In re Duty

• Decision Date: 21 April 1987
• Docket Number: Bankruptcy No. 86-00554-R.
• Citation: 78 BR 111
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re John Walter DUTY, Debtor.

78 B.R. 111 (1987)

In re John Walter DUTY, Debtor.

Bankruptcy No. 86-00554-R.

United States Bankruptcy Court, E.D. Virginia, Richmond Division.

April 21, 1987.

Robert E. Hyman, Richmond, Va., for debtor.

Bruce E. Arkema, Richmond, Va., for Johnston-Willis, Ltd.

Robert A. Canfield, Richmond, Va., trustee.

MEMORANDUM OPINION

BLACKWELL N. SHELLEY, Bankruptcy Judge.

This matter is before the Court on the filing by Johnston-Willis, Ltd. ("Johnston-Willis") of objections to the debtor's claimed exemption and motion requesting abandonment of property by the Trustee. After a hearing and upon the filing of briefs by counsel, this Court makes the following findings of fact and conclusions of law.

FINDINGS OF FACT

John Walter Duty ("Duty"), the debtor herein, was injured in an automobile accident on January 12, 1984. Duty was a passenger in a car owned by Mr. Nester ("Nester"), which was being driven with permission by Edward Meeks ("Meeks"). It appears that Meeks swerved to avoid a deer in the road and ran the car into a tree. Duty testified that he was asleep at the time and had no idea what caused the accident. Hospital records indicate that Duty was admitted to the Johnston-Willis Hospital emergency room on January 13, 1984. These records also indicate that at the time of admission Duty signed an "Assignment of Insurance Benefits" form. This is supported by the testimony of Sherry H. Antone, the emergency room secretary who witnessed Duty's signature of the assignment. Ms. Antone also testified that prior to signing the form, all patients are informed as to the nature and consequences of the assignment, because it provides for a mode of payment which must be arranged before the hospital provides treatment (except in life or death situations). Thus, Duty is charged with knowledge of the assignment to Johnston-Willis.

Duty remained at Johnston-Willis for three weeks where he underwent surgery and treatment for a broken neck and concussion. After being discharged on February 3, 1984, Duty visited the Johnston-Willis outpatient ward for x-rays on three separate occasions. On each occasion, Duty signed the identical assignment form and has never revoked any of them.

During this time, Duty retained an attorney to pursue a personal injury action against Meeks under Nester's automobile insurance coverage. Duty settled with Nester's insurance carrier sometime in 1985 for approximately $20,000. The proceeds of the settlement were placed in an escrow account held by Duty's attorney. From that account, Duty made payments on some of his obligations up to the time he filed his Chapter 7 petition.¹

The balance of Duty's account with Johnston-Willis for the three-week stay and three subsequent visits totaled $8,888.52. On April 11, 1985, however, Johnston-Willis obtained a summary judgment against Duty in the Circuit Court of the County of Chesterfield. The judgment was granted in the amount of $11,071.90 plus costs and interest at 12% per annum.

On March 21, 1986, Duty filed his petition in bankruptcy with this Court. On that date, Duty also executed and properly recorded a homestead deed claiming $4,143 of the personal injury proceeds as exempt property under Va.Code § 34-4. The remaining proceeds of the personal injury settlement were subsequently turned over to the Chapter 7 Trustee and now amount to $11,530 plus interest which has accrued since delivery to the Trustee.

On May 12, 1986, Johnston-Willis filed a proof of claim of $12,479.03 which represented the state court judgment plus interest and court costs. Johnston-Willis also filed an objection to Duty's claim of exemption and a motion for the Trustee to abandon property.² Johnston-Willis claims that the debt owed to it by Duty should be paid from the proceeds of Duty's personal injury settlement which are held by the Trustee. Johnston-Willis contends that Duty, at the time he entered the hospital and on three subsequent occasions, made an assignment of insurance proceeds in consideration for medical treatment. Johnston-Willis further contends that the insurance proceeds held by the Trustee should be abandoned and be given to Johnston-Willis because they were validly assigned well before Duty filed his bankruptcy petition. Duty and the Trustee, on the other hand, contend that the language of the assignment does not contemplate insurance proceeds received by an assignor from a third party's insurance coverage and that the assignments in question are prohibited by Virginia law.

CONCLUSIONS OF LAW

Virginia law provides that a right of action for a personal injury is nontransferable.³ Dillard v. Collins, 66 Va. (25 Grat.) 400, 401 (1874). Although this prohibition is well recognized, the scope of the interpretation of the rule has not been decided by the Virginia Supreme Court. At least one case, however, has determined that Va. Code Ann. § 8.01-26 may be limited to causes of action for personal injuries alone and may not be extended to an assignment of the settlement proceeds or insurance benefits thereof. See In re Musser, 24 B.R. 913, 920 (W.D.Va.1982).

The Musser decision is a consolidation of appeals on an identical question of law, that is, whether the proceeds from a personal injury settlement are assignable under Virginia law. The facts of the two appeals are strikingly similar to the instant case. In each instance, the debtor was injured in an automobile accident and was taken to the hospital where he signed an assignment form, since he did not have his own insurance. After each debtor settled his personal injury claim he filed a voluntary Chapter 7 petition claiming the proceeds of his personal injury settlement as exempt property under his homestead deed. The hospital in each case, sought to set aside the claimed exemptions contending that the proceeds of the personal injury settlements were effectively assigned to them.

The court, utilizing an equitable assignment theory, held that the prohibition against assignments of causes of action for personal injury does not proscribe a hospital from obtaining an equitable assignment of the sums to be recovered by an individual from a tortfeasor to the extent of the value of the services provided by the hospital in treatment of the individual's personal injuries. Musser, 24 B.R. at 922. A "legal assignment" is a manifestation of intent by the owner of a present right to make a present transfer of the right by virtue of which the assignor's right to performance by the obligor is extinguished and the assignee acquires a right to such performance. Musser, 24 B.R. at 919, citing, J. Calamari & J. Perillo, The Law of Contracts § 18-3 (2d ed. 1977); Restatement (Second) of Contracts § 317 (1981). While a transfer of something which does not exist is not a valid legal assignment, the doctrine of equity treats it differently. Musser, 24 B.R. at 919.

The Court reasoned that an assignment for value of a future right, such as money to be acquired in the future, is an equitable assignment. Equity will treat the purported assignment as a promise to assign, with equitable ownership vesting in the assignee as soon as the article is acquired by the assignor. Musser, 24 B.R. at 191, citing, Braxton v. Bell, 92 Va. 229, 236, 23 S.E. 289, 291 (1895). See also 3 Pomeroy, Equity Jurisprudence § 1288 (3rd ed. 1905). Because the equitable assignor retains exclusive control over his personal injury lawsuit and any settlement thereof, the equitable assignment of the proceeds to be recovered on the claim does not violate the basis of the nonassignability rule (i.e., the prevention of champerty⁴ and maintenance⁵). See Richard v. National Transportation Co., 158 Misc. 324, 285 N.Y.S. 870 (1936), cited with approval in In re Musser, 24 B.R. 913, 920 (W.D.Va.1982). Thus, the interpretation espoused by the Musser court distinguishes the assignability of causes of action for personal injuries and assignability of the proceeds gotten from such an action. The court then, through its equity power, ordinarily will order specific performance of the promise after the right comes into existence. Musser, 24 B.R. at 919.

In contrast to the Musser analysis, other jurisdictions have not drawn a distinction between assignability of causes of action and the assignability of the proceeds thereof. See e.g., Southern Farm Bureau Casualty Ins. v. Wright Oil Co., 248 Ark. 803, 454 S.W.2d 69 (1970); McGhee v. Charley's Other Brother, 161 N.J.Super. 551, 391 A.2d 1289, affirmed, 171 N.J.Super. 454, 410 A.2d 46 (1979); Allstate Ins. Co. v. Druke, 118 Ariz. 301, 576 P.2d 489 (1978). These jurisdictions believe that since the only value of a cause of action is its possible conversion into a collectible money judgment, there is no basis for distinguishing between the cause of action and its proceeds as far as assignability is concerned. Wright Oil Co., 248 Ark. at 809, 454 S.E.2d at 72. Although assignments may not expressly attempt to assign the cause of action itself, that may be the practical result. Thus, these courts believe that if the consequences of the two types of assignments are the same, it would follow that the policy considerations which proscribe the assignment of one would preclude the assignment of the other.

This Court believes that the assignment of proceeds of the personal injury cause of action sub judice is permissible under Virginia law. Duty controlled the handling of his personal injury suit from its inception to the settlement with Nester's insurance carrier. Johnston-Willis had no hand in the entire process. Also, Johnston-Willis did not finance or carry out the litigation. Duty's claim reached its fruition through the settlement, thus the policy considerations behind the nonassignability rule, the prevention of champerty and maintenance, never existed. The assignment by Duty of insurance proceeds to be acquired in the future is an equitable assignment that vested in Johnston-Willis as soon as they were acquired by Duty. Muss...