PBCBA BAR BULLETINS PBCBA Bulletin - March 2020 | Page 7

BANKRUPTCY CORNER
You Can't Reserve a Right to a Jury Trial
in your Proof of Claim
JASON S. RIGOLI
When faced with what appears to be a
Hobson’s Choice between participating in
a bankruptcy case and losing your right to
a jury trial or losing the right to participate
in a bankruptcy but possibly reserving
the right to a jury trial, a creditor cannot
nullify Langenkamp v. Culp, 111 S.Ct. 330
(1990) and Granfinanciera, S.A. v. Nordberg ,
492 U.S. 33 (1981) by including reservation
of rights language in a proof of claim.
When the Seventh Amendment and
Bankruptcy Collide
Parties are entitled to a jury trial in civil
actions, specifically those where private,
legal rights are to be determined rather
than public rights or equitable rights
or remedies. See U.S. Const. amend
VII. Schmidt v. AAF Players, LLC (In
re Legendary Field Exhibitions, LLC)
(“Legendary Field”), Adv. Pro. No. 19-05053-
CAG, 2020 WL 211409 *2 (Bankr. W.D.Tex.
Jan. 13, 2020) (citing Feitner v. Columbia
Pictures Television, Inc., 523 U.S. 340,
348 (1998); Granfinanciera , at 42 n.4)). “To
determine whether the right to a jury trial
exists, the Supreme Court, has stated that
the Court must: ‘(1) compare the ‘statutory
action to 18th century actions brought in
courts of England prior to the merger of the
courts of law and equity;’ and (2) consider
whether the remedy sought is ‘legal or
equitable in nature.’ ” Legendary Field,
at *3 (internal quotations and citations
omitted).
Bankruptcy Courts are courts of equity,
Granfinanciera , at *57 (citations omitted),
and the administration of estate assets
is an “equitable ‘public rights’ procedure
mandated by Congress under 28 U.S.C.
§ 157(b)(2)(B).”
Legendary Field, at
*4.
Generally, to participate in the
administration of the bankruptcy estate
assets a creditor must file a proof of claim.
See 11 U.S.C. §§ 501, 502 Fed. R. Bankr. P.
3001, 3002, 3002.1, 3003. By filing a proof of
claim, however,
“a creditor triggers the process of
‘allowance and disallowance of
claims,’ thereby subjecting himself
to the bankruptcy court’s equitable
power.” Moreover, by “[triggering]
the process of ‘allowance and
disallowance of claims’ [through
filing] a claim against the bankruptcy
estate,” the creditor then becomes
“[subjected] to the equitable power of
the bankruptcy court.” Disputes that
are integrally related to allowance
or disallowance of a filed claim are
equitable in nature.
Legendary Field, at *3 (citations omitted)
(emphasis added). The filing of a proof of
claim can convert a “private, legal” issue
into a “public, equitable” issue where the
matter can now necessarily be resolved by
the bankruptcy court through the claims
process, with the creditor thereby losing
its right to a jury trial. Id. at *4. See also,
In re Fisher Island Investments, Inc., 778
F.3d 1172, 1190-92 (11th Cir. 2015) (finding
that the bankruptcy court had authority
to determine ownership of the debtors
because it was a threshold issue in the
case) (quoting Stern v. Marshall, 564 U.S.
––––, 131 S.Ct. 2594, 2618, 180 L.Ed.2d
475 (2011) (“… the question is whether the
action at issue stems from the bankruptcy
itself or would necessarily be resolved in
the claims allowance process.”).

The Attempt to Reserve the Right to a Jury
Trial in Legendary Field
In Legendary Field, the creditors were
lead plaintiffs in a class action lawsuit
for damages asserting numerous causes
of action for violations of California law,
among other grounds.
The corporate
debtor-defendants then filed their chapter
7 bankruptcy petitions and the plaintiffs
filed proofs of claim, which included a
reservation of rights that read ““filing of
this proof of claim is not and shall not
be deemed or construed as ... a waiver or
release of the Plaintiffs’ rights to a trial by
jury.” Legendary Field, at *1. After going
through the analysis regarding whether
the creditors had right to a jury trial, the
Court addressed the reservation of rights,
finding that the court is not bound by the
protective language asserted in the proof
of claim, but was “bound by Langenkamp
PBCBA BAR BULLETIN
7
and Granfinanciera ,” Legendary Field, at
*4, and, therefore, the filing of the proof of
claim resulted in the waiver of the right to
a jury trial. Id.
The Legendary Field court recognized the
“Hobson’s Choice” the plaintiffs were in: (i)
file a proof of claim and lose their right to
a jury trial, but participate in distributions
and see some recovery, or (ii) not file a
proof of claim and preserve their right to
a jury trial, but potentially lose their right
to participate in a distribution from the
estate. Id.
This article is submitted by Jason S.
Rigoli, Esq., Furr Cohen, 2255 Glades Road,
Suite 301E, Boca Raton, FL 33431, jrigoli@
furrcohen.com.