12.4 Jury Trials

• Library: Bankruptcy Practice in Virginia (Virginia CLE) (2017 Ed.)

12.4 JURY TRIALS

12.401 Right to a Jury Trial. Subsection (e) of 28 U.S.C. § 157 addresses the question of whether a bankruptcy judge has the power to conduct a jury trial:

If the right to a jury trial applies in a proceeding that may be heard under this section [28 U.S.C. § 157 ] by a bankruptcy judge, the bankruptcy judge may conduct the jury trial if specially designated to exercise such jurisdiction by the district court and with the express consent of all the parties.

Broken down into its components, subsection (e) requires that (i) the right to a jury trial must apply to the matter to be heard; (ii) the matter to be heard must be one that the bankruptcy judge can hear under 28 U.S.C. § 157; (iii) the district court must specially designate the bankruptcy court to conduct a jury trial; and (iv) all parties must consent.

A. Does the Right to a Jury Trial Apply? In Granfinanciera, S.A. v. Nordberg, ¹¹⁴ the United States Supreme Court set out a three-part test to determine whether the Seventh Amendment required a jury to find facts in a fraudulent transfer action. Is the action analogous to "[s]uits at common law" as such actions existed in 1791? Is the action legal or equitable in nature? If the action is legal in nature, does the action involve private rights to which a right to a jury trial attaches or public rights for which there is no right to a jury trial?

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Actions against a bankruptcy trustee are equitable in nature. ¹¹⁵ In Lu v. Grant (In re Sunshine Trading & Transportation Co.), ¹¹⁶ a suit against a Chapter 7 trustee for tortious interference with a contract was treated as a breach of a fiduciary duty action, which is equitable in nature. In Demos v. Brown (In re Graves), ¹¹⁷ a matter concerning an injunction against a petition preparer under 11 U.S.C. § 110(j) was equitable in nature. Claims for breach of fiduciary duty are equitable while claims for civil conspiracy are legal in nature. ¹¹⁸ Dischargeability actions are equitable in nature. ¹¹⁹ Preference actions are actions at law. ¹²⁰ The assumption or rejection of an executory contract is a summary matter to which there is no right of a jury trial. However, contractual issues relating to those contracts, such as the enforcement of covenants not to compete, are "plenary" and entitled to a jury trial. ¹²¹ The fact that a matter is a "core" matter will result in the loss of the right to a jury trial. ¹²²

B. Does the Bankruptcy Judge Have the Power to Hear the Matter? In a "noncore" matter, a bankruptcy judge may enter a final order only if all parties consent. ¹²³ Otherwise, the bankruptcy judge submits proposed findings of fact and conclusions of law to the district court, which reviews de novo any matter objected to by a party and enters a final order. Thus, if a bankruptcy judge conducted a jury trial of a noncore matter, the determinations of the bankruptcy court jury would be subject to review by the district court. Such a scenario may violate the Reexamination Clause of the Seventh Amendment, which states "no fact tried by a jury, shall otherwise be

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reexamined in any court of the United States." Accordingly, several courts have held that jury trials are not available in noncore matters. ¹²⁴

C. Has the District Court Designated the Bankruptcy Judge to Conduct a Jury Trial? Under Rule 3 of the Local Rules of the Western District of Virginia, bankruptcy judges of the district are specifically designated, pursuant to 28 U.S.C. § 157(e), to conduct jury trials when all parties have expressly consented thereto. In the Eastern District of Virginia, the bankruptcy judges are not designated by the district court to conduct jury trials; instead, the bankruptcy judge will determine whether the demanding party has a right to a jury trial and control the matter through the final pretrial conference. Upon reaching a determination that the demanding party does have a right to jury trial, the bankruptcy judge will either prepare a report and recommendation of withdrawal of the reference to the district court or permit the demanding party to file a motion for withdrawal of reference with the district court. As a fee is charged for filing a motion for withdrawal of reference with the district court, the party demanding the jury trial would be better served by the bankruptcy judge making a report and recommendation to the district court.

D. Have All Parties Consented? Simply put, a bankruptcy judge may not conduct a jury trial unless all parties consent. ¹²⁵ Lack of consent by all parties constitutes good cause for withdrawal of reference so the matter can be tried in the district court. ¹²⁶ However, discovery and pretrial matters are handled in the bankruptcy court. ¹²⁷ The bankruptcy court is the appropriate forum to determine if the right to a jury trial exists for the issues on which the jury trial was demanded. ¹²⁸

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12.402 Jury Trial Demand. Assuming that all the conditions of 28...