Butler v. Bateman (In re Bateman)

601 B.R. 700

IN RE: Thomas R. BATEMAN and Katherine E. Bateman, Debtors.

Joseph G. Butler, Chapter 7 Trustee, Plaintiff,

v.Robert E. Bateman, Leslie A. Bateman, and Town of Sebago, Maine, Defendants.

CIVIL ACTION NO. 19-10348-WGY

CHAPTER 7 CASE NO. 17-11217-FJB

ADVERSARY PROCEEDING NO. 19-01001

United States District Court, D. Massachusetts.

Filed July 1, 2019

James M. Liston, Jonathan Hixon, Hackett Feinberg P.C., Boston, MA, for Plaintiff.

A. Davis Whitesell, Casner & Edwards, LLP, Michael A. Bednarz, Berluti McLaughlin & Kutchin LLC, Michael J. Fencer, Jager Smith, P.C., John J. Cloherty, III, Pierce, Davis & Perritano, LLP, Boston, MA, Adam R. Prescott, Robert J. Keach, Bernstein, Shur, Sawyer & Nelson, Portland, ME, for Defendants.

MEMORANDUM OF DECISION

YOUNG, D.J.

I. INTRODUCTION

"[J]urors are the life's blood of our third branch of government."

Marchan v. John Miller Farms, Inc., 352 F. Supp. 3d 938, 947 (D.N.D. 2018). Here, the defendants in a bankruptcy adversary case, Robert E. and Leslie A. Bateman (collectively, the "younger Batemans") and the Town of Sebago, Maine ("Sebago"), sought to withdraw the reference of that case to the Bankruptcy Court. Mot. Withdraw Reference Bankruptcy Ct. 1-7 ("Mot. Withdraw"), ECF No. 1.¹ Because this case invokes quintessential jury questions and waiting to withdraw the reference would slow the flow of the very "life's blood of our third branch of government," the Court GRANTED the younger Batemans and Sebago's motion. See Marchan, 352 F. Supp. 3d at 947.

II. BACKGROUND

Thomas R. and Katherine E. Bateman (collectively, the "elder Batemans," or, collectively with the younger Batemans, the "Batemans") filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of Massachusetts (the "Bankruptcy Court") on April 5, 2017. Chapter 11 Voluntary Pet. Individual, In re Bateman, Ch. 7 Case No. 17-11217-FJB (Bankr. D. Mass. Apr. 5, 2017) ("In re Bateman"), ECF No. 1. Pursuant to the United States Trustee and the elder Batemans' stipulation, the Bankruptcy Court converted the case into a Chapter 7 proceeding on February 5, 2018, Proceeding Mem./Order, In re Bateman (Feb. 5, 2018), ECF No. 134, and appointed Joseph G. Butler ("Butler") as Chapter 7 Trustee the next day, Certificate Appointment, In re Bateman (Feb. 6, 2018), ECF No. 135.

On January 2, 2019, Butler filed a verified adversary complaint against the younger Batemans and Sebago. Verified Adversary Compl. Avoid & Recover Fraudulent Transfer & Inj. Relief ("Adv. Compl."), In re Bateman (Jan. 2, 2019), ECF No. 188, Butler v. Bateman (In re Bateman) ("Adv. Proc."), Adv. Proc. No. 19-01001, ECF No. 1. The adversary complaint alleges that the elder Batemans fraudulently transferred their Sebago vacation home to the younger Batemans through Sebago after Sebago enforced a real estate tax lien on the vacation home. Adv. Compl. 1. The adversary complaint demands damages from the allegedly fraudulent transfer or rescission of the transaction. Adv. Compl. ¶¶ 62-63, 71-72, 79-80, 90-91. On January 31, 2019, the younger Batemans answered the adversary complaint and demanded trial by jury. Answer & Jury Demand Defs. Robert E. Bateman & Leslie A. Bateman, Adv. Proc., ECF No. 34. On March 1, 2019, Sebago moved to dismiss the adversary complaint, which Butler opposed. Sebago's Mot. Dismiss Verified Compl. Avoid & Recover Fraudulent Transfer & Inj. Relief Incorporated Mem. Law, Adv. Proc., ECF No. 39; Pl.'s Opp'n Sebago's Mot. Dismiss Verified Compl. Avoid & Recover Fraudulent Transfer & Inj. Relief, Adv. Proc., ECF No. 44.²

On March 8, 2019, the younger Batemans moved to withdraw the reference to the Bankruptcy Court. Mot. Withdraw 1. The younger Batemans and Butler fully briefed the motion, and the Court heard argument on the motion on March 25, 2019. See Opp'n Chapter 7 Trustee Defs. Robert E. Bateman & Leslie A. Bateman's Mot. Order Withdrawing Reference Bankruptcy Ct. 10-17 ("Butler's Opp'n"), ECF No. 1; Reply Defs. Robert E. Bateman & Leslie A. Bateman Opp'n Chapter 7 Trustee Mot. Order Withdrawing Reference Bankruptcy Ct. 18-23 ("Reply"), ECF No. 1. At the motion hearing, Sebago orally joined the younger Batemans' motion. After hearing argument, the Court GRANTED the younger Batemans' motion. Electronic Clerk's Notes, ECF No. 8. This memorandum explains the Court's reasoning.

III. ANALYSIS

The Court granted the motion for an order withdrawing the reference because the Seventh Amendment to the United States Constitution entitles the younger Batemans and Sebago to a jury trial. See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 40-42, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989) ; Riley v. Wolverine, Proctor & Schwartz Ltd. (In re Wolverine, Proctor & Schwartz, LLC), 404 B.R. 1, 2-3 (D. Mass. 2009) (O'Toole, J.). Withdrawal of the reference at this stage of the litigation also avoids this Court's de novo review of the Bankruptcy Court's findings of fact and conclusions of law on Sebago's motion to dismiss, an efficient use of limited judicial resources. See DeGiacomo v. Holland & Knight, LLP (In re Inofin, Inc.), Chapter 7 Case No. 11-11010-JNF, Civ. A. No. 14-10483, 2014 WL 1795575, at *2-3 (D. Mass. May 2, 2014) (Gorton, J.) (" Inofin I").

A. Standard of Review

Butler's adversary complaint alleged bankruptcy court jurisdiction with citation to sections 157(b) and 1334(b) of chapter 28 of the United States Code, which authorize the bankruptcy courts to hear cases arising out of chapter 11 of the United States Code. Adv. Compl. ¶ 4. This Court's Local Rule 201 provides that any such cases "shall be referred" to the Bankruptcy Court, thereby implementing sections 157(b) and 1334(b).

Even so, section 157(d) allows the Court to withdraw the reference "on timely motion of any party, for cause shown." Congress intended for district courts to withdraw the reference to bankruptcy courts only where "essential to preserve a higher interest." Agin v. Sam Hill, LLC, No. 14-CV-12885, 2014 WL 6773727, at *2 (D. Mass. Dec. 2, 2014) (Casper, J.) (quoting Weiss v. Lockwood, 499 B.R. 392, 393 (D. Mass. 2013) (Gorton, J.)).

Although section 157(d) does not define "cause," courts hold that cause to withdraw the reference obtains where withdrawal would further the "goals of [1] promoting uniformity in bankruptcy administration, [2] reducing forum shopping and confusion, [3] fostering the economical use of the debtors' and creditors' resources, and [4] expediting the bankruptcy process." Federal Trade Comm'n v. American Inst. for Research & Dev., 219 B.R. 639, 647 (D. Mass. 1998) (Ponsor, J.) (quoting Gray v. Solvay Polymers, Inc. (In re Dooley Plastic Co., Inc.), 182 B.R. 73, 80 (D. Mass. 1994) (Lindsay, J.)); see also Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 999 (5th Cir. 1985) ). Other sessions of this Court have thus ruled that "[c]ause to withdraw a reference exists where a party has a right to a trial by jury and does not consent to having that trial in the bankruptcy court." Riley, 404 B.R. at 2 (citing Container Recycling All. v. Lassman, 359 B.R. 358, 360 (D. Mass. 2007) (O'Toole, J.), abrogated on other grounds by Stern v. Marshall, 564 U.S. 462, 496-99, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011) ).

B. Cause

This Court rules that the younger Batemans and Sebago's Seventh Amendment right to a jury trial constitutes cause to withdraw the reference because the younger Batemans and Sebago do not agree to a jury trial in the Bankruptcy Court. See Riley, 404 B.R. at 2.

The Seventh Amendment to the United States Constitution provides:

In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.

If a statute confers "legal rights and remedies, enforceable in an action for damages in the ordinary courts of law," it confers a jury trial right under the Seventh Amendment. Curtis v. Loether, 415 U.S. 189, 194, 94 S.Ct. 1005, 39 L.Ed.2d 260 (1974). Courts in the First Circuit "undertake a three-part inquiry" when deciding whether the jury trial right attaches to an action seeking to enforce statutory rights. Full Spectrum Software, Inc. v. Forte Automation Sys., Inc., 858 F.3d 666, 675 (1st Cir. 2017). First, the Court must decide "whether the current action is ‘analogous to common-law causes of action ordinarily decided in English law courts in the late 18th century.’ " Id. (quoting Braunstein v. McCabe, 571 F.3d 108, 118 (1st Cir. 2009) ).³ Second, and most importantly, the Court must decide whether the plaintiff's desired remedy is legal or equitable. Id. (quoting Granfinanciera, 492 U.S. at 42, 109 S.Ct. 2782 ). Third, where the previous two inquiries suggest a jury trial right and Congress provided for a non-Article III adjudicator for the claim, the Court must decide whether the claim implicates private or public rights. Id.

Butler posits that the younger Batemans and Sebago's jury trial demand falters only on the second step of the Seventh Amendment test. Butler Opp'n ¶ 6. The adversary complaint asserts four counts of fraudulent transfer under the Federal Bankruptcy Code and state laws.⁴ Adv. Compl. ¶¶ 54-91. The Supreme Court held in Granfinanciera that an individual who has not submitted a claim against a bankruptcy estate has a Seventh Amendment jury trial right in a suit to recover a "fraudulent monetary transfer." 492 U.S. at 36, 60-65, 109 S.Ct. 2782. Butler attempts to distinguish Granfinanciera on the ground that he seeks to avoid a fraudulent transfer of real property unlike the trustee in Granfinanciera, who sought to avoid a fraudulent transfer of money. Butler Opp'n 16-17. Butler suggests that his demand for a reconveyance of the elder Batemans' vacation home constitutes an equitable remedy. Id. at 17 (citing Weiss, 499 B.R. at 394 ; Campana v. Pilavis (In re Pilavis), 228 B.R. 808, 810 (Bankr....