Matter of Paula Saker & Co., Inc.

• Decision Date: 23 February 1984
• Docket Number: 83-5871A.,Adv. No. 83-5870A,Bankruptcy No. 80 B 10175
• Citation: 37 BR 802
• Parties: In the Matter of PAULA SAKER & CO., INC., Debtor. Harold YOUNG, as Trustee, Plaintiff, v. PETER J. SAKER, INC. and Allied Design Corp., Defendants. Harold YOUNG, as Trustee, Plaintiff, v. ALLIED DESIGN CORP., American Packaging Corp., Duo Textiles, Inc., Harry Kantrowitz Co., Harry M. Gibson, Jr., Majestic Shapes, Inc., Scotto's Service Station, Inc., S.L. Sommers Co., Inc., Stillwater, Inc., Michael Varinsky and Westwood, Inc., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

37 B.R. 802 (1984)

In the Matter of PAULA SAKER & CO., INC., Debtor.

Harold YOUNG, as Trustee, Plaintiff, v. PETER J. SAKER, INC. and Allied Design Corp., Defendants.

Harold YOUNG, as Trustee, Plaintiff, v. ALLIED DESIGN CORP., American Packaging Corp., Duo Textiles, Inc., Harry Kantrowitz Co., Harry M. Gibson, Jr., Majestic Shapes, Inc., Scotto's Service Station, Inc., S.L. Sommers Co., Inc., Stillwater, Inc., Michael Varinsky and Westwood, Inc., Defendants.

Bankruptcy No. 80 B 10175, Adv. Nos. 83-5870A, 83-5871A.

United States Bankruptcy Court, S.D. New York.

February 23, 1984.

Horvath & Young, New York City, for trustee; Harold Young, New York City, of counsel.

Burwell, Hansen, Manley & Peters, Washington, D.C., for defendants Allied Design Corp., Peter J. Saker, Inc., American Packaging Corp., Duo Textiles, Inc., Harry M. Gibson, Jr., Majestic Shapes, Inc., Scotto's Service Station, Inc., S.L. Sommers Co., Inc., Michael Varinsky and Westwood, Inc.; Martin F. McMahon, Washington, D.C., of counsel.

DECISION AND ORDER ON DEFENDANT'S JURY TRIAL DEMAND AND PLAINTIFF'S MOTION TO STRIKE

HOWARD C. BUSCHMAN III, Bankruptcy Judge.

In answering the two complaints served in the adversary proceedings commenced by Harold Young, the Trustee ("Trustee") of this Chapter 7 debtor, Paula Saker & Co., Inc. ("Paula Saker"), several of the defendants demanded, pursuant to Rule of Bankruptcy Procedure 9015 ("Bankruptcy Rules"), a jury trial in these preference actions. Accordingly, they have requested this Court to transfer the action to the United States District Court for the Southern District of New York pursuant to Emergency Rule I, adopted by the Judges of that Court on December 15, 1982.¹ The Trustee responded by motion to strike the answer and jury demand in both cases on the ground that they were not timely served.²

I

The debtor herein, formerly engaged in the manufacture and sale of women's sportswear, filed a voluntary petition under Chapter 11 of the Bankruptcy Code ("Code"), 11 U.S.C. § 301 (1978), on February 7, 1980. An order for relief converting the case to a Chapter 7 proceeding was entered on August 7, 1980. On August 5, 1983, the Trustee commenced two adversary proceedings, 83-5870A and 83-5871A, against multiple defendants seeking to avoid certain alleged preferential transfers.

The complaints in these two actions are noteworthy in their simplicity. In 83-5870A, it is averred that both Peter J. Saker, Inc. ("Peter Saker") and Allied Design, Inc. ("Allied") were insiders, although the relationship they had with the debtor is not clarified. The Trustee asserts that $59,000 and $68,500 were transferred, respectively to Peter Saker and Allied between 90 days and one year before the filing of the petition on account of antecedent debts and that they were thereby preferred in violation of § 547 of the Bankruptcy Code. In 83-5871A, the Trustee alleges various preferential transfers to each of the defendants within the 90-day period prior to the filing of the petition. Judgment in the amount of the transfers, plus interest and costs, is demanded severally against the defendants in each action.³

The time for the defendants to answer or move with respect to the complaints expired on September 8, 1983. On that date, Martin F. McMahon of the firm of Burwell, Hansen, Manley and Peters deposited in the United States mails an answer and jury demand on behalf of all defendants in each case in an envelope addressed to the Clerk of this Court. He avers that a copy of each answer was served on counsel for the Trustee. The Trustee, however, avers that he received the answer and jury demand only in case 83-5870A. Examination of both files relating to these proceedings reveals the following:⁴

1. Defendant Harry Gibson, by his attorney Alexander Levchuck, filed an answer to the complaint in 83-5871A on August 24, 1983.

2. Defendant Harry Kantrowitz Company, by its attorney Seymour Frank, filed an answer in 83-5871A on September 2, 1983;

3. Two copies of the answer and jury demand, without proof of service annexed, were filed by McMahon in this Court on behalf of all defendants, including Gibson and Kantrowitz, in 83-5871A on September 15, 1983;

4. An amended answer and jury demand in 83-5871A were filed on October 25, 1983 along with a letter from McMahon stating that the sole reason for the amendment was to delete his appearance on behalf of Gibson and Kantrowitz who were not his clients;

5. The certificate of service annexed to the amended answer and jury demand refers not to that document but states that the answer was served on September 8, 1983 by depositing the same in the mails;

6. Defendant Stillwater, Inc., by its attorney, Lester A. Lazarus, P.C., filed an answer in 83-5871A on October 18, 1983;

7. Peter Saker and Allied filed an answer and jury demand in 83-5870A on September 15, 1983, together with a certificate of service stating that the same was served by depositing it in the mails on September 8, 1983.

Because the court file contains two copies of the answer and jury demand filed by McMahon in 83-5871A, it appears that the Trustee's contention that a copy of that answer and jury demand was not served on him is confirmed. On the argument of the Trustee's motion to strike, McMahon so conceded, requesting the Court to excuse the lack of service on the Trustee as an oversight. That concession is further buttressed by the curious nature of the certificate of service attached to the amended answer filed by McMahon. Since it was affixed to the answer, one would think that it was meant to refer to that document and that the reference to the answer and the date of September 8, 1983 are erroneous. Were the certificate interpreted literally and in disregard of its being affixed to the amended answer, that document, only one copy of which was filed, would lack a proper certificate. These circumstances, in their totality, compel the finding that the answer and jury demand by McMahon on behalf of his clients in 83-5871A was not served.

It further appears that the amended answer and jury demand in 83-5871A were not served within the 10-day period permitted by Rule 38(b) of the Federal Rules of Civil Procedure and Rule 9015(b)(1) of the Rules of Bankruptcy Procedure or within the 20-day period permitted by Rule 15 of the Federal Rules of Civil Procedure for serving an amended pleading as of right.

II

The Emergency Rule provides that in all "bankruptcy cases and proceedings" referred by the district court, bankruptcy judges may not conduct jury trials and that such "matters which may not be performed by a bankruptcy judge shall be transferred to a district court judge." Emergency Rule ("ER") I(d)(1)(D). Nowhere does the rule state that only the district court is to determine the propriety of a jury trial demand, nor does it command the transfer of a case to a district court judge prior to the completion of pre-trial discovery. Indeed the rule, in referring all bankruptcy cases and proceedings to this Court and in prohibiting only the conducting of jury trials, on its face, would seem to require this Court to carry out the reference to the point where the case is ready for trial, if such trial is to be before a jury.

Rule 9015(b)(3) of the Rules of Bankruptcy Procedure, promulgated by the Supreme Court with the consent of Congress, expressly vests the Bankruptcy Court with power in Code cases, see Rule 9001(2), to "determine whether there is a right to trial by jury of the issues for which a jury trial is demanded . . ." The Emergency Rule contains no provision to the contrary and thus, on numerous occasions, the bankruptcy courts have resolved this issue. See, e.g., Pereira v. Checkmate Communications Co., 21 B.R. 402, 403, 6 C.B.C.2d 982 (E.D.N.Y. 1982); In re Newman, 14 B.R. 1014, 8 B.C.D. 328 (Bkrtcy.S.D.N.Y.1981); Busey v. Fleming, 8 B.R. 746, 7 B.C.D. 252, 3 C.B.C.2d 589 (N.D.Ga.1980).

III

Particularly is it appropriate for such a determination to be made by this Court when the consequence of an affirmative determination is immediate or ultimate transfer to the district court. If a jury demand is faulty or if the issues are not subject to trial by jury as provided in 28 U.S.C. § 1480 (1978), it would make no sense and serve only the purpose of delay for this Court to transfer a case to the district court merely on the ground that a jury trial had been demanded and for the district court to return it on the ground that a demand had not been timely made.

That reasoning is forcefully applicable here in case 83-5871A where it is plainly apparent that the demand for jury trial was not served timely on the plaintiff.

Rule 9015(c) expressly provides that the "failure of a party to serve a demand as required by this rule and to file it as required by Rule 5005 constitutes a waiver of trial by jury." (Emphasis added). Rule 9015(b)(1) makes explicit that a demand for a jury trial is to be made by "serving on the other parties a demand therefor in writing not later than 10 days after service of the last pleading directed to such issue." Although the right to jury trial is a hallmark of this nation's ordered liberty, because the purported demand for a jury trial in 83-5871A was not served on the Trustee or his counsel but instead was filed twice with the Court, it is plain that no demand was in fact made and that the rights of the defendants in that case to a jury trial were waived. Galella v. Onassis, 487 F.2d 986, 996 (2d Cir.1973); Pereira v. Checkmate Communications, Co., 21 B.R. 402, 403, 6 C.B.C.2d 982 (E.D.N.Y.1983); Reefer Express Lines v. Arkwright-Boston Manufacturers Insurance Co., 87 F.R.D. 133, 135 (S.D.N.Y.1980).

It is equally plain that the district court would be compelled to reach the same result even without regard to Bankruptcy Rule 9015. Federal Rule of Civil Procedure 38 governs the right to jury trials in the district court. Bankruptcy Rule 9015(b)(1) and (c) track Federal Rule 38(b)...