Granfinanciera, S.A. v. Nordberg

Supreme Court of United States
492 U.S. 33 (1989)

ELI5:

Rule of Law:

The Seventh Amendment guarantees a right to a jury trial for a person sued by a bankruptcy trustee to recover an allegedly fraudulent monetary transfer, provided that the person has not filed a claim against the bankruptcy estate.

Facts:

In 1983, Chase & Sanborn Corporation filed for Chapter 11 bankruptcy reorganization.
Within one year prior to the bankruptcy filing, Chase & Sanborn's corporate predecessor transferred approximately $1.7 million to Granfinanciera, S. A., and Medex, Ltda.
The bankruptcy trustee, Nordberg, alleged that these transfers were made without Chase & Sanborn receiving reasonably equivalent value in return.
Neither Granfinanciera nor Medex had filed any claims against the Chase & Sanborn bankruptcy estate.
After the transfers occurred but before being served in the lawsuit, Granfinanciera was nationalized by the Colombian government.

Procedural Posture:

The trustee, Nordberg, sued Granfinanciera and Medex in the U.S. District Court for the Southern District of Florida to recover the alleged fraudulent transfers.
The District Court referred the case to the U.S. Bankruptcy Court.
In their answer, Granfinanciera and Medex requested a jury trial on all triable issues.
The Bankruptcy Judge denied the request for a jury trial.
Following a bench trial, the Bankruptcy Court entered a money judgment in favor of the trustee, Nordberg.
On appeal, the U.S. District Court affirmed the Bankruptcy Court's judgment.
The U.S. Court of Appeals for the Eleventh Circuit affirmed, holding that fraudulent conveyance actions are equitable in nature and that Congress had validly assigned them to bankruptcy courts as 'core proceedings' without a right to a jury trial.
The U.S. Supreme Court granted certiorari to decide the jury trial issue.

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Issue:

Does the Seventh Amendment entitle a person who has not submitted a claim against a bankruptcy estate to a jury trial when sued by the bankruptcy trustee to recover an allegedly fraudulent monetary transfer?

Opinions:

Majority - Justice Brennan

Yes, the Seventh Amendment entitles such a person to a jury trial. A bankruptcy trustee's action to recover a fraudulent monetary transfer is a suit to vindicate a 'private right' rather than a 'public right,' and it seeks a legal remedy, thus triggering the constitutional right to a jury trial. First, historical analysis shows that actions to recover fraudulent monetary transfers were considered actions at law in 18th-century England, which were tried by juries. Second, the remedy sought—a money judgment for a specific amount—is quintessentially a legal remedy, not an equitable one. Finally, while Congress may assign adjudication of 'public rights' to non-Article III tribunals without juries, a fraudulent conveyance suit is a matter of 'private right' because it more closely resembles a state-law contract claim than an integral part of restructuring debtor-creditor relations. Congress cannot strip parties of their Seventh Amendment right simply by relabeling a common-law cause of action as a 'core proceeding' within the bankruptcy system.

Dissenting - Justice White

No, the Seventh Amendment does not entitle the petitioners to a jury trial. The Court's decision disregards the precedent of Katchen v. Landy, which held that when Congress commits the recovery of a preference to a bankruptcy proceeding, the Seventh Amendment is inapplicable. Congress has expressly designated fraudulent transfer actions as 'core' bankruptcy proceedings, which are handled by bankruptcy courts as courts of equity where juries are out of place. This congressional classification is not merely 'taxonomic'; it reflects a judgment that such actions are integral to the bankruptcy scheme, which focuses on the efficient administration of the estate. The historical evidence for whether such actions were purely legal is ambiguous, and the Court should defer to Congress's power under the Bankruptcy Clause to structure these specialized, equitable proceedings.

Dissenting - Justice Blackmun

No, there is no right to a jury trial in this case. While the historical inquiry is uncertain, the second stage of the Seventh Amendment analysis is decisive: Congress has assigned this claim to a specialized, equitable tribunal where a jury would be incompatible. This assignment is constitutional because the action involves a 'public right.' Congress reasonably concluded that fraudulent conveyance actions are an integral part of the public regulatory scheme of bankruptcy, which is essential to the proper functioning of the system. The Court should respect Congress's attempt to create a modern, expert bankruptcy system and not trivialize its judgment by imposing a jury trial requirement that would disrupt it.

Concurring - Justice Scalia

Yes, the petitioners are entitled to a jury trial, but the majority's reasoning regarding the 'public rights' doctrine is flawed. A matter of 'public rights' requires, at a minimum, that the United States be a party to the adjudication. The doctrine was never intended to cover purely private disputes, regardless of their connection to a regulatory scheme. Because this case is a dispute between private parties (the trustee and the transferees), it does not involve public rights, and therefore Congress cannot eliminate the Seventh Amendment's jury trial guarantee. The majority's 'pragmatic' balancing test for public rights is a departure from the doctrine's historical origins and creates an unstable, case-by-case standard that undermines the separation of powers.

Analysis:

This decision significantly limits Congress's power to curtail the Seventh Amendment right to a jury trial by assigning claims to specialized, non-Article III courts like bankruptcy courts. It establishes that the nature of the right being adjudicated (private vs. public) is a critical constitutional limit on legislative power. By classifying fraudulent conveyance actions against non-claimants as 'private rights,' the Court preserved a jury trial right that many believed was extinguished by the 1984 Bankruptcy Amendments. The holding creates a crucial distinction: parties who submit to the bankruptcy court's equitable jurisdiction by filing a claim may lose their jury trial right, while those who do not are constitutionally protected, potentially complicating the efficient administration of bankruptcy estates.

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