for Debtor.

ORDER DENYING MOTION OF GREAT AMERICAN INSURANCE COMPANY FOR TRANSFER TO THE UNITED STATES DISTRICT COURT, AND DENYING CERTAIN OTHER PARTIES' DEMANDS FOR JURY TRIAL

GREGORY F. KISHEL, Chief Judge.

This Chapter 11 case came on before the Court on March 23, 2005, for hearing on a motion by Great American Insurance Company ("GAIC"), styled as one under Loc. R. Bankr.P. (D.Minn.) 5011-3(a). Appearances were Katherine Windler on behalf of GAIC; James L. Baillie on behalf of the Debtor; David C. Christian, II on behalf of Continental Casualty Company and Transportation Insurance Company (collectively, "CNA"), and Alan Pedlar on behalf of Thomas Carey, the "Legal Representative" under the Debtor's proposed plan. Upon the moving and responsive documents, the arguments of counsel, and other relevant parts of the record in this case, the following decision is memorialized.

The Debtor commenced this case by a voluntary petition filed on January 6, 2005. The Debtor is in the business of installing insulation at large industrial and commercial sites. Until 1973, it used insulation materials that contained asbestos. Over the last two decades, it has been named as a defendant in several thousand product-liability lawsuits arising out of its use of asbestos products. Approximately 700 of these lawsuits were pending when the Debtor filed for bankruptcy relief. The mounting of difficulties in these lawsuits prompted the Debtor to prepare for a Chapter 11 filing; several of its liability insurers had asserted that the aggregated claims had reached the limits of coverage under policies they had issued to the Debtor, and they were declining to further defend and indemnify. When the Debtor filed for bankruptcy, a declaratory judgment action over the coverage issue was pending in the Minnesota State District Court for the Second Judicial District, Ramsey County.

The Debtor filed a plan of reorganization in this case on January 7, 2005. When it filed the plan, it sought to obtain confirmation of a "prepackaged plan" on an expedited basis. It proffered the results of a pre-petition solicitation of acceptances pursuant to 11 U.S.C. § 1126(b) to satisfy the general requirements of 11 U.S.C. §§ 1129(a)(7)-(8) and (10). Via the plan, the Debtor would establish a trust under 11 U.S.C. § 524(g)(2)(B). The trust would assume liability for the asbestos-related claims against the Debtor and would fund payment on account of those claims from assets that it would receive post-confirmation. The Debtor contemplated that those assets would include "proceeds received" on account of its status as an insured under the policies of liability insurance that it has maintained over the years; it proposed to assign to the trust its rights, if any, under the policies. A number of the Debtor's insurers early announced their intentions to object to confirmation on procedural and substantive grounds.

Between January 18 and January 20, 2005, five of the insurers filed demands for a jury trial on "all issues so triable respecting the proposed Plan of Reorganization of A.P.I., Inc., dated December 15, 2004."¹ Pursuant to an agreed case procedures order, several insurers filed summaries of their objections to confirmation between January 27, 2005 and February 23, 2005.

The motion at bar brings the insurers' jury demands to a head. Through it, GAIC seeks to have "all insurance issues raised by the Plan of Reorganization" — or, alternatively, "this entire proceeding" — transferred to the United States District Court "for jury trial." GAIC styles its motion under Loc. R. Bankr.P. (D.Minn.) 5011-3(a).² GAIC does not invoke Loc. R. Bankr.P. (D.Minn.) 9015-1(d), as such.³ However, the inquiry contemplated by that rule is clearly the threshold issue in GAIC's motion; because of the structure of Local Rule 5011-3(a)(1), it is essentially the only one. Because demands for jury trial were filed, the exercise must be performed before a confirmation hearing may be convened. Fed.R.Civ.P. 39(a).⁴

The Bankruptcy Code contains no provisions governing the right to jury trial in cases commenced under it. Thus, if GAIC has a right to jury trial, it must arise under the Seventh Amendment to the United States Constitution. As it turns out, the very wording of that amendment is crucial to the motion at bar:

In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.

In Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989), the Supreme Court reiterated its two-part test for determining the right to jury trial under the Seventh Amendment in a civil proceeding that is founded on a modern statute: "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." 492 U.S. at 42, 109 S.Ct. 2782 (quoting Tull v. United States, 481 U.S. 412, 417-18, 107 S.Ct. 1831, 95 L.Ed.2d 365 (1987)) (emphasis added). See also Markman v. Westview Instruments, Inc., 517 U.S. 370, 376, 116 S.Ct. 1384, 134 L.Ed.2d 577 (1996).

The theory of GAIC's motion is two-pronged; it seeks alternate structures of relief.

The first prong breaks down on the most basic level of analysis, the type of court function for which a jury trial is guaranteed. As its first alternative, GAIC would have "a host of contested confirmation issues" "transferred" to the district court, for trial to a jury in that forum.⁵ This request is flipped off, almost blithely; however, anyone who actually administers a judicial process of dispute resolution is immediately triggered by the vagueness of its phrasing.

GAIC seems to contemplate a process under which isolated "issues" raised in objections to the confirmation of the Debtor's plan would be identified and extracted from those objections; somehow framed and memorialized by this court; and then "transferred" to the district court through some means — there to be presented to a jury for some unspecified process of fact-finding. GAIC did not specify what a jury was to do in this context: was it to answer special interrogatories on precise points of fact? Or was it to perform like a jury does more traditionally in a full civil suit, taking legal instruction from a presiding judge and then rendering a sort of general judgment on unexpressed subsidiary findings?⁶ Finally, GAIC did not identify what was to be done with the results of such fact-finding after the jury had finished. At oral argument, counsel's explanation was not much more clear than in the briefing, other than to suggest that the submission of these "insurance issues" to a jury would be made in the course of the trial in the pending coverage action.⁷

With the nature of the proposal limned as such, it is no wonder that GAIC was unable to cite any case law authority for its first alternative. The Seventh Amendment preserves a right to have fact-finding performed by a particular institutional participant in the judicial system, but only in "Suits at common law." (Emphasis added.) The Supreme Court's analysis, in Granfinanciera and its predecessors, uses the word "action" for the thing that is to be tried, to a jury or not. Under the immemorial understanding of our Anglo-American system, both of these words define out as a lawsuit as a whole:

suit. Any proceeding by a party or parties against another in a court of law ... See ACTION.

BLACK'S LAW DICTIONARY 1448 (7th ed.1999).

action.... 3. A civil or criminal judicial proceeding.

Id. at 28.

proceeding. 1. The regular and orderly progression of a lawsuit, including all acts and events between the time of commencement and the entry of judgment.

Id. at 1221 (emphasis added).

From either a technical perspective or a layperson's, "issues" of fact are not commonly understood as being the only components of a lawsuit, however much a lawsuit contains "issues." The Founders could not have contemplated anything more involved than the one simple concept identified on the face of the Amendment. GAIC certainly does not cite to any evidence that they did.

The equating of the two would not work from the standpoint of function, either. As an isolated act, fact-finding does not in itself bring about a comprehensive and final determination of parties' rights, liabilities, and legal posture. That is the function of an order or judgment, the structuring of which necessitates an overlay of the law onto the facts as found. GAIC does not even suggest that a jury's determination of its severed "issues" would result in itself in such a final adjudication.

From definition, logic and real-life practice, the point is self-evident: a group of subsidiary fact disputes that might be present in a complex statutory proceeding for the adjustment of debtor-creditor relationships does not, in itself, constitute or equate to a "Suit at common law." This is particularly compelling when the proceeding involves other disputes of fact or law that would not so equate, and (as GAIC admits) would not entail a constitutional right of trial by jury.

GAIC has presented no palpable support in history or logic for its first alternate assertion of a right to jury trial. There is nothing to disturb the customary understanding that the unitary, organized, sequential procedure of a full lawsuit, the teleological process for the comprehensive adjudication of rights and liabilities "at common law," as they pertain to a full matter in controversy between parties, is the only platform that the Founders envisioned...