Americans generally cherish their right to a jury trial under the Sixth and Seventh Amendments to the United States Constitution and the media certainly perpetuate the idea that jury trials are the norm. However, there are instances where a party may prefer that a judge, rather than a jury, decide the dispute(s) between the parties.
In a recent bankruptcy adversary proceeding out of the S.D. of Florida, the defendant moved to strike the Chapter 7 bankruptcy trustee‘s jury trial demand related to the trustee’s fraudulent transfer claims. Defendant raised three arguments: (1) the trustee is bound by a contractual waiver of jury trial rights entered into by the debtor prior to the filing of its bankruptcy petition; (2) a trustee in bankruptcy is never entitled to a jury trial in connection with a fraudulent transfer or other avoidance action under the Bankruptcy Code; and (3) the present adversary proceeding is “integral to the claims resolution process,” thus equitable in nature, and so there is no right to jury trial.
The Court determined that none of the arguments had merit and the Trustee was in fact entitled to a jury trial, in a nutshell, as follows:
(1) Even if the debtor was bound by a jury trial waiver, that agreement is binding on the bankruptcy estate only with regard to those claims owned by the estate that were previously held by the debtor. The bankruptcy estate’s claims derived from the Bankruptcy Code itself, such as fraudulent transfer claims, are not covered by the debtor’s pre-petition jury trial waiver.
(2) Fraudulent transfer claims seeking monetary recovery are actions at law and are subject to jury trial on the timely request of a party pursuant to Granfinanciera v. Nordberg, 493 U.S. 33 (1989).
(3) The defendant did not file a proof of claim and therefore, the trustee’s fraudulent transfer action was not part of the claims allowance process.
The Court noted that when a defendant files a proof of claim, an avoidance action becomes part of the claims process as a result and neither the creditor or the bankruptcy estate has a right to a trial by jury citing to Langenkamp v. Culp, 498 U.S. 42 (1990) and Katchen v. Landy, 382 U.S. 323 (1966). However, the defendant had not filed a claim because it apparently did not have a claim against the estate.
The Takeaway: If you have a claim against the bankruptcy estate and do not wish to have a jury trial on any avoidance claims you suspect will be filed against you, you may want to file a proof of claim.
Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or hries@foxrothschild.com.