Buchwald v. The Renco Group, Inc. (In re Magnesium Corp. of Am.)

Case Type:
Case Status:
15-2691-bk; 15-2962-bk; 15-2971-bk (2nd Circuit, Mar 08,2017) Not Published
Affirmance of trial court decisions allowing jury trial, various trial rulings, and denial of new-trial motion based on compromise verdict. The cross appeal by Plaintiff on the claim that the wrong law had been applied to the award of interest was denied.
Procedural context:
Appeal after trial before the district court. Bankruptcy Trustee commenced an adversary proceeding before the bankruptcy court, relating to certain dividends paid to defendants in the late 1990s by debtor Magnesium Corp. and its then parent Renco Metals. The matter was tried before the district court after a consensual withdrawal of the reference to the bankruptcy court.
Facts are not fully fleshed out in the Appellate decision. The claims included fraudulent conveyance, breach of fiduciary duty and unjust enrichment. The defendants, on appeal, argued that the Trustee was not entitled to a jury trial, and that they had been wrongly denied the right to withdraw their affirmative consent to a jury trial when the matter was transferred to the district court. The Second Circuit noted that it had never decided whether a district court have any discretion under Fed.R.Civ.P. 39 to reject withdrawals of consent to jury trials. On appeal, the defendants conceded that the district court enjoyed such discretion. Without deciding the issue, the Second Circuit observed that on an abuse of discretion standard, the defendants could not prevail. Still, the Second Circuit held that even if there was error, it was harmless because the defendants' withdrawal of consent to a jury trial had only been partial, and the jury awarded the same damages for the claims in which the consent was not withdrawn as those in which the consent was withdrawn. The challenges to trial rulings involved the exclusion of certain evidence. Reviewed under an abuse of discretion standard, the Second Circuit refused to overturn them. The evidence excluded involved a judicial opinion (subsequently vacated) predicated on the invalidity of an EPA administrative interpretation, which the district court ruled had little probative value and would be unduly confusing. The second piece of evidence was testimony regarding "proposed terms" of a settlement agreement that was never finalized. This last piece was excluded under Fed.R.Evid. 408. The last challenge involved a jury instruction, which the Second Circuit rejected, noting that the district court had given a sufficiently curative instruction to disregard certain closing statements. Finally, the defendants claimed that jury verdict reflected an impermissible compromise. Again, the standard of review is abuse of discretion. Here, the Second Circuit distinguished between inconsistent and compromise verdicts. Objections to the former must be raised before the jury is excused, otherwise they are waived. A compromise challenge can succeed only where the verdict was reached by means other than a conscientious examination of the evidence. The defendants conceded that they did not raise a timely inconsistency challenge. The Second Circuit rejected the defendants' argument because they did not argue that the evidence was insufficient to support the finding in plaintiff's favor on the state law claims. Rather, they argued that such verdict was at odds with the finding against plaintiffs on the federal claim. As such, the Second Circuit held, the defendants were impermissibly asserting an inconsistency claim dressed as a compromise claim. On cross-appeal, the Trustee sought to reverse the use of New York in the award of interest given by the district court. The Second Circuit rejected the Trustee's claim, noting that the Trustee had voluntarily waived the application of Delaware Law to the interest award.
Reena Raggi, Raymond J. Lohier, Jr., Christopher F. Droney

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