Nickless v. DiStefano (In re Basile)

• Citation: 472 B.R. 147
• Decision Date: 04 June 2012
• Docket Number: Adversary No. 10–4101.,Bankruptcy No. 10–40850–MSH.
• Parties: In re Chantel M. BASILE, Debtor. David M. Nickless, Chapter 7 Trustee, Plaintiff v. Gaetano DiStefano, Marcus DiStefano, and Rosario Motta, Defendants.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

472 B.R. 147

In re Chantel M. BASILE, Debtor.David M. Nickless, Chapter 7 Trustee, Plaintiff

v.Gaetano DiStefano, Marcus DiStefano, and Rosario Motta, Defendants.

Bankruptcy No. 10–40850–MSH.

Adversary No. 10–4101.

United States Bankruptcy Court,

D. Massachusetts,

Central Division.

June 4, 2012.

Susan H. Christ, Nickless, Phillips and O'Connor, Fitchburg, MA, for Plaintiff.

Renay Smallcomb, Difruscia Law Offices, Methuen, MA, for Defendants.

Rosario Motta, Lawrence, MA, pro se.

MEMORANDUM AND ORDER ON GAETANO DISTEFANO AND MARCUS DISTEFANO'S REQUEST FOR JURY TRIAL

MELVIN S. HOFFMAN, Bankruptcy Judge.

Defendants, Gaetano DiStefano and his son, Marcus DiStefano, have claimed the right to a jury trial on the multi-count amended complaint of the plaintiff, David M. Nickless, the Chapter 7 trustee of the estate of Chantel M. Basile, the debtor in the main case. The trustee disagrees with the defendants' assertion of a jury trial right and in the alternative requests that if they are so entitled, the jury trial be conducted in the bankruptcy court. This latter request is easily disposed of because, although the bankruptcy court in this district may conduct jury trials, it may not do so without the express consent of all the parties. See28 U.S.C. § 157(e); LR, D. Mass 202; and M.L.B.R. 9015–1. The defendants do not consent.

Background

The trustee's amended complaint alleges the following facts.

The debtor and Gaetano DiStefano agreed that they would purchase for investment the property located at 119 Pleasant Valley Street in Methuen, Massachusetts. In April 2007 the debtor purchased the Methuen property for $250,000. She made a down payment of $50,000 and received a mortgage loan for the balance from the Provident Funding Group, Inc. Only the debtor is obligated on the Provident loan. The debtor and Gaetano ¹ were to share the profits from the Methuen property taking into consideration the debtor's down payment. A little over a year after the purchase, the debtor transferred title to the Methuen property to Gaetano for $100. Gaetano executed an agreement to indemnify the debtor for any losses she might suffer as a result of the Provident loan. According to the trustee, Gaetano continues to benefit from the use of the Methuen property and its rental income although the complaint does not make it clear whether Gaetano has been using the rental income to make payments on the Provident note upon which the debtor remains obligated.

In July 2007 Gaetano induced the debtor to loan $20,000 to him and his friend, defendant Rosario Motta, whom the debtor did not know, so that Gaetano and Ms. Motto could purchase real estate in North Andover, Massachusetts. Apparently, Gaetano did not want his name associated with the property so the check was payable only to Ms. Motta. The $20,000 debt of Ms. Motta and Gaetano remains outstanding.

In October of the same year, the debtor paid $15,000 to Regan Ford on behalf of Gaetano's son, defendant Marcus DiStefano, so that Marcus could buy a 2008 Ford SUV. The debtor, Gaetano and Marcus agreed that the $15,000 was a loan, not a gift. The loan remains outstanding.

In November 2007 the debtor loaned Gaetano $2,700 and in August 2008 she loaned him another $6,297.49. None of this money has been repaid.

The trustee's amended complaint asserts the following causes of action:

• Count I against Gaetano for fraudulent transfer pursuant to Bankruptcy Code § 548(a)(1) in which the trustee seeks to recover the Methuen property or the value of the property;

• Count II against Gaetano for fraudulent transfer pursuant to Mass. Gen. Laws ch. 109A §§ 5 and 6 in which the trustee also seeks to recover the Methuen property or the value of the property;

• Count III against Marcus for fraudulent transfer pursuant to Mass. Gen. Laws ch. 109A §§ 5 and 6 for recovery of the Ford SUV or its value;

• Count IV against all defendants for breach of contract based on their refusal to repay any of the loans for which the trustee seeks money judgment in the amount of all loans, plus interest, including the down payments on the Methuen and North Andover properties;

• Count V against Gaetano for breach of his agreement to indemnify the debtor in which the trustee seeks a money judgment in the amount of the down payment on the Methuen property plus interest;

• Count VI against all defendants pursuant to Bankruptcy Code § 542(b) for “turnover” of the money loaned by the debtor, namely those amounts identified in count IV;

• Count VII against Gaetano for a declaratory judgment that title to the Methuen property is held in a constructive trust for the benefit of the debtor's estate; and

• Count VIII against Marcus for a declaratory judgment that title to the Ford SUV is held in a constructive trust for the benefit of the debtor's estate.

The trustee requested and obtained a default judgment in the amount of $20,000 plus interest against Ms. Motta.

Discussion

A party's right to a jury trial in federal court is governed by federal law. Edwards v. Eastman Outdoors, Inc. (In re Game Tracker, Inc.), 2011 WL 5117569, at *1 (D.Me. Oct. 24, 2011) (citing 9 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2302 (3d ed. 2008)). “A right to a jury trial in federal court must arise out of the Seventh Amendment [to the United States Constitution] or be granted by a federal statute.” Washington Intern. Ins. Co. v. U.S., 863 F.2d 877, 878 (Fed.Cir.1988). In the present case there is no assertion of a statutory basis for the right to a jury trial; instead if a right exists it must emanate from the Seventh Amendment.

The Seventh Amendment provides a right to trial by jury in “suits at common law” where the amount in controversy exceeds twenty dollars. The Supreme Court has defined the phrase “suits at common law” to refer to “suits in which legal rights were to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized, and equitable remedies were administered.” Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 41, 109 S.Ct. 2782, 2790, 106 L.Ed.2d 26 (1989).

In Granfinanciera the Court articulated a three-part test for determining whether the right to a jury trial exists. The first consideration is whether the party seeking a jury trial would have been entitled to one in eighteenth century English courts of law before the merger of law and equity courts. Second, courts must determine whether the remedies sought are legal rather than equitable in nature. It is this determination, which the Supreme Court describes as more important than the first, that generally dictates the outcome of a jury demand. Simply stated, claims which seek legal remedies generally implicate the constitutional right to a jury trial while those sounding in equity or admiralty do not. This characterization of a claim as legal or equitable is governed by federal law, even when the claim is based on a state-created right. Simler v. Conner, 372 U.S. 221, 222, 83 S.Ct. 609, 9 L.Ed.2d 691 (1963). Finally, even if a party would have a right to a jury trial under the first two prongs of the Granfinanciera test, courts must determine if the cause of action asserted involves public rather than private rights the adjudication of which Congress assigned to tribunals without authority to conduct jury trials. Granfinanciera, 492 U.S. at 42 & n. 4, 109 S.Ct. at 2790 & n. 4. Congress, however, may not convert private causes of action into public ones thereby depriving litigants of the right to trial by jury. Id. at 51–52, 109 S.Ct. at 2795.

When an action involves a combination of both legal and equitable claims, “the right to jury trial on the legal claim, including all issues common to both claims, remains intact.” Curtis v. Loether, 415 U.S. 189, 196 n. 10, 94 S.Ct. 1005, 39 L.Ed.2d 260 (1974). Consequently facts common to legal and equitable claims must be adjudicated by a jury. Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 510–11, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959). The right to a trial by jury must be preserved even if the legal claims are characterized as incidental to the equitable claims. Dairy Queen, Inc. v. Wood, 369 U.S. 469, 473 n. 8, 82 S.Ct. 894, 897 n. 8, 8 L.Ed.2d 44 (1962). In such instances a court may not try the equitable claims first because to do so would subject the jury's findings to the principles of collateral estoppel. Id. at 479, 82 S.Ct. 894. Because protection of the right to trial by jury is so important, “only under the most imperative circumstances ... can the right to a jury trial of legal issues be lost through prior determination of equitable claims.” Beacon Theatres, 359 U.S. at 510–11, 79 S.Ct. 948.See also Abbott GmbH & Co., KG v. Centocor Ortho Biotech, Inc., 2012 WL 837313, at *13 (D.Mass. May 4, 2012).

Moreover, as the Dairy Queen Court explained,

[T]he constitutional right to trial by jury cannot be made to depend upon the choice of words used in the pleadings. The necessary prerequisite to the right to maintain a suit for an equitable accounting, like all other equitable remedies, is ... the absence of an adequate remedy at law.

Id. at 477–478, 82 S.Ct. at 900. Therefore, courts must look behind the labels placed on the causes of action in the complaint as well as the causes of action themselves to determine if a remedy in equity is needed to address the alleged harm. Id.

Except for instances not relevant here,² the right to trial by jury is not lost simply because an action is asserted in the bankruptcy court, even in a matter designated by Congress as core under 28 U.S.C. § 157(b). Granfinanciera, 492 U.S. at 60–61, 109 S.Ct. 2782;Commerce Industry Insurance Co. v. E.I. Du Pont De Nemours & Co. (In re Malden Mills Industries, Inc.), 277 B.R. 449, 455 n. 4 (Bankr.D.Mass.2002).

With these principles in mind, I turn to an examination of the claims raised in the trustee's amended complaint.

A. Fraudulent Conveyance Claims—Real and Personal

In Granfinanciera ...