Matter of Reda, Inc.
| Decision Date | 29 April 1986 |
| Docket Number | Bankruptcy No. 84 B 9403,Adv. No. 85 A 115. |
| Citation | 60 BR 178 |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
| Parties | In the Matter of REDA, INC., Debtor. REDA, INC., Plaintiff, v. HARRIS TRUST & SAVINGS BANK, as Trustee under Trust No. 11901 and Alba Sciacqua, Delva Sciacqua, Cosmopolitan National Bank, as Trustee for Anaclato Sciacqua, Deceased as beneficiaries of Harris Trust & Savings Trust No. 11901 and Joseph Scoville, individually and as agent for beneficiaries of Harris Trust & Savings Trust No. 11901, Defendants. |
Robert R. Benjamin, Chicago, Ill., for Reda.
Max Chill and Steven R. Radtke, Max & Herman Chill, P.C., Chicago, Ill., for defendants.
The issue presented is whether the bankruptcy court should hold a jury trial in a case alleging a preferential transfer and a conversion. The debtor's causes of actions arose in connection with its purchase of a restaurant that was subsequently damaged by fire. Both the debtor and the defendants were listed as beneficiaries of an insurance policy covering the restaurant building.1 The insurance company issued a check for $156,163.97 under that policy. The debtor and the defendants endorsed the check and the defendants kept the proceeds. Thereafter the debtor filed a Chapter 11 petition and a complaint in this Court alleging that the defendants' retention of the proceeds was both an avoidable preference under 11 U.S.C. § 547(b) and a conversion under state common law. The debtor now seeks a jury trial on those issues. The defendants have opposed the debtor's jury trial demand.
An action seeking to avoid or recover a preferential transfer is a core proceeding under 28 U.S.C. § 157(b)(2)(F).2 The bankruptcy court may enter a final judgment in all core proceedings. 28 U.S.C. § 157(b)(1). Therefore, this Court has the power to enter a final judgment on whether the defendants here received a preference. As a result, this Court clearly may rule on whether a jury trial on that issued is permitted.3
The right to a jury trial in federal court derives from the Seventh Amendment to the United States Constitution, a federal statute or a state constitution or statute. Fed.R.Civ.P. 38(a); Bankruptcy Rule 9015(a); Matter of Hendon Pools of Michigan, Inc., 57 B.R. 801, 802 (E.D.Mich. 1986). There is no statutory right to a jury trial in a preference action under state or federal law. Both 11 U.S.C. § 547, which permits the avoidance of preferences, and 28 U.S.C. § 1411, which permits jury trials in bankruptcy, are silent regarding the availability of a jury to try a preference proceeding.4 Therefore, the Seventh Amendment is the debtor's only possible source of a right to a jury trial.
The Seventh Amendment provides a right to a jury trial only for "suits at common law where the value in controversy shall exceed twenty dollars . . ." Obviously, the United States Constitution governs in bankruptcy proceedings as in other kinds of cases. Thus, if the debtor (who obviously seeks to recover in excess of $20.00) could have sued to recover the alleged preference at common law, the debtor would had a right to a jury trial in this proceeding as well. The problem is there was no right at common law for a debtor or creditor to sue to recover a preference. Instead at common law a debtor had a right to prefer any creditor it chose. It is only under the Bankruptcy Code that preferences are recoverable as such.5 Because there was no common law preference action, there obviously was no common law right to a jury trial in actions to avoid preferential transfers. Thus the debtor has no Seventh Amendment right to have the preference claim resolved by a jury. See In re Financial Partners, Ltd., ¶ 70,805 (CCH) at 87,887, 87,888 (Bankr. N.D.Ill.1985) citing In re Carriero, 21 B.R. 132, 133 (Bankr.D.Mass.1982). Accord In re Country Junction, Inc., 41 B.R. 425, 430 (W.D.Tex.1984).
In its consideration of similar jury right problems, the Supreme Court has tended to analyze the Seventh Amendment right to a jury trial by distinguishing between legal claims, which seek money damages, and equitable claims, which seek the exercise of a court's equitable jurisdiction.6 See e.g., Dairy Queen, Inc. v. Wood, 369 U.S. 469, 82 S.Ct. 894, 8 L.Ed.2d 44 (1962); Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959). As a general rule, the analysis is that there is no right to a jury trial for equitable actions, as there is for actions that are traditionally actions at law. In re Rodgers & Sons, Inc., 48 B.R. 683, 689 (Bankr.E.D.Okla. 1985).
An action to avoid or recover a preference is a core proceeding that "is not an action seeking damages for an act complained of, but rather, seeks the return of the res for a more equitable distribution." In re Carriero, 21 B.R. 132, 134 (Bankr.D. Mass.1982). In this case, the debtor in essence is complaining in its preference count that it would be inequitable to allow the defendants to retain possession of the insurance proceeds because to do so would give the defendants an unfair advantage over the debtor's other creditors. It asks the Court to avoid the transfer and enter judgment in the amount equal to the proceeds plus interest. Looking at it this way, it is clear this action to recover a preference is an equitable proceeding for which there is no right to a jury trial.7See Katchen v. Landy, 382 U.S. 323, 336-38, 86 S.Ct. 467, 476-77, 15 L.Ed.2d 391 (1966); Matter of Hendon Pools of Michigan, Inc., 57 B.R. 801, 803 (E.D.Mich.1986); In re Country Junction, 41 B.R. 425, 430 (W.D. Tex.1984); In re Financial Partners, Ltd., ¶ 70,805 (CCH) at 87,887, 87,888 (Bankr.N. D.Ill.1985); In re Chase & Sanborn Corp., 54 B.R. 43, 44 (Bankr.S.D.Fla.1985); In re Mauldin, 52 B.R. 838, 841 (Bankr.N.D. Miss.1985); In re Atlantic Energy, Inc., 52 B.R. 17, 18 (Bankr.S.D.Fla.1985); In re Energy Resources Co., Inc., 49 B.R. 278, 282 (Bankr.D.Mass.1985); Matter of Mc Louth Steel Corp., 38 B.R. 316, 317 (Bankr.E.D. Mich.1984); In re First International Services Corp., 37 B.R. 856, 857, 859 (Bankr.D. Conn.1984); but see In re Arnett Oil, Inc., 44 B.R. 603, 604 (N.D.Ind.1984); In re McCrary's Farm Supply, Inc., 57 B.R. 423, 424 (Bankr.E.D.Ark.1985); In re Boss-Linco Lines, Inc., 55 B.R. 299, 307 (Bankr. W.D.N.Y.1985).8
The fact that the debtor seeks to recover money in this preference proceeding does not change the nature of the action to one for a legal remedy. The debtor is not really seeking damages for an injury. Instead the debtor by pursuing a preference action is seeking to recover a sum of money improperly paid to the creditor in Bankruptcy Code terms. See Katchen v. Landy, 382 U.S. at 337-38, 86 S.Ct. at 476-77; In re Country Junction, Inc., 41 B.R. at 429; In re Checkmate Stereo & Electronics, Ltd., 21 B.R. 402, 408 (E.D.N.Y.1982); In re Carriero, 21 B.R. at 134; see also In re Rodgers & Sons, 48 B.R. at 689; In re Minton Group, Inc., 43 B.R. 705, 707 (Bankr.S.D.N.Y.1984). That the debtor would realize a cash recovery rather than lien avoidance or property recovery is irrelevant. "Where a plaintiff seeks to recover monies wrongfully withheld, the basis for such an action is wholly equitable." In re Energy Resources Co., 49 B.R. at 282.9 Thus the nature of the debtor's action remains a request for this Court to invoke its equitable powers for the debtor's benefit.
For all of the foregoing reasons, it is clear to the Court that the debtor is not entitled to a jury trial on the preference count.
An action for state law conversion is not specifically listed as a core proceeding under 28 U.S.C. § 157(b)(2). However, the list of core proceedings in the Judicial Code is not exclusive. In general, any matter that arises directly in a bankruptcy case under bankruptcy law is a core proceeding; any matter that arises under nonbankruptcy law and happens to be of issue in a bankruptcy case merely because one of the parties to the dispute is the debtor in the bankruptcy case usually is a noncore proceeding. See In re Yagow, 53 B.R. 737, 739-40 (Bankr.D.N.D.1985). The debtor's conversion count falls into the latter category.
The debtor's conversion action would be congnizable under state law had it not filed bankruptcy. This would not hold true for the debtor's preference action, which is strictly a creature of § 547 of the Bankruptcy Code. The conversion action here, although noncore, is a "related proceeding," related to the debtor's bankruptcy case because inter alia any recovery would inure to the benefit of the debtor's creditors. See Matter of Boughton, 49 B.R. 312, 315 (Bankr.N.D.Ill.1985). Thus, the district court has bankruptcy jurisdiction over the conversion action. 28 U.S.C. § 1334(b). Cf. In re Denalco Corp., 57 B.R. 392 (N.D.Ill.1986). Despite the fact that the conversion count is a noncore proceeding, the district court may refer the matter to the bankruptcy court to handle it, in effect, as a magistrate. 28 U.S.C. § 157(c)(1). The district court in this district entered a blanket order of reference on July 10, 1984, referring all bankruptcy cases and proceedings, including noncore proceedings, to the bankruptcy judges of this district. In effect, the district court in this district has delegated as much of its bankruptcy jurisdiction to the bankruptcy court as it possibly can. Therefore, at this moment this Court has jurisdiction over the conversion count as well, although it is a noncore proceeding. However, unless the parties consent to having the conversion count fully and finally resolved by this Court, this Court's jurisdiction over the matter is limited to conducting a hearing and submitting proposed findings of fact and conclusions of law to the district court for its final determination on the merits. 28 U.S.C. § 157(c)(1).
This limitation on the jurisdiction that this Court may...
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