In re Scotland Guard Services, Inc.
| Decision Date | 14 December 1993 |
| Docket Number | Bankruptcy No. B-86-01773 (ESL). Adv. No. 92-0007. |
| Parties | In re SCOTLAND GUARD SERVICES, INC., Debtor. SCOTLAND GUARD SERVICES, INC., Plaintiff, v. AUTORIDAD de ENERGIA ELECTRICA, et al., Defendants. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Puerto Rico |
Ricardo Skerritt, Woods & Woods, Hato Rey, PR, for plaintiff/debtor.
Karen M. Loyola Peralta, San Juan, PR, for defendant Puerto Rico Electric Power Authority.
Viviana Rodriguez, Federal Litigation Div., P.R. Dept. of Justice, San Juan, PR, for codefendants Julio Capo Capo, Roberto A. Pietri Bonilla, Edwin Miranda, Hector Rosario and Jose Del Valle.
This case is before the court upon the motion to dismiss by co-defendants Julio Capo Capo, Roberto A. Pietri Bonilla, Edwin Miranda, Hector Rosario and Jose del Valle, as well as the briefs filed by the parties following the status conference held on April 24, 1992. At that time, the court asked the parties to brief the following issues:
Scotland Guard filed this adversary complaint on January 30, 1992, against Autoridad de Energia Electrica (AEE) and certain of its officials, alleging various causes of action and claiming damages resulting therefrom.
Scotland Guard signed a contract for the provision of security services with AEE on June 1, 1983, for a period from June 1, 1983 to May 31, 1985. Said contract was subsequently extended. On January 30, 1989, Scotland Guard and AEE entered into another contract, effective February 1, 1989, for a period of two years, renewable at AEE's option for two additional one-year periods. On or about January 30, 1991, AEE notified Scotland Guard in writing that its contract would not be renewed.
Scotland Guard alleges that AEE and the individual co-defendants refused to allow them to bid for another contract to provide security services to AEE, in violation of the Constitutions and laws of the United States and Puerto Rico.
Scotland Guard filed its petition for reorganization under Chapter 11 of the Bankruptcy Code on September 26, 1986. Its plan of reorganization was filed on April 6, 1988 (dkt. # 63), and was confirmed on June 21, 1988 (dkt. # 82). Subsequent to the loss of its contract with AEE, Scotland Guard moved the court to modify its confirmed plan; however, the court found that the plan had been substantially consummated and therefore could not be modified. In re Scotland Guard Services, Inc., 139 B.R. 264 (Bankr.D.P.R.1991).
The court asked the parties to address whether this is a core or non-core proceeding. The complaint herein alleges violations of debtor's due process rights under the Fifth and Fourteenth Amendments of the United States' Constitution and Article II, Section 7 of the Constitution of Puerto Rico, equal protection rights under the Fourteenth Amendment of the United States' Constitution and Article II, Section 7 of the Constitution of Puerto Rico, and civil rights under 42 U.S.C.A. §§ 1982 and 1983, as well as breach of contract and loss of reputation, credit, business opportunities and goodwill. Debtor's argue that this is a non-core proceeding, and should therefore be referred to the district court. Defendants agree that this is a non-core proceeding; they argue that it is not a related proceeding and is thus not within the jurisdiction of the bankruptcy court, or, in the alternative, if it is a related proceeding, it may not be heard by the bankruptcy court because the plaintiff demands a jury trial.
This court discussed core and non-core matters in In re MEC Steel Buildings, Inc., 136 B.R. 606 (Bankr.D.P.R.1992). Core proceedings are those involving matters arising under title 11 or arising in a case under title 11 of the United States Code; that is, they would not exist outside of bankruptcy. 1 Daniel R. Cowans, Bankruptcy Law and Practice § 1.2 at 31 (1989). Core matters, as inherently bankruptcy matters, can be determined by bankruptcy matters, can be determined by bankruptcy judges. The Judicial Code in § 157(b)(2) presents a non-exclusive list of core matters. 28 U.S.C.A. § 157(b)(2).
On the other hand, with regard to matters described as non-core but otherwise related to the bankruptcy case a bankruptcy judge is limited to:
... 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.A. § 157(c)(1). Despite the above stated, a bankruptcy judge may enter final orders and judgments concerning non-core but related matters if all parties to the proceeding have consented. 11 U.S.C.A. § 157(c)(2); In re G.S.F. Corp., 938 F.2d 1467, 1477 (1st Cir.1991).
A determination of whether a controversy is core or non-core lies in its relation to the basic functions of the bankruptcy court, and not on the federal or state basis for the claim. In re Arnold Print Works, Inc., 815 F.2d 165, 169 (1st Cir.1987). If the proceeding, by its nature, arises only within the bankruptcy context because it involves a right created by federal bankruptcy law, then it is a core proceeding. In re Wood, 825 F.2d 90, 97 (5th Cir.1987). If an action would survive outside of bankruptcy, and in the absence of bankruptcy would have been initiated in a state or a district court, then it clearly involves a non-core matter. 1 Law-rence P. King, et al., Collier on Bankruptcy par. 3.011civ at 3-27 (15th ed. 1991) citing In re Colorado Energy Supply, Inc., 728 F.2d 1283 (10th Cir.1984). Non-core proceedings include the situation where the debtor has a cause of action against a third party based on nonbankruptcy law. 2 Robert E. Ginsberg and Robert D. Martin, Bankruptcy: Text, Statutes, Rules S 1.03c at 1-66 (3rd ed. 1992).
The court agrees with the parties that this is a non-core matter. Thus, it may, at most, submit proposed findings of fact and conclusions of law to the district court for a final determination.
Plaintiff/debtor has demanded a trial by jury. It argues that such a right exists on its claims for damages for breach of contract, loss of reputation, and violation of 42 U.S.C. §§ 1982 and 1983. Defendant argues that plaintiff has no right to a jury trial before the bankruptcy court because this is a non-core proceeding and, furthermore, because debtor is a corporation and voluntarily invoked the jurisdiction of the bankruptcy court, thereby consenting to trial without a jury.
The right to a jury trial in bankruptcy involves two separate inquiries—the existence of such a right, and the ability of a bankruptcy court to conduct a jury trial. Part of the Bankruptcy Amendments and Federal Judgeship Act of 1984 ("BAFJA") legislation, enacted by Congress in 1984 in response to the decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), included the following provision regarding jury trials:
... this chapter and title 11 do not affect any right to trial by jury that an individual has under applicable nonbankruptcy law with regard to a personal injury or wrongful death tort claim.
28 U.S.C. § 1411(a) (1984). Subsequently, the Supreme Court held in Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989), that a creditor which had not filed a proof of claim in the bankruptcy case had a Seventh Amendment right to a jury trial of its fraudulent conveyance action. According to one commentator's analysis, there is thus no right to a jury trial in bankruptcy if the claim is "equitable" rather than "legal", if the claim asserted is a "public right" which has been assigned by Congress to a tribunal which does not hold jury trials or is a specialized court of equity, or if the party has submitted to the jurisdiction of the court, such as by filing a proof of claim. 3 David G. Epstein, et al., Bankruptcy § 12-14, p. 231 (West 1992). As to that third element, the author states:
A related and yet unanswered question concerns the debtor\'s right to seek a jury. Presumably the debtor\'s filing of the petition is a more significant and overt concession to the Court\'s equitable jurisdiction even than a creditor\'s filing a claim and thus should be read as a forfeiture of all rights to a jury. However, if one reads the Supreme Court\'s language as limited strictly to "claims", he might come to the opposite conclusion. We believe one who has filed a voluntary petition in bankruptcy is never entitled to a jury trial in that court.
Id. at § 12-15, p. 237. (Accord Ginsberg, Bankruptcy: Text, Statutes, Rules § 1.02i at 1-44 ())
As of this date the circuits are divided as to whether the bankruptcy judge has the authority to preside over a jury trial. The Second Circuit decided in In re Ben Cooper, Inc., 896 F.2d 1394 (2d Cir.1990), that the bankruptcy court has statutory authority under the Bankruptcy Code to conduct jury trials and that jury trials of core proceedings in bankruptcy court do not violate Article III of the Constitution. The Eighth Circuit expressly declined to follow Ben Cooper and held in In re United Missouri Bank of Kansas City & N.A., 901 F.2d 1449 (8th Cir.1990), that a bankruptcy judge lacks express or implicit authority to conduct jury trials. The Seventh, Sixth and Tenth Circuits...
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