On Nov. 4, 2013, in Mukamal v. BMO Harris Bank N.A. (In re Palm Beach Finance Partners L.P.), 501 B.R. 792 (Bankr. S.D. Fla. 2013), the U.S. Bankruptcy Court for the Southern District of Florida analyzed whether a liquidating trustee for a bankruptcy estate is entitled to a jury trial on state and federal fraudulent transfer claims brought by the trustee as an adversary proceeding in bankruptcy court. The court ultimately determined that a bankruptcy trustee has a Seventh Amendment right to a jury trial on fraudulent transfer causes of action—at least where the defendant has not filed a claim in the underlying bankruptcy case—and that neither the filing of a voluntary bankruptcy petition nor a trustee’s commencement of an adversary proceeding in bankruptcy court constitutes a waiver of a trustee’s fundamental Seventh Amendment right to a jury trial.
Facts
Palm Beach Finance Partners L.P. and Palm Beach Finance II L.P., investors in what turned out to be a Ponzi scheme, filed voluntary petitions for bankruptcy relief under Chapter 11 of the Bankruptcy Code. A liquidating trustee was appointed to the debtors’ jointly administered estate, and the liquidating trustee initiated an adversary proceeding asserting fraudulent transfer claims against the bank into which the operator of the Ponzi scheme had deposited proceeds of the scheme. The bank had not filed a proof of claim in the debtors’ bankruptcy case. The trustee’s complaint against the bank initially asserted numerous causes of action, but after a partially successful motion to dismiss, the trustee was left with four causes of action against the bank for avoidance of fraudulent transfers under both state law and the Bankruptcy Code.
