In RE McCLELLAND
460 B.R. 397
Bankr. S.D.N.Y.2011Background
- Debtor John McClelland filed Chapter 11; Grubb & Ellis retained as estate professional to appraise real property for estate settlement.
- Defendant's appraisal funded a settlement with former business partners, paying the estate one-third of appraised value to fund a confirmed plan.
- Court approved Defendant's fees (one-third of the estate's cost for the work) in 2006; Plaintiff objected to the fee, claiming improper appraisal affecting distributions.
- Plaintiff later sued Defendant in state court (Nov. 28, 2006) alleging damages from the appraisal; case was removed to federal court and linked to core bankruptcy proceedings.
- Stern v. Marshall raised questions about bankruptcy court authority to adjudicate state-law claims; court retained jurisdiction and addressed core vs. non-core status and jury trial issues in this adversary.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the adversary is a core proceeding and court may enter final orders | McClelland argues it is non-core post-Stern, requiring Article III adjudication | G&E maintains the matter is core under 157(b)(2)(A)/(O) | Core proceeding; bankruptcy court may enter final orders up to trial-ready stage |
| Whether the jury trial right applies and if so, forum | Plaintiff demanded jury trial timely; argues for district court | Defendant contends consent or trial readiness issues unresolved | Premature to decide forum; jury-trial issue set for later briefing and status if trial-ready |
| Whether Plaintiff's claim is a counterclaim to the fee application | Plaintiff characterizes as a counterclaim to fees | Fees are estate administration; not a counterclaim against Plaintiff personally | Not a true counterclaim; asserted personally but still a core, estate-related claim |
| Whether Stern narrowed core proceedings and how public/private rights apply | Stern limits to counterclaims, not all core matters | Stern requires re-analysis; public/private rights framework applies | Stern narrow; Southmark logic survives; core determination remains appropriate |
| Whether the case is trial-ready and final determination on forum can proceed | Rights to jury trial can be resolved now | Need briefing replies; case not trial-ready | Not ripe; schedule for reply briefs to be set after status conference |
Key Cases Cited
- Marathon, Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) (bankruptcy power over state-created private rights; core distinctions)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (jury trial rights where claimant did not file a claim; core vs non-core)
- Southmark Corp. v. Coopers & Lybrand (In re Southmark Corp.), 163 F.3d 925 (5th Cir.1999) (malpractice claim inseparable from bankruptcy context; public vs private rights)
- Ben Cooper, Inc. v. The Insurance Co. of the State of Pennsylvania, 896 F.2d 1394 (2d Cir.1990) (bankruptcy courts may conduct jury trials in core proceedings)
- Stern v. Marshall, 131 S. Ct. 2594 (2011) (limited to severing certain core proceedings; issue of final adjudication remains nuanced)
- In re BearingPoint, Inc., 453 B.R. 486 (Bankr.S.D.N.Y.2011) (illustrates non-core determinations post-Stern; public/private rights analysis)