Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_02-cv-03838/USCOURTS-cand-3_02-cv-03838-32/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 28:1331 Fed. Question

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Fort James’s motion also seeks an order striking the jury demand with respect to

Count Two. Because the Court, by order filed January 12, 2007, granted Fort James’s

motion for summary judgment on Count Two, the instant motion is, with respect to Count

Two, moot.

United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

In re:

CROWN VANTAGE, INC.,

Debtor 

CROWN PAPER COMPANY, et al.,

Plaintiffs

v.

FORT JAMES CORPORATION, f/k/a

JAMES RIVER CORPORATION OF

VIRGINIA, et al.,

Defendants /

No. C-02-3838 MMC

ORDER GRANTING DEFENDANTS’

MOTION TO STRIKE JURY DEMAND;

VACATING HEARING

Before the Court is the motion, filed December 15, 2006, by defendants Fort James

Corporation, Fort James Operating Company, Fort James Fiber Company, and Fort James

International Holdings, Ltd. (collectively, “Fort James”), to strike plaintiffs’ jury demand with

respect to the remaining claim, Count One of the Second Amended Complaint (“SAC”).1

Plaintiffs Jeffrey H. Beck, Liquidating Trustee, and Crown Paper Liquidating Trust

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(collectively, “the Trustee”) have filed opposition, to which Fort James has replied. Having

considered the papers filed in support of and in opposition to the motion, the Court deems

the matter appropriate for decision on the papers, VACATES the hearing scheduled for

January 19, 2007, and rules as follows.

BACKGROUND

On March 15, 2000, Crown Paper Company and Crown Vantage, Inc. (collectively,

“Crown”) filed for bankruptcy protection. During the course of the bankruptcy proceedings,

Fort James filed proofs of claims against the bankruptcy estate. On September 26, 2001,

the Trustee filed in the bankruptcy court the instant action against Fort James, alleging

(1) claims on behalf of Crown’s creditors, specifically, claims alleging fraudulent transfer,

and (2) claims on behalf of Crown, specifically, negligence, conversion and related causes

of action. On April 23, 2002, the Bankruptcy Court denied Fort James’s motion to strike the

jury demand in the original complaint, and certified the matter for withdrawal of the

reference. See B.L.R. 9015-2(b). The matter subsequently was assigned to United States

District Judge William H. Alsup.

On October 31, 2002, the Trustee filed a First Amended Complaint (“FAC”), again

including claims both on behalf of Crown’s creditors and claims on behalf of Crown itself. 

On December 16, 2002, Judge Alsup denied Fort James’s motion to strike the jury demand

in the FAC, without prejudice to Fort James’s “bring[ing] a motion to strike the jury demand

with regard to individual claims at the pretrial conference.” (See Order Denying Def. Fort

James’s Mot. to Strike Pl.’s Jury Demand at 7:2-4.)

On April 16, 2003, the matter was reassigned to the undersigned. By orders filed

September 25, 2003 and July 12, 2004, the Court dismissed with prejudice all of the claims

the Trustee had filed on behalf of Crown. On August 6, 2004, the Trustee filed the SAC, by

which it amended one of its existing fraudulent conveyance claims. On January 12, 2007,

the Court granted Fort James’s motion for summary judgment on Count Two, a claim made

on behalf of Crown’s creditors, by which the Trustee alleged that a 1998 conveyance from

Crown to Fort James constituted a fraudulent transfer. As a result, the only remaining

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Before Judge Alsup, Fort James took the position that the Trustee was not entitled

to a jury trial on any claim in the FAC, and did not seek to sever claims for which a jury is

not available or otherwise request findings as to particular claims. Given that Judge Alsup,

as noted, denied the motion without prejudice to Fort James’s refiling it as to specific

claims, it is apparent Judge Alsup did not make a determination as to the Trustee’s

entitlement to a jury trial with respect to each individual claim.

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claim is Count One, a claim on behalf of Crown’s creditors, by which the Trustee alleges

certain August 1995 conveyances from Crown to Fort James constituted fraudulent

transfers.

DISCUSSION

Fort James argues the Trustee is not entitled to a jury trial on Count One, the sole

remaining claim.

In response, the Trustee first argues the instant motion should be denied because

Fort James has not, according to the Trustee, offered new facts or law to warrant

reconsideration of Judge Alsup’s order. The Court disagrees. First, the facts have

materially changed; specifically, each claim the Trustee brought on behalf of Crown itself,

pursuant to 11 U.S.C. § 541, has been dismissed, leaving only a fraudulent transfer claim

brought on behalf of Crown’s creditors, pursuant to 11 U.S.C. § 544(b). Second, as noted,

Judge Alsup denied Fort James’s motion without prejudice to Fort James’s renewing such

motion as to specific claims, which is precisely what Fort James has done.2

The Court next addresses the Trustee’s argument that the motion should be denied

on its merits. As noted, Count One alleges a fraudulent transfer claim. Because a

fraudulent transfer claim “seeks relief traditionally provided by law courts or on the law side

of courts having both legal and equitable dockets,” see Granfinanciera, S.A. v. Nordberg,

492 U.S. 33, 49 (1989), a party to such claim is entitled to a jury thereon, unless the claim

is “part of the process of allowance and disallowance of claims” or is “integral to the

restructuring of debtor-creditor relations,” see id. at 58.

Where a creditor has filed a claim against a bankruptcy estate, and the bankruptcy

trustee then files against the creditor an action to set aside an assertedly improper transfer,

the bankruptcy trustee’s “action becomes part of the claims-allowance process which is

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The Trustee’s reliance on Benedor Corp. v. Conejo Enterprises, Inc. (In re Conejo

Enterprises, Inc.), 96 F. 3d 346 (9th Cir. 1996) is misplaced. The issue raised by the

instant motion was not an issue raised in Benedor and there is no indication the Ninth

Circuit’s reference to waiver, in a footnote, was intended to suggest a finding contrary to

Germain, which Benedor cites with approval. See id. at 354 n. 6.

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triable only in equity.” See Langenkamp v. Culp, 498 U.S. 42, 44 (1990); see also Katchen

v. Landy, 382 U.S. 323, 336 (1966) (holding where trustee files claim against creditor to set

aside transfer, creditor’s claim “can neither be determined nor allowed until the creditor

disgorges the alleged voidable preference he has already received”). This is precisely the

situation presented by the instant action; here, Fort James filed claims against Crown’s

bankruptcy estate, and the Trustee responded by, inter alia, filing a claim to set aside

transfers made by Crown to Fort James. Indeed, earlier in this proceeding, the Trustee

essentially conceded that if the Trustee’s action against Fort James had constituted only a

fraudulent transfer claim, the Trustee would not have been entitled to a jury. (See Pl.’s

Response in Opp. to Def. Fort James’ Mot. to Strike Jury Demand, filed December 27,

2001, at 16:1-7; Transcript of Proceedings, April 3, 2002, 59:9-14, 60:15-24, 61:12-17,

62:22 - 63:12.)

The Trustee now takes the position that a trustee is entitled to a jury unless such

trustee has knowingly “waived” such right, which the Trustee denies it has done herein. 

The Court finds such argument unpersuasive.

The holding in Langenkamp is not based on the concept of “waiver.” Rather, as the

Second Circuit has explained, “[T]he right to a jury trial is lost not so much because it is

waived, but because the legal dispute has been transformed into an equitable issue.” See

Germain v. Connecticut Nat’l Bank, 988 F. 2d 1323, 1330 (2nd Cir. 1993).3

The Trustee cites no case in which a court has concluded a trustee is entitled to a

jury trial on a fraudulent transfer claim filed against a creditor who has made a claim in the 

bankruptcy court. Rather, courts that have considered the issue have found such trustee

was not entitled to a jury trial, not because the trustee had “waived” the right to a jury, but

because, as is explained in Langenkamp, a fraudulent transfer claim, when filed against an

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existing claimant, becomes part of the claims allowance process. See Citicorp North

America, Inc. v. Finley (In re Washington Mfg. Co.), 128 B.R. 198, 202 (M.D. Tenn. 1991)

(striking trustee’s jury demand; holding decision as to whether trustee entitled to jury on

fraudulent transfer claim not dependent on showing trustee “waived” right to jury, but

“[r]ather, it is the fact that the Trustee’s fraudulent conveyance [claim] is in reality an

objection to the allowance of [the creditor’s] claims which strips the Trustee of a jury right”);

see also Dery v. National Bank of Detroit, Inc., 129 B.R. 133, 137 (E.D. Mich. 1990)

(holding “Seventh Amendment does not entitle the trustee to a jury trial in [a] fraudulent

conveyance action where the defendant has filed a claim against the estate” because such

action is “inextricably intertwined with the claims allowance process”).

In sum, the Court finds the Trustee’s fraudulent transfer claim, because such claim

is asserted against a party that has filed a proof of claim against the bankruptcy estate, is

“part of the claims-allowance process which is triable only in equity.” See Langenkamp,

498 U.S. at 44. Accordingly, the Trustee is not entitled to a jury trial on Count One.

The parties, in their respective papers, disagree as to whether, in the event the

Court finds the Trustee is not entitled to a jury trial on Count One, the Court should refer

Count One back to the Bankruptcy Court. The Court will address this issue at the January

23, 2007 pretrial conference.

CONCLUSION

For the reasons stated, Fort James’s motion to strike the jury demand as to the

remaining claim in the SAC, specifically, Count One, is hereby GRANTED.

IT IS SO ORDERED.

Dated: January 18, 2007 

MAXINE M. CHESNEY

United States District Judge

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