Bankruptcy – Jury trial

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Where a Chapter 7 trustee has brought a multi-count complaint against defendants, the court concludes that (1) summary judgment is not appropriate and (2) some of the claims must be tried before a jury.

“Count I seeks a determination of [debtor] Edward [C. Fusco]’s interest in [defendant Haws & Mill Street, Inc. (H&M)] as of the commencement of the bankruptcy case. Count II demands turnover of all of H&M shares transferred by Edward, including those that may be in the possession of any of the other Fuscos. Count III seeks a determination of the validity, extent and priority of any liens H&M asserts in Edward’s shares. Count IV requests that the money transferred by H&M to Edward, which H&M and Edward characterize as loans, be recharacterized as distributions of income. Count V, which appears to be pled as an alternative to count IV, seeks equitable subordination of any debt which Edward may owe to H&M. Count VI alleges a conspiracy by Edward and James [Fusco] to defraud Edward’s creditors by causing H&M to lend Edward money while he was insolvent, by securing the loans with a pledge of Edward’s H&M stock and by undervaluing that stock. Finally, count VII alleges that James and Kathy, as officers of H&M, breached their fiduciary duties to the shareholders of H&M, including Edward, by imprudently and improperly causing H&M to transfer assets to James and others. …

“In summary, counts I and VI of the amended complaint are triable to a jury. Many of the factual issues underpinning the jury triable counts, however, are the same as those which form the basis for the non-jury triable counts. For example, both the jury and non-jury triable counts will require a determination as to the nature of Edward’s transfers of H&M stock. Mindful of the Supreme Court’s admonition that the right to a trial by jury must be preserved even if legal claims are characterized as incidental to equitable ones, I do not believe a bench trial on counts II, III, IV, V, and VII would be appropriate until a jury determines the claims asserted in counts I and VI. …

“… Central to many if not all the counts of the amended complaint is the proper characterization of the transfer of funds between H&M and Edward and by H&M to other insiders and third parties. The trustee characterizes these transfers as gratuitous, unauthorized and harmful to H&M while the defendants maintain they were run of the mill loans or arms’ length transfers for value. The parties stubbornly and vociferously cling to their particular version of the facts and I will not deprive them of the opportunity to convince a trier of fact at trial of the righteousness of their beliefs. Therefore, the motions for summary judgment will be denied. …

“The defendants have stated they do not consent to a jury trial in the bankruptcy court. Accordingly, the defendants shall have 14 days from the date of this Memorandum to seek an order of the district court withdrawing the reference in this matter to enable the district court to conduct a jury trial on counts I and IV of the amended complaint and to permit the district court to determine the appropriate mode of disposition of the remaining counts.”

In Re: Fusco, Edward C. (Lawyers Weekly No. 04-048-13) (15 pages) (Hoffman, J.) (USBC) (Chapter 7 Case No. 10-46416-MSH; Adversary Proceeding No. 12-04026) (June 10, 2013).

Click here to find the full text of the opinion.