Matter of O'Sullivan's Fuel Oil Co., Inc.
| Decision Date | 06 September 1989 |
| Docket Number | Adv. No. 2-87-0078.,Bankruptcy No. 2-84-00038 |
| Citation | 103 BR 388 |
| Court | U.S. Bankruptcy Court — District of Connecticut |
| Parties | In The Matter of O'SULLIVAN'S FUEL OIL CO., INC., Debtor. Thomas M. GERMAIN, Trustee for the Estate of O'Sullivan's Fuel Oil Co., Inc., Plaintiff, v. CONNECTICUT NATIONAL BANK, Defendant. |
Thomas M. Germain, Hartford, Conn., for plaintiff.
Janet C. Hall, Robert A. Izard, Jr. and Eric Brunstad, Robinson & Cole, Hartford, Conn., for defendant.
RULING ON DEFENDANT'S MOTION TO STRIKE PLAINTIFF'S REQUEST FOR TRIAL BY JURY
The question presented is whether a bankruptcy trustee has a right to a jury trial in an adversary proceeding he commenced in state court to recover monetary damages for torts and contract violations allegedly committed by the defendant post-petition. The issue has been raised by way of the defendant's motion to strike the trustee's request for trial by jury.
The debtor in this case, O'Sullivan's Fuel Oil Co., Inc., filed a chapter 11 petition on January 18, 1984. The case was converted to one under chapter 7 on July 30, 1986, and the plaintiff, Thomas M. Germain, became trustee of the debtor's estate. On or about June 1, 1987, the trustee brought suit against Connecticut National Bank (CNB) in the Connecticut Superior Court claiming that CNB is liable to the estate for willful interference with the debtor's business (count 1), collusion and duress (count 2), fraudulent misrepresentation (count 3), violation of the Racketeer Influenced and Corrupt Organizations Act (count 4), breach of obligation to act in good faith (count 5), and violation of the Connecticut Unfair Trade Practices Act (count 6). The complaint alleged the following factual underpinnings to support a claim for money damages.
The debtor had been in the business of selling fuel oil to retail accounts. During 1981, the debtor borrowed $500,000.00 from First Bank, a bank with whom CNB merged in March 1984. First Bank received a mortgage lien on the debtor's fuel oil storage facility as security for the loan. Starting in November 1983, approximately two months prior to the filing of the debtor's bankruptcy petition, First Bank undertook to exercise control of the debtor in order to serve First Bank's own interests. First Bank demanded that one James Tisdale be placed in control of the debtor's business and recommended that the debtor file a chapter 11 petition utilizing a law firm selected by the bank. After the filing of the petition, First Bank or CNB required the debtor to replace its insurance agency; insisted that Tisdale and his brother, Charles Tisdale, remain in control of the debtor's business when the Tisdales had no competence to operate the business and wasted its assets; resisted shareholder efforts to oust the Tisdales by threatening to terminate financing and to force the business to close; encouraged the organization of a successor corporation by the Tisdales to take over the debtor's assets; and misused court-approved financing to satisfy its prepetition debt. These actions persisted until August 24, 1984, when the Tisdales relinquished control of the debtor.
CNB removed the trustee's action from the state court to the bankruptcy court on July 15, 1987. See 28 U.S.C. § 1452, Bankr.R. 9027. After CNB answered the complaint, the trustee timely filed his request for a jury trial.
On October 2, 1987, the trustee moved the district court to withdraw the reference of the adversary proceeding. The motion was based, in part, on the trustee's jury-trial claim. The district court, on February 17, 1988, issued a memorandum requesting the bankruptcy court to make a recommendation on the issue of whether the proceeding is a core proceeding. The significance of a determination of whether a proceeding is a core proceeding is that the bankruptcy judge may enter final orders or judgments in a core proceeding. 28 U.S.C. § 157(b)(1) (). In proceedings that are non-core, the bankruptcy judge may only enter proposed findings of fact and conclusions of law to be submitted to the district court for entry of a final order or judgment. 28 U.S.C. § 157(c)(1). In a separate ruling, the district court, on CNB's motion, dismissed the trustee's RICO count.
The bankruptcy court, on June 30, 1988, submitted a report recommending that the proceeding is a core proceeding because it arose, for the most part, in a case under title 11. The district court adopted this recommendation and then denied the trustee's motion to withdraw the reference, without comment on the trustee's right to a jury trial. 88 B.R. 17.
CNB filed its motion to strike the trustee's jury demand on November 2, 1988, contending that the trustee has neither a statutory nor Seventh Amendment1 right to a jury trial in a core proceeding, and that the bankruptcy court has no authority to conduct a jury trial.
The trustee agreed with CNB that the bankruptcy court lacks authority to conduct a jury trial, but asserted his right to a jury trial under the Seventh Amendment, despite the core designation, relying primarily on the Supreme Court's analysis and commentary in Granfinanciera v. Nordberg, 492 U.S. ___, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989).
Granfinanciera holds that a creditor, who has not filed a proof of claim, has a right to a jury trial in a lawsuit brought by a bankruptcy trustee to recover funds allegedly transferred fraudulently. The Supreme Court, finding that at common law a fraudulent conveyance action entitled the parties to a jury trial, ruled that Congress, in designating fraudulent conveyance actions as core proceedings,2 could not affect a defendant's right under the Seventh Amendment to a jury trial. For like reasons, the Court added, neither could Congress deny a party's right to have such actions heard and determined by an Article III tribunal.
The trustee contends that this court's previous designation of his proceeding as core3 under Granfinanciera decides nothing insofar as his right to a jury trial is concerned. He argues that under the Seventh Amendment analysis rearticulated in Granfinanciera he has a clear right to a jury trial and that the exception for suits involving "public rights"4 is not applicable.
CNB distinguishes Granfinanciera in that CNB filed a proof of claim in this case thereby barring CNB from asking for a jury trial. CNB contends that a trustee who succeeds a debtor who has filed a voluntary petition in the bankruptcy court cannot be entitled to greater jury-trial rights than a creditor who files a proof of claim. CNB's Supplemental Memorandum at 10-11. In effect, CNB's argument is that a chapter 7 trustee of an estate commenced by a voluntary petition never has a right to a jury trial even if the trustee did not invoke the jurisdiction of the bankruptcy court when he commenced his action. CNB further asserts that the trustee's action necessarily implicates "the bankruptcy process itself," because the complained of actions occurred in the bankruptcy court, thereby bringing into play the public rights exception. Id. at 12-19.
Granfinanciera makes applicable to the bankruptcy court the Supreme Court's familiar two-part test to determine a party's Seventh Amendment right to a jury trial and then adds a third element. Under this analysis, the initial step is to find whether a party's cause of action is one that could be tried before a court of law and, therefore, to a jury in England in 1791, and next, to determine whether the remedy sought is legal in nature. If it is concluded...
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