Matter of Tadych
| Decision Date | 19 July 1988 |
| Docket Number | Adv. No. 86-0204.,Bankruptcy No. 85-04562 |
| Parties | In the Matter of Norbert F. TADYCH, Florine Tadych, Debtors. Ronald E. BAKER and Linda B. Baker, Plaintiffs, v. Norbert F. TADYCH and Florine Tadych, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Wisconsin |
Patrick A. Dewane, Jr., Dewane, Dewane, Kummer & Lambert, Manitowoc, Wis., for defendants.
Terrance L. Farris, Clayton, Mo., for plaintiffs.
Plaintiffs commenced this adversary proceeding against the debtors/defendants to have the court determine whether an alleged debt is nondischargeable under 11 U.S.C. § 523(a)(6). Plaintiffs tried their case to the court after their request for a jury trial was denied and at the conclusion of their case-in-chief, the defendants moved to dismiss. Now, for the reasons stated herein, the defendants' motion is granted, and the plaintiffs' complaint shall be dismissed.
Plaintiffs, Linda and Ronald Baker, were self-employed independent operators of a semi-tractor trailer. The debtors, Norbert and Florine Tadych, were in the same business and owned more than one truck. The plaintiffs and debtors met in 1979, and the plaintiffs were hired by the debtors to drive one of their trucks. At that time, the parties were trucking for a business known as Tri-State Motor Transit Company. Subsequently, the parties left Tri-State and began trucking for Home Transportation Co., Inc. ("Home").
In 1981, the debtors purchased a 1981 Kenworth K-100 truck, and the plaintiffs continued as drivers. Home's standard procedure in dealing with independent truckers was to pay the owners upon completion of a trip. However, to reduce the need for the Bakers to advance expenses and to wait for reimbursement, the debtors persuaded Home to advance a percentage of the trip charge to the driver and to pay the remainder to the debtors. As this was still inadequate to meet the Bakers expenses, the Bakers and the Tadychs executed a document known as the "General Power of Attorney and Security Agreement." This document, the text of which is attached hereto, stated that the Bakers were appointed as the Tadych's attorneys-in-fact; that the Bakers were authorized to perform certain acts and duties arising from or related to the Kenworth truck which the Bakers had been operating for the Tadychs, provided that the Bakers met certain conditions, among which were making the Tadychs' truck payments for 47 months and paying the Tadychs an additional $500 per month for 40 months. The document further provided that the Bakers would be granted full possession of the vehicle after the final payment was made and that all legal rights and powers would be revoked and the vehicle would revert to the Tadychs if all conditions were not met.
The Bakers alleged that they were purchasing the truck and that they met all of the requirements of the agreement. On the other hand, the Tadychs characterized the agreement as entitling the Bakers only to the use and possession of the truck. Despite this conflicting testimony as to the full intent of the parties in executing this document, it was clear that the document enabled the Bakers to deal directly with Home and to receive full payment for each load that they hauled with the truck.
On October 21, 1981, the debtors notified Home that they were revoking the Power of Attorney, that they were cancelling the Security Agreement, and that the Bakers no longer had the right to drive the truck. In response, Home refused to allow the Bakers to continue hauling, whereupon the Bakers ceased making further payments to the debtors. Eventually the truck was repossessed by the secured party.
The Bakers claimed that the Power of Attorney and Security Agreement was wrongfully revoked by the debtors and that they were damaged by their loss of business and loss of the truck. They further alleged that the Tadychs converted the truck by causing or allowing its repossession by the secured creditor. Finally, they requested a finding that the resulting damage was nondischargeable under 11 U.S.C. § 523(a)(6). Additional facts will be set forth in the decision.
1. Jurisdiction. The debtors questioned whether the plaintiff proved that they were entitled to $10,000 in damages in order to maintain a diversity action under 28 U.S.C. § 1332. In view of this argument, it was apparent that the defendants failed to recognize that this is not a diversity action before a United States District, but a core bankruptcy proceeding in which bankruptcy court jurisdiction is based on 28 U.S.C. § 1334, 28 U.S.C. §§ 157(b)(1), (b)(2)(I) and 11 U.S.C. §§ 523(a)(6) and (c). Because there need not be any other ground for jurisdiction, the defendants' jurisdictional arguments for dismissal were without merit.
2. Jury Trial. After this case was called for trial, the court ruled that the Bakers were not entitled to a jury trial in this action. While the Bakers' allegations were in the nature of tort and contract actions, which traditionally provide the plaintiff with a right to a jury trial, the central claim was one of dischargeability. A determination of dischargeability is a core proceeding. 28 U.S.C. § 157(b)(2)(I). Core proceedings are a codification of equitable proceedings traditionally falling within the summary jurisdiction of the bankruptcy court, and as such, there is no right to a trial by jury. In re Baldwin-United Corp., 48 B.R. 49 (Bankr.S.D. Ohio 1985), citing Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966). Furthermore, the seventh amendment to the United States Constitution provides for a right to trial by jury "in suits at common law." U.S. Const. amend. VII. Because determining dischargeability is not a matter of common law, the plaintiff is not entitled to trial by jury. See Hogan, The Availability of Jury Trials in Bankruptcy Courts, 4 Bankr.Dev.J. 257 (1987). Even though questions of state common law and bankruptcy law may be addressed in an adversary proceeding, the merger of such questions into a single bankruptcy action results in the case being decided under equitable jurisdiction. Huffman v. Perkinson (In re Harbour), 840 F.2d 1165 17 Bankr.Ct.Dec. 369 (4th Cir.1988), (citing Katchen, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966)).
An action by a creditor to determine non-dischargeability of a claim against a debtor based on state law is distinguishable from an action in which a trustee is the plaintiff and is attempting to recover funds for the bankruptcy estate. See, e.g., In re Reda, Inc., 60 B.R. 178 (Bankr.N.D.Ill.1986); In re American Energy, Inc., 50 B.R. 175 (Bankr.D.N.D.1985). The former requires a determination of bankruptcy law for final disposition; the latter requires only a determination of state law rights for final disposition. The former arises under Title 11 because the question of dischargeability would not exist absent the bankruptcy; the latter is a "related" case. 11 U.S.C. § 157(c). If the related proceeding has independent nonbankruptcy grounds for federal jurisdiction, the bankruptcy court may hear the case and submit proposed findings of fact and conclusions of law to the district court which shall make the final disposition. Id. Unless the parties consent, however, it would not promote judicial economy for the bankruptcy court to hold a jury trial when the issue may be tried de novo with another jury in the district court. In re Reda, 60 B.R. at 182. If there would be no independent grounds for federal jurisdiction absent the bankruptcy, the court should abstain. 28 U.S.C. § 1334(c)(2).
3. Choice of Laws. The Bakers' claims against the Tadychs were based on a right to recover under state law. See 11 U.S.C. § 101(4). The federal question of dischargeability only arises if the debtors' liability is established. Therefore, at the outset, the court had to decide which state laws applied to this transaction.
The "General Power of Attorney and Security Agreement" was executed in Missouri by parties residing in Wisconsin and Illinois. The alleged breach of the "Agreement" took place in Wisconsin and was communicated to Home at its headquarters in Georgia.
When litigation involves multi-state contacts, it is necessary to balance the potentially different policies and interests of the states affected. When there is no statutory directive concerning choice of laws in the forum state, or when the intent of the parties is not clear, the factors used in determining the applicable rule of law include the following:
RESTATEMENT (SECOND) CONFLICT OF LAWS § 6 (1971).
Of the foregoing factors, the key factor for consideration here was the policy of the forum state. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Wisconsin adopted the substance of the choice of laws considerations in Heath v. Zellmer, 35 Wis.2d 578, 151 N.W.2d 664 (1967). In doing so, the Wisconsin Supreme Court noted that the "choice influencing considerations" include predictability of results, maintenance of interstate order, simplification of the judicial task, advancement of the forum's governmental interest and application of the better rule of law. Heath, 35 Wis.2d at 596, 151 N.W.2d at 672. All of these elements are grounded in the fundamental concept of fairness.
According to the "grouping of contacts" or "center of gravity" approach followed in Wisconsin and set forth in § 188 of the Restatement (Second) Conflict of Laws (1971) (...
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