Bankruptcy

Can I get a jury trial on a fraudulent conveyance or preference case in bankruptcy court?

By Dan Press, Virginia and D.C. Bankruptcy Attorney

Many people think that bankruptcy courts can’t conduct jury trials, and that all preference and fraudulent conveyance cases in bankruptcy cases (called “adversary proceedings”) have to be tried before the bankruptcy judge without a jury.   But this is not true.  If you have been sued by a trustee (or Chapter 11 debtor) to recover a fraudulent conveyance (sometimes called a fraudulent transfer) or a preference, the Supreme Court has said that you have a right to a jury trial under the 7th Amendment to the Constitution.  The cases allowing this are Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989), and Langenkamp v. Culp, 498 U.S. 42 (1990).

A fraudulent conveyance claim asserts that you have received money or property of the debtor that was transferred to you without a fair exchange of value, or to hinder, delay or defraud creditors.  For example, if you had a joint asset with someone who filed bankruptcy, and before filing the debtor took his name off the account, or the debtor deeded a piece of property to you, that was a transfer, and if you didn’t give anything in return, that may be a fraudulent transfer, recoverable by the trustee.   A preference claim asserts that within a specified period before filing bankruptcy (90 days, or 1 year if you are in “insider” – a relative or perhaps a close friend of the debtor),  the debtor repays a debt to you that allows you to receive more than you would have absent the payment.    There are many defenses to these kinds of claims, and this article does not attempt to summarize them.

If you have been sued for a preference or fraudulent conveyance, you are constitutionally entitled to a trial by jury – but only if you timely demand one, and only if you do not file a proof of claim in the bankruptcy case.   If you demand a jury, the parties can in some cases consent to have the bankruptcy judge conduct the jury trial.  Otherwise, the case will be transferred to the U.S. District Court for trial.

So why would you want a jury trial?  Perhaps the Bankruptcy Judge has already concluded that the Debtor has committed fraud in other contexts, or you think he may have a bias.  Perhaps you believe that you will be rushed to trial in the bankruptcy court, or just that a jury of your peers will understand the facts better than a judge.  The cost – to both sides – of a jury trial can be expensive, so it may also facilitate settlement.   There are many reasons why – or why not – to have a jury, but the right to a jury is certainly something to discuss with your lawyer when preparing to defend a preference or fraudulent conveyance case.

Full post as published by Bankruptcy Law Network on September 13, 2010 (boomark / email).