## Facts

- A telecommunications provider and its affiliates entered contracts under which a reseller purchased telecommunications services and resold them to its customers.
- Before the bankruptcy filing, the provider sued the reseller in federal district court to recover allegedly unpaid amounts under the contracts.
- The reseller asserted counterclaims alleging improper billing and failure to pay promised rebates and reimbursements.
- After the provider filed Chapter 11, the reseller filed a proof of claim in the bankruptcy case for approximately $17.7 million.
- The provider commenced an adversary proceeding objecting to the proof of claim and pursuing recovery of unpaid charges arising from the same contractual relationship.
- The bankruptcy court disallowed the reseller’s proof of claim and granted partial summary judgment to the provider on liability, leaving damages for trial.
- The reseller demanded a jury trial on the remaining issues, and the provider moved to strike the jury demand.

## Issues

1. Whether a creditor that files a proof of claim retains a Seventh Amendment right to a jury trial on the debtor’s closely related claims asserted in an adversary proceeding.
2. Whether the debtor’s contract-based claims, when tied to the claims-allowance process, are adjudicated as part of the bankruptcy court’s equitable jurisdiction such that no jury trial is required.

## Decision

- The court granted the debtor’s motion to strike the creditor’s jury demand.
- The court held the creditor had no right to a jury trial in the adversary proceeding.
- By filing a proof of claim, the creditor submitted to the bankruptcy court’s equitable jurisdiction and waived any Seventh Amendment jury right as to matters integral to allowance or disallowance of that claim.
- The remaining damages issues were to be tried to the bankruptcy judge without a jury.

## Legal Principles

- Filing a proof of claim triggers the bankruptcy claims-allowance process and subjects the creditor to the bankruptcy court’s equitable authority over disputes necessary to resolve the claim.
- When the debtor’s claims against the claimant arise from the same transaction or relationship and must be resolved to determine the claimant’s entitlement, the adjudication is a core matter within the claims-allowance process.
- Even if a cause of action is traditionally legal (such as breach of contract), it may be resolved without a jury when it is integrally related to allowance or disallowance of a filed proof of claim.
- A creditor who has not filed a proof of claim may retain a jury right on certain legal actions brought by the estate, but that principle does not apply once the creditor becomes a claimant.
- Statutory provisions addressing bankruptcy-court jury trials by consent do not create a jury right where the Seventh Amendment right has been waived by filing a proof of claim.

## Conclusion

The bankruptcy court ruled that the creditor’s proof of claim submission brought the dispute within the equitable claims-allowance process, eliminating any Seventh Amendment jury entitlement for the debtor’s related contract claims and leaving damages to be determined by the court.


In re WorldCom, Inc., 378 B.R. 745 (Bankr. S.D.N.Y. 2007)