Granfinanciera v. Nordberg/Dissent Blackmun

by Harry Blackmun

Justice BLACKMUN, with whom Justice O'CONNOR joins, dissenting.

I agree generally with what Justice WHITE has said, but write separately to clarify, particularly in my own mind, the nature of the relevant inquiry.

Once we determine that petitioners have no statutory right to a jury trial, we must embark on the Seventh Amendment inquiry set forth in Atlas Roofing Co. v. Occupational Safety and Health Review Comm'n, 430 U.S. 442, 97 S.Ct. 1261, 51 L.Ed.2d 464 (1977). First, we must determine whether the matter to be adjudicated is "legal" rather than "equitable" in nature, a determination which turns on the nature of the claim and of the relief sought. If the claim and the relief are deemed equitable, we need go no further: the Seventh Amendment's jury-trial right applies only to actions at law.

In this case, the historical inquiry is made difficult by the fact that, before the Federal Rules of Civil Procedure unified law and equity, parties might have been drawn to the equity side of the court because they needed its procedural tools and interim remedies: discovery, accounting, the power to clear itle, and the like. In light of the frequency with which these tools were likely needed in fraud cases of any kind, it is no surprise that, as Justice WHITE points out, fraudulent conveyance actions, even if cognizable at law, often would be found on the equity docket. See generally O. Bump, Conveyances Made by Debtors to Defraud Creditors § 532 (4th ed. 1896); F. Wait, Fraudulent Conveyances and Creditors' Bills §§ 59-60 (1884); W. Roberts, Voluntary and Fraudulent Conveyances 525-526 (3d Am. ed. 1845). This procedural dimension of the choice between law and equity lends a tentative quality to any lessons we may draw from history.

The uncertainty in the historical record should lead us, for purposes of the present inquiry, to give the constitutional right to a jury trial the benefit of the doubt. Indeed, it is difficult to do otherwise after the Court's decision in Schoenthal v. Irving Trust Co., 287 U.S. 92, 53 S.Ct. 50, 77 L.Ed. 185 (1932). Schoenthal turned on the legal nature of the preference claim and of the relief sought, id., at 94-95, 53 S.Ct., at 51, rather than upon the legal nature of the tribunal to which "plenary proceedings" were assigned under the 1898 Bankruptcy Act.

"With the historical evidence thus in equipoise," ante, at 87 (WHITE, J., dissenting), but with Schoenthal weighing on the "legal" side of the scale, I then would turn to the second stage of the Atlas Roofing inquiry: I would ask whether, assuming the claim here is of a "legal" nature, Congress has assigned it to be adjudicated in a special tribunal "with which the jury would be incompatible." Atlas Roofing, 430 U.S., at 450, 97 S.Ct., at 1266; see also Tull v. United States, 481 U.S. 412, 418, n. 4, 107 S.Ct. 1831, 1835, n. 4, 95 L.Ed.2d 365 (1987). Here, I agree with Justice WHITE that Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966), as interpreted in Atlas Roofing, requires the conclusion that courts exercising core bankruptcy functions are equitable tribunals, in which "a jury would be out of place and would go far to dismantle the statutory scheme." Atlas Roofing, 430 U.S., at 454, n. 11, 97 S.Ct., at 1268, n. 11.

Having identified the tribunal to which Congress has assigned respondent's fraudulent conveyance claim as equitable in nature, the question remains whether the assignment is one Congress may constitutionally make. Under Atlas Roofing, that question turns on whether the claim involves a "public right." Id., at 455, 97 S.Ct., at 1269. When Congress was faced with the task of divining the import of our fragmented decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), it gambled and predicted that a statutory right which is an integral part of a pervasive regulatory scheme may qualify as a "public right." Compare H.R.Rep. No. 98-9, pt. 1, pp. 6, 13 (1983) (House Report), with S.Rep. No. 98-55, pp. 32-40 (1983) (Senate Report); see Thomas v. Union Carbide Agricultural Products Co., 473 U.S. 568, 586, 594, 105 S.Ct. 3325, 3335, 3339, 87 L.Ed.2d 409 (1985); see also id., at 599, 105 S.Ct., at 3342 (BRENNAN, J., concurring in judgment) ("[A] bankruptcy adjudication, though technically a dispute among private parties, may well be properly characterized as a matter of public rights"). Doing its best to observe the constraints of Northern Pipeline while at the same time preserving as much as it could of the policy goals of the major program of bankruptcy reform the decision in Northern Pipeline dismantled, see House Report, at 7, Senate Report, at 6-7, Congress struck a compromise. It identified those proceedings which it viewed as integral to the bankruptcy scheme as "core" (doing its best to exclude "Marathon-type State law cases"), and assigned them to a specialized equitable tribunal. Id., at 2.

I agree with Justice WHITE, ante, at 88-89, that it would be mproper for this Court to employ, in its Seventh Amendment analysis, a century-old conception of what is and is not central to the bankruptcy process, a conception that Congress has expressly rejected. To do so would, among other vices, trivialize the efforts Congress has engaged in for more than a decade to bring the bankruptcy system into the modern era.

There are, nonetheless, some limits to what Congress constitutionally may designate as a "core proceeding," if the designation has an impact on constitutional rights. Congress, for example, could not designate as "core bankruptcy proceedings" state-law contract actions brought by debtors against third parties. Otherwise, Northern Pipeline would be rendered a nullity. In this case, however, Congress has not exceeded these limits.

Although causes of action to recover fraudulent conveyances exist outside the federal bankruptcy laws, the problems created by fraudulent conveyances are of particular significance to the bankruptcy process. Indeed, for this reason, the Bankruptcy Code long has included substantive legislation regarding fraudulent conveyances and preferences. And the cause of action respondent brought in this case arises under federal law. See 11 U.S.C. §§ 548(a)(2) and 550(a). This substantive legislation is not a jurisdictional artifice. It reflects, instead, Congress' longstanding view that fraudulent conveyances and preferences on the eve of bankruptcy are common methods through which debtors and creditors act to undermine one of the central goals of the bankruptcy process: the fair distribution of assets among creditors. Congress' conclusion that the proper functioning of the bankruptcy system requires that expert judges handle these claims, and that the claims be given higher priority than they would receive on a crowded district court's civil jury docket (see Senate Report, at 3; House Report, at 7-8), is entitled to our respect.

The fact that the reorganization plan in this case provided that the creditor's representatives would bring fraudulent conveyance actions only after the plan was approved does not render the relationship between fraudulent conveyance actions and the bankruptcy process "adventitious." Ante, at 60, n. 15 (majority opinion). Creditors would be less likely to approve a plan which forced them to undertake the burden of collecting fraudulently transferred assets if they were not assured that their claims would receive expert and expedited treatment.

In sum, it must be acknowledged that Congress has legislated treacherously close to the constitutional line by denying a jury trial in a fraudulent conveyance action in which the defendant has no claim against the estate. Nonetheless, given the significant federal interests involved, and the importance of permitting Congress at long last to fashion a modern bankruptcy system which places the basic rudiments of the bankruptcy process in the hands of an expert equitable tribunal, I cannot say that Congress has crossed the constitutional line on the facts of this case. By holding otherwise, the Court today throws Congress into still another round of bankruptcy court reform, without compelling reason. There was no need for us to rock the boat in this case. Accordingly, I dissent.

Notes