In re Grundmeyer, CASE NO. 18-11238
| Decision Date | 24 July 2019 |
| Docket Number | CASE NO. 18-11238 |
| Citation | 605 B.R. 426 |
| Parties | IN RE: Preston J. and Gayle E. GRUNDMEYER, Debtors |
| Court | U.S. Bankruptcy Court — Eastern District of Louisiana |
Rachel Thyre Anderson, Covington, LA, for Debtors.
Eric J. Derbes, The Derbes Law Firm, LLC, Wilbur J. (Bill) Babin, Jr., Metairie, LA, for Trustee.
This matter came before the court as a hearing on the motion of the Chapter 7 Trustee to reopen the bankruptcy case, withdraw the report of no distribution, re-appoint the Trustee, and waive the filing fee (P-19). The Trustee alleges in his motion that the debtor has filed a claim in state court related to a product liability suit and that such claim was unscheduled in the debtor's bankruptcy case. Although the Trustee's motion does not actually ask for turnover of funds, the Trustee asks that the case be opened so he can administer funds related to the state court personal injury suit. Because the court finds that under the very specific set of facts presented in this case the debtor's litigation rights are not property of the estate, the motion is denied.
The facts which gave rise to this contested matter are not seriously disputed, and the court finds them to be as follows. The debtors, Preston and Gayle Grundmeyer, filed their petition for relief under Chapter 7 of the U.S. Bankruptcy Code on May 14, 2018. The Trustee filed a notice of disclaimer and abandonment on June 26, 2018, and the debtors received their discharge on August 27, 2018. On August 30, 2018 the case was closed. On March 28, 2019, the Trustee filed his motion to reopen the case alleging that debtor Preston Grundmeyer had filed a lawsuit in state court on December 11, 2018 seeking damages for exposure to benzene and benzene containing products that had caused him to develop Non-Hodgkin's Lymphoma
and other physical injuries. The Trustee also has alleged that as a result of this suit, the debtor will receive a distribution in an amount sufficient for administration, and that the debtor's interest in these claims was not disclosed in his schedules.
The debtors filed an objection to the motion to reopen stating that Mr. Grundmeyer had not received his diagnosis until after the bankruptcy case had closed, so there was no claim to disclose on the bankruptcy schedules. Also, and important to the court's analysis, Mr. Grundmeyer had an unrelated diagnosis of renal cancer
prior to the bankruptcy case. As a result of the renal cancer Mr. Grundmeyer received frequent monitoring by his doctors to ensure that if the renal cancer recurred, it would be caught in a timely fashion. The debtors included with their objection copies of medical reports dated January 31, 2018, March 6, 2018, and May 21, 2018, that all showed that as of these dates Mr. Grundmeyer had not yet been diagnosed with the Non-Hodgkin's Lymphoma. Also included was a copy of the September 2018 diagnosis of the Non-Hodgkin's Lymphoma. The debtors also included a copy of the state court suit, which alleges that Mr. Grundmeyer was exposed to the products causing his injuries in the 1960s and 1970s, and that he was diagnosed with Non-Hodgkin's Lymphoma on September 24, 2018, and that he learned of the connection between his diagnosis and possible benzene exposure in November 2018. The September 24, 2018 diagnosis occurred after the bankruptcy case was closed on August 30, 2018.
The Trustee argues that the personal injury claim of Preston Grundmeyer is property of the estate, because it originated in pre-petition exposure to benzene. The debtors argue that the claim is not property of the estate because the Non-Hodgkin's Lymphoma
developed post-petition, and the lawsuit could not have been filed until Mr. Grundmeyer sustained damages, i.e. the time when he developed a medical problem on September 24, 2018 connected with Non-Hodgkin's Lymphoma.
Section 541(a)(1) of the Bankruptcy Code classifies property of the estate as "all legal or equitable interests of the debtor in property as of the commencement of the case." In Matter of Burgess , 438 F.3d 493 (5th Cir. 2006), the U.S. Fifth Circuit Court of Appeals stated:
Thus, the scope of § 541 is broad: that section brings into the estate all of the debtor's legal and equitable interests "wherever located and by whomever held." However, the Code also provides a temporal limitation: property of the estate is determined at "[t]he commencement of the case." The case is commenced, and the estate created, when the bankruptcy petition is filed.
In Burgess , the debtor was a farmer who suffered a pre-petition crop loss. Post-petition, the Agricultural Assistance Act of 2003 was passed. Under that Act the debtor qualified for funds to compensate him for his pre-petition crop loss. The Fifth Circuit held that the funds were not the property of the bankruptcy estate because the payment was not property of the estate under § 541(a)(1) or "proceeds" of property of the estate under § 541(a)(6). A rehearing en banc was granted and the majority of the court determined the question presented was temporal and posed the question: 1 The Fifth Circuit determined that the latter combination of events gave the debtor an interest in the refund. The court held that although the scope of § 541 is broad, bringing into the estate, "all of the debtor's legal and equitable interests wherever located and by whomever held," the Code, 2 Because the legislation providing the payment was not enacted until after the debtor had filed for bankruptcy the debtor "had no interest, contingent or otherwise, in the disaster-relief payment when he filed his bankruptcy petition."3
In Burgess, the Chapter 7 Trustee argued that the disaster relief payments were the property of the bankruptcy estate for two reasons. The Trustee first argued that through the loss of his crop, Burgess had a contingent interest in the post-petition relief payment at the time of the bankruptcy. The Fifth Circuit rejected this argument for two reasons. First, the Supreme Court in Segal v. Rochelle used the "sufficiently rooted test" to support its classification of the payment to the debtor as property of the estate.4 The Burgess court held that the "sufficiently rooted test" used in Segal had not survived the enactment of the Bankruptcy Code because § 541 clearly defines what is property of the estate.5 Second, the majority distinguished Segal from the situation in Burgess because in Segal the debtor did have a pre-petition legal interest in the property.6 In Segal the tax legislation in question was enacted before the debtor filed his petition. That legislation, 7 By contrast, although the crop loss in Burgess was suffered pre-petition, the relevant legislation was not passed until after the bankruptcy petition was filed. In reaching this conclusion, the Burgess court followed the analysis of the Eighth Circuit in In re Vote , the Ninth Circuit in In re Schmitz , and the Middle District of Georgia in In re Bracewell.8 These courts had determined that the definition of property at the commencement of the case was temporal and that "a mere hope that crop-disaster-relief legislation would be enacted" was not enough to constitute an interest, "contingent or otherwise," at the time of filing.9 The Trustee in Burgess also argued that the crop loss itself was property of the estate and the relief payment constituted proceeds of that property. The Fifth Circuit rejected this argument as well."10 Burgess was a close decision, and the minority issued a lengthy dissent that pointed out, among other things, that under Louisiana state law the crop insurance payment received by the debtor would have been proceeds (as defined by the Louisiana version of the UCC) that should have come into the estate under § 541(a)(6). The majority in Burgess rejected this analysis.
The bankruptcy cases cited by the debtor are instructive as to how other bankruptcy courts have generally ruled when a debtor has a tort claim that may include both pre and post-petition elements. Many of the cases that address whether a personal injury claim is property of the estate look to when the cause of action accrues, and this is determined by underlying state law.11 Then many of them look to Segal v. Rochelle, 382 U.S. 375, 86 S.Ct. 511, 15 L.ed.2d. 428 (1966), to determine whether the property interest existed before the debtor filed the bankruptcy petition.12
In re Purcell , 573 B.R. 859 (Bankr.D.Kan. 2017) concerned a debtor who had a personal injury claim stemming from a faulty pelvic mesh device that was implanted after the debtor received her discharge, but while the bankruptcy case was still open. The debtor did not have an injury from the device until over a year after the case had closed, however, and so the court found that under Kansas law, which requires an injury to be "reasonably ascertainable to the injured party" for the statute of limitations to begin to run on a tort claim, the debtor's personal injury claim was not property of the estate. The Purcell court reasoned that because the device was not implanted until three years after the Chapter 13 case was filed, and after the debtor received her discharge, but before the case could be closed, under both Kansas law and the ...
To continue reading
Request your trial