Mendelsohn v. Ross, 16-CV-2071 (JFB).

• Decision Date: 09 May 2017
• Docket Number: No. 16-CV-2071 (JFB).,16-CV-2071 (JFB).
• Parties: Allan B. MENDELSOHN, as Former Chapter 7 Trustee of the Estate of Barbara G. Ross, Appellant, v. Barbara G. ROSS, Appellee.
• Court: U.S. District Court — Eastern District of New York

251 F.Supp.3d 518

Allan B. MENDELSOHN, as Former Chapter 7 Trustee of the Estate of Barbara G. Ross, Appellant,

v.Barbara G. ROSS, Appellee.

No. 16-CV-2071 (JFB).

United States District Court, E.D. New York.

Signed May 9, 2017

Holly R. Holecek, Salvatore LaMonica, LaMonica, Herbst & Maniscalco, L.L.P., Wantagh, NY, for Appellant.

Michael G. McAuliffe, Melville, NY, for Appellee.

MEMORANDUM AND ORDER

Joseph F. Bianco, District Judge

Pending before the Court is an appeal by Allan B. Mendelsohn, as Former Chapter 7 Trustee of the Estate of Barbara G. Ross ("appellant") from the April 14, 2016 Order of the Honorable Robert E. Grossman, United States Bankruptcy Judge (the "Bankruptcy Order"), denying the motion of appellant to reopen the Chapter 7 proceeding of debtor Barbara G. Ross ("appellee") to administer certain valuable property of the estate. (ECF No. 1.) At issue in the appeal is whether, under 11 U.S.C. § 541 (" § 541"), the Bankruptcy Court erred by finding that certain settlement proceeds did not constitute property of appellee's estate because no cause of action had accrued as of the date appellee filed her bankruptcy petition.

For the reasons set forth below, the Court affirms the April 14, 2016 Order and denies the appeal.

I. BACKGROUND

The following facts and procedural history are relevant to the instant appeal.

A. The Bankruptcy Court Proceedings

Appellee filed a voluntary petition under Chapter 7 of the Bankruptcy Code on November 23, 2004. (R.¹ at 5.) She did not schedule an interest in a product liability claim or a personal injury claim on her voluntary petition or schedules. (See id. at 8–26.)

By order dated July 22, 2005, the Bankruptcy Court approved a stipulation of settlement between appellant and appellee with respect to appellant's claims in the appellee's real property located at 150 Main Street, Unit 1D, Islip, New York 11751. (Id. at 60–61.) The funds from this settlement were distributed to appellee's creditors. (Id. at 63–65.) The general unsecured claims of appellee's estate totaled $49,626.13, and general unsecured creditors received a pro rata distribution of approximately 23% on account of their allowed claims. (Id. ) By order dated March 22, 2005, appellee received a discharge. (Id. at 143.) The bankruptcy proceeding was closed as an "Asset" case by Final Decree issued on August 2, 2006. (Id. at 141.)

By motion dated September 30, 2015, appellant sought the entry of an order reopening the bankruptcy proceeding to administer an undisclosed asset, namely, a product liability claim for personal injuries sustained by appellee that resulted from a pre-petition medical procedure involving the implantation of a defective medical device. (Id. at 143–44.) Appellee objected to the motion, arguing that the cause of action arose post-petition. (Id. at 148.) In particular, appellee stated that she underwent a surgery whereby the medical device at issue—a mesh pelvic sling (the "medical device")—was implanted in 1999. (Id. at 150.) On July 13, 2011 (nearly five years after the bankruptcy proceeding was closed), the FDA issued an advisory opinion regarding possible defects with the medical device. (Id. ) In 2012, appellee became aware of the possible defects, and contacted a product liability counsel with respect to asserting a claim in connection with those defects. (Id. ) Appellee subsequently asserted a product liability claim, which resulted in a settlement award in the amount of $105,172.26 (the "settlement proceeds"). (Id. at 169.)

Appellee argued that, based on these facts, a cause of action unquestionably arose not only post-petition, but "five years after the [bankruptcy proceeding] was closed," thus making it impossible that the settlement proceeds were property of the estate involved in the bankruptcy proceeding. (Id. at 150.) In response, appellant argued that when debtor became aware of her claim is irrelevant, and that, because the settlement proceeds arose solely out of pre-petition conduct, they were sufficiently rooted in appellee's pre-bankruptcy past to be considered property of her estate. (Id. at 167.)

A hearing on the motion to reopen was conducted on February 3, 2016. By the Bankruptcy Order at issue in the instant action, the Bankruptcy Court denied appellant's motion to reopen. (Id. at 197.) The court determined that no cause of action had accrued as of the petition date, and, therefore, the settlement proceeds did not constitute property of appellee's estate. (Id. at 197.) Specifically, the court reasoned that, in assessing whether potential tort claims constitute property of a debtor's estate, "the proper focus is on whether there was a viable cause of action the Debtor could bring under applicable law on the date the petition was filed." (Id. at 184.) In such cases, the court continued, "regardless of what the Debtor knew, [ ] that cause of action and all its proceeds would constitute property of the estate." (Id. ) If, on the other, "no cause of action had matured, it is irrelevant whether the Debtor ultimately develops an injury: the cause of action resulting from that injury would not be property of the estate." (Id. )

B. The Appeal

Appellant filed a Notice of Appeal of the Bankruptcy Order on April 25, 2016. (ECF No. 1.) The Notice of Bankruptcy Record Received was filed on June 14, 2016. (ECF No. 2.) Appellant filed his brief in support of his appeal ("Appellant Br.") on August 16, 2016. (ECF No. 4.) Appellee filed her opposition ("Appellee Br.") on September 15, 2016. (ECF No. 6.) Appellant did not file a reply brief. The Court has fully considered the parties' submissions.

II. STANDARD OF REVIEW

This Court has jurisdiction to hear appeals from bankruptcy courts under 28 U.S.C. § 158(a), which provides that "[t]he district courts of the United States shall have jurisdiction to hear appeals ... from final judgments, orders, and decrees; ... [and] with leave of the court, from other interlocutory orders and decrees ... of bankruptcy judges." 28 U.S.C. § 158(a)(1), (3). Part VIII of the Federal Rules of Bankruptcy Procedure outlines the procedure governing such appeals. Fed. R. Bankr. P. 8001. The Court will review the Bankruptcy Court's legal conclusions de novo and its factual findings for clear error. See In re Hyman , 502 F.3d 61, 65 (2d Cir. 2007).

III. DISCUSSION

Appellant argues that vacatur of the Bankruptcy Order and remand to the Bankruptcy Court is warranted because the court incorrectly concluded that the settlement proceeds were not property of appellee's bankruptcy estate. For the following reasons, having conducted a de novo review, the Court disagrees and affirms the decision of the Bankruptcy Court.

A. Applicable Law

A bankruptcy estate is created upon the filing of a Chapter 7 bankruptcy petition. Section 541 of the Bankruptcy Code provides that the bankruptcy estate encompasses "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). "[E]very conceivable interest of the debtor, future, nonpossessory, contingent, speculative, and derivative, is within the reach of § 541." In re Yonikus , 996 F.2d 866, 869 (7th Cir. 1993), cited with approval , Chartschlaa v. Nationwide Mut. Ins. Co. , 538 F.3d 116, 122 (2d Cir. 2008). There is a "broad and liberal construction of the term ‘property’ that has been adopted with a view to securing for creditors everything of value belonging to the bankrupt ...." In re Robbins Converting Corp. , 441 F.2d 1096, 1098 (2d Cir. 1971) ; see also In re Prudential Lines, Inc. , 928 F.2d 565, 573 (2d Cir. 1991) (finding decision that property at issue was property of bankruptcy estate was "consistent with Congress' intention to bring anything into the estate" (citation omitted)); In re Kokoszka , 479 F.2d 990, 994–95 (2d Cir. 1973) (acknowledging "a very narrow exception to the general proposition that everything of value passes to the trustee" exists with respect to "weekly or other periodic income required by a wage earner for his basic support").

Interests under § 541 include "causes of action possessed by the debtor at the time of filing." Jackson v. Novak , 593 F.3d 171, 176 (2d Cir. 2010) ; United States v. Whiting Pools, Inc. , 462 U.S. 198, 203, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). To determine whether a cause of action was possessed by the debtor at the time of filing, courts must examine whether such claims had accrued at the time of filing. See Osborne v. Tulis , 594 Fed.Appx. 39, 40 (2d Cir. 2015). Generally, "a right accrues when it comes into existence," United States v. Lindsay , 346 U.S. 568, 569, 74 S.Ct. 287, 98 L.Ed. 300 (1954) —i.e. , "when the plaintiff has a complete and present cause of action." Wallace v. Kato , 549 U.S. 384, 388, 127 S.Ct. 1091, 166 L.Ed.2d 973 (2007) ; Aetna Life & Casualty Co. v. Nelson , 67 N.Y.2d 169, 175, 501 N.Y.S.2d 313, 492 N.E.2d 386 (1986). The law governing the accrual of such a claim naturally controls this analysis. Osborne , 594 Fed.Appx. at 40. Here, the parties do not dispute that the claim did not accrue pre-petition because appellee did not sustain an injury, as required in product liability claims.

There are exceptions to the rule that "[b]ecause assets within the estate are those that exist ‘as of the commencement of the case,’ property acquired by the debtor after the filing of a bankruptcy petition generally does not become part of the estate." Chartschlaa , 538 F.3d at 122 ; see also Bell v. Bell , 225 F.3d 203, 215 (2d Cir. 2000) ("Unlike pre-petition claims, claims which accrue to the debtor post-petition generally will not adhere to the estate and remain actionable by the debtor"). Where property, including legal claims, is acquired post-petition, courts must employ a different analysis, whereby "[p]ost-petition property will become property of the estate only if it is ‘sufficiently rooted in the pre-bankruptcy past.’ " Id. (quoting Segal v. Rochelle , 382 U.S. 375, 380, 86 S.Ct. 511, 15 L.Ed.2d 428 (19...