Collins v. Federal Land Bank of Omaha, 86-182

• Decision Date: 16 March 1988
• Docket Number: No. 86-182,86-182
• Citation: 421 N.W.2d 136
• Parties: Lavetta L. COLLINS, Individually and as Surviving Spouse of John V. Collins, and Margaret Birmingham, Administrator of the Estate of John V. Collins, Appellants, v. FEDERAL LAND BANK OF OMAHA, A Corporation, Ida County State Bank, Eugene Knop, and Alvin J. Ford, Appellees.
• Court: Iowa Supreme Court

Page 136

421 N.W.2d 136

Lavetta L. COLLINS, Individually and as Surviving Spouse of John V. Collins, and Margaret Birmingham, Administrator of the Estate of John V. Collins, Appellants, v. FEDERAL LAND BANK OF OMAHA, A Corporation, Ida County State Bank, Eugene Knop, and Alvin J. Ford, Appellees.

No. 86-182.

Supreme Court of Iowa.

March 16, 1988.

Alfredo G. Parrish and Elizabeth S. Kruidenier of Parrish & Kruidenier, Des Moines, for appellants.

Marvin F. Heidman and John C. Gray of Eidsmoe, Heidman, Redmond, Fredregill, Patterson & Schatz, Sioux City, for appellee Alvin J. Ford.

Janet J. Brown and William Kevin Stoos of Klass, Wicher & Mishne, Sioux City, for appellees Ida County State Bank and Eugene Knop.

William L. Edmonds of Carter, Sar, Edmonds & Green, Sioux City, for appellee Federal Land Bank of Omaha.

Considered en banc.

CARTER, Justice.

Plaintiff Lavetta Collins and the administrator of her deceased husband's estate appeal from an order dismissing their legal malpractice claims against defendant Alvin J. Ford. These claims were dismissed on the ground that they had become the property of the Collinses' bankruptcy estate and therefore could not be pursued in plaintiffs' own behalf.

Plaintiffs have also appealed the dismissal of claims against three other defendants in the case. As to the defendants other than Ford, we deem plaintiffs' failure to argue any substantive issue in their appellants' brief a waiver of any justiciable issue on appeal. See Iowa R.App.P. 14(a)(3). We therefore affirm the judgments in favor of those defendants.

Some of the claims against defendant Ford are unrelated to each other both in time and in the chain of causal consequences alleged to flow from the claimed omissions. Because we find that one of these claims is divisible from the rest and did not accrue until after the filing of the Collinses' bankruptcy petition, we find that claim to be the property of plaintiffs.

Plaintiff Lavetta Collins and her late husband, John, were owners and operators of a family farm in Ida County. In 1981, they signed a promissory note in favor of the Federal Land Bank for $188,500.00, secured by a mortgage on their farm. Collinses became delinquent on the loan. When the Federal Land Bank informed them in March 1984 that they faced foreclosure, they employed attorney Ford. That association led to the filing of a voluntary petition in bankruptcy by the Collinses under chapter 7 of title 11 of the United States Code.

Plaintiffs filed the present civil damage action against defendant Ford and others on May 31, 1985. In their claim against Ford, they make the following allegations:

[T]he defendant, Alvin J. Ford, was negligent in the following respects:

a. When the Plaintiffs were notified March 29, 1985 by the Defendant Federal Land Bank of Omaha that their loan was to be accelerated, Defendant Ford failed to notify Plaintiff Collins of their right to appeal.

b. Defendant Ford failed to inform Plaintiffs Collins that when they signed the documents relating to the receivership they were forfeiting their rights to farm their land or to lease parts of it themselves.

c. Defendant Ford informed "Collins" that they need not appear at the hearing on the receivership and assured them that he would represent them at the hearing.

d. Defendant Ford failed to attend the receivership hearing himself, and, consequently, the Collins were deprived of the right to present their case.

e. Defendant Ford urged the Plaintiffs to file the bankruptcy under Chapter rather than under Chapter resulting in their being unable to farm the land as they would have under Chapter .

f. On one occasion Defendant Ford refused to request a delay needed by the Plaintiffs because he felt he was getting along so well with the lawyer for Defendant Federal Land Bank of Omaha that he didn't want to do anything that might cause trouble.

In dismissing plaintiffs' claims against defendant Ford, the district court concluded that any causes of action asserted by plaintiffs, "whether arising before the commencement of the bankruptcy action or after the commencement of the bankruptcy action," were the property of the bankruptcy estate and not the property of plaintiffs. Other facts which bear upon our disposition of the appeal are stated and considered in our discussion of the legal issues which are presented.

I. Right of Bankruptcy Trustee to Succeed to Debtors' Causes of Action.

Plaintiffs argue that Collinses' claim against attorney Ford was not an "interest in property" which passed to their trustee in bankruptcy under 11 U.S.C. section 541(a)(1). They further assert that it is not an interest in property which the bankruptcy estate acquired after the commencement of the bankruptcy proceeding so as to qualify as the trustee's property under 11 U.S.C. section 541(a)(7). Notwithstanding defendant Ford's forceful rejoinder, we agree with these contentions as to one of plaintiffs' legal malpractice claims which we find to be divisible from the others.

Whether a trustee in bankruptcy succeeds to property of the debtor in a chapter 7 bankruptcy under 11 U.S.C. section 541(a)(1) turns on whether the debtor has a legal or equitable interest in the property under applicable state law at the time the bankruptcy petition is filed. Ownership of causes of action is determined under the same rules that apply to other property interests. The rule on what causes of action are acquired by the trustee under the present bankruptcy code is stated as follows in 4 Collier on Bankruptcy p 541.10 (15th ed. 1987):

[T]he estate created pursuant to section 541(a) includes causes of action belonging to the debtor at the time the case is commenced.

Id. (emphasis added). In light of this distinction, the trial court erred by assuming that it made no difference whether the debtor's cause of action accrued before or after the filing of the federal bankruptcy petition. This error of law requires reversal of the judgment unless it clearly appears as a matter of law that the cause of action arose prior to the filing of the bankruptcy petition.

Under the federal bankruptcy act in existence prior to the Bankruptcy Reform Act of 1978, the Supreme Court mandated that, in determining the property of the debtor to be included in the bankruptcy estate, resort must be had to state law. Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136, 141 (1979). This recognition of the paramount role of state law in defining the property interests which pass to the trustee has been extended to interpretation of the phrase "all legal or equitable interests of the debtor in property" under the current federal bankruptcy code. Matter of Roach, 824 F.2d 1370 1374 (3d Cir.1987); Wilson v. Bill Barry Enters., 822 F.2d 859, 861 (9th Cir.1987). ¹

Under Iowa law there must be actual loss to the interest of another before a cause of action accrues. Wolfswinkel v. Gesink, 180 N.W.2d 452, 456 (Iowa 1970); Chrischilles v. Griswold, 260 Iowa 453, 459, 150 N.W.2d 94, 98-99 (1967). The theory that there is no cause of action until there is an injury which needs to be remedied is aptly expressed in the following excerpt from a federal court opinion:

Except in topsy-turvy land, you can't die before you are conceived, or be divorced before you marry, or harvest a crop never planted, or burn down a house never built, or miss a train running on a nonexistent railroad. For substantially similar reasons, it has always heretofore been accepted, as a sort of logical "axiom," that [a cause of action cannot accrue] before that cause of action exists, i.e., before a judicial remedy is available to a plaintiff.

Dincher v. Marlin Firearms Co., 198 F.2d 821, 823 (2d Cir.1952).

We stated this principle as follows in Wolfswinkel:

There must be actual loss to the interest of another before a cause of action accrues. Generally, the wrong or negligence of the party charged gives in itself no right of action to anyone. The injury is traceable to the original wrongful or negligent act, but until this act produces injury to claimant's interest by way of loss no damage, no cause of action accrues.

Wolfswinkel, 180 N.W.2d at 456 (emphasis added). We have approved this no-harm-no-foul principle in actions for professional negligence. In a case involving a claim that an architect did not prepare design specifications with a reasonable degree of technical skill, we stated that

the general rule is that a cause of action accrues when the aggrieved party has a right to institute and maintain a suit.... It is true the injury is traceable to the original wrongful act or negligent act, but until this act produced injury to plaintiff's interest by way of loss or damage, no cause of action accrued.

Chrischilles, 260 Iowa at 459, 150 N.W.2d at 99-100.

In their legal malpractice claims against defendant Ford, plaintiffs have alleged six separate acts of negligence. Five of the six acts...