Hanawalt v. Hardesty (In re Hanawalt)

• Decision Date: 22 September 2017
• Docket Number: Case No. 07-59138,Adv. Pro. No. 16-2029
• Citation: 627 B.R. 352
• Parties: IN RE: Sandra Lee HANAWALT, Debtor. Sandra Lee Hanawalt, Plaintiff, v. Clyde Hardesty, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

627 B.R. 352

IN RE: Sandra Lee HANAWALT, Debtor.Sandra Lee Hanawalt, Plaintiff,

v.Clyde Hardesty, Defendant.

Case No. 07-59138

Adv. Pro. No. 16-2029

United States Bankruptcy Court, S.D. Ohio, Eastern Division.

Signed September 22, 2017

Aaron M. Glasgow, IsaacWiles, Michael Thomas Gunner, Columbus, OH, for Plaintiff.

OPINION AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

John E. Hoffman, Jr., United States Bankruptcy Judge

I. Introduction

This adversary proceeding is before the Court on cross-motions for summary judgment filed by Sandra Lee Hanawalt and David M. Whittaker, the former Chapter 7 trustee appointed in Hanawalt's bankruptcy case.¹ Approximately seven years after her bankruptcy case was closed, Hanawalt filed a lawsuit against entities involved in the manufacture and distribution of a medical device known as transvaginal mesh ("TVM") and became entitled to receive funds as part of a settlement of the lawsuit (the "Settlement Proceeds"). Whittaker then obtained an order reopening Hanawalt's bankruptcy case in order to administer the Settlement Proceeds as property of her bankruptcy estate. But because the Settlement Proceeds are not sufficiently rooted in Hanawalt's prebankruptcy past, she is entitled to a declaratory judgment that they are not property of her estate.

II. Jurisdiction and Constitutional Authority

The Court has subject matter jurisdiction to hear and determine this adversary proceeding under 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. 28 U.S.C. § 157(b)(2).

The Court also has the constitutional authority to enter a final order determining whether the Settlement Proceeds are property of Hanawalt's estate under § 541 of the Bankruptcy Code. See, e.g ., Schlarman v. Nageleisen (In re Nageleisen) , 527 B.R. 258, 261 (Bankr. E.D. Ky. 2015) (holding that "disputes over the extent of debtors' estates [are] within bankruptcy courts' [constitutional] authority"); Murphy v. Felice (In re Felice) , 480 B.R. 401, 418 (Bankr. D. Mass. 2012) (holding that "an action under 11 U.S.C. § 541 to determine whether an interest of the debtor is property of the estate stems from the bankruptcy" and that "a bankruptcy judge may ... enter a final judgment" in such an action); Velo Holdings Inc. v. Paymentech, LLC (In re Velo Holdings Inc.) , 475 B.R. 367, 387 (Bankr. S.D.N.Y. 2012) (holding that determining whether an agreement is property of the estate "is an essential part of administration of the bankruptcy estate and stems from the bankruptcy itself").

III. Procedural and Factual Background

On November 11, 2007 (the "Petition Date"), Hanawalt filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code, and the United States Trustee appointed Whittaker as the Chapter 7 trustee. In 2008, Hanawalt received a discharge and her case was closed. Eight years later, in 2016, Whittaker filed a motion to reopen the case for the purpose of seeking to administer the Settlement Proceeds. Doc. 20.² In the motion to reopen, Whittaker noted that Hanawalt had not included the TVM claims on her schedules of assets and liabilities, meaning that the claims were not abandoned when her case was closed. Whittaker also stated that he had no reason to believe that Hanawalt purposely concealed the claims. Id . at 2.

After the Court entered an order reopening the case (Doc. 21), Hanawalt filed a complaint seeking a declaratory judgment that the Settlement Proceeds are not property of her bankruptcy estate (Adv. Doc. 1). Before the discovery deadline of January 31, 2017 passed, Whittaker took Hanawalt's deposition (the "Deposition") (Adv. Doc. 22, Ex. A). Whittaker then filed a motion for summary judgment (the "Whittaker Motion") (Adv. Doc. 22), requesting an order that would require Hanawalt to turn over the Settlement Proceeds to him to administer on behalf of her bankruptcy estate. Hanawalt then filed a cross-motion for summary judgment (the "Hanawalt Motion") (Adv. Doc. 23), attaching an affidavit based on her personal knowledge (the "Hanawalt Affidavit").³

The Court's policies and procedures (the "Procedures") provide that the statement of material facts in a motion for summary judgment "shall set forth, in numbered paragraphs, each material fact as to which the moving party contends there is no genuine issue." Procedures at 14, https://www.ohsb.uscourts.gov/OHSB/HearingSchedules/Columbus/Hoffman,JohnEJr/130942482948553750.pdf. Whittaker contends that the Hanawalt Motion should be denied because Hanawalt failed to comply with this requirement. Whittaker Resp. at 6.

The Court certainly could deny the Hanawalt Motion as a result of her noncompliance with the Procedures. And if Hanawalt's noncompliance had affected Whittaker's ability to adequately respond "by admitting and/or denying each of the movant's factual assertions in matching numbered paragraphs," Procedures at 14, then it would have done so. But the denial likely would have been without prejudice to Hanawalt's refiling a motion for summary judgment in accordance with the Procedures. And Whittaker does not contend that Hanawalt's noncompliance prevented him from responding in the required manner; in fact, he responded to Hanawalt's eight-paragraph statement of facts by using a numbering system that Hanawalt should have used.⁴ It therefore would be pointless to deny the Hanawalt Motion based on her failure to number the paragraphs in her statement of material facts.

Whittaker also argues that the Hanawalt Motion should be denied because Hanawalt failed to comply with the requirement that "[e]ach fact listed ... be supported by a specific citation to the record." Procedures at 14. In particular, he notes that Hanawalt's factual recitation fails to cite the Hanawalt Affidavit. Whittaker Resp. at 2 n.1. But while the Court "need consider only the cited materials," it "may consider other materials in the record." Fed. R. Civ. P. 56(c)(3). And it should come as a surprise to no one that the Hanawalt Affidavit, which was attached to the Hanawalt Motion, is part of the summary judgment record. Moreover, it is not difficult to match the statement of facts in the Hanawalt Motion with the representations made in the Hanawalt Affidavit. If Hanawalt's noncompliance with the Procedures had impaired Whittaker's ability to effectively respond to the Hanawalt Motion or had prevented the Court from determining which material facts are undisputed, then the Hanawalt Motion would have been denied. But Whittaker was able to make an effective response, and the Court was able to determine that the material facts set forth below are undisputed. Under the circumstances, the only effect of denying the Hanawalt Motion on procedural grounds would be needless delay.

As described in both the Hanawalt Motion and the Whittaker Motion, TVM was surgically implanted into Hanawalt's body in June 2005, approximately two and one-half years before the Petition Date. Whittaker Mot. ¶ 2; Hanawalt Mot. at 3.⁵ Afterward, Hanawalt "visited her gynecologist, Dr. Diana Zitter, for her annual physical examination" both before and after the Petition Date, and "[a]t each visit, Dr. Zitter physically checked the [TVM] and determined that there were no problems or issues with it." Hanawalt Mot. at 4;⁶ see also Hanawalt Aff. ¶ 3 ("After the surgery, I had annual gynecological examinations with ... Dr. Zitter .... During the examination from 2005–2010, she found no problems with the repairs performed in 2005. She did not express any concerns, and did not direct me to follow up with her or any other physician.").

In August 2011, Hanawalt "went for her annual examination," and during that examination Dr. Zitter "discovered that a portion of the TVM was eroding the tissue around it." Hanawalt Mot. at 4. "This was the first time ... Hanawalt was aware ... of a medical problem that she was experiencing related to [the TVM]." Id . She "had no symptoms of any problem related to the TVM to that point," and she "only became aware of the problem because Dr. Zitter informed her about the erosion" in August 2011. Id .; see also Hanawalt Aff. ¶ 4 ("August 3, 2011 ... was the first time there was any indication of any problems with the TVM.... Even then, I had no symptoms related to the TVM, and was only aware of a problem because Dr. Zitter found [the erosion] during an examination."). In October 2011, the urologist who had implanted the TVM, removed the 4–5 mm patch of the TVM that was causing the erosion. Hanawalt Mot. at 4; Whittaker Mot. ¶ 10. No one (including Hanawalt's doctors) has ever told her when the erosion occurred. Whittaker Mot. ¶ 11; Dep. at 37.

Hanawalt became aware of lawsuits related to TVM in 2011 and retained law firms to pursue claims on her behalf. Whittaker Mot. ¶ 12; Hanawalt Mot. at 4–5. In 2014, she filed a second amended complaint in a Minnesota state court asserting claims under Minnesota law (the "State Court Complaint").⁷ Whittaker Mot. ¶ 13; Dep. Ex. 5. In the State Court Complaint, Hanawalt asserted, among other things, that the defendants were liable to her on a theory of strict liability and that they were estopped from asserting a statute of limitations defense because they hid the defect in the TVM, preventing Hanawalt from discovering it until Dr. Zitter did so. Whittaker Mot. ¶ 15(e)–(f).

According to Hanawalt, the amount of the Settlement Proceeds is $80,000. Hanawalt Mot. at 5. Whittaker states that this amount is unsupported by the record, but also concedes that the amount is not material for purposes of the Court's adjudication of the cross-motions for summary judgment. Whittaker Resp. at 5.

IV. Legal Analysis

A. Summary Judgment Standard

Under Rule 56 of the Federal Rules of Civil Procedure, made applicable in this adversary proceeding by Rule 7056 of the Federal Rules of Bankruptcy Procedure, a court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the...