ROBERT J. SHELBY, District Judge.
The Defendants have filed a Joint Motion to Withdraw the Reference for Adversary
The debtor in the underlying bankruptcy action, Renewable Energy Development Corporation (REDCO), filed for relief under Chapter 7 of the United States Bankruptcy Code on December 30, 2011. George B. Hofmann was then appointed as the Chapter 7 Trustee. REDCO's general business model was to negotiate packages of contract and leasehold rights to develop solar and wind energy projects. REDCO also hired contractors to implement these projects. On January 30, 2012, Mr. Hofmann received an Order from the bankruptcy court authorizing the sale of substantially all of REDCO's assets to Sustainable Power, LLC. But this sale did not include twelve Lease Option Agreements that REDCO had previously negotiated with various landowners in San Juan County, Utah. These option contracts were included in a group of assets called the Blue Mountain assets.
The legal status of the Lease Option Agreements was somewhat unclear. The contracts granted REDCO an exclusive option that could be exercised over a period of three years to lease and obtain easements on property owned by the San Juan County landowners for the development of renewable energy projects. In exchange for the grant of the option, REDCO agreed to pay $1,000 to each of the landowners within thirty days after the Lease Option Agreements were executed. It appears that REDCO never gave the landowners the $1,000 payments. But the Lease Option Agreements also stated that the landowners had to provide REDCO with notice and an opportunity to cure before the landowners could exercise any of their rights or remedies under the Agreements, including any right to terminate. The Trustee alleges that none of the landowners provided REDCO with notice or an opportunity to cure any alleged deficiencies under the Agreements.
According to Defendants Tony Hall, Ellis-Hall Consultants, LLC (Ellis-Hall) and Summit Wind Power, LLC (Summit Wind)
On February 28, 2012, Mr. Hofmann filed a motion to approve the sale of the Blue Mountain assets to CCW. Mr. Hofmann claims that the Hall Parties never objected to this sale and that they did not appear at the auction that was held on March 21, 2012. The prevailing bidder at the auction was CCW, who submitted a winning bid of $210,000. The bankruptcy court approved this sale at a hearing held on March 22, 2012.
Mr. Hofmann alleges that, at some point in either February or March 2012, the Hall Parties contacted the landowners who had signed the Lease Option Agreements with REDCO and advised them that the Agreements were void because REDCO never paid the agreed fee of $1,000. Mr. Hofmann believes that the Hall Parties then entered into new agreements with some of the landowners. As a result of these actions, Mr. Hofmann contends that CCW refused to close on the sale of the Blue Mountain assets that the bankruptcy court had approved. On March 23, 2012, Mr. Hofmann sent a cease and desist letter to Mr. Hall and Kimberly Ceruti asserting that they were violating the automatic stay. Mr. Hofmann then filed a Motion for Order to Show Cause why Tony Hall, Ellis-Hall, and certain landowners should not be held in contempt of the automatic stay provisions of the Bankruptcy Code. On April 12, 2012, the bankruptcy court held a hearing in which it withdrew and struck the Trustee's Motion.
On May 28, 2012, Mr. Hofmann commenced an adversary proceeding against the Hall Parties and several landowners
Around the same time, Mr. Hofmann filed a second motion to sell the Blue Mountain assets after he had negotiated a new agreement with CCW to sell the assets for $105,000, or half of CCW's original bid. The Hall Parties and several landowners, the Christiansens and Mr. Francom, filed objections to the Trustee's motion. These parties argued that the Lease Option Agreements automatically terminated when REDCO failed to pay the $1,000 option payment.
The bankruptcy court heard the Trustee's Second Sale Motion and the Honorable Judge William T. Thurman issued his ruling from the bench on June 20, 2012. (See Dkt. No. 25 in Case No. 12-2225.) Judge Thurman considered the question of whether the Lease Option Agreements
On July 20, 2012, Mr. Hall and Ellis-Hall moved to withdraw the reference of the adversary proceeding from the bankruptcy court. Ms. Ceruti and Summit Wind later joined this motion. These four parties also submitted requests for a jury trial of the claims in the adversary proceeding.
Ms. Ceruti and the Hall Parties argue that withdrawal of the bankruptcy reference is mandated for two reasons. First, they contend that there is cause for withdrawal under 28 U.S.C. § 157(d) because they have made a demand for a jury trial. Second, the Defendants assert that the bankruptcy court does not have the constitutional authority to issue a final ruling on the claims and counterclaims in the adversary proceeding because these claims must be decided by a tribunal created under Article III of the United States Constitution. The court agrees that the Defendants may insist on a jury trial for some of their claims, but finds that there is no reason to withdraw the bankruptcy reference until these claims are ready for trial. The court disagrees with the Defendants' Article III argument and holds that the bankruptcy court has authority to issue a final ruling on the causes of action that are the subject of the Defendants' motion.
To give some context to the claims at issue in this suit, the court first reviews a brief history of the relationship between bankruptcy courts and Article III courts.
The Bankruptcy Reform Act of 1978 created bankruptcy courts as adjuncts to the district court for each judicial district. Pub.L. No. 95-598, 92 Stat. 2549 (1978). The Act provided that the new bankruptcy courts would be presided over by bankruptcy judges appointed by the President and confirmed by the Senate for fourteen-year terms. In 1982, the Supreme Court held that this grant of bankruptcy jurisdiction to independent courts composed of judges who did not have life tenure or other Article III protections was unconstitutional. Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). In response to the Court's ruling, Congress enacted the Bankruptcy Amendments and Federal Judgeship Act of 1984. Pub.L. No. 98-353, 98 Stat. 333 (1984). This Act vested jurisdiction over bankruptcy actions in the Article III district courts, but allowed the district courts to refer cases and proceedings to the bankruptcy judges for the district. The Act provided that a district
The 1984 Act divided the types of issues that a bankruptcy court may hear into two categories: core and non-core proceedings. See 28 U.S.C. § 157(b). The statute provides a nonexclusive list of core proceedings for which the bankruptcy judge may enter final orders and judgments. The statute also states:
28 U.S.C. § 157(c)(1). Notwithstanding this provision, parties may consent to allow a bankruptcy judge to enter final judgments on non-core proceedings if they wish. See 28 U.S.C. § 157(c)(2). Bankruptcy judges have the authority to determine "whether a proceeding is a core proceeding... or is a proceeding that is otherwise related to a case under title 11." 28 U.S.C. § 257(b)(3).
The Supreme Court has issued two decisions interpreting the 1984 Act that provide the crux of the analysis for the issues currently before the court. In 1989, the Court held in Granfinanciera, S.A. v. Nordberg that defendants in a fraudulent conveyance action brought by the trustee retained a right to a trial by jury under the Seventh Amendment of the United States Constitution. 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989). While fraudulent conveyance actions are listed as core proceedings under 28 U.S.C. § 157(b)(2)(H), the Court found that these actions are matters of private rather than public right because they are "quintessentially suits at common law that more nearly resemble state-law contract claims." Id. at 56, 109 S.Ct. 2782. Based on this reasoning, the Court held that, notwithstanding Congress's designation of fraudulent conveyance actions as the sort of bankruptcy issues for which bankruptcy judges could issue final judgments, this designation could not trump a party's Seventh Amendment right to request a jury trial. But the Court emphasized that its ruling applied only to parties who had not submitted claims against the bankruptcy estate, since these types of fraudulent conveyance actions did not arise "as part of the process of allowance and disallowance of claims," and were not integral to the restructuring of debtor-creditor relations. Id. at 58, 109 S.Ct. 2782. And, importantly, the Court highlighted that it was not addressing the question of "whether the Seventh Amendment or Article III allows jury trials in such actions to be held before non-Article III bankruptcy judges subject to the oversight provided by the district courts pursuant to the 1984 Amendments." Id. at 64. In other words, while the Court held that a jury trial was required in certain circumstances, the Court was silent as to whether a bankruptcy court could issue final judgments on dispositive motions in these cases or whether the bankruptcy court could conduct the jury trial itself.
The Supreme Court held that, while the bankruptcy court had statutory authority to enter a final judgment on a state law counterclaim under 28 U.S.C. § 157(b)(2)(C), the bankruptcy court was nevertheless without constitutional authority to enter such a judgment under Article III. The Court found that Vickie's claim was "a state law action independent of the federal bankruptcy law and not necessarily resolvable by a ruling on [Pierce's] proof of claim in bankruptcy." Id. at 2611. Stated another way, Vickie's state tort action existed "without regard to any bankruptcy proceeding." Id. at 2618. Because her claim was so remotely connected to the underlying bankruptcy action, the Court ruled that an Article III court was required to enter final judgment.
Before reaching its decision, the Court considered whether the bankruptcy court's authority to enter final judgment on Vickie's counterclaim could be saved by the public rights exception, under which Congress may permissibly vest factfinding for public rights in a nonArticle III court. The Court noted that "it is still the case that what makes a right `public' rather than private is that the right is integrally related to particular federal government action." Id. at 2613. In its analysis, the Court referenced its discussion of public and private rights in Granfinanciera and held that the public rights exception did not apply in either case: "Vickie's counterclaim — like the fraudulent conveyance action in Granfinanciera — does not fall within any of the varied formulations of the public rights exception." Id. at 2614.
Given this analogy, several courts have interpreted the decision in Stern to apply to a wide variety of state law claims, such as fraudulent conveyance actions, that arise in a bankruptcy context but can more accurately be seen as private and not public rights. As a result, these courts have held that bankruptcy courts lack authority to enter final judgments on these claims. See, e.g., In re Heller Ehrman LLP, 464 B.R. 348 (N.D.Cal.2011) ("By likening the claim [in Stern] explicitly to the fraudulent conveyance claims in Granfinanciera, this Court believes that Stern clearly implied that the bankruptcy court lacks constitutional authority to enter final judgment on the fraudulent conveyance claims presented here...."); Adelphia Recovery Trust v. FLP Grp., Inc., 2012 WL 264180 (S.D.N.Y. Jan. 30, 2012) (finding that a
But this reading of Stern is a broad one, implying that bankruptcy courts cannot enter final judgments on any claims that could be subject to a proper jury request under Granfinanciera. Many courts have adopted a much narrower interpretation of Stern by pointing to the Supreme Court's own characterization of the breadth of its ruling: "We do not think the removal of counterclaims such as Vickie's from core bankruptcy jurisdiction meaningfully changes the division of labor in the current statute; we agree with the United States that the question presented here is a narrow one." Stern, 131 S.Ct. at 2620.
The Honorable Robert D. Drain, a bankruptcy judge for the Southern District of New York, has elaborated on the reasoning behind the narrow interpretation. Judge Drain noted that, even after Granfinanciera's characterization of fraudulent conveyance actions as private rights, "by far the majority of courts after Granfinanciera continued to hold that bankruptcy courts had the power to issue a final judgment in fraudulent transfer proceedings as core matters." Kirschner v. Agoglia (In re Refco Inc.), 461 B.R. 181, 190 (Bankr. S.D.N.Y.2011). While acknowledging that it was likely that "the majority in Stern would have concluded, if asked, that a bankruptcy judge lacks the power to issue a final order or judgment on a fraudulent transfer claim," Judge Drain noted that the other express rationales for the majority's decision, which are summarized by Justice Scalia in his concurrence,
In the two years since Stern has been decided, a large number of courts have written opinions applying Stern to various aspects of bankruptcy proceedings. Having carefully reviewed this voluminous case law, it is clear that the courts have not reached any general consensus about how to interpret the Supreme Court decision. Even within the same judicial district, opinions about the case often differ wildly. Compare Weisfelner v. Blavatnik (In re Lyondell Chem. Co.), 467 B.R. 712, 721 (S.D.N.Y.2012) (holding that Judge Drain's reasoning in the In re Refco, Inc. case discussed above "runs directly contrary to the clear language of Stern") with Walker, Truesdell, Roth & Assocs. v. Blackstone Grp., L.P. (In re Extended Stay, Inc.), 466 B.R. 188, 202 (S.D.N.Y.2011) ("Stern does not affect the ability of the bankruptcy court to rule on state law fraudulent conveyance claims.").
The Tenth Circuit has not yet issued any guidance on the issue. Within the District of Utah, only the Honorable Ted Stewart has addressed Stern's reach. See In re C.W. Min. Co., 2012 WL 4882295 (D.Utah
The court considers below the implications of Stern for the Defendants' pending Motion to Withdraw the Reference. But the court first addresses whether the Defendants have a right to a jury trial on any of their counterclaims or the claims asserted against them.
The Seventh Amendment provides that the right to a trial by jury shall be preserved in suits at common law where the controversy exceeds twenty dollars. U.S. Const. amend. VII. As discussed above, the Supreme Court held in Granfinanciera that a party maintained her right to a jury trial for certain matters that arose during a bankruptcy proceeding even if the bankruptcy court had the statutory authority to hear those matters. Granfinanciera, 492 U.S. at 64, 109 S.Ct. 2782. The Court used a three-part analysis to determine which claims could be the subject of a proper jury demand. First, a court must "compare the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity." Id. at 42, 109 S.Ct. 2782. Second, a court must "examine the remedy sought and determine whether it is legal or equitable in nature." Id. As the Court noted, "[t]he second stage of this analysis is more important than the first." Id. If these two factors indicate that a party is entitled to a jury trial, a court must decide "whether Congress may assign and has assigned resolution of the relevant claim to a non-Article III adjudicative body that does not use a jury as a factfinder." Id.
The claims and counterclaims at issue in this case present a mix of legal and equitable actions. Applying the first prong of the test stated above, some of the claims are clearly examples of actions that historically would be tried by a jury. For example, the Trustee's action for tortious interference with economic relations is a tort that was recognized at common law. See W. Prosser, Handbook of the Law of Torts §§ 128-30 (4th ed.1971). Actions sounding in tort were considered legal before the merger of the courts of law and equity and are therefore subject to a proper jury demand. See Curtis v. Loether, 415 U.S. at 189, 195, 94 S.Ct. 1005 (1974). Similarly, the counterclaims for malpractice, breach of contract, tortious interference with contract and prospective economic advantage, and conversion are legal actions. In contrast, actions for breach of fiduciary duty historically were considered equitable. See, e.g., In re Evangelist, 760 F.2d 27, 29 (1st Cir.1985) ("Actions for breach of fiduciary duty, historically speaking, are almost uniformly actions `in equity,' carrying with them no right to trial by jury."). And the proper characterization of actions for unjust enrichment is unclear. See In re Light Cigarettes Mktg. Sales Practices Litig., 751 F.Supp.2d 183, 190 (D.Me.2010) (comparing courts holding that an action for unjust enrichment is an equitable claim with courts ruling that the proper characterization of these claims depends on the remedy requested).
The second prong of the Granfinanciera analysis instructs the court to look at the
Ms. Ceruti and Summit Wind also seek compensatory damages for their breach of fiduciary duty claim. While historically this claim has been treated as an equitable one, the Supreme Court stated that the nature of the remedy is a more important consideration than the historical treatment of a claim. See Granfinanciera, 492 U.S. at 42, 109 S.Ct. 2782. And at least one district court has noted that, for certain equitable claims seeking legal remedies, the nature of the remedy is determinative of the right to a jury trial even if the courts of equity once issued the same type of legal relief. See, e.g., Addington v. U.S. Airline Pilots Ass'n, 2009 WL 413610, at *4 (D.Ariz. Feb. 18, 2009) (noting that "[i]t is of no moment that as a matter of historical practice, courts of equity would grant monetary awards against trustees who breached their fiduciary duties" because it is "the general character of the remedy that guides [the Seventh Amendment] analysis, not the niceties of eighteenth-century chancery."). Taken together, therefore, the first two prongs of the Granfinanciera test indicate that Ms. Ceruti and Summit Wind have a right to have their claim for breach of fiduciary duty decided by a jury.
Similarly, a jury may hear the parties' claims seeking declaratory relief.
But looking at the overall nature of the case, the declaratory judgment claims were not brought to determine whether the Lease Option Agreements were properly part of the REDCO estate. The option contracts, whether they are valid or not, have already been sold. The reduced price for which CCW purchased the Agreements reflects the fact that the validity of the option contracts was uncertain when they were sold. The outcome of the declaratory judgment claims will not make the Lease Option Agreements any more or
The only relief the parties seek that could be deemed equitable in nature is Ms. Ceruti and Summit Wind's request for the restitution of legal fees that they paid to the Trustee's law firm. The Supreme Court has described restitution as an equitable remedy. Tull v. United States, 481 U.S. 412, 424, 107 S.Ct. 1831, 95 L.Ed.2d 365 (1987) (holding that an action for disgorgement of improper profits, a type of restitution, is "traditionally considered an equitable remedy."). But the Seventh Circuit has noted that the Supreme Court did not state that restitution was an exclusively equitable remedy, and found that "restitution is a legal remedy when ordered in a case at law." Reich v. Continental Cas. Co., 33 F.3d 754, 756 (7th Cir.1994). In any event, the Supreme Court also held in Tull that the Constitution requires a jury to decide issues common to legal and equitable claims: "[I]f a legal claim is joined with an equitable claim, the right to jury trial on the legal claim, including all issues common to both claims, remains intact." Tull, 481 U.S. at 425, 107 S.Ct. 1831 (citation omitted). Because the facts underlying Ms. Ceruti and Summit Wind's claim for unjust enrichment overlap and intertwine with the other issues in the counterclaims, the right to a jury trial extends to the unjust enrichment claim regardless of whether the court views the claim as inherently legal or equitable.
There are two remaining causes of action for which the court finds that the Defendants are not entitled to a jury trial. First, Ms. Ceruti and Summit Wind seek a declaratory judgment that Mr. Hofmann and his firm are disqualified from acting as Trustee and counsel for Trustee in the REDCO bankruptcy. This cause of action is moot because Ms. Loveridge was appointed the Chapter 7 Trustee of the REDCO bankruptcy estate on August 7, 2012.
Second, the Trustee has brought a cause of action for violation of the automatic stay under 11 U.S.C. § 362(k). The Trustee seeks an award of actual damages to the estate, as well as punitive damages for a willful violation of the stay. Under the first two prongs of the Granfinanciera test, the Trustee's claim would appear to be legal in nature. This cause of action lacks any history in the courts of 18th-century England, but the requested relief is for money damages, both compensatory and punitive. This remedy points toward the courts of law rather than the courts of equity. See In re Glenn, 359 B.R. 200, 203 (Bankr.N.D.Ill.2006).
But the court must also apply the third prong of Granfinanciera and ask whether "Congress may assign and has assigned" the matter to the bankruptcy court. Granfinanciera, 492 U.S. at 42, 109 S.Ct. 2782. Since Congress may deny jury trial rights to claimants litigating under statutory causes of action where public rights are litigated, the court must determine whether the Trustee's claim for violation of the automatic stay is a public right or a private right. In re Gonzalez, 2010 WL 3395677, at *2 (Bankr.D.P.R. Aug. 23,
The third prong of the Granfinanciera test does not affect the Defendants' right to a jury trial for the other claims and counterclaims that the court discussed above. Unlike the cause of action under 11 U.S.C. § 362(k), the claim for tortious interference and the counterclaims against the Trustee are more properly viewed as private rights. Like the fraudulent conveyance actions discussed in Granfinanciera, the tortious interference claims and counterclaims "constitute no part of the proceedings in bankruptcy but concern controversies arising out of it." Granfinanciera, 492 U.S. at 56, 109 S.Ct. 2782 (citation omitted). Congress may not remove a party's right to a jury trial for these state-created causes of action merely because they are closely intertwined with a bankruptcy action.
The court has carefully considered whether it has drawn an appropriate distinction between the Trustee's claim for violation of the automatic stay and the Trustee's claim for tortious interference with economic relations. The allegations supporting these two claims and the requested relief are nearly identical. But while Congress clearly intended for a trustee to have the authority to enforce the automatic stay, which is a fundamental feature of the bankruptcy scheme that Congress enacted, the court sees no evidence showing that Congress believed that the remedy it created under 11 U.S.C. § 362(k) for a violation of that stay was inadequate. The Trustee is certainly free to bring additional causes of action against alleged violators of the stay, but he cannot do so without implicating a defendant's right to have a jury decide these issues. Even if the allegations are identical to the assertions underpinning a claim for violation of the automatic stay, these additional state-created rights of action "are quintessentially suits at common law." Id.
In addition, the importance of the Seventh Amendment right to a jury trial requires that this right receive primacy where it is implicated: "Where both legal and equitable relief are sought by a plaintiff, the Seventh Amendment right to a jury trial requires that the legal claims be tried first, to a jury." Miles v. Indiana, 387 F.3d 591, 599 (7th Cir.2004) (citation omitted). For the same reason that a jury must first decide any factual issues that are common to a plaintiff's request for both legal and equitable relief, the court finds that a jury must also first decide any factual issues that are common to a plaintiff's private and public rights of action. Because the Trustee asserted state law causes of action against the Defendants, the bankruptcy court should not resolve the claim for a violation of the automatic stay until the jury has decided the common factual issues, if any, that are necessary to resolve both the violation claim and the tortious interference claim.
The court notes that the same reasoning does not apply to the Defendants' counterclaims. An alleged violator
For the reasons stated above, the court finds that the Defendants are entitled to a jury trial on the Trustee's claim for tortious interference, as well as the Trustee's causes of action for declaratory judgment that support the Trustee's tortious interference claim. While Congress has properly assigned the resolution of the Trustee's claim for violation of the automatic stay to the bankruptcy judge to be decided without a jury, the bankruptcy court should first allow the jury to determine any issues that are common to the Trustee's private rights of action and this public right. The Defendants also have a right to have their counterclaims heard by a jury. Nothing that the court has said concerning the Defendants' right to a jury affects the bankruptcy court's authority to issue final judgments on any of these claims during pretrial motions. The court analyzes below this separate issue of whether the bankruptcy court maintains this authority after the Supreme Court's ruling in Stern.
The Trustee argues that, even if the Defendants have a right to a jury trial under Granfinanciera, they have waived this right through their participation in the bankruptcy proceeding. The Tenth Circuit has held that "one who invokes the jurisdiction of the bankruptcy court by filing a claim with that court or who fails to object to the summary jurisdiction of the court at the earliest opportunity, thereby consents to such jurisdiction." O'Dell v. United States, 326 F.2d 451, 455 (10th Cir.1964). The Trustee contends that the Defendants have consented to the bankruptcy court's jurisdiction by filing objections and contesting the Trustee's sale of the Lease Option Agreements.
The court is not persuaded by the Trustee's argument. Mr. Hall and Ellis-Hall originally appeared in this case after the bankruptcy court issued an Order to Show Cause why they should not be held in contempt for violating the automatic stay. These Defendants later objected, twice, to the Trustee's request to the bankruptcy court to hold that the option contracts were property of the bankruptcy estate for purposes of selling these contracts. After the first objection, counsel for these Defendants admitted that they lacked standing to object to the relevant time frames and withdrew their objection. (See Minute Entry, May 29, 2012, Bankr.Case No. 11-38145.) After the second objection, the bankruptcy court ruled that Mr. Hall and Ellis-Hall lacked standing and could not participate in the evidentiary hearing. (See Minute Entry, June 18, 2012, Bankr. Case No. 11-38145.) The court finds that an appearance made to defend allegations of violating the automatic stay followed by a finding that these Defendants lacked standing to voice their objections is not a valid waiver of the Defendants' Seventh Amendment right to a jury.
Similarly, Summit Wind has not waived its jury trial rights. Summit Wind is not a party in the underlying bankruptcy proceeding and it does not appear that Summit Wind filed any objections to the sale of
The Defendants argue that, because they are entitled to a jury trial and have timely demanded the exercise of this right, sufficient cause exists for the court to withdraw the automatic reference to the bankruptcy court. The Defendants cite the Tenth Circuit case of In re Latimer for this proposition. 918 F.2d 136 (10th Cir. 1990). But in Latimer, the Tenth Circuit merely restated its previous holding that jury trials cannot be conducted by the bankruptcy court and must instead be removed to district court. See In re Kaiser Steel Corp., 911 F.2d 380, 392 (10th Cir. 1990). These cases do not require the immediate withdrawal of the district court's reference to the bankruptcy court and the Tenth Circuit has never prevented the bankruptcy court from supervising discovery and ruling on pretrial motions. Instead, a number of district and bankruptcy courts have declined to withdraw the bankruptcy reference until a case is ready for trial. See, e.g., Loveridge v. Johnson (In re South Valley Health Ctr., LLC), 2013 WL 2387678, at *2 (D.Utah May 30, 2013) (unpublished); Rhino Energy LLC v. C.O.P. Coal Dev. Co. (In re C.W. Mining Co.), 2012 WL 4882295, at *5 (D.Utah Oct. 15, 2012); In re Kinderknecht, 2011 WL 841141, at *4 (Bankr.D.Kan. Mar. 4, 2011). This approach capitalizes on the bankruptcy court's familiarity with the proceedings and ensures that judicial resources are not wasted. In addition, allowing the bankruptcy court to conduct the pretrial proceedings alleviates the risks of forum shopping:
City Bank v. Compass Bank, 2011 WL 5442092, at *6 (W.D.Tex. Nov. 9, 2011).
The court finds such an approach is appropriate in this matter, especially since the need for a trial may be obviated if the claims and counterclaims are decided on pretrial motions. Accordingly, the court holds that the Defendants' demand for a jury trial does not require the court to withdraw the reference to the bankruptcy court at this time.
The Defendants argue that an additional reason for the court to withdraw the reference in this case is that, under Stern v. Marshall, the bankruptcy court does not have the authority to enter final judgments on either the Trustee's claims or Ms. Ceruti and Summit Wind's counterclaims, all of which depend on state law to some degree. The court is not persuaded by the Defendants' argument and finds that the Defendants read Stern too broadly. The Defendants' interpretation would carve out a large category of claims for which a bankruptcy judge could no longer enter final judgment, even though these claims are closely intertwined with bankruptcy proceedings and bankruptcy judges have traditionally
First, the court notes that Stern is not a jurisdictional decision, but one that is focused only on the bankruptcy court's authority under Article III to enter final judgment on certain claims:
Dev. Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP, 462 B.R. 457, 471 (S.D.N.Y.2011); see also Walker, Truesdell, Roth & Assocs. v. Blackstone Grp., L.P. (In re Extended Stay, Inc.), 466 B.R. 188, 201 (S.D.N.Y.2011) ("Stern is not a decision concerning subject matter jurisdiction."). In other words, Stern does not require a district court to withdraw the reference to a bankruptcy court immediately whenever a Stern-related issue arises. Instead, a bankruptcy judge can manage pretrial matters and even issue findings of fact and conclusions of law that can be reviewed de novo by the district court. As a result, the issue presented to the court is the narrow question of whether the bankruptcy court has authority to resolve pretrial dispositive motions by entering final judgments or if it must instead issue recommendations to the district court on these motions.
There is no question that the bankruptcy court continues to have the authority to enter judgment on the Trustee's claim for violation of the automatic stay. As the court discussed above, the automatic stay is fundamental to the bankruptcy system enacted by Congress. See Turner v. First Cmty. Credit Union (In re Turner), 462 B.R. 214, 221 (Bankr. S.D.Tex.2011) ("Given the central role of the automatic stay in the bankruptcy scheme, the broad effect of the automatic stay, and the fiduciary duty imposed upon debtors, this Court concludes that enforcement of the automatic stay fits within the `public rights' exception."). A bankruptcy court may not only enter final judgment on a claim for violation of the automatic stay, but it may do so without a jury.
In re Lyondell Chem. Co., 467 B.R. 712, 722 (S.D.N.Y.2012) (emphasis in original).
The court admits the logic of this approach, but finds that a narrower interpretation of Stern is equally logical. Stern clearly holds that the public rights exception does not save the bankruptcy court's authority to finally adjudicate certain actions, such as state law counterclaims filed by the estate against creditors who assert a proof of claim. But it is not clear whether the bankruptcy court's authority could be saved by other factors. Stern does not explicitly state that a bankruptcy judge cannot enter final judgment on any private right of action, but simply denies this authority for some private rights of action. And in its decision, the Stern Court discusses a number of factors besides the public rights exception. For instance, the Court notes that the parties did not unanimously consent to final adjudication by a non-Article III tribunal. Stern, 131 S.Ct. at 2618. The Court also finds that Vickie's state law counterclaim would not necessarily be resolved in ruling on Pierce's proof of claim. Id. at 2608; see also id. at 2618 (noting that Vickie's claim was a state tort action that existed "without regard to any bankruptcy proceeding."). As a result, the Court appears to be concerned not only with the distinction between public and private rights, but also with the question of consent and the determination of how closely an action is intertwined with the bankruptcy proceeding.
Given the additional factors discussed in Stern, the court adopts a narrow view of that holding and finds that, even if an action is more appropriately considered to be a private action for purposes of the Seventh Amendment analysis, such an action may nevertheless be so intricately intertwined with the bankruptcy proceeding that the bankruptcy court maintains its authority to enter a final judgment in that action under Article III.
The claims and counterclaims at issue here provide an example of why the court distinguishes its analysis under Stern from its analysis under Granfinanciera. The Trustee's claim for tortious interference and the Defendants' counterclaims are clearly based in state law and resemble private rights of action. As a result, the
The court also notes that the claims at issue here are clearly distinguishable from the state law counterclaims that Vickie brought against Pierce in Stern. Pierce's alleged tortious interference with Vickie's inheritance preceded the creation of Vickie's bankruptcy estate and any actions taken by the bankruptcy court. Her claim against Pierce would have existed regardless of whether she sought bankruptcy protection. In contrast, all of the claims at issue here arise out of the management of the bankruptcy estate and the bankruptcy proceedings themselves.
The court's ruling accords with the decisions discussed above holding that bankruptcy courts continue to have the authority to enter final judgment on fraudulent conveyance actions. Similarly, the court finds itself in agreement with the decisions issued by the Honorable Ted Stewart, who has also held that a narrow interpretation of Stern is appropriate. Finally, the court follows the Supreme Court's own statement that its decision in Stern did not "meaningfully change[] the division of labor" in the current bankruptcy scheme. Stern, 131 S.Ct. at 2620. It is certainly possible that either the Tenth Circuit or the Supreme Court will at some point issue a decision inconsistent with this narrow interpretation, but the facts of this case illustrate the difficulty of reading the Stern decision broadly in the absence of additional clarification. The causes of action at issue here do not fit neatly into a recognized class of actions, such as fraudulent conveyance claims, state law counterclaims on a creditor's proof of claim, or, as noted above, actions to augment the bankruptcy estate. While the court has relied on existing caselaw to determine whether the mix of state law and bankruptcy claims in this action require a jury trial under the Seventh Amendment, the court is hesitant to perform a similarly detailed analysis under Article III. Such an approach would throw into doubt the bankruptcy court's ability to enter final judgment on a wide variety of claims, thereby substantially changing the division of labor in the bankruptcy statute. The court therefore awaits further guidance before denying the bankruptcy court's traditional authority to enter final judgments on additional classes of claims other than the state law counterclaims explicitly mentioned in Stern.
One final consideration supports the court's decision on this matter. The court has not yet addressed whether the claims and counterclaims at issue here are core or non-core claims as defined by the Bankruptcy Code. While the Trustee asserts that all of the causes of action are core claims, the parties did not extensively brief this issue. The court has proceeded under the assumption that the Trustee is correct, but believes that the bankruptcy court has been granted the authority and is in a better position to determine for itself whether a claim presents a core or a non-core issue. If the bankruptcy court determines
For the reasons stated above, the Defendants' Joint Motion to Withdraw the Reference for Adversary Proceeding 12-2225 (Dkt. No. 2) is DENIED WITHOUT PREJUDICE. The parties may refile their motion when, and if, any remaining issues are ready to be submitted for a jury trial. The court GRANTS the Trustee's Motion to Substitute Party (Dkt. No. 9) and has substituted Ms. Loveridge as REDCO's Chapter 7 Trustee in these proceedings.
SO ORDERED.
