GRANFINANCIERA, S.A. V. NORDBERG

The Supreme Court in Granfinanciera, S.A. v. Nordberg 492 U.S. 33 (1989) held that the Seventh Amendment preserves the right to a jury trial in cases were defendant has not filed claim before bankruptcy trustee. Congress cannot eliminate that right merely by labelling the action a “core proceeding” under the Bankruptcy Code.

FACTS OF THE CASE

The trustee of the bankruptcy estate of Chase & Sanborn Corporation brought a fraudulent conveyance action against Granfinanciera, S.A. and another defendant, seeking recovery of allegedly fraudulent monetary transfers made before bankruptcy. The defendants had not filed any claim against the bankruptcy estate. They demanded a jury trial, but the bankruptcy court denied the request on the ground that fraudulent conveyance actions were “core proceedings” within bankruptcy jurisdiction.

ISSUE BEFORE THE SUPREME COURT

The principal issue before the Supreme Court was whether a defendant who has not submitted a claim against a bankruptcy estate is entitled to a Seventh Amendment jury trial when sued by a bankruptcy trustee to recover an allegedly fraudulent monetary transfer.

FINDINGS OF THE SUPREME COURT

The Supreme Court through Justice Brennan observed that Fraudulent conveyance suits seeking recovery of money were historically actions in law, not equity. The trustee sought a money judgment which is a classic legal remedy. In the instant case, the action involved a dispute between private parties concerning private rights rather than a public regulatory scheme. Therefore, Congress could not withdraw the traditional jury-trial right.

The Court distinguished cases such as Katchen v. Landy, where a creditor had filed a proof of claim and thereby became part of the claims-allowance process, which is equitable in nature. Since Granfinanciera had filed no claim, the trustee’s suit remained a legal action requiring a jury trial.

The Supreme Court observed that a  person who has not filed a claim against the bankruptcy estate is entitled to a Seventh Amendment jury trial when sued by a bankruptcy trustee to recover an allegedly fraudulent transfer. Congress cannot defeat that right merely by classifying the action as a bankruptcy “core proceeding.”

SIGNIFICANCE OF THE JUDGMENT

Granfinanciera is one of the major constitutional bankruptcy decisions, along with Northern Pipeline Construction Co. v. Marathon Pipe Line Co. and  Stern v. Marshall, which provides for constitutional limits of provisions of Bankruptcy Code.

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