In re El Paso Pharm, Inc.
| Citation | 130 BR 492 |
| Decision Date | 29 July 1991 |
| Docket Number | Bankruptcy No. 91-30500-C,Adv. No. 91-3022. |
| Parties | In re EL PASO PHARM, INC., Debtor. McKESSON CORPORATION, Plaintiff, v. EL PASO PHARM, INC. d/b/a City Discount Drugs, David Ontiveros, Simon Holguin, Laura Holguin, Manuel Hernandez, Jr. and Terry Lynn Hernandez, Defendants. |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Western District of Texas |
Leslie M. Luttrell, Ginnings Birkelbach Keith & Delgado, El Paso, Tex., for El Paso Pharm, Inc.
Hal F. Morris, Bernard D. Felsen, Scott, Hulse, Marshall, Feuille, Finger & Thurmond, P.C., El Paso, Tex., for McKesson Corp.
DECISION ON MOTION TO REMAND
CAME ON for hearing the motion of debtor to remand this proceeding to state court, and the response thereto of McKesson Corporation. The court enters this decision pursuant to 28 U.S.C. § 1452(b) as amended in 1990.1
McKesson originally filed this lawsuit in state court, prior to the bankruptcy petition, in an attempt to collect on promissory note. In that litigation, McKesson sought and obtained a prejudgment writ of sequestration, which it promptly exercised. Unable to get the writ dissolved, the debtor filed this bankruptcy. Debtor then filed an answer to the underlying suit, charging as a defensive matter that the note was usurious, entitling it to recover treble the usurious interest charged, forfeiture of the underlying principal, attorneys' fees, and demanded a jury. See Tex.Rev.Civ.Stat.Ann., art. 5069-1.06 (Vernon & Vernon Supp. 1990). McKesson then removed the state lawsuit to this court. The debtor responded by filing a motion for remand. The parties reached a standstill agreement on further pleadings or discovery in the litigation pending hearing on this motion.
The debtor maintains that it has additional affirmative counterclaims for common law fraud, lender liability, breach of the duty of good faith and fair dealing and the like, and adds that it is currently investigating potential actions under RICO and various state and federal antitrust statutes. It wants to return to state court to try these matters to judgment before a state court jury. The debtor adds that debtors have jury trial rights too, and that those rights should not be so easily defeated by the mere removal of a suit to bankruptcy court. The debtor raises numerous equitable arguments as well for why this case should be remanded, including that (1) the state court can reach the matter within seven months, (2) state law issues predominate, (3) McKesson itself chose the state law forum in the first instance, (4) the debtor prefers the state law forum, (5) there is no question of entitlement to a jury trial in state court on all issues which may be pleaded in the case, (6) the action could proceed even outside bankruptcy anyway, (7) the adjudication of the matter will only affect the parties to the litigation, and (8) the issues which are clearly non-core (though not yet pleaded) involve the same operative facts as does the usury issue, so that trying the entire case in one forum is a more efficient use of judicial resources.
McKesson counters that all that is currently on file is McKesson's suit on the note, which is now a claim against the bankruptcy estate (a proof of claim was filed just one week before the hearing on this motion), and the debtor's usury defenses to that claim. Thus, argues McKesson, the suit is mere claims litigation well within the core jurisdiction of this court, and well outside the Seventh Amendment entitlement to a jury trial. See Langenkamp v. Culp, ___ U.S. ___, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990), reh'g denied, 112 U.S. 343, 111 S.Ct. 721, 112 L.Ed.2d 709 (1991). McKesson also points out that, under the Seventh Amendment, there is no constitutionally protected right to a trial by jury growing solely out of a party's defense to an action.2 Responding to the equitable grounds for remand urged by the debtor, McKesson counters that this court could adjudicate this claim far more efficiently and quickly than could the state court, and that delay only prejudices McKesson and other creditors of the estate. McKesson also charges that this court has already held that the exclusive locus for claims administration is the federal court, citing this court's decision in In re Fairchild Aircraft Corporation, 4 Tex.Bankr.Ct. Rep. 312, 1990 WL 119650 (Bankr.W.D.Tex. 1990), recommendation adopted, slip op. (W.D.Tex.1990).
At the forefront of this dispute are the parties' arguments about a debtor's Seventh Amendment rights, focusing on whether a bankruptcy court can accommodate a jury trial on the kinds of matters likely to be tried in this case. These questions in turn raise the question whether it matters that the matters at issue are "core" matters or "related proceedings," and whether the state court can hear core matters such as claims litigation. Closer examination of these issues reveals that none of them are dispositive. We look first at the jury trial issue, then turn to the authority of state courts to hear claims litigation.
Debtor insists remand is essential because (a) it is entitled to a jury trial, and (b) this court will not be able to give the debtor such a trial. The second premise is faulty, and the argument thus fails.3
The conduct of a jury trial is not, of itself, an essential incident of an Article III tribunal. Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982); M & E Contractors v. Kugler-Morris General Contractors, 67 B.R. 260, 266 (N.D.Tex.1986); Citibank, N.A. v. Park-Kenilworth Industries, Inc., 109 B.R. 321, 329 (N.D.Ill.1989); see also Ellenberg v. Bouldin, 125 B.R. 851, 855 (N.D.Ga.1991) (); Matter of Hughes-Bechtol, Inc., 107 B.R. 552, 571 (Bankr. S.D.Ohio 1989) ). It may be for this reason that the Supreme Court denied certiorari in Ben Cooper this last term. In re Ben Cooper, Inc., 924 F.2d 36 (2d Cir.1991), cert. denied, ___ U.S. ___, 111 S.Ct. 2041, 114 L.Ed.2d 126 (1991) ().
Moreover, the conduct of a jury trial in a related proceeding does not offend the Seventh Amendment's prohibition on re-trying issues tried to a jury.4 This second point of course builds on the first. Absent an Article III impediment to the conduct of a jury trial, the only remaining objection must be that the statutory framework by which bankruptcy judges conduct trials on related proceedings would of necessity require the retrial of issues already decided by the bankruptcy court's jury, in derogation of the Seventh Amendment.
In Ford v. Estelle, the Fifth Circuit held that the "de novo determination" requirement imposed on district judges by the Magistrates Act meant that a jury trial could not be conducted by a magistrate judge absent consent and waiver by the parties. The court reasoned that district judges were required by the statute to review the entire record as a trial court, making their own credibility decisions and factual findings. Such a review could not co-exist with the Seventh Amendment's restriction on retrial of issues decided by a jury. 28 U.S.C. § 636(b); Ford v. Estelle, 740 F.2d 374, 380 (5th Cir.1984).
The counterpart section with respect to trials before bankruptcy judges is 28 U.S.C. § 157(c). That statute is worded in a subtlely different but legally significant way:
A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. In such proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge\'s proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected.
28 U.S.C. § 157(c)(1) (emphasis added). The highlighted language demonstrates that the scope of review of bankruptcy court decisions in related proceedings is not broad and mandatory, as it is under the Magistrates Act, but rather is limited to "those matters to which any party has timely and specifically objected." Id.
The Seventh Amendment states that "no fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law." U.S. Const. amend. VII. This court is obligated to construe federal enactments so as to avoid constitutional issues if possible. The obligation is to interpret statutes, if reasonably possible, in such a fashion as to be consistent with the Constitution, and to avoid finding a statute unconstitutional unless there is no reasonable construction of the statute that could lead to anything but that conclusion. Jean v. Nelson, 472 U.S. 846, 854-55, 105 S.Ct. 2992, 2996-97, 86 L.Ed.2d 664 (1985); Commodity Futures Trading Commission v. Schor, 478 U.S. 833, 841, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986); M & E Contractors, 67 B.R. at 264.
The very limited form of de novo review directed by Section 157(c)(1) is congruent with the procedure employed by district courts in reviewing and ruling on motions for new trial and motions for judgment notwithstanding the verdict. See Fed. R.Civ.P. 50, 59. Both of these procedural devices were themselves "rules of the common law" at the time of the enactment of the Seventh Amendment in 1791.5 See generally, Blount Brothers Corp. v. Reliance Insurance Company, 370 F.2d 733, 739 (5th Cir.1967), cert. denied, 387 U.S. 907, 87 S.Ct. 1689, 18 L.Ed.2d 627 (1967); Matter of Hughes-Bechtol, Inc., 107 B.R. 552, 571 (Bankr.S.D.Ohio 1989); 9, 11 Wright & Miller, Federal Practice and Procedure, §§ 2522, 2801 (respectiv...
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