In re Sheikhzadeh, Case No. 14-14219-BFK
Decision Date | 26 June 2018 |
Docket Number | Case No. 14-14219-BFK |
Court | United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia |
Parties | In re: JAVAD SHEIKHZADEH, Debtor. |
On April 2, 2018, the Chapter 7 Trustee in this case, Donald F. King, filed a Motion to Approve Settlement pursuant to Bankruptcy Rule 9019. Docket No. 55. The Debtor filed an Objection to the Trustee's Motion. Docket No. 57. The Trustee filed a Reply Memorandum. Docket No. 58. The Court heard the evidence and the arguments of the parties on April 24, 2018. For the reasons stated below, the Court will overrule the Debtor's Objections and will grant the Trustee's Motion.
The Debtor, Javed Sheikhzadeh, has been the subject of seven different bankruptcy cases in this Court. They are:
Despite the Debtor's lack of success in Chapter 13 - four dismissals, two with prejudice - it is only this case, Case No. 14-14219-BFK, that concerns the Court at this juncture.
1. On April 10, 2014, before this case was filed, the Debtor filed an action for medical malpractice against Inova Healthcare Services, d/b/a Inova Fairfax Hospital, in the Circuit Court of Fairfax County. Civil Action No. 2014-04914; Tr. Ex. 1, at Ex. C.1
2. On June 10, 2014, also before this case was filed, the Debtor filed a separate action against Infectious Diseases Physicians, Inc., in the Circuit Court of Fairfax County. Civil Action No. 2014-7832; Tr. Ex. 1, at Ex. B. 3. Both cases alleged medical negligence on the parts of the providers during the period April 11, 2012, through and including June 26, 2012. Tr. Ex 1, at Ex B, ¶ 3; Id. at Ex. C, ¶ 3.
4. The Debtor was represented in both cases by Harvey Volzer of the law firm of Shaughnessy & Volzer, P.C.
5. Both cases were non-suited in October 2014, before this bankruptcy case was filed.2
6. On November 12, 2014, the Debtor filed a Voluntary Petition under Chapter 7 in this case. Case No. 14-14219-BFK. Docket No. 1.
7. The Debtor was represented in this case by Amir Raminpour of the law firm of Raminpour Lee, LLP.
8. In his "Asset Intake" form, which the Debtor signed and delivered to Mr. Raminpour's office, the Debtor stated "No" when asked whether he possessed any medical malpractice claims. Tr. Ex. 3.
9. Despite having engaged Mr. Volzer's firm to handle the medical malpractice cases, having filed two lawsuits and having suffered non-suits within a month of the filing of his Petition in this case, the Debtor did not list the medical malpractice claims in his Schedules, nor did he file a claim of exemptions with respect to the medical malpractice claims. Docket No. 1, Schedule B, Schedule C.3 10. The Chapter 7 Trustee filed a Report of No Distribution. The Debtor received a discharge and the case was closed on March 2, 2015. Docket Nos. 13, 22, 24.
11. The Debtor re-filed the two medical malpractice actions on February 15, 2015, while the bankruptcy case was still pending. Civil Action 2015-1589; Civil Action 2015-41590. Tr. Ex. 2, at 5.
12. Ultimately, the Circuit Court of Fairfax County dismissed both of the medical malpractice actions with prejudice on July 24, 2015.
13. On June 18, 2015, while the medical malpractice cases were pending, the Debtor, through Mr. Raminpour, filed a Motion to Reopen the bankruptcy case. Docket No. 25.
14. The Court granted the Motion to Reopen on July 29, 2015 (five days after the dismissal of the medical malpractice claims with prejudice on July 24th). Docket No. 30.
15. The Debtor filed an Amended Schedule B, in which he listed the medical malpractice claims as assets. Docket Nos. 27, 32.4
16. The Chapter 7 Trustee again filed a Report of No Distribution, and the case was closed for the second time on August 11, 2015. Docket Nos. 33, 34.
17. On April 21, 2017, the Debtor filed a legal malpractice action against Mr. Volzer and Mr. Raminpour and their respective law firms in the Circuit Court of Fairfax County. Civil Action No. 2017-05765.
18. Shortly thereafter, on June 26, 2017, the U.S. Trustee filed a Motion to Reopen the case for the second time. Docket No. 35.
19. The Debtor objected to the Motion to Reopen on the grounds that the legal malpractice action was not property of the estate and, alternatively, that the legal malpractice claims were exempt. Docket No. 39.
20. The Court granted the Motion to Reopen. Docket No. 43.
21. On April 2, 2018, the Trustee filed a Motion for Approval of a Settlement with the attorneys pursuant to Bankruptcy Rule 9019. Docket No. 55.
22. The Debtor objected to the proposed settlement. Docket No. 57.
23. The Trustee filed a Reply Memorandum in support of the settlement. Docket No. 58.
24. The Court heard the evidence and the arguments of the parties on April 24, 2018.5
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the Order of Reference entered by the U.S. District Court for this district on August 15, 1984. This is a core proceeding under 28 U.S.C. §§157(b)(2)(A) ( ), (B) (allowance or disallowance of exemptions from property of the estate) and (M) (orders approving the use of property).
As noted above, the Court has already overruled the Debtor's objections as to the reasonableness of the settlement. The Debtor's remaining grounds for objection are: (a) the legal malpractice claims are not property of the estate; and (b) in the alternative, the legal malpractice claims are exempt as the "proceeds" of the medical malpractice claims.6 The Court will address both of the issues, in turn.
When a bankruptcy case is filed an estate is created. 11 U.S.C. § 541(a)(1). In a Chapter 7 case, the estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." Id. The Courts widely recognize that pre-petition claims for medical malpractice and legal malpractice are property of the estate. In re Richman, 117 F.3d 1414 (4th Cir. 1997) (table decision) (legal malpractice claim); Labgold v. Regenhardt, 573 B.R. 645 (E.D. Va. 2017) (legal malpractice claim); In re Hall, 415 B.R. 911, 921 (Bankr. M.D. Ga. 2009) (medical malpractice claim); In re Zaidi, 293 B.R. 861, 862-3 (Bankr. E.D. Va. 2002) (medical malpractice claim). The issue here is whether the Debtor's legal malpractice claims are pre-petition claims.
The Fourth Circuit has adopted the test set forth by the Supreme Court in Segal v. Rochelle, 382 U.S. 375 (1966), of whether the debtor's cause of action is "sufficiently rooted" in the debtor's pre-petition activities. In re Andrews, 80 F.3d 906 (4th Cir. 1996). The Andrews case involved a debtor's interest in a non-competition agreement that arose out of the pre-petition sale of the debtor's business. The debtor argued that, because he was required to comply with the terms of the agreement and not to compete with the purchaser post-petition, his earnings were not property of the estate under Section 541(a)(6) of the Code. The Fourth Circuit, relying on Segal, held that the payments due to the debtor were sufficiently rooted in the debtor's pre-bankruptcy past and, therefore, were property of the estate. Id. at 910-11. See also In re Shearin, 224 F.3d 346, 351 (4th Cir. 2000) ( ); Field v. Transcon. Ins. Co., 219 B.R. 115, 119 (E.D. Va. 1998) ( ); In re Townside Construction, Inc., 582 B.R. 407, 416 (Bankr. W.D. Va. 2018) ( ); In re Gnadt, No. 11-10378-BFK, 2015 WL 2194475 ( ).
The Court will examine both sets of claims against the attorneys.
The Debtor alleges that Mr. Raminpour knew of, and failed to include, the Debtor's medical malpractice claims in his Schedules when he filed for bankruptcy. Tr. Ex. 1, Circuit Court Compl., ¶¶ 29 (), 39 ("Raminpour failed to include the Plaintiff's claims, or potential claims, against the aforesaid healthcare providers in his Bankruptcy Schedules"). The District Court for this district addressed similar claims in the Labgold case.
In Labgold, the attorney was accused of failing to list a pre-petition transfer of property that ultimately led to the denial of the debtor's discharge. 573 B.R. at 648. Even...
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