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Among the many issues on appeal was that the underlying action was legal and the remedy sought was compensatory damages, not equitable restitution. The court noted that while “Rule 2 of the Federal Rules of Civil Procedure grandly proclaims that 'there shall be one form of action to be known as “civil action”' thereby causing the merger of law and equity, the distinction 'retains its viability.'” Further, that “[b]y preserving the right to a jury trial only in 'suits at common law,' the Seventh Amendment of the United States Constitution perpetuates the law/equity dichotomy.”

To determine whether a case is a suit at law, the court applied the two-part test set forth in Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989), which first inquires whether the action would have been equitable in 18th-century England and, second, whether the remedy sought is legal or equitable in nature. The court found that the instant matter would have been considered equitable in the 18th Century, but with respect to the second question, the court agreed with the defendants that “because they never possessed the funds in question and thus were not unjustly enriched, the remedy sought against them could not be considered equitable,” and they therefore had a right to a jury trial. The court further pointed out that the result in this case was contrary to its holding in a prior decision, Strom v. Goldman Sachs & Co., 202 F.3d 138 (1999), where the court “characterized as equitable the monetary relief sought by plaintiff for defendant's alleged breach of fiduciary duty even though the defendant did not actually possess the funds in question.” The court noted, however, that the Supreme Court's subsequent decision in Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002), “reconfigured the landscape of restitution…[ruling] that for restitution to lie in equity, the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant's possession.”

Corp Execs Granted a Jury Trial in Suit By Trustee

The Second Circuit has granted the right to a jury trial to corporate director defendants and officers accused by a bankruptcy trustee of breaching their fiduciary duties, finding that the action was not equitable in nature because it constituted a suit “at law” within the meaning of the Seventh Amendment. Pereira v. Farace, 03-5053 (June 30).

Standing in the shoes of the creditors, a Chapter 7 trustee charged that the officers and directors of a privately held corporation breached their fiduciary duties. The defendants demanded a jury trial, but the district court found that the allegations did not constitute actions “at law” because actions for breach of fiduciary duty were historically equitable.

Among the many issues on appeal was that the underlying action was legal and the remedy sought was compensatory damages, not equitable restitution. The court noted that while “Rule 2 of the Federal Rules of Civil Procedure grandly proclaims that 'there shall be one form of action to be known as “civil action”' thereby causing the merger of law and equity, the distinction 'retains its viability.'” Further, that “[b]y preserving the right to a jury trial only in 'suits at common law,' the Seventh Amendment of the United States Constitution perpetuates the law/equity dichotomy.”

To determine whether a case is a suit at law, the court applied the two-part test set forth in Granfinanciera, S.A. v. Nordberg , 492 U.S. 33 (1989), which first inquires whether the action would have been equitable in 18th-century England and, second, whether the remedy sought is legal or equitable in nature. The court found that the instant matter would have been considered equitable in the 18th Century, but with respect to the second question, the court agreed with the defendants that “because they never possessed the funds in question and thus were not unjustly enriched, the remedy sought against them could not be considered equitable,” and they therefore had a right to a jury trial. The court further pointed out that the result in this case was contrary to its holding in a prior decision, Strom v. Goldman Sachs & Co. , 202 F.3d 138 (1999), where the court “characterized as equitable the monetary relief sought by plaintiff for defendant's alleged breach of fiduciary duty even though the defendant did not actually possess the funds in question.” The court noted, however, that the Supreme Court's subsequent decision in Great -West Life & Annuity Insurance Co. v. Knudson , 534 U.S. 204 (2002), “reconfigured the landscape of restitution…[ruling] that for restitution to lie in equity, the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant's possession.”