Millbury National Bank et al v. Palumbo

OCR transcription for search; preserved printed pages are authoritative

Case 06-04023 Doc 80 Filed 01/19/07 Entered 01/19/07 14:19:25 Desc Main
Document Page1of7

UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS

In te
PAUL O. PALUMBO : Chapter 7
Debtor : No. 05-49073

MILLBURY NATIONAL BANK,

Plaintiff
v. : A.P. No. 06-04023
PAUL O. PALUMBO,

Defendant

Intervening Defendant

MEMORANDUM OF DECISION ON PLAINTIFF’S MOTION TO STRIKE
DEMAND FOR JURY TRIAL [DOCKET #59] AND THE OPPOSITION OF
INTERVENING DEFENDANT NANCI PALUMBO THERETO [DOCKET #60]

This matter came before the Court for a hearing on Motion of Plaintiff Millbury
National Bank to Strike Demand for Jury Trial [Docket #59] and the Opposition of
Intervening Defendant Nanci Palumbo thereto [Docket #60]. For the reasons set forth
herein, the Plaintiffs Motion is GRANTED and the Intervening Defendant’s demand for a
jury trial is STRICKEN.

Millbury National Bank (hereinafter “Plaintiff’) claims that Paul O. Palumbo
(hereinafter “Debtor’’) fraudulently transferred his interest in the property located at 218
Stone School Road, Sutton, Massachusetts to his wife Nanci S. Palumbo (hereinafter

“Nanci”), and then concealed that transfer from his creditors.' The Plaintiff seeks an order

' Prior to March 2004, the Debtor and Nanci owned the property jointly. On or about March 30, 2004, they
transferred the property to Nanci in fee simple. Nanci recorded a declaration of homestead and filed for
bankruptcy in April 2005. The Debtor filed for bankruptcy in October 2005. Nanci received a discharge
later that month. In January 2006, the Plaintiff filed this adversary proceeding against the Debtor. The
Debtor moved for summary judgment on the grounds, inter alia, that Nanci could not be joined as a
necessary defendant because she had received a discharge and that any attempts to reach the property

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

Case 06-04023 Doc 80 Filed 01/19/07 Entered 01/19/07 14:19:25 Desc Main
Document Page 2 of 7

denying the Debtor’s discharge pursuant to 11 U.S.C. § 727(a)(2) (“Count I”) and setting
aside the transfer of the Debtor’s interest in his residence pursuant to MASS. GEN. LAWS. Ch.
109A, § 9 “Count IT”). Amended Complaint, p. 4-6, Docket #6. Nanci, who was allowed
to intervene in this proceeding’, demanded a jury trial on Count II, to which the Plaintiff
objected.’ Answer of Nanci Palumbo, p.5, Docket #49. The Court finds that Nanci, as a
party to a fraudulent conveyance action which seeks the avoidance of a real property
transfer, is not entitled to a jury trial under the Seventh Amendment of the United States
Constitution. Accord In re Pilavis, 228 B.R. 808 (Bankr. D. Mass. 1999).

In Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989),
the Supreme Court held that because the Seventh Amendment guarantees the right to a jury
trial “in suits at common law,” the right only applies to actions that are “legal in nature” and
involve a “matter of private right” and which were decided in courts of law, not equity, in
18th-century England. Jd. at 41-42. It used a three-part test to determine whether a

particular action gives rise to a jury trial under the Seventh Amendment:

First, we 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. Second, we examine
the remedy sought and determine whether it is legal or equitable in nature....The
second stage of this analysis is more important than the first....If, on balance, these
two factors indicate that a party 1s entitled to a jury trial under the Seventh
Amendment, we must decide whether Congress may assign and has assigned
resolution of the relevant claim to a non-Article HII adjudicative body that does not
use a jury as a factfinder.

Id. at 42 (internal citations omitted).

In Granfinanciera, the bankruptcy trustee sued to recover an alleged fraudulent transfer of $1.7
mullion from the defendant, who demanded a jury trial. Granfinanciera, 492 U.S. at 36-37.
The trustee sought to avoid the transfer and recover damages, costs, expenses, and interest
under 11 U.S.C. § 548(a)(1) and (a)(2) and 11 U.S.C. § 550(a)(1). Id at 36. In applying the
first part of the test, the Supreme Court found that there was “no dispute that actions to

recover preferential or fraudulent transfers [of a determinate sum of money] were often

would therefore violate the discharge injunction under 11 U.S.C. § 524. The Court denied the motion ina
previously-issued Memorandum of Decision. See Docket #30.

; Following the Court’s denial of summary judgment, Nanci moved to intervene on the grounds that she is
the record owner of the residence that is the subject of Count II of the complaint. Docket #48. The Court
allowed the motion on November 16, 2006. Docket #56.

” The Plaintiff and all other parties consented to this Court conducting the jury trial if it determines that
Nanci is in fact entitled to one.

N

Case 06-04023 Doc 80 Filed 01/19/07 Entered 01/19/07 14:19:25 Desc Main
Document Page 3of 7

brought at law in late 18th century England.” Id. at 43-47. As to the second part, it held that
the nature of the relief sought (i.e. return of “money payments of ascertained and definite
amounts”) was legal rather than equitable. Id. at 42. Since the trustee was seeking only
return of the money, this was the equivalent to an action for damages, the classic legal
remedy. Resolution Trust Corp., v. Pasquariello (In re Pasquariello), 16 F.3d 525, 529 3rd Cit.
1994). In addressing the third part of the test, the Supreme Court stated that “[a]lthough the
issue admits of some debate, a bankruptcy trustee’s right to recover a fraudulent
conveyance...seems to us more accurately characterized as a private rather than public
right...” Granfinanciera, 492 US. at 55. The fact that the claim was intertwined with the
bankruptcy proceedings did not empower Congress to assign the adjudication of such a
private right to judges. Pasquariello, 16 F.3d at 529. Thus, the Supreme Court upheld the
cefendant’s demand for a jury trial on the grounds that the action was brought in courts of
was a ptivate one. See Granjinanciera, 492 US.
Following the Supreme Court’s decision in Granjfinancera, the Third Circuit Court of
Appeals applied the three-part test to a case with facts analogous to this one and held that
there was no right to a jury trial. See Pasquariello, 16 F.3d at 530-531. In Pasguariello, the
bankruptcy trustee alleged, cuter ala, that the debtor fraudulently conveyed real property to
his wife and sought avoidance of the transfer as well as a variety of equitable remedies
including an accounting, constructive trust, and equitable lien; the wife demanded a jury trial,
which the district court denied. Id. at 528. In upholding the district court, the Third Circuit
held that there was no Seventh Amendment right to a jury trial because actions to remedy
fraudulent transfers of real property were commonly brought in courts of equity in 18th-

century England.* Id. at 530. In its decision, the Third Circuit stated:

* It is important to note that the ultimate holding in Pasquariello was limited to the narrow question of
whether a writ of mandamus was the appropriate means to review the district court’s decision. See id. at
531. The Third Circuit refused to issue the writ because the wife did not have a “clear and indisputable
right” to a jury trial where the plaintiff sought to recover real property, or alternatively, the value of the
property. See id. Even though it expressly declined to “intimate[e] any opinion as to the proper outcome
on a direct appeal,” Jd. at 53/, “the court’s opinion provides a well-reasoned analysis of jury trial rights”
which this Court adopts. Pilavis, 228 B.R. at 809 n. 2. As stated by one bankruptcy court, “why would the
Court of Appeals issue a published opinion in Pasquariello if it really was deciding only a very narrow
issue relating to mandamus, as opposed to providing instructive commentary on jury trial rights in
bankruptcy? We find it difficult to ignore this commentary even if it is...dicta.” In re Clayton, 1996 WL

387719 *1, *2 (Bankr. E.D. Pa 1996).

Case 06-04023 Doc 80 Filed 01/19/07 Entered 01/19/07 14:19:25 Desc Main
Document Page 4of7

[E]very court of appeals to have considered the issue, albeit prior to Granfinanciera,
held that any attempt to remedy a fraudulent conveyance of real property through a
set aside or avoidance was a matter for the equity courts and that no right to a jury
trial attached. See, ¢.9., In re Graham, 747 F.2d 1383, 1387-88 (11th Cir.1984); Whitlock
v. Hause, 694 F.2d 861, 863-66 (1st Cir.1982); Duncan v. First Nat'l Bank, 597 F.2d 51,
55-56 (5th Cir.1979); Hyde Properties v. McCoy, 507 F.2d 301, 306 (6th Cir.1974)
(dictum); Senchal v. Carroll, 394 F.2d 797, 797-99 (10th Cir.), cert. demed, 393 U.S. 979,
89 S.Ct. 448, 21 L.Ed.2d 440 (1968); Damsky v. Zavatt, 289 F.2d 46, 53-54 (2d
Cir.1961); Johnson v. Gardner, 179 F.2d 114, 117 (9th Cir.1949), cert. denied, 339 US.
935, 70 S.Ct. 661, 94 L.Ed. 1353 (1950). This alone should give us some pause as to
the applicability of Granfinanciera in this different fact situation...

In fact, in Granfinanciera itself, the Court, although it termed the holdings in Graham
and Dansky “questionable,” distinguished these cases because they involved “the
equitable remedy of setting aside an alleged fraudulent conveyance of rea/ estate by a
bankrupt. Granfinanciera, 492 U.S. at 46 n. 5, 109 S.Ct. at 2792 n.5 (emphasis in
original).

Diaeayayielln 16 BAA at G20
LasGuariéid, 16 0.90 at oov.

Bankruptcy courts in this district have followed Pasquariello. See Pilavis, 228 B.R. at
&08. In Piavis, Judge Hillman applied the holdings of Granfinanciera and Pasquariello and held
that a party to a fraudulent conveyance action which sought the avoidance of real property
transfers was not entitled to a jury trial under the Seventh Amendment. P7/avis, 228 B.R. at
&08. Like Pasquariello, the plaintiff claimed that the debtor fraudulently transferred real
property to his wife, and like the Third Circuit, Judge Hillman distinguished Granfinanciera on
the grounds that the plaintiff sought “such equitable remedies as a preliminary injunction
and an accounting in addition to avoidance of the alleged fraudulent real property transfers.”
Id. at 810.

Despite the holdings of these cases, in her demand for a jury trial, Nanci relies on
footnote 5 in Granfinanciera, footnote 9 in Pasguariello, and footnote 12 in In re Teknek, LLC,

343 B.R. 850 (Bankr. N.D. Ill. 2006), which in itself gives the Court pause.’°’ The Court

° Footnote 5 stated in relevant part:
Rather than list 18th-century English cases to support the contention that fraudulent monetary
transfers were traditionally cognizable in equity, respondent cites three recent cases from the
Courts of Appeals. These cases, however, weaken rather than bolster respondent's argument. /n re
Graham, 747 F.2d 1383 (CA11 1984), held that there was no Seventh Amendment jury trial right
in a suit for the equitable remedy of setting aside an alleged fraudulent conveyance of real estate
by a bankrupt. With respect to suits like respondent's, the court expressly noted that “an action by
a creditor or trustee-in-bankruptcy seeking money damages is an action at law.” Jd, at 1387
(citations omitted). Damsky v. Zavatt, 289 F.2d 46 (CA2 1961), also involved a conveyance of real
estate. And there, too, the court acknowledged that jury trials are ordinarily available with respect

Case 06-04023 Doc 80 Filed 01/19/07 Entered 01/19/07 14:19:25 Desc Main
Document Page 5of7

finds that these footnotes do not lend support to Nanci’s position. In footnote 5, the
Supreme Court merely questioned Graham and Dansky to the extent they were in conflict
with its previous decision in Whitehead. It did not expressly reject those cases, although it
had the opportunity to do so in dicta, and in fact, it emphasized that those cases involved the
equitable remedy of setting aside an alleged fraudulent conveyance of rea/ estate. See
Granjinanctera, 492 U.S. at 46 n. 5 (emphasis in original); Pasquariello, 16 F.3d at 530. Also,

“this conclusion 1s not in conflict with Granfinancera, which the Supreme Court itself

to monetary claims. See id, at 54.

Both of these holdings are questionable, moreover, to the extent that they are in tension with our
decision in Whitehead v. Shattuck, 138 U.S. 146, 11 S.Ct. 276, 34 L.Ed. 873 (1891). Although
there is scholarly support for the claim that actions to recover real property are quintessentially
equitable actions, see | G. Glenn, Fraudulent Conveyances and Preferences § 98, pp. 183-184
(rev. ed. 1940), in Whitehead we stated:

“[W]here an action is simply for the recovery and possession of specific real or personal property,
or for the recovery of a money judgment, the action is one at law. An action for the recovery of
real property, including damages for withholding it, has always been of that class. The right which
in this case the plaintiff wishes to assert is his title to certain real property; the remedy which he
wishes to obtain is its possession and enjoyment; and in a contest over the title both parties have a
constitutional right to call for a jury.” 138 U.S., at 151, 11 S.Ct., at 277.

See also Pernell v. Southall Realty, 416 U.S. 363, 370-374, 94 S.Ct. 1723, 1727-1729, 40 L.Ed.2d
198 (1974).
Granfinanciera, 492 U.S. at 46 n. 5.

° Footnote 9 stated:
We note that since the Court's holding in Granfinanciera, bankruptcy and district courts have
found that the Seventh Amendment requires a jury trial in suits to set aside fraudulent transfers of
real property. See, e.g., In re Stoecker, 117 B.R. 342 (N.D.III.1990); In re Lee Way Holding Co.,
115 B.R. 586 (S.D.Ohio 1990), rev'd on other grounds, 956 F.2d 1164 (6th Cir.1992); In re
Southeast Connectors, Inc., 113 B.R. 85 (S.D.Fla.1990); Michaels v. Lomax (In re Skil-Aire
Corp.), 142 B.R. 692 (Bankr.D.N.J.1992); Beeline Engineering & Constr. Inc. v. Monek, 139 B.R.
1025 (Bankr.S.D.Fla.1992); In re Roberts, 126 B.R. 678 (Bankr.W.D.Pa.1991).

Pasquariello, 16 F.3d at 530 n. 9.

’ Footnote 12 stated:
The Supreme Court recognized a controversy concerning whether an action to recover
fraudulently conveyed real property was an action at law or in equity, but it continued on to
recognize that it had previously held such an action to be one at law, Whitehead v. Shattuck, 138
U.S. 146, 146, 150-51, 155-56, 11 S.Ct. 276, 34 L.Ed. 873 (1891), although the Circuit Courts of
Appeals had not been following the established precedent. Granfinanciera, S.A. v. Nordberg, 492
U.S. 33, 44-46 & n. 5, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989); see also In re Southeast
Connectors, 113 B.R. 85, 86-87 (S.D.Fla.1990). Contra In re Pasquariello, 16 F.3d 525, 530-31
(3rd Cir.1994) (failing to consider Whitehead v. Shattuck ); In re Pilavis, 228 B.R. 808, 809-11
(Bankr.D.Mass. 1999) (same); U.S. v. Hassell, 2002 WL 1359718, at *2 fn. (N.D.Tex.2002)
(same).

Teknek, 343 BR. at 870 n. 12.

in

Case 06-04023 Doc 80 Filed 01/19/07 Entered 01/19/07 14:19:25 Desc Main
Document Page 6 of 7

repeatedly characterized as involving an action for a “determinate sum of money.” Pé/am,,
228 B.R. at 810 (citing Granfinanciera, 492 U.S. at 46-47). This Court agrees that
“Granfinancera’s silence in light of the prior appellate consensus indicates there is a
clistinction between actions to set aside fraudulent transfers of money and actions to set aside
fraudulent transfers of rea/ property, such that the former were actions at law while the latter
remained creatures of equity.” U.S. ». Be//, 1997 WL 361957 *1, *5 (E.D. Ca. 1997)
(emphasis in original).

As to the cases cited in footnote 9 and footnote 12, those cases were decided prior to
Pasquariello. See Pilavis, 228 B.R. at 809 n. 3. Since Pasquariello, the majority of bankruptcy
and district courts to consider the issue have held that there is no right to a jury trial under
the Seventh Amendment in fraudulent conveyance actions of real property. See Pi/avis, 228

B.R. at 808; In re Glazer, 248 B.R. 528, 532 (Bankr. N.D. Ohio 2000); In re Price, 346 B.R. 857,

: In re Clayton, 1996 WL 387719 at *2; US. ». Hassell, 2002 WL

2 He LEBISCE, vv

1359718 *1, *2 (N.D. Tex. 2002); U.S. ». Cram, 1998 WL 919871 *1, *5 (D. Utah 1998); U.S.
v. Bell, 1997 WL 361957 *1, *5 (E.D. Ca. 1997); U.S. ». Jones, 158 F.R.D. 309, 312 (D. NJ.
1994). This Court is awate of only one decision to the contrary. See Teknek, 343 B.R. at 870.
The consensus before Granfinanciera was that thete was no right to a jury trial, and the
consensus after Pasquariel/o is the same; parties to fraudulent conveyance actions of real
property are not entitled to a jury trial under the Seventh Amendment.

In her opposition, Nanci attempts to distinguish Pasquariello and Pilavis on the
grounds that in those cases the plaintiffs sought multiple forms of equitable relief (e.
avoidance, accounting, and preliminary injunction) whereas here the Plaintiff seeks only to
avoid the transfer. The Court does not find this distinction controlling. It is clear that the
action was heard in courts of equity in 18th-century England and the relief requested is
equitable in nature. See Pasquariello, 16 F.3d at 530-531. The Court’s inquiry ends there. The
fact that the plaintiffs in Pasquariello and Pilavis, as in other cases, sought other equitable
remedies just further supported the finding that a complete remedy was not available at law.
See Pasquariello, 16 F.3d at 531. In Granfinanciera, the Supreme Court recognized this point in

quoting the following passage:

[Whether the trustee's suit should be at law or in equity is to be judged by the same
standards that are applied to any other owner of property which is wrongfully

withheld. If the subject matter is a chattel, and is still in the grantee's possession, an

Case 06-04023 Doc 80 Filed 01/19/07 Entered 01/19/07 14:19:25 Desc Main
Document Page 7 of 7

action in trover or replevin would be the trustee's remedy; and if the fraudulent
transfer was of cash, the trustee's action would be for money had and received. Such
actions at law are as available to the trustee to-day as they were in the English courts
of long ago. If, on the other hand, the subject matter is land or an intangible, or the
trustee needs equitable aid for an accounting or the like, he may invoke the equitable
process, and that also is beyond dispute.” 1 G. Glenn, Fraudulent Conveyances and
Preferences § 98, pp. 183-184 (rev. ed. 1940) (footnotes omitted).

Granfinanciera, 492 U.S. at 44 (emphasis added).

A close reading of this passage indicates that it is in the disjunctive; if the action involves
land or if the action involves other equitable remedies, such as an accounting, the case is
heard in equity. The fact that the actions in Pasquariello and Pilavis happened to satisfy both
is of no import because based on the scholarly support quoted in Granfinanciera, one or the
other is sufficient.

Applying the test of Granfinanciera to the instant case, and without reiterating the in-
depth analysis of Pasquariello, the Court finds that Nanci is not entitled to a jury trial under
the Seventh Amendment. First, although courts of law in 18th-century England had
concurrent jurisdiction over such actions, an action to set aside a fraudulent conveyance of
real estate was usually heard in equity. See, ¢.., Pasquariello, 16 F.3d at 530 (citing
Granfinanciera, 492 U.S. at 44-46). Second, the nature of the relief sought—avoidance of the
fraudulent transfer—is equitable in nature. See, ¢.g., G/azer, 248 B.R. at 532. As to the third
part of the test, the Court need not reach that inquiry having already determined that there is
no such right to a jury trial. Pi/avis, 228 B.R. at 811 (citing Granfinanciera, 492 US. at 42);
Glazer, 248 B.R. at 532.

For the reasons set forth herein, the Plaintiff's Motion is GRANTED and the
Intervening Defendant’s demand for a jury trial is STRICKEN.

A separate order shall issue.

Dated: January 19, 2007 By the Court,

howl

Joel B. Rosenthal
United States Bankruptcy Judge