Slone v. Goldman (In re HG Worldwide, Inc.), Case No. 11-34369
| Decision Date | 19 September 2013 |
| Docket Number | Adv. No. 12-3079,Case No. 11-34369 |
| Parties | In re: HG WORLDWIDE, INC., Debtor RUTH A. SLONE, Plaintiff v. NANCY GOLDMAN, Defendant |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
__________________
Guy R. Humphrey
This matter is before the court on the filing of the Plaintiff, Ruth Slone, as the Chapter 7 Trustee of the bankruptcy estate of HG Worldwide, Inc. (the "Trustee" and "Worldwide"), seeking to strike the jury demand made by the defendant, Nancy Goldman ("Goldman") (doc. 27) and Goldman's response (doc. 31). The Trustee filed this adversary proceeding seeking to recover a preference from Goldman and to preserve any recovery for the benefit of the bankruptcy estate. See 11 U.S.C. §§ 547, 550 and 551. Goldman has not filed a proof of claim in Worldwide's bankruptcy case and has asserted a jury demand in the prayer for relief in her answer (doc. 3). The Trustee asserts that Goldman waived her right to a jury trial by including a request for attorney fees.
While both parties have consented to the bankruptcy court conducting a jury trial and have only addressed the waiver issue, this court is compelled to address related issues pertaining to this court's authority to enter final judgment and conduct a jury trial. Except for resolving these issues, this litigation is essentially ready for trial.1
Before the bankruptcy court can conduct a jury trial, the United States District Court for the Southern District of Ohio (the "District Court") must specially designate the bankruptcy court to do so. See 28 U.S.C. § 157(e) and Fed. R. Bankr. P. 9015(b). However, this court deems it prudent to address whether it has the constitutional authority to enter final judgment and to conduct a jury trial prior to any request of the parties to the DistrictCourt for this court to conduct a jury trial. These issues may impact the parties' and potentially the District Court's adjudication of this proceeding.
For the reasons to be discussed, the court determines that it lacks the authority to enter judgment in this proceeding and, therefore, submits this report to the District Court with proposed conclusions of law. The Clerk will serve this Report and the parties may object to it. See Fed. R. Bankr. P. 9033. This court will proceed as directed by the District Court.
Pursuant to 28 U.S.C. § 157(b)(3), this court is to "determine, on the judge's own motion or on timely motion of a party, whether a proceeding is a core proceeding under this subsection or is a proceeding that is otherwise related to a case under title 11." The reason is that bankruptcy judges can only render final judgments in core proceedings (28 U.S.C. § 157(b)(1)) and are limited to proposed findings of fact and conclusions of law in non-core proceedings (28 U.S.C. § 157(c)(1)). Generally, the determination of whether a proceeding is a core or non-core proceeding is "left to the bankruptcy judge in the first instance." Civic Center Cleaning Co. v. Reginella Corp., 140 B.R. 374 fn. 1 (W.D. Pa. 1992) ). See also Cooper v. Hewitt (In re 1733 Ridge Rd. East, Inc.), 125 B.R. 722 (W.D.N.Y. 1991) ().
In their Preliminary Pretrial Statements, the parties both stated that this proceeding is core. (docs. 6 & 7). Further, on January 29, 2013 this court issued its Final Pretrial Order and determined that the adversary proceeding is a core proceeding (doc. 20). The court's conclusion that this is a core proceeding is premised upon § 157(b)(2)(F)'s designation of "proceedings to determine, avoid, or recover preferences" as core proceedings.
However, even though this proceeding is statutorily defined by Congress to be a core proceeding, in light of the Supreme Court's decision in Stern v. Marshall, 131 S. Ct. 2594 (2011) and case law following Stern, the conclusion that this court may render final orders and judgment in this adversary proceeding pursuant to 28 U.S.C. § 157(b)(1) is in doubt. For the reasons which follow, this court concludes that under this recent case law, this court does not have the authority to render final judgment.
The Supreme Court's decision in Stern v. Marshall has altered federal courts' understanding of the authority which bankruptcy judges have to enter final judgments in certain proceedings.2 A bankruptcy court's authority to enter final judgment in avoidanceactions, including preferential transfer actions, is in question. Prior to the release of the Stern decision, bankruptcy courts routinely adjudicated fraudulent conveyance and preference claims (commonly referred to as avoidance claims) through final judgment based upon those proceedings having been designated by Congress as core proceedings pursuant to 28 U.S.C. § 157(b)(2)(F) and (H). However, Stern's analysis casts doubt on this court's ability to enter judgment on avoidance claims.
In Stern the Court held that, despite Congress' designation in 28 U.S.C. § 157(b)(2)(C) of counterclaims against persons filing claims against the estate as core proceedings, the bankruptcy court did not have the constitutional authority to enter final judgments in such a proceeding when resolution of the creditor's proof of claim did not resolve the debtor's counterclaim. The Court determined that Congress' grant of that authority to bankruptcy courts under such circumstances violates Article III of the United States Constitution because bankruptcy courts do not have authority to enter final judgments over "the stuff of the traditional actions at common law tried by the courts at Westminster in 1789," which powers are reserved to Article III judges who have lifetime appointments with compensation which cannot be diminished. Stern, 131 S. Ct. at 2609 (quoting Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 90 (1982) (Rehnquist, J.,concurring)). In addition to Marathon, the Court relied upon three earlier Supreme Court decisions in deciding Stern: Katchen v. Landy, 382 U.S. 323 (1966); Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989); and Langenkamp v. Culp, 498 U.S. 42 (1990).
In Katchen, the Court determined that a bankruptcy referee could exercise "summary jurisdiction" over a preference claim pursued by a bankruptcy trustee against a creditor who had filed a proof of claim in the bankruptcy proceeding. The Court determined that even though a preference could possibly constitute a "plenary suit" in an Article III court, the bankruptcy court could adjudicate the preference claim because it was not possible to resolve the creditor's proof of claim without resolving the voidable preference claim. The plenary proceeding could be adjudicated in the bankruptcy court because "the same issue [arose] as part of the process of allowance and disallowance of claims." Katchen, 382 U.S. at 336.
In Granfinanciera the Court determined that corporations were entitled to a jury trial under the Seventh Amendment in a fraudulent conveyance proceeding because a fraudulent conveyance claim constituted what would have been an "action at law" under English common law and determination of such claims involves private and not public rights. Although the matter arose from a bankruptcy case, the Court declined to decide whether a bankruptcy court could conduct a jury trial since the issue was not presented.
Finally, in Langenkamp, the Court determined that creditors who have filed proofs of claim in a bankruptcy court are not entitled to a jury trial under the Seventh Amendment on preference claims because in filing proofs of claim the creditors subject themselves to bankruptcy court's equity jurisdiction. The court expressly stated that "a creditor's right to ajury trial on a bankruptcy trustee's preference claim depends upon whether the creditor has submitted a claim against the estate." Langenkamp, 498 U.S. at 45 (quoting Granfinanciera, 492 U.S. at 58).
The Sixth Circuit has had occasion to construe Stern twice - first in Onkyo Europe Electronics GMBH v. Global Technovations Inc. (In re Global Technovations Inc.), 694 F.3d 705 (6th Cir. 2012) and second in Waldman v. Stone, 698 F.3d 910 (6th Cir. 2012). In Onkyo the Sixth Circuit held that the bankruptcy court could enter final judgment on a fraudulent conveyance claim when the defendant had filed a proof of claim. Onkyo, 694 F.3d at 722. However, in Waldman, the Court held that while the bankruptcy court had the authority to enter final judgment on a secured creditor's claims against the debtor, even if the secured creditor need not and did not file a proof of claim, the bankruptcy could not render a final judgment on the debtor's affirmative state law fraud claim against the creditor because resolution of the creditor's claims against the debtor would not "necessarily resolve [the debtor's] affirmative claims." Waldman, 648 F.3d at 918, 921.
Of special significance within the Sixth Circuit is that in Waldman the decision...
To continue reading
Request your trial