Sitka Enterprises, Inc. et al v. Seagarra-Miranda
Filing
15
OPINION AND ORDER denied 2 Motion to Dismiss Interlocutory Appeal. Signed by Judge Carmen C. Cerezo on 8/10/2011. (mld)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
SITKA ENTERPRISES, INC.; BERRIOS &
LONGO, PSC; FERNANDO
LONGO-QUIÑONES
Plaintiffs-Appellants
vs
CIVIL 10-1847CCC
WILFREDO SEGARRA-MIRANDA
Defendant-Appellee
OPINION AND ORDER
The trustee of the estate of debtors José de Jesús-González and Nitxa García-Reyes
filed on October 7, 2009 an amended complaint against debtors as defendants, their son
and daughter and respective spouses, BDJ Limited Partnership, S.E., Berríos and Longo
Law Offices, P.S.E. and Sitka Enterprises, Inc. and Fernando Longo-Quiñones, which
primarily seeks to void allegedly fraudulent transfers of property of the debtors’ estate
under 11 U.S.C. § 548(a)(1) and 549(a)(1) & (2). The property is described in the amended
complaint as a lot of land in Barceloneta, Puerto Rico, in which a shopping center was
developed. The parties involved in the alleged fraudulent transfer, pre and post-petition, are
the debtors, Berríos & Longo and Fernando Longo, a partner of that firm who is said to have
had a long-standing relationship with debtors and with a family corporation. See Amended
Complaint (docket entry 31 of Bankruptcy Record). The trustee requested that the transfer
of the property be set aside and that a mortgage allegedly illegally created over said property
be voided, as well as compensatory and punitive damages. The trustee also requested that
the transfer of shares by debtors to their son and daughter be voided.
Before the Court is an Appeal filed by Sitka Enterprises, Inc., Berríos & Longo, P.S.C.
and Fernando E. Longo from an Opinion and Order issued by the U.S. Bankruptcy Court for
the District of Puerto Rico (docket entry 84 of Bankruptcy Record), denying defendant’s
CIVIL 10-1847CCC
motion to dismiss for lack of jurisdiction.
2
Trustee/appellee concedes that although
appellants did not file a Rule 8003(a) motion for leave to appeal, the Court can consider the
Notice of Appeal which was timely filed as said motion for leave to appeal pursuant to
Rule 8003(c). Having considered the Notice of Appeal as a motion for leave to appeal,
leave to appeal is GRANTED.
This brings us to the motion to dismiss the appeal as an interlocutory appeal filed on
September 17, 2010 by the Trustee (docket entry 2). The claim made is that the order
denying the motion to dismiss for lack of jurisdiction is an interlocutory non-appealable order
which fails to comply with the criteria of 28 U.S.C. § 1292(b). However, this appeal turns on
a controlling question of law recently decided by the Supreme Court of the United States in
Stern v. Marshall, 131 S.Ct. 2594 (2011), decided on June 23, 2011, regarding the lack of
constitutional authority of the Bankruptcy Court as a non-Article III court to adjudicate a
trustee’s action to recover a fraudulent conveyance characterized as an action involving
private rather than public rights.
The Stern decision has its roots in Granfinanciera, S.A. v. Nordberg, 492 U.S. 33,
109 S.Ct. 2782 (1989). There the Court rejected a bankruptcy trustee’s argument that a
fraudulent conveyance action filed on behalf of the bankruptcy estate against a creditor who
has not submitted a proof of claim against the estate in the bankruptcy proceeding fell within
the public rights exception which would allow its adjudication by a non-Article III court. The
question presented in Granfinanciera was “whether a person who has not submitted a claim
against a bankruptcy estate has a right to a jury trial when sued by the trustee in bankruptcy
to recover an allegedly fraudulent monetary transfer.” Id., at p. 2787. The Court held that
the Seventh Amendment entitles such a person to a trial by jury, notwithstanding Congress’
designation of fraudulent conveyance actions as core proceedings in 28 U.S.C.
§ 157(b)(2)(H).” Id., at p. 2787. Justice Brennan made repeated references in his analysis
and resolution of this controversy within the ambit of the Seventh Amendment to the fact that
CIVIL 10-1847CCC
3
Congress’ power to place adjudicative authority in non-Article III tribunals is limited. The
Court expressly stated in Granfinanciera that “[i]n addition to our Seventh Amendment
precedents, we therefore rely on our decisions exploring the restrictions Article III places on
Congress’ choice of adjudicative bodies to resolve disputes over statutory rights to
determine whether petitioners are entitled to a jury trial.” Id., at pp. 2796-2797. Expanding
on the distinction between an action that involves public rights and one such as a fraudulent
conveyance action which involves rights between private parties, the Court stated that:
The crucial question, in cases not involving the federal Government, is
whether “Congress, acting for a valid legislative purpose pursuant to its
constitutional powers under Article I, [has] create[d] a seemingly ‘private’ right
that is so closely integrated into a public regulatory scheme as to be a matter
appropriate for agency resolution with limited involvement by the Article III
judiciary.”
Id., at p. 2797 (citations omitted).
It added that: “If a statutory right is not closely intertwined with a federal regulatory
program Congress has power to enact, and if that right neither belongs to nor exists against
the Federal Government, then it must be adjudicated by an Article III court.” Id.
The Article III restrictions on Congress’ assignment of adjudication of claims to
non-Article III courts is clearly addressed in the following statement at p. 2796 of
Granfinanciera:
Indeed, our decisions point to the conclusion that, if a statutory cause of action
is legal in nature, the question whether the Seventh Amendment permits
Congress to assign its adjudication to a tribunal that does not employ juries as
factifinders requires the same answer as the question whether Article III allows
Congress to assign adjudication of that cause of action to a non-Article III
tribunal. For if a statutory cause of action, such as respondent’s right to
recover a fraudulent conveyance under 11 U.S.C. § 548(a)(2) is not a “public
right” for Article III purposes, then Congress may not assign its adjudication
to a specialized non-Article III court lacking “the essential attributes of the
judicial power.”
It was precisely the concern over such a limitation - that Congress may not assign to
a non-Article III court for adjudication an action that does not involve public rights - that led
the Court to conclude in Stern v. Marshall, 131 S.Ct. 2594 (2011), a case involving a
CIVIL 10-1847CCC
4
counterclaim brought by the bankrupt against a creditor in her bankruptcy proceeding for
tortious interference under Texas law that:
The Bankruptcy Court in this case exercised the judicial power of the United
States by entering final judgment on a common law tort claim, even though the
judges of such courts enjoy neither tenure during good behavior nor salary
protection. We conclude that, although the Bankruptcy Court had the
statutory authority to enter judgment on Vickie’s counterclaim, it lacked the
constitutional authority to do so.
Stern, at p. 2601. Making extensive references to its decision in Granfinanciera, which had
rejected the trustee’s argument that a fraudulent conveyance action by a bankruptcy trustee
fell within the public rights exception, the Court noted:
We explained that, “[i]f a statutory right is not closely intertwined with a federal
regulatory program Congress has power to enact, and if that right neither
belongs to nor exists against the Federal Government, then it must be
adjudicated by an Article III court.” Id., at 54–55, 109 S.Ct. 2782. We
reasoned that fraudulent conveyance suits were “quintessentially suits at
common law that more nearly resemble state law contract claims brought by
a bankrupt corporation to augment the bankruptcy estate than they do
creditors' hierarchically ordered claims to a pro rata share of the bankruptcy
res.” Id., at 56, 109 S.Ct. 2782. As a consequence, we concluded that
fraudulent conveyance actions were “more accurately characterized as a
private rather than a public right as we have used those terms in our Article III
decisions.”
Id., at p. 2614.
At footnote 7, the Court stated outright that “Congress could not
constitutionally assign resolution of the fraudulent conveyance action to a non-Article III
court.” Id.
Given this definitive finding by the Court in Stern, the resolution of the fraudulent
conveyance action brought by the trustee in this case cannot be adjudicated by the
Bankruptcy Court since it lacks constitutional authority to do so under the restrictions placed
by Article III.
Accordingly, pursuant to the decision of the U.S. Supreme Court in Stern, the Court
DENIES the motion to dismiss the appeal filed by the trustee (docket entry 2) and GRANTS
the appeal of the order denying the motion to dismiss for lack of jurisdiction since the
fraudulent conveyance action brought by the trustee cannot be adjudicated by the
CIVIL 10-1847CCC
5
Bankruptcy Court, a non-Article III court, for lack of constitutional authority to do so. Such
action, in compliance with Article III, must be adjudicated by the U.S. District Court. The
case is REMANDED to the Bankruptcy Court to proceed in conformity with this Order.
SO ORDERED.
At San Juan, Puerto Rico, on August 10, 2011.
S/CARMEN CONSUELO CEREZO
United States District Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?