In re Davis
| Citation | 105 BR 288 |
| Decision Date | 07 September 1989 |
| Docket Number | Bankruptcy No. 84-2291,Adv. No. 88-0446. |
| Parties | In re Emily DAVIS, a/k/a Emily Winn, Debtor. Robert J. TAYLOR, Trustee, Plaintiff, v. FREELAND & KRONZ, a partnership; Wendell G. Freeland; Richard F. Kronz; and Emily Davis, Defendants. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Pennsylvania |
Stanley E. Levine, Campbell & Levine, Pittsburgh, Pa., for debtor/defendant.
Gary W. Short, Pittsburgh, Pa., for plaintiff.
Kenneth P. Simon, Simon & Simon, Pittsburgh, Pa., for defendants, Freeland & Kronz, Wendell G. Freeland and Richard F. Kronz.
Robert J. Taylor, Ambridge, Pa., Trustee.
Before the Court is the Trustee's Complaint To Avoid Post-Petition Transfers, And To Recover The Property Transferred Or The Value Of Such Property. Specifically, Robert J. Taylor, Trustee ("Trustee") seeks to avoid and recover certain postpetition transfers of the proceeds of the settlement of a legal action brought by Emily Davis ("Debtor") against Trans World Airlines ("TWA").
The Trustee contends that the payment of that portion of the settlement which was allocated to lost wages suffered by Debtor prior to the bankruptcy filing is "property of the estate" and consequently, any transfer thereof is avoidable pursuant to 11 U.S.C. § 549(a). The Trustee further claims that, pursuant to 11 U.S.C. § 550(a), he is entitled to recover $67,349.00, plus interest, which sum is the alleged value of the estate's interest in the cause of action at the time the bankruptcy petition was filed.
Defendants argue that the proceeds of the settlement are not "property of the estate". In the alternative, Defendants aver that if they were estate assets, said assets were exempted by Debtor. Defendants opine that as no party in interest, including the Trustee, has objected to the exemption of the cause of action, said exemption, whether having a statutory basis or not, should be permitted.
The Court has heard the testimony of the parties, reviewed all of the exhibits, and researched the law, and now finds that the Trustee may avoid and recover $23,483.75, plus interest. Said sum will be sufficient to pay all creditors one hundred percent (100%) of their claims plus interest, if interest is appropriate. In addition, excess funds will be available for payment of appropriate administrative fees and costs. Any sum not utilized will be returned to Defendants.
Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code on October 24, 1984. At the time of the filing, Debtor was pursuing a legal action against TWA alleging employment discrimination. Debtor had filed a complaint in April of 1978 with the Pittsburgh Human Relations Commission ("Commission") in which she alleged that TWA had discriminated against her in denying promotions on account of her race and sex.
The Commission found in favor of Debtor on December 16, 1980. It did not, however, award damages at that time; rather, it directed TWA to submit further information in order that the amount of damages might be determined.
TWA appealed the Commission's decision to the Court of Common Pleas of Allegheny County, Pennsylvania. At that point, prior counsel's representation was terminated and the law firm of Freeland & Kronz was retained to represent the Debtor. The Commission's decision was reversed by the Court of Common Pleas on September 23, 1981.
Debtor appealed this decision to the Commonwealth Court of Pennsylvania, which reversed the decision of the Court of Common Pleas, and reinstated the decision of the Commission on June 27, 1983.
TWA then petitioned the Pennsylvania Supreme Court for an Allowance of Appeal, which was granted in November of 1983. The decision of the Commonwealth Court was affirmed on November 29, 1984 by an equally divided vote of the Supreme Court. Mr. Justice Papadakos, who as a Common Pleas Judge had previously reversed the decision of the Commission, did not participate in the decision.
TWA thereafter petitioned the Pennsylvania Supreme Court to permit it to file an Application For Reargument Out Of Time. The Application was allowed and the matter was reargued on September 16, 1986. On October 1, 1986, the Supreme Court concluded that reargument had been improvidently granted and dismissed the appeal of TWA.
Debtor's cause of action against TWA was before the Pennsylvania Supreme Court for the first time when she filed her Chapter 7 voluntary petition on October 24, 1984. The appeal by TWA had been briefed and argued, but was not decided until approximately five (5) weeks later.
Debtor listed the proceeds of the legal action against TWA with an unknown value on Bankruptcy Schedule B-2. She also claimed the proceeds of the cause of action as exempt on Schedule B-4 pursuant to 11 U.S.C. §§ 522(b) and (d) and listed its value as "unknown". In addition, Debtor stated on Schedule A-2 that there were no creditors holding security and on Schedule A-3 listed a total of $11,069.59 in liquidated and undisputed liabilities to unsecured creditors.
Robert F. Taylor, Esq., was appointed Interim Trustee on November 26, 1984, and he presided over a Section 341(a) Meeting of Creditors on January 4, 1985. Debtor and her bankruptcy counsel attended the meeting and they indicated a possible recovery in the cause of action against TWA of $90,000.00. The Proceeding Memo prepared by the Trustee evidenced Debtor and/or Debtor's counsel's acknowledgement of the litigation and its potential value, and noted that the matter was on appeal at that time.
The Trustee, on various occasions prior to and subsequent to the time frame for objecting to exemptions, advised Debtor of his legal position that the cause of action was an asset of the estate; however, on no occasion did he perform the obvious, namely, formally object to the exemption of this estate asset.
Debtor received a discharge from bankruptcy on October 16, 1985; however, the case has never been closed.
On September 11, 1987, Debtor executed a settlement agreement with TWA which had a value approximating $110,000.00. Debtor granted TWA a release of all claims against it in consideration of $95,000.00 in cash, plus other valuable consideration (travel vouchers) worth approximately $15,000.00.
According to the precise and agreed upon terms of the settlement contract negotiated by the parties, the consideration to Debtor was to be ". . . paid, allocated, and apportioned . . ." as follows:
On September 17, 1987, TWA issued a check payable to Debtor and Freeland & Kronz in the amount of $71,516.25, in satisfaction of those portions of the settlement allocated to tort claims ($23,483.75) and to attorney's fees and costs ($48,032.50).
On September 21, 1987 TWA issued another check, payable to Debtor, in satisfaction of that portion of the settlement allocated to back pay or front pay. The check was in the amount of $16,614.75, with the remaining $6,689.00 deducted for taxes.
On October 21, 1987 Freeland & Kronz disbursed the check for $71,516.25 as follows: $32,159.50 was distributed to Debtor; the remaining $39,356.75 was distributed to Freeland & Kronz.
Freeland & Kronz also received, pursuant to the settlement, $15,000.00 worth of travel vouchers. It retained $7,500.00 worth of them and assigned the remaining $7,500.00 worth to Debtor for her own use.
The Trustee sent a letter to Freeland & Kronz on May 2, 1988, requesting information on the status of Debtor's cause of action. Richard Kronz informed the Trustee of the settlement on May 6, 1988.
On October 8, 1988, the Trustee commenced the present adversary proceeding by filing a Complaint To Avoid Post-Petition Transfers, And To Recover The Property Distributed Or The Value Of Such Property.
With certain exceptions not relevant here, the trustee may avoid any postpetition transfer of "property of the estate" of a debtor that is not authorized under the Code or by the Court. 11 U.S.C. § 549(a). In addition, the trustee may recover, for the benefit of the estate, either the property transferred or the value of such property from the initial transferee or any immediate transferee of such initial transferee. 11 U.S.C. § 550(a).
11 U.S.C. § 541 defines, with substantial specificity, what kinds of property are "property of the estate". Congress intended a broad range of property to be brought into the estate. U.S. v. Whiting Pools, 462 U.S. 198, 204, 103 S.Ct. 2309, 2313, 76 L.Ed.2d 515 (1983). Section 541 includes all kinds of property, both tangible and intangible, cause of action, and all other forms of property formerly specified in Section 70(a) of the old Bankruptcy Act. 4 Collier on Bankruptcy ¶ 541.01 at 541-5 (15th ed. 1989), citing to H.R.Rep. No. 595, 95th Cong., 1st Sess. 367-68 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 82-3 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787. It even includes property needed for a debtor's fresh start. Warren v. G.M. Scott & Sons, 34 B.R. 543, 544 (Bankr.S.D. Ohio 1983).
Once property is included in the bankruptcy estate, the debtor may exempt it pursuant to 11 U.S.C. § 522. The Bankruptcy Court must then determine what property may be exempted and what remains property of the estate. See 4 Collier on Bankruptcy ¶ 541.01 at 541-6 (15th ed. 1989). When a claimed exemption is upheld by the court, the...
To continue reading
Request your trial