US SUPREME COURT DECISIONS

U.S. Supreme Court

Langenkamp v. Culp, 498 U.S. 42 (1990)

Langenkamp v. Culp

No. 90-93

Decided Nov. 13, 1990

498 U.S. 42

ON PETITION FOR WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

Respondents held thrift and passbook savings certificates, which were issued by debtor financial institutions and represented debtors' promise to repay moneys respondents had invested. Within the 90-day period before debtors filed Chapter 11 bankruptcy petitions, respondents redeemed some of the certificates. They became debtors' creditors when they filed proofs of claims against the bankruptcy estates. Subsequently, petitioner trustee instituted adversary proceedings to recover, as avoidable preferences, the payments which respondents had received. After a bench trial, the Bankruptcy Court ruled that the payments were avoidable preferences, and the District Court affirmed. The Court of Appeals, relying on Grandfinanciera, S.A. v. Nordberg, 492 U. S. 33, and Katchen v. Landy, 382 U. S. 323, reversed, ruling that respondents were entitled to a jury trial in the preference action.

Held: Respondents were not entitled to a jury trial. By filing claims against the bankruptcy estate, respondents triggered the process of "allowance and disallowance of claims," thereby subjecting themselves to the Bankruptcy Court's equitable power. Grandfinanciera, 492 U.S. at 492 U. S. 58- 59, and n. 14. Thus, the trustee's preference action became an integral part of the claims-allowance process, which is triable only in equity. As such, there is no Seventh Amendment right to a jury trial. In contrast, a party who does not submit a claim against the estate is entitled to a jury trial as a preference defendant, since the trustee could recover the transfers only by filing what amounts to a legal action. Ibid. Accordingly, "a creditor's right to a jury trial on a bankruptcy trustee's preference claim depends upon whether the creditor has submitted a claim against the estate," id. at 492 U. S. 58, a distinction overlooked by the Court of Appeals.

Certiorari granted; 897 F.2d 1041, reversed and remanded.