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Katchen v. Landy

Supreme Court of the United States · 1966 · Civil Procedure

Civil ProcedureBankruptcySummary jurisdictionSeventh AmendmentJury trialbankruptcysummary jurisdictionclaims allowance

Facts

After the corporate bankrupt suffered a fire, its funds and collections were placed in a trust account under petitioner's sole control. From that account, petitioner, who was an accommodation maker on the company's bank notes, made payments on the notes, and bankruptcy followed within four months. Petitioner then filed two claims in the bankruptcy proceeding, and the trustee responded by asserting that the payments from the trust fund to the banks were voidable preferences and demanding judgment for the amount of those preferences. The referee overruled petitioner's objection to summary jurisdiction and ordered that his claims would be allowed only if and when the judgment was satisfied.

Issue

When a creditor files a claim in bankruptcy and the trustee objects under § 57g on the ground that the creditor received a voidable preference, may the bankruptcy court summarily adjudicate the preference issue and order surrender of the preference? If so, does that procedure violate the creditor's Seventh Amendment right to a jury trial?

Rule

When a creditor files a proof of claim, a trustee's § 57g objection based on a voidable preference becomes part of the claims-allowance process, which the bankruptcy court may determine summarily in equity. Because determining allowance or disallowance necessarily requires adjudicating the existence and amount of the preference, the court may also order return of the preference, and no Seventh Amendment jury right attaches to that determination.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Redstone Supply, a wholesaler in Phoenix, entered bankruptcy. Before bankruptcy, creditor Nina Porter received a transfer that the trustee plausibly alleges was a voidable preference; after the petition, Nina filed a proof of claim for unpaid consulting fees. The trustee objected to the claim under § 57g and asked the bankruptcy court to order Nina to return the transfer amount.

Which is the strongest argument for the bankruptcy court's authority to decide the preference issue without requiring a separate plenary action?

Explanation. The majority held that when a creditor files a proof of claim, a trustee's § 57g objection based on a voidable preference is part and parcel of the allowance process. Because allowance or disallowance cannot be determined until the preference issue is resolved, the bankruptcy court may adjudicate that issue summarily in equity. The Court did not say every trustee demand is automatically summary, nor that the statute expressly says all preference recoveries are summary.