In re Schmelzer

Citation350 F. Supp. 429
Decision Date21 September 1972
Docket NumberNo. 55383.,55383.
PartiesIn the Matter of Raymond Cecil SCHMELZER, Bankrupt.
CourtU.S. District Court — Southern District of Ohio

E. Bruce Hadden, Jarrell Murchison, Campbell & Hadden, Columbus, Ohio, for bankrupt.

Larry E. Staats, Columbus, Ohio, for the Trustee.


CARL B. RUBIN, District Judge.


This matter is before the Court on a petition for review from an order of the Referee in Bankruptcy denying the bankrupt's application that an unliquidated cause of action for personal injury in tort be deemed exempt property within the meaning of Section 70a(5) of the Bankruptcy Act, 11 U.S.C. § 110(a)(5). The Referee, following In re Borchers, 17 Ohio Misc. 146, 46 Ohio O.2d 217 (1968) (per Referee Kelleher), aff'd., October 23, 1970 (S.D.Ohio, E.D.), denied the application and held that the cause of action was "property" within the meaning of the Bankruptcy Act which passed to a trustee in bankruptcy.

The facts of this case are quite straightforward and are well presented in the detailed opinion of the Referee denying the objections of the bankrupt. Briefly summarized, they are as follows: On December 13, 1968, Raymond Cecil Schmelzer, the bankrupt herein, was involved in an automobile accident in which he sustained serious injuries. He filed suit1 against the other drivers involved in the collision on October 27, 1969, praying for damages of Seventy-five Thousand ($75,000.00) Dollars for property damage, medical expenses, loss of earnings, and pain and suffering. This personal injury suit was pending when Schmelzer filed his petition for bankruptcy herein on June 23, 1971. On Schedule B-5 of his petition in bankruptcy, he claimed exempt status for his personal injury claim. This exemption was contested by the trustee in his report of exempt property. The bankrupt's objection to this report was overruled by the Referee in his order of November 29, 1971, and this review was subsequently perfected from that order.

Section 70(a)(5) of the Bankruptcy Act states in pertinent part as follows:

§ 70. Title to Property (a) The trustee of the estate of a bankrupt . . . upon his . . . appointment and qualification, shall . . . be vested by operation of law with the title of the bankrupt as of the date of the filing of the petition initiating a proceeding under this title, except insofar as it is to property which is held to be exempt, to all of the following kinds of property . . . (5) property, including rights of action, which prior to the filing of the petition he could by any means have transferred or which might have been levied upon and sold under judicial process against him, or otherwise seized, impounded or sequestered: Provided, That rights of action ex delicto for . . . injuries to the person of the bankrupt . . . shall not vest in the trustee unless by the law of the State such rights of action are subject to attachment, execution, garnishment, sequestration, or other judicial process . . . (emphasis added)

It will be noticed that there are several distinct aspects to this provision. Subsection 5 of Section 70(a) provides that in general, causes of action which are transferable or which can be levied upon and sold under judicial process, are property which pass to the trustee in bankruptcy. The first clause of the proviso, which was added to this section as an amendment in 1938, specifically excludes from this general rule ex delicto actions, including actions in tort for personal injury, from vesting in the trustee. This clause, however, is modified by the second clause of the proviso which allows the general rule of Subsection 5 to apply to those actions, which under state law, are subject to attachment, execution, garnishment, sequestration or "other judicial process."

We agree with the Referee who, in In re Borchers, supra, characterized this statutory provision as a "verbalized shell game" of "now you see it, now you don't." 46 Ohio O.2d at 221. We also, however, agree with the interpretation of these provisions as found in McNeilly v. Furman, 8 Terry 565, 47 Del. 565, 95 A.2d 267, 35 A.L.R.2d 1436 (1953) where the Court stated:

. . . in respect of all rights of action except those enumerated in the proviso, either assignability or liability to seizure by judicial process is the general test of the trustee's title; the specific actions named in the proviso, however, do not pass to the trustee unless subject to seizure by judicial process.

95 A.2d at 268, 35 A.L.R.2d at 1439. We therefore conclude that this present appeal is governed solely by the language of the second clause of the proviso to Section 70(a)(5); Ohio law is therefore controlling. See 4A Collier, Bankruptcy, ¶ 70.28(3) (14th ed. 1971).

Since the parties are in agreement that an unliquidated personal injury claim is not subject, under Ohio law, to attachment, garnishment or sequestration, the only question before this Court is whether, in Ohio, such an action is subject to seizure by "other judicial process" and especially by a creditor's bill.2 The Ohio authorities are divided on this question. Compare In re Borchers, supra, Strouss-Hirshberg Co. v. Davidson, 19 O.Law Abs. 225 (Ct.App. Mahoning Cty.1935) and Rubin, Note, Bankruptcy—Rights of Trustee—unliquidated cause of action for personal injury, 18 West Res.L.R. 1025 (1967), which indicate an affirmative answer to this question, with Alms & Doepke Company v. Johnson, 98 Ohio App. 78, 128 N.E.2d 250, 57 Ohio O. 177 (Ct.App. Hamilton Cty.1954) and Haines v. Public Finance Corp., 7 Ohio App.2d 89, 218 N.E.2d 727, 36 Ohio O.2d 198 (Ct.App. Summit Cty.1966), which would suggest a negative one. Because of the indefinite state of Ohio law in this area, we will review the applicable cases in light of evolving concepts of property within the meaning of Section 70 of the Bankruptcy Act.

Our analysis of this question must begin with reference to the assignability of personal injury torts as Ohio law, in this area, developed along the lines of this rubric. It has been the law in Ohio from a very early date that personal torts, in the absence of a statute allowing the survival of these claims, are not capable of assignment. See Grant, v. Ludlow's Adm'r, 8 Ohio St. 1, 38 (1857).3 The Ohio survival statute in existence at the time Grant was decided did not extend to cases in tort ex delicto. The Grant court, therefore concluded in a presumptive manner, and without extended analysis, that unliquidated and unvested personal torts were not assignable. The creation of a cause of action for wrongful death was not deemed sufficient to alter the applicability of this general rule. See Village of Cardington v. Adm'r of Fredericks, 46 Ohio St. 442, 448-449, 21 N.E. 766 (1889).

At the time Cincinnati v. Hafer, 49 Ohio St. 60, 30 N.E. 197 (1892) was decided, the Ohio survival statute had not yet been broadened to include causes of action involving injury to person. The statutes then in effect, however, did provide that a cause of action to the real or personal property of a decedent did survive to his estate. See, id., at 66, 30 N. E. 197. In Cincinnati v. Hafer, the facts were as follows: A Mrs. Teetor had a claim against the defendant city for damage to her property caused by the city's drainage system. She was also a judgment debtor to one Hafer. Hafer filed a creditor's bill seeking to acquire a lien on an amount, which if recovered by Mrs. Teetor in her suit against the city, would be sufficient to satisfy her indebtedness to him. Mrs. Teetor ultimately won her suit against Cincinnati. The city, which was unaware of Hafer's pending bill against Teetor because court records had been destroyed by a fire in 1884, paid Mrs. Teetor on her judgment. Hafer then sued the city for monies which it should have withheld because of his pending creditor's bill.

The Supreme Court of Ohio posed the question before it as "whether Mrs. Teetor's demand against the city for unliquidated damages was of such a nature that, before it was reduced to judgment, Hafer, a judgment creditor, could, by a suit in the nature of a creditors' bill against her and the city of Cincinnati, acquire a lien in equity on her interest in such demand, and become entitled to payment of the same, in the event of succeeding in his suit." Id., at 64-65, 30 N.E. at 198. The Court, relying on Grant v. Ludlow's Adm'r, supra, and Village of Cardington v. Adm'r of Fredericks, supra, was of the opinion that a creditor's bill could be employed in this fashion and held:

Mere personal torts die with the party, and are not assignable, but where the action is brought for damage to the estate, and not for injury to the person, personal feelings, or character, and the right of action survives to the personal representative, it may be assigned so as to pass an interest to the assignee . . .
Choses in action arising out of a tort or injury to property being transmissible as assets to the executor or administrator, and assignable by the owner, it may well be inquired why the interest which the owner has in such rights of action should not be subjected to the payment of his debts at the suit of a judgment creditor, as well as his interest in any other chose in action.

Id., at 66, 30 N.E., at 198-199. Mrs. Teetor's unliquidated claim for damages based upon tort to property was therefore made subject to Hafer's creditor's bill.

There is a strong suggestion in Hafer, as dicta, that an action by way of a creditor's bill would have been a proper procedure against a claim for personal injuries which had "become due" within the meaning of the creditor's bill statute. Id., 49 Ohio St. at 67, 30 N.E. at 199.4 However, since this concept was expressly rooted in the holding of Grant, supra, it is fair to conclude that the creditor's bill could only extend against a personal injury claim that had become liquidated or that had vested. See, Grant v. Ludlow's Adm'r, supra, 8 Ohio St. at 38; Cincinnati v. Hafer, supra, 49 Ohio St. at 68, 30...

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