Opinion
Case No.11-20059-svk
11-15-2012
In re Archdiocese of Milwaukee, Debtor.
Chapter 11
DECISION REGARDING JURY TRIAL ON THE DEBTOR'S OBJECTIONS
TO PROOFS OF CLAIM FILED BY CLAIMANTS A-12 AND A-13
On November 14, 2012, the Court held a status conference on the next steps to be taken following dismissal of the appeals concerning the Debtor's Objections to Claims 76 and 77 filed by Claimants A-12 and A-13. Prior to the conference, the Creditors' Committee and the Claimants filed briefs (Docket Nos. 1064 and 1066) arguing that if these Claim Objections move forward, they will require jury trials. The Committee notes the delay and expense this would entail, and seeks to delay all claim objection litigation to enable the estate to aggressively pursue insurance coverage litigation. At the conference, the Court disagreed with the Claimants' and Committee's position with respect to the jury trial and offered to put the Court's reasoning in writing.
The Court may have misspoken in stating at the conference that these Claims may not be "personal injury claims." Even assuming they are personal injury claims, a jury trial is not required at this stage of the proceedings.
The Claim Objections (Docket Nos. 560 and 562) cite Bankruptcy Code § 502(b)(1) requiring disallowance of any claim that is "unenforceable against the debtor . . . under any agreement or applicable law." According to the Objections: "Specifically, the Claim is unenforceable against the Debtor because the claim is barred by the applicable statutes of limitations." The Debtor reserved the right to supplement, amend, or modify its Objections to raise other grounds, but to date has not done so. At this time, the statute of limitations is the only basis for the Objections.
The Debtor moved for summary judgment, and on February 24, 2012, after full briefing and oral argument, the Court issued a Memorandum Decision (Docket No. 630), granting the Debtor's Motion for Summary Judgment based on the negligence statute of limitations and denying the Motion based on the fraud statute of limitations. Both the Debtor and the Claimants appealed. On October 29, 2012, the District Court dismissed the appeals as interlocutory (Docket No. 1031), but commented that the Court applied the correct legal standard in the Memorandum Decision. Accordingly, the issue before this Court is whether the statute of limitations for fraud bars these Claims.
In bankruptcy court, claim objection proceedings are summary, equitable proceedings, and the claimants are not entitled to a jury trial. Katchen v. Landy, 382 U.S. 323, 336 (1966) (allowance and disallowance of claims are triable in equity; Bankruptcy Code converts the creditor's legal claim to an equitable claim to a pro rata share of the res). As the Supreme Court explained:
[T]he right of trial by jury, considered as an absolute right, does not extend to cases of equity jurisdiction. If it be conceded or clearly shown that a case belongs to this class, the trial of questions involved in it belongs to the court itself, no matter what may be its importance or complexity. . . . So, in cases of bankruptcy, many incidental questions arise in the course of administering the bankrupt estate, which would ordinarily be pure cases at law, and in respect of their facts triable by jury, but, as belonging to the bankruptcy proceedings, they become cases over which the bankruptcy court, which acts as a court of equity, exercises exclusive control.Barton v. Barbour, 104 U.S. 126, 133-34 (1881); see also Hickman v. Hana (In re Hickman), 384 B.R. 832, 837 (B.A.P. 9th Cir. 2008) (citations omitted) ("[I]t is long settled that bankruptcy courts are primarily courts of equity where actions involving the process of allowance and disallowance of claims or the restructuring of the debtor-creditor relationship are 'triable only in equity' with 'no Seventh Amendment right to a jury trial.'").
The Committee points to 28 U.S.C. § 1411 which, when read in conjunction with 28 U.S.C. § 157(b)(5), preserves jury trial rights and limits the Bankruptcy Court's authority to enter orders liquidating personal injury and wrongful death claims. But those provisions should be applied in context. As recognized in In re UAL Corp., 310 B.R. 373, 381 (Bankr. N.D. Ill. 2004):
[I]nterpreting the personal injury exception narrowly -- as removing from bankruptcy court jurisdiction disputes over the valuation of claims against the estate but not disputes over their legal validity -- is consistent with related jurisdictional provisions of Title 28. . . . Both of these aspects of the provision allow for pretrial consideration of personal injury tort claims by the bankruptcy court, including a determination that such a claim is legally unenforceable. Similarly, the narrower interpretation of the personal injury exception is consistent with 28 U.S.C. § 1411(a), which preserves the right to jury trial for personal injury and wrongful death tort claims, since no jury trial right would attach to a claim disallowed on purely legal grounds.
Here, given their sole basis, the Objections do not entail the liquidation or valuation of the Claims. Rather, by deciding whether the statute of limitations bars the Claims, the Court is determining the legal enforceability of the Claims. This determination does not offend the jury trial requirements of § 1411 that specifically apply to the "trial" of personal injury claims. See Sigma Micro Corp. v. Healthcentral.com (In re Healthcentral.com ), 504 F.3d 775, 787 (9th Cir. 2007) (no infirmity in bankruptcy court disposing of dispositive pretrial motions because court is merely deciding whether a jury trial is necessary); Business Communications, Inc. v. Freeman, 129 B.R. 165, 166 (N.D. Ill. 1991) (prior to the time a case becomes trial ready, the bankruptcy court "may properly resolve pretrial interlocutory questions"); In re Pac. Gas & Elec. Co., 279 B.R. 561, 565 n.4 (Bankr. N.D. Cal. 2002) ("[I]n some situations the bankruptcy judge has authority to make threshold legal determinations affecting the validity of [personal injury] claims, such as whether the claims are barred by a claims deadline or a statute of limitations."); In re Dow Corning Corp., 215 B.R. 346 (Bankr. E.D. Mich. 1997) (exploring the distinction between determining, as a preliminary matter, the legal sufficiency of a claim and liquidating a claim at a trial).
With regard to the Committee's concern that the insurance coverage litigation should take priority over the Claim objections, the Court notes that the Debtor and certain abuse survivors recently filed a Complaint to determine the coverage issues. The Court will endeavor to ensure that this adversary proceeding is processed and scheduled as promptly as possible. These Claim Objections have been pending for nearly one year. Resolution of claims against a bankruptcy estate is intended to be a prompt and efficient procedure, and this case cries out for an answer for the Claimants and the Debtor. Unless the Debtor withdraws the Objections or agrees with the Committee that they should be placed on the "back burner" while other matters are decided, the Court intends to move forward to decide them.
By the Court:
________________________
Susan V. Kelley
U.S. Bankruptcy Judge