No. 88 B 18468United States Bankruptcy Court, N.D. Illinois
January 12, 1990
Russel Sutton, attorney for the debtor.
Eugene J. Rossi and Peter Sklarew, Internal Revenue Service, attorneys for the creditor.
Allowance of Claims — Objections — Jury Trials. —
Neither the Bankruptcy Code, related laws, nor the Seventh Amendment affords a debtor the right to a jury trial in a hearing on an objection to a creditor’s claim. Under a Seventh Amendment analysis, only traditionally legal actions qualify for a jury trial. Here, common law courts would have adjudicated the proceeding as an action to determine the legitimacy of the claim. The relief sought is equitable, which alone excluded the debtor from having a right to a jury trial.
WEDOFF, Bankruptcy Judge
See 28 U.S.C. § 157 at ¶ 4030.
The debtor in this Chapter 13 case having filed an objection to a claim of the Internal Revenue Service (IRS), has asserted a right to jury trial for the claim objection. The IRS has objected to the jury demand. For the following reasons, I find that the debtor is not entitled to a jury trial.
FINDINGS OF FACT
The relevant facts are not disputed. The debtor, Wallace Triplett, filed a petition under Chapter 13 of Title 11, U.S.C. (the “Code”). The Internal Revenue Service (“IRS”) filed a proof of claim in the amount of $70,208.41 plus interest. The IRS claim is based on the withholding taxes of the Mount Calvary Baptist Church, also known as the Mount Calvary Christian Academy, which the debtor allegedly failed to collect, account for and pay over pursuant to 26 U.S.C. § 6672.
CONCLUSIONS OF LAW
The right to a jury trial can be provided by statute or the Seventh Amendment of the Constitution. See Granfinanciera, S.A. v. Nordberg (In re Chase Sanborn Corp.), ___ U.S. ___, 109 S.Ct 2782, 2789 (June 23, 1989). As set forth below, the statutes relevant to the present matter indicate that a bankruptcy judge and not a jury should be the trier of fact in an objection to a claim. Moreover, under the three step analysis set forth in Granfinanciera, S.A. v. Nordberg (In re Chase Sanborn Corp.), ___ U.S. ___, 109 S.Ct 2782, 57 USLW 4898 (1989), the Seventh Amendment does not require that a jury hear an objection to a claim in bankruptcy. Consequently, the debtor has no right to a trial.
A. Statutoy Analysis.
The jurisdiction of bankruptcy judges is prescribed by Section 157(b) of the Judicial Code (Title 28, U.S.C.) which states, in relevant part:
Bankruptcy judges may hear and determine . . . all core proceedings arising under title 11, or arising in a case under title 11, referred under section (a) of this section, and may enter appropriate orders and judgments, subject to review . . . (emphasis added).
Therefore, upon reference, the bankruptcy judges are authorized to act as the trier of fact in “core matters.”
The allowance and disallowance of a claim is a “core matter” pursuant section 157(b)(2)(B) of the Judicial Code, and General Local Rule 2.33 of the Northern District of Illinois refers such matters to the bankruptcy judges of this district. Thus, under the Judicial Code, it would appear that a bankruptcy judge, rather than a jury, should be the trier of fact in the hearing on a debtor’s objection to claim.
Furthermore, no statute affirmatively entitles the debtor to a jury. Title 28 U.S.C. § 1411 is the only statute which provides for a jury trial in bankruptcy cases. That section provides, in relevant part:
. . . [T]his chapter and title 11 do not affect any right to trial by jury that an individual has under applicable nonbankruptcy law with regard to a personal injury or wrongful death claim. . . .
Section 1411 was initially interpreted by some courts as merely emphasizing a jury trial right for person injury and wrongful death claims, without restricting the right for other matters. See, e.g., In re Price-Watson, 66 B.R. 144, 155 (Bankr.S.D.Tex. 1986). However, the 1987 Amendments to the Bankruptcy Rules adopted a contrary interpretation — that section 1411 was intended to limit the jury trial right in bankruptcy to the specified tort claims, regardless of whether the right to jury trial might exist outside of bankruptcy.[1] See Advisory Committee Note on Abrogation of Bankruptcy Rule 9015, Committee on Rules of Practice and Procedure, 114 F.R.D. 205 (1987). Since adoption of the amended rules, numerous courts have held that there is a statutory right to a jury trial only in wrongful death and personal injury claims. See, e.g., In re Smith, 84 B.R. 175, 177-178 (Bankr.D.Ariz. 1988) (collecting authority). Therefore, because this is an objection to a claim and not a wrongful death or personal injury claim, there is no statutory right for a jury trial.
B. Seventh Amendment Analysis.
The remaining issue is whether the Seventh Amendment entitles the debtor to a jury trial. In Granfinanciera, S.A. v. Nordberg (In re Chase Sanborn Corp.), ___ U.S. ___, 109 S.Ct 2782, (1989), the Supreme Court recently decided that a defendant in a fraudulent conveyance action, who did not file a claim against the estate, had the right to a jury trial under the Seventh Amendment. The Court articulated a three step analysis to determine whether the Seventh Amendment requires a jury trial:
First, we compare the statutory action to 18th-Century actions brought the courts of England prior to the merger of law and equity. Second, we examine the remedy sought and determine whether it is legal or equitable in nature. The second stage of the analysis is more important than the first. If on balance, these two factors indicate that a party is entitled to a jury trial under the Seventh Amendment, we must decide whether Congress may assign resolution of the relevant claim to a non-Article III adjudicative body that does not use a jury as a factfinder. Granfinanciera, 109 S.Ct at 2790 (citations omitted).
The first step in the Granfinanciera analysis is to determine whether the English Common Law courts or the English Chancery or equity courts would have adjudicated the analogous 18th-Century action. In Granfinanciera, the Court found that the analogous 18-Century action was a fraudulent conveyance suit to recover a sum of money and held that the Common Law courts would have adjudicated such actions to recover money damages.
In contrast to the trustee in Granfinanciera, the debtor in the present case is not seeking a money judgment in order to bring assets into the estate. Instead, the debtor is seeking a determination of whether the IRS’s claim should be allowed. The analogous proceeding in the 18th Century would be an action or suit to determine whether a creditor had a legitimate claim against the bankruptcy estate.
In 18th-Century England, the Chancery Courts administered the bankruptcy laws. Chancery apparently resolved disputes concerning claims in several ways. First, the Chancery Courts themselves could determine the legitimacy of the claim. See Clarke v. Capron, 2 Ves.Jun. 667, 30 Eng. Rep. 832, 833 (1795) (“[i]n the course of bankruptcy nothing is more usual than to direct a bill to ascertain whether a debt is due”). Second, bankruptcy “commissions,” which were extrajudicial bodies approved by the Chancery Courts to administer bankruptcies, could determine the amount of the creditor’s claim. See Blackstone, Commentaries on the Laws of England, A facsimile of the First Edition of 1765-1769, Vol. II “Of the Rights of Things” (1766), ch. 31 at 480, 487 (“[a]nd then the commissioner shall direct a dividend to be made, at so much in the pound, to all creditors who have before proved, or shall then prove, their debts”). Finally, the Chancellor could refer at least some disputes to the common law courts through a “feigned issue.” See, e.g. Ex parte Cottrell, 2 Cowp. 742 (King’s Bench 1790). After the trial, the case would revert back to the Chancery Courts. Cf., In re Gulston, 1 Atkyns 193, 26 Eng. 125, 127 (1743) (after the common law courts decided if the debtor committed acts of bankruptcy, the parties were “at liberty to apply to the [Lord Chancellor] for further directions”).
As an alternative to suing in the Chancery Courts, the 18th-Century English bankruptcy statute provided that such claims could be submitted to an arbitrator with the consent of the creditors. 5 Ga. 2 § XXXIV (1732). The purpose of allowing arbitration was apparently to avoid suits “whch are oftentimes many Years depending.” Id.
Therefore, in 18-Century England, claims resolution was performed under the aegis of the Chancery Court or by an arbitrator. The Chancery Courts may sometimes have delegated a specific claim dispute to the Common Law Courts, to be heard by a jury. However, there is no indication that the moving party had a right to a jury. Instead, the Lord Chancellor would decide the best method for resolving the disputes or the parties would consent to arbitration.
The second, and more important, step under Granfinanciera is to ascertian the nature of the relief being sought. If the relief is equitable, then this factor indicates that the debtor does not have a right to a jury trial. The determination of the nature of the relief sought turns on whether the proceeding is of “basic importance in the administration of a bankruptcy estate.” Katchen v. Landy, 382 U.S. 324, 329 (1965). Clearly, the allowance or disallowance of claims is of basic importance of administrating the estate. Id. at 329. Granfinanciera itself indicates that whenever an issue “arises as part of the process of allowance and disallowance of claims, it is triable at equity.”109 S.Ct. at 2799. As the IRS correctly points out, “the matter for which the Debtor seeks a jury trial in this case is not only a part of the process of allowance and disallowance of claims; the Debtor’s very purpose is to disallow the Service’s claim in whole or part.” (IRS’s Brief at p. 6) (emphasis in the original). Therefore, the first two factors of the Granfinanciera analysis militate against the right to a jury trial and the final stage of the Granfinanciera analysis need not be addressed.
Since neither the applicable statutes nor the Constitution accord the debtor a right to jury trial on his claim objection, the jury demand will be disallowed. An appropriate order will be entered.