In re Washington Mfg. Co.
| Decision Date | 21 May 1991 |
| Docket Number | 390-0073A and 390-0016A.,No. 388-01467 to 388-01469,Adv. No. 390-0069A,388-01467 to 388-01469 |
| Citation | 128 BR 198 |
| Parties | In re WASHINGTON MANUFACTURING COMPANY, et al., Debtors. CITICORP NORTH AMERICA, INC., Plaintiff, v. Timothy F. FINLEY, Trustee. |
| Court | U.S. Bankruptcy Court — Middle District of Tennessee |
James A. Cherney, Richard A. Levy, Latham & Watkins, Chicago, Ill., for Citicorp North America, Inc.
Barbara D. Holmes, Nashville, Tenn., for U.S. Trustee's Office.
Russell H. Hippe, Jr., Trabue, Strudivant & DeWitt, Nashville, Tenn., for Creditors' Committee.
Craig V. Gabbert, Jr., Glenn B. Rose, Karin Lee Waterman, Harwell, Martin & Stegall, Nashville, Tenn., for Chapter 11 Trustee.
Bradley A. MacLean, Farris, Warfield & Kanaday, Nashville, Tenn., for Citicorp North America, Inc.
On September 5, 1990, this Court issued a memorandum opinion and order in the above numbered adversary proceedings, to which opinion reference is made for background information and history relevant to the issues presently before the Court. In re Washington Manufacturing Company, et al., 118 B.R. 555 (Bankr.M.D.Tenn.1990). Subsequent to that opinion, the Court has continued to conduct scheduling and status conferences in these adversary proceedings, and settlement conferences have been conducted. Pending before the Court are motions filed by Citicorp North America, Inc. ("CNA") and by the unsecured creditors' committee, which motions raise issues which are basic to the procedural direction that these adversary proceedings will take. One of CNA's motions attacks the Chapter 11 Trustee's right to jury trial, demanded by the Trustee in adversary proceeding 390-0073A, which has been referred to as a fraudulent conveyance and leveraged buyout complaint.1 118 B.R. at 557. In addition, CNA has moved for a separate trial in the bankruptcy court of all issues relating to the allowance of CNA's claims in these jointly administered estates. Finally, the creditors' committee, as a part of its declared goal of filing a plan in these cases, has moved to value the asserted secured claims of CNA, pursuant to Bankruptcy Rule 3012. The Court has chosen to consolidate these motions for decision, for reasons which will be apparent in this opinion. The issues presented in the three motions have been briefed and orally argued by the parties, and the following contains findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052. The issues presented are part of core proceedings before this Court. 28 U.S.C. § 157(b)(2)(B), (F), (H), and (K).
As stated, reference is made to the Court's earlier opinion, 118 B.R. 555, for a more complete history of these three adversary proceedings. The conclusions reached in that opinion are a logical beginning point for the present discussion. The Court construed the Trustee's fraudulent conveyance and preference complaints filed against CNA to be objections to CNA's secured claims, which have been filed since March 30, 1988. 118 B.R. at 559-560. The validity, extent, priority and amount of CNA's claimed secured status has been the crux of the dispute between CNA, the Trustee, and the creditors' committee. 118 B.R. at 562. The Court concluded that "the three adversary proceedings, as they relate to CNA, are `offshoots of the same basic controversy between the parties.'" 118 B.R. at 563, quoting Great Lakes Rubber Corp. v. Herbert Cooper Co., 286 F.2d 631, 634 (3rd Cir.1961). The Court consolidated the three adversary proceedings under Bankruptcy Rule 7042 but also reserved the question of "whether separate trials are necessary or advisable on certain issues of facts or law." 118 B.R. at 564.
After CNA filed its two motions discussed herein, the Trustee moved, pursuant to 28 U.S.C. § 157(d), to withdraw the reference with respect to these adversary proceedings. This motion is based upon the Trustee's jury demand and the Trustee's position that the bankruptcy court lacks the necessary authority to conduct jury trials. See, e.g., In re Kaiser Steel Corporation, 911 F.2d 380 (10th Cir. 1990); In re United Missouri Bank of Kansas City, N.A., 901 F.2d 1449 (8th Cir. 1990); In re G. Weeks Securities, Inc., 89 B.R. 697 (Bankr.W.D.Tenn.1988); contra, In re Ben Cooper, Inc., 896 F.2d 1394 (2d Cir.1990), vacated and remanded, ___ U.S. ___, 111 S.Ct. 425, 112 L.Ed.2d 408 (1990), reinstated, 924 F.2d 36 (2d Cir.1991), cert. denied, ___ U.S. ___, 111 S.Ct. 2041, 114 L.Ed.2d 126 (1991); see generally, Sabino, "Jury Trials, Bankruptcy Judges, and Article III: The Constitutional Crisis of the Bankruptcy Court," 21 SETON HALL L.R. 248 (1991).
The withdrawal of reference motion is pending before the District Court for the Middle District of Tennessee. See Bankruptcy Rule 5011(a). Until a decision is made by that Court, the mere filing of a motion for withdrawal does not "stay the administration of the case or any proceeding therein," unless the bankruptcy judge determines it to be necessary or proper. Bankruptcy Rule 5011(c). No motion for a stay of these proceedings, pending a possible withdrawal, is presently before this Court. Id. The "bankruptcy court is an appropriate tribunal for determining whether there is a right to a trial by jury of issues for which a jury trial is demanded." American Universal Insurance Co. v. Pugh, 821 F.2d 1352, 1355 (9th Cir.1987). This is so even if the bankruptcy court, after determining that a jury right exists, can not ultimately preside over the trial of the jury issues. See, e.g., In re G. Weeks Securities, Inc., 89 B.R. at 712-13. This Court has determined that the circumstances of the case require that the consolidated adversary proceedings continue to move toward resolution. The allowance or disallowance of CNA's claims is critical to the entire case administration. Therefore, the Court will not stay the consolidated adversary proceedings pending the decision of the United States District Court on the withdrawal of reference.
The issue presently before this Court is not whether the bankruptcy court can or should conduct a jury trial in these proceedings. The threshold question presented in this motion is whether this Chapter 11 Trustee, as plaintiff in a fraudulent conveyance action, is entitled to a jury trial as a matter of right. By virtue of this Court's consolidation order, at 118 B.R. 555, the Trustee's fraudulent conveyance complaint became a counterclaim to CNA's declaratory judgment complaint. As previously stated, the counterclaim amounts to an objection to the allowance of CNA's filed proofs of claim. Referring to the leveraged buyout financing, the Trustee, for example, stated that "because the debtors never benefitted from the proceeds of the CNA financing, the Trustee seeks to set aside CNA's security interest in the debtors' assets as a fraudulent conveyance." Trustee's Memorandum In Opposition to Striking Jury Demand, p. 2.
The Court having ruled in its earlier opinion that the Trustee's counterclaims are objections to CNA's proofs of claims, those counterclaims are an integral part of the claims allowance process in the bankruptcy estates. The mere fact that claims allowance is being conducted in the form of adversary proceedings rather than by motion does not change that conclusion. As the Court has previously noted 118 B.R. at 559, quoting Advisory Committee Note (1983) to Rule 7001, as reported in NORTON BANKRUPTCY RULES PAMPHLET 1989-1990 Edition, p. 357.
An analysis of whether this Chapter 11 Trustee, in the factual context found in this case, is entitled to a jury trial may begin with Katchen v. Landy, 382 U.S. 323, 337, 86 S.Ct. 467, 476, 15 L.Ed.2d 391 (1966), where the Court stated that "there is no Seventh Amendment right to a jury trial for determination of objections to claims." The Supreme Court did not alter that holding in Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26, (1989), where the Court held that defendants to a fraudulent conveyance action, who had not previously filed claims against the bankruptcy estate, had a Seventh Amendment right to jury trial, if demanded. The Granfinanciera Court observed that the Katchen "decision turned on the bankruptcy court's having `actual or constructive possession' of the bankruptcy estate, 382 U.S., at 327, 86 S.Ct., at 471, and its power and obligation to consider objections by the trustee in deciding whether to allow claims against the estate." 492 U.S. at 57, 109 S.Ct. at 2798 (citations omitted). The Court additionally has stated in Granfinanciera that "when the same issue of fraudulent conveyance or preference arises as part of the process of allowance or disallowance of claims, it is triable in equity." 492 U.S. at 58, 109 S.Ct. at 2799, quoting Katchen v. Landy, 382 U.S. at 336, 86 S.Ct. at 476. More recently, the Court held in Langenkamp v. Culp, ___ U.S. ___, 111 S.Ct. 330, 331, 112 L.Ed.2d 343 (1990), reh. den., ___ U.S. ___, 111 S.Ct. 721, 112 L.Ed.2d 709 (1991), that Granfinanciera had clearly established that the filing of a claim by a creditor triggered the claims allowance process, thereby subjecting the creditor to the equitable jurisdiction of the bankruptcy court. See also, e.g., In re Light Foundry Associates, 112 B.R. 134 (Bankr.E.D.Pa.1990); In re Friedberg, 106 B.R. 50 (Bankr.S.D.N.Y. 1989), app. granted, 119 B.R. 433 (S.D.N.Y. 1990).
There is no question then if CNA had demanded a jury trial, it...
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