Jury Trials and Bankruptcy Getting the Procedures Right
Juries and bankruptcy, all of us have learned over the years, don't mesh particularly well. Jury trials tend to take a long time and require large blocks of dedicated time, while bankruptcies tend to demand speed and efficiency, and most discrete matters occupy relatively short blocks of trial time. Jury trials tend to be controlled by the litigants, with the court's role limited to law and evidence rulings. Indeed, judges presiding over jury trials are usually quite circumspect, lest they unduly influence the jury panel in favor of one or the other party. In most bankruptcy matters, by stark contrast, judges are both the law-givers and the fact-finders, and so can exercise enormous control over the flow of proceedings. Many bankruptcy judges are quite proactive in comparison to their colleagues on the district and magistrate benches.
Despite these differences, the hard legal fact is that the Constitution guarantees a right to trial by jury in many matters that might arise in the course of a bankruptcy case, as many cases at both the Supreme Court and circuit court levels have found. Another equally harsh reality is that bankruptcy courts' status as non-Article III tribunals makes the conduct of jury trials in that forum legally troublesome. There are two easy and obvious fixes for these problems, but neither is truly satisfactory. One is to simply staff the bankruptcy bench with Article III judges, a solution that has thus far proven to be politically unpalatable. The other is to revert to the summary versus plenary distinctions employed under the Act, a course that tends to undermine the effort by Congress in enacting the Code to centralize all bankruptcy and bankruptcy-related matters into a single forum.1 Neither of these solutions is likely to emerge in the near future. We are thus left with the current system of rules and procedures. Unfortunately, those rules and procedures, in an effort to resolve the legal problems, create legal, practical and ethical problems for both judges and practitioners alike. Others have addressed the legal problems, and I will not try to improve on what they have had to say. Fewer, unfortunately, have focused on the practical and moral problems.
Not many lawyers seem to really appreciate the practicalities associated with jury demands, and fewer yet think about the moral dimensions. In this column, I want to offer a primer on the practical issues (and some editorializing on some of the ethical questions).
A party that decides it wants a jury trial2 must make a "timely demand." That usually means a written statement simply demanding a jury trial, made within 10 days of the last active pleading filed in the case, directed to the issue for which a jury is requested. Fed.R.Civ.P. 38(b). The demand may be incorporated within a pleading, or may be a separate document. As a practical matter, you will do your court a tremendous favor (and avoid charges of trying to "hide" the jury demand in order to create error) if you file a separate pleading, denominated "jury demand." Failure to timely demand a jury is treated as a waiver. Fed.R.Civ.P. 38(d). All of this is the easy part, and looks essentially the same as jury demands in civil matters in district court.
From here, things get strange. The Judicial Code authorizes bankruptcy judges to conduct jury trials, but only if (a) the district court has "specially designated" the bankruptcy judges of the district to conduct jury trials,3 and (b) both parties consent to the bankruptcy judge's conducting the jury trial. This second element becomes important because, in the vast majority of cases, the only real reason for demanding a jury has less to do with a party's deep and abiding respect for the jury system and much more to do with either delay or forum-shopping. Not surprisingly, then, most jury demands are accompanied by (or include) a statement that the party demanding the jury does not consent to the conduct of the jury trial by the bankruptcy judge.4
Another way to substantially assure that the jury trial matter will not be conducted by the bankruptcy judge is to demonstrate that the matter is a non-core matter.5 If one party refuses to consent to the bankruptcy judge's entering final judgment in a non-core matter, then the bankruptcy judge may only enter proposed findings and conclusions, which are then reviewed de novo by the district judge, to the extent they are challenged by a party. The district judge, in that circumstance, enters the final judgment. If a non-core matter was tried with both parties' consent, but one party still refused to consent to the bankruptcy judge's entry of final judgment, the resulting procedure would probably violate the Constitution. This is because the Seventh Amendment prohibits retrial of any matter decided by a jury, and de novo review probably counts as a retrial.
These two "poison pills" thus all but assure that the matter cannot be heard by the bankruptcy judge, accomplishing the tactical objective normally intended by the party making the jury demand. What many lawyers miss, however, is that the bankruptcy judge has no legal or procedural means to transfer or dismiss the case. Asking for a jury is an exercise of a constitutional right—it does not operate to defeat subject-matter jurisdiction and is therefore not grounds for dismissal. And transfer is impossible because matters come to the bankruptcy court via referral (albeit a general referral) from the district court. Referral is a one-way street, however. Bankruptcy judges can't refer cases back to the district court.
The district court can withdraw the reference, of course, and that is what ought to happen once a "poison pill" has been inserted into a matter. But how is the district court to even know that it should withdraw the reference? After all, district judges never see cases that are filed with the bankruptcy clerk. Many lawyers seem not to realize this. If you, the lawyer, do not affirmatively ask the district court, in a pleading filed with the district clerk, to withdraw the reference for the matter, then nothing will happen! The bankruptcy judge will have to set the matter on a trial docket, with all of its poison pills, leading to inevitable error, costly trial, reversal and retrial. Any party that intentionally went down that road is squarely on course for sanctions under 28 U.S.C. §1927.
So, if you inserted the poison pills, then be sure to follow through. Petition the district court to withdraw the reference. The district court might well elect to withdraw only the trial portion, leaving pretrial and discovery matters to be handled by the bankruptcy judge (perhaps neutralizing many or most of the forum-shopping aspects of jury demands, at least). But one final note of caution: be sure that you actually have a right to a trial by jury in the first place. There are many situations in bankruptcy when that right is either not available or has been waived. Usually, the question of entitlement will (and should) be made by the bankruptcy judge, so submit a brief with your jury demand, please.
In the best of all possible bankruptcy worlds, neither courts, parties nor lawyers would have to learn the byzantine byways of jury trial law and procedure in bankruptcy. But we do not live in the best of all possible bankruptcy worlds, and are not likely to for some time. In the meantime, it behooves lawyers to learn how to do it right. Not doing it right creates a procedural nightmare for both the courts and their clerks, and unnecessarily increases the costs of litigation. Doing it wrong also, unfortunately, tends to corrode the relationship between bankruptcy judges and district judges. I personally find current usage of jury demands ethically offensive, but there is little that I or any other judge can do about that. One can never be sanctioned for exercising a Constitutional right. But if you are going to exercise that right, for whatever motivation (virtuous or otherwise), at least do us the courtesy of doing it right.
1 The old summary/plenary distinction led to costly and time-consuming litigation over whether a given matter was one or the other. It also drove up the cost of bankruptcy reorganization, requiring counsel to conduct litigation in multiple forums at the same time. Most nefariously, it offered numerous opportunities for abuse to those intent on frustrating the bankruptcy process. Return to article
2 The decision to "want" a jury trial is primarily tactical. The Constitution guarantees a "right" to a trial by jury in civil matters, but lawyers will opt for juries only when it offers a tactical advantage. In bankruptcy, those advantages usually come down to two: (1) asking for a jury usually means getting a different judge, and (2) asking for a jury almost always assures a substantial delay in the conduct of a trial on the merits. Both intentional delay and intentional judge shopping, in other contexts, are usually considered to be ethically questionable. They become less so when they enjoy Constitutional cover. Return to article
3 In most cases, this is accomplished by standing order, though the statute permits a district court to do this on a case-by-case basis. Because bankruptcy matters are filed in a different clerk's office, district judges are not aware of matters that appear on the bankruptcy judge's docket, so there is little opportunity for district judges to "specially designate" on a case-by-case basis, absent a motion directed to the district court. The standing order, or general order, procedure has proven to be more efficient in most districts. Return to article
4 It would be helpful to Congress and the courts to see if this author's instincts (and personal experience) on this point is borne out by the actual data—which is retrieved easily enough, it would seem. Return to article