John R. Cook, Jr. v. Gary W. Cruickshank
Filing
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Judge George A. OToole, Jr: OPINION AND ORDER entered granting 2 Motion for Leave to Appeal (Danieli, Chris)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
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GARY W. CRUIKSHANK, as he is the Trustee
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of the Chapter 7 Estate of THE ENVIRONMENTAL )
CAREERS ORGANIZATION, INC.,
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Plaintiff,
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v.
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JOHN R. COOK, Jr.,
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Defendant.
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In re: THE ENVIRONMENTAL CAREERS
ORGANIZATION, INC.,
Debtor.
Civil Action No. 12-10928-GAO
(Chapter 7 Case No. 07-14238-WCH)
OPINION AND ORDER
March 11, 2013
O’TOOLE, D.J.
Gary Cruikshank, trustee of the bankruptcy estate of Environmental Careers
Organization, Inc. (“ECO”), filed a complaint in the bankruptcy case against John Cook, former
president of ECO, for Cook’s alleged breach of fiduciary duties. In his complaint, Cruikshank
alleges that this breach arose “as a result of, among other things, [Cook’s] negligence in failing
to adopt appropriate accounting procedures and in failing to ensure ECO was in compliance with
[certain] financial and program management standards . . . .” See Complaint at 3, Cruikshank v.
Cook, No. 08-01356 (Bankr. D. Mass. Nov. 21, 2008), ECF No. 1. In his complaint, Cruikshank
seeks money damages from Cook.
The matter was scheduled for trial in the bankruptcy court. Before the trial, however,
Cook claimed a jury trial and gave notice that he did not consent to a bench trial in that court.
The bankruptcy court held a show cause hearing, after which it concluded that the plaintiff’s jury
trial claim was ineffective because of the equitable nature of the trustee’s suit and ordered it
stricken. Cook now seeks leave under 28 U.S.C. § 158(a)(3) and Rule 8003 of the Federal Rules
of Bankruptcy Procedure to appeal the bankruptcy judge’s interlocutory order. At the hearing
before me, the parties agreed that if leave to appeal is granted, I should also decide the merits
question whether the Bankruptcy Court erred in striking the jury trial claim.
The decision to grant leave under § 158(a) for an interlocutory appeal from bankruptcy
court lies within the discretion of the district court. In re Murray, 116 B.R. 6, 8 (D. Mass. 1990).
“When considering petitions for interlocutory review to the District Court, courts generally apply
the standard for certifying appeals from United States District Courts to the United States Courts
of Appeals pursuant to 28 U.S.C. § 1292(b).” In re Clark-Franklin-Kingston Press, Inc., Nos. 9011231, 90-11232, 1993 WL 160580, at *2 (D. Mass. April 21, 1993). A court may grant
discretionary appellate review under § 1292(b) only where three conditions are met: the
interlocutory order (1) involves a “controlling” question of law (2) as to which there exists a
“substantial ground for difference of opinion” (3) from which an immediate appeal “may
materially advance the ultimate termination of the litigation.” 28 U.S.C. § 1292(b); see In re
Clark-Franklin-Kingston Press, Inc., 1993 WL 160580, at *2. The party seeking interlocutory
appeal bears a “heavy burden of persuading the court that exceptional circumstances warrant
departure from the basic policy of postponing appellate review until after entry of a final
judgment.” In re Clark-Franklin-Kingston Press, Inc., 1993 WL 160580, at *2 (citations and
quotations omitted).
As for the first condition under § 1292(b), the parties agree that the interlocutory order
involves a “controlling” issue of law.
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As for the second condition, there is a substantial ground for difference of opinion
regarding whether the breach of fiduciary duty claim here is legal or equitable in nature. That
condition is satisfied here. The parties vigorously debate the question, with each side citing
respectable authority in support of their respective positions.
As to the third condition, it must appear that an immediate appeal of the interlocutory
order “may materially advance the ultimate termination of the litigation.” 28 U.S.C. § 1292(b).
Here, it may. If the case is tried without a jury before the bankruptcy court and Cook loses, he
would likely appeal the denial of the jury trial, even if the trial outcome were otherwise
impervious to appeal. Certifying an appeal now will eliminate the need for two trials and thus
may materially advance the ultimate termination of the litigation.
The three conditions having been satisfied, leave to press the appeal is GRANTED.
Now the merits. The First Circuit explained in In re Evangelist that “[a]ctions for breach
of fiduciary duty, historically speaking, are almost uniformly actions ‘in equity’ carrying with
them no right to trial by jury.” 760 F.2d 27, 29 (1st Cir. 1985). However, it further acknowledged
that sometimes claims for breach of fiduciary duty can properly be regarded as actions at law. Id.
at 31.
The standard for determining the legal or equitable nature of a claim was set forth by the
Supreme Court in Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989). As that case explains, a
court must engage in a two-part inquiry. Granfinanciera, 492 U.S. at 42. First, it must compare
the action “to 18th-century actions brought in the courts of England prior to the merger of the
courts of law and equity.” Id. Second, it must examine “the remedy sought and determine[s]
whether it is legal or equitable in nature.” Id. “The second stage of this analysis is more
important than the first.” Id. “[A] remedy is equitable when a plaintiff seeks restitution for funds
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or property held by the defendant that actually belong to the plaintiff.” FleetBoston Fin. Corp. v.
Alt, 668 F. Supp. 2d 274, 276 (D. Mass. 2009) (citing Great-W. Life & Annuity Ins. Co. v.
Knudson, 534 U.S. 204, 210 (2002)). In contrast, “[a] remedy is legal when a plaintiff seeks
money damages for a loss he alleges he suffered.” Id.; accord Granfinanciera, 492 U.S. at 43
(“While respondent’s assertion that courts of equity sometimes provided relief in fraudulent
conveyance actions is true, however, it hardly suffices to undermine petitioners’ submission that
the present action for monetary relief would not have sounded in equity 200 years ago in
England.”) (emphasis in original); Ross v. Berhard, 396 U.S. 531, 542 (1970) (“In the instant
case we have no doubt that the corporation’s claim is, at least in part, a legal one. The relief
sought is money damages.”); Depinto v. Provident Sec. Life Ins. Co., 323 F.2d 826, 837 (9th Cir.
1963) (“[W]e hold that where a claim of breach of fiduciary duty is predicated upon underlying
conduct, such as negligence, which is actionable in a direct suit at common law, the issue of
whether there has been such a breach is, subject to appropriate instructions, a jury question.”).
In the present case, the plaintiff does not limit his claim to restitution for funds or
property held by the defendant that actually belong to the plaintiff. Rather, the plaintiff seeks
money damages for losses allegedly suffered as a result of Cook’s negligence. According to the
principles set forth above, a claim for such money damages is in the nature of a legal action and a
party is thus entitled to a jury trial. Alt, 668 F. Supp. 2d at 276; Granfinanciera, 492 U.S. at 42.
The defendants argue that In re Evangelist demonstrates that the suit here is equitable.
That argument is unpersuasive. First, that decision focused on a specific statute not at issue here.
In re Evangelist, 760 F.2d at 29-30. Second, the court there found the action to be equitable in
nature based in part upon that statute’s particular legislative history. Id. Third, even if the
conclusions reached in In re Evangelist fit the facts of the present case, the standards articulated
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in Granfinanciera override it in that respect and indicate that the present suit is legal in nature. At
least so much of the claim as seeks monetary damages proximately caused by Cook’s
negligence, the claim is one as to which Cook was entitled to claim a jury trial.
In sum, I conclude that the bankruptcy court erred where it struck the plaintiff’s jury trial
claim. The order striking the claim is thus vacated, and this case is remanded to the bankruptcy
court for further proceedings consistent with this opinion.
It is SO ORDERED.
/s/ George A. O’Toole, Jr.
United States District Judge
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