Polis v. Getaways, Inc.
| Decision Date | 30 December 1998 |
| Docket Number | No. 98 C 5001.,98 C 5001. |
| Parties | Mary L. POLIS, Appellant, v. GETAWAYS, INC., doing business as Global Excursions, Appellee. |
| Court | U.S. District Court — Northern District of Illinois |
Sara E. Lorber, Federal Trade Commission, Assistant Regional Director, Daniel A. Edelman, Edelman & Combs, Samuel Z. Goldfarb, Attorney at Law, Chicago, IL, for appellant.
Daniel J. Zollner, Debra A. Osmond, Lord, Bissell & Brook, Chicago, IL, for appellee.
Mary L. Polis appeals from an order of the bankruptcy court allowing her to exempt only $900 of any future proceeds of a cause of action brought by her against a creditor. I affirm.
Polis filed for relief under Chapter 7 of the Bankruptcy Code (hereinafter "Code") in December 1997 and a trustee was appointed. Among the creditors Polis identified in her initial filings is Getaways, Inc. (hereinafter "Getaways"), a travel packager listed as having an undisputed claim of $5,995. The trustee held a Section 341 creditors' meeting and filed a no asset report on February 9, 1998.
Three days later, Polis amended her asset schedule (schedule B) to list as personal property a number of causes of action against Getaways for violation of certain consumer fraud laws. Explaining that the value of these not-yet-filed claims was at best speculative, she characterized their value as "unknown" on the asset sheet. She also listed the causes of action in her amended schedule of exempt property (schedule C) as part of the $2000 "wildcard" exemption she is permitted under Illinois law. 735 ILCS 5/12-1001(b). Under that exemption, she claimed $1,100 of personal property and also 100 percent of the value of the causes of action. Thirty days passed without objection, the bankruptcy court entered a discharge order, and the case was closed on April 2, 1998.
It turned out, however, that Polis had not notified the trustee or Getaways of its amended schedules and, when they cried foul, the Bankruptcy Judge reopened the case. He did so to consider whether the value of the causes of action exceeded the $900 left to Polis under the wildcard exemption. At the hearing, he considered evidence that Getaways had offered $1,500 to settle the case and that the trustee had rejected the amount. The court held that Polis could not exempt the entire claim, that it remained an asset of the estate and thus controlled by the estate, and that Polis could exempt only her interest in any proceeds of the cause of action, which equals anything up to the $900 remaining in her wildcard exemption allowance.
The context of this case can be inferred from the current state of the law and of the docket of the Northern District of Illinois. In the last few years, there have been a large number of class actions filed to enforce the Truth in Lending Act (TILA) and the Fair Debt Collection Act. See, e.g., Wilborn v. Dun & Bradstreet Corp., 180 F.R.D. 347 (N.D.Ill.1998); Jenkins v. Union Corp., 999 F.Supp. 1120 (N.D.Ill.1998); Ball v. Nationscredit Financial Services Corp., 207 B.R. 869 (N.D.Ill.1997). It is reasonable to believe that many of these cases arise from bankruptcy filings. Many who seek the protection of bankruptcy court have outstanding loans from financial institutions and have been the subject of collection efforts by those institutions and other creditors. When they seek bankruptcy it is likely that, for the first time, a lawyer will examine the loan documents and the collection letters. If that lawyer perceives a cause of action, the lawyer may pursue the case or refer the client to a specialist in the field. While there is not all that much to be had from individual claims, an undisclosed claim may form the basis for a class action.
Few persons or institutions in this country would want to be a defendant in a class action, and lenders and debt collectors are no exception. By virtue of adopting certain practices they can diminish their risk of being subject to class actions. Many lenders are using arbitration agreements to push TILA disputes out of court and into a forum where class actions may or may not be permissible. In a case like this a lender or a debt collector might also seek to deprive class action lawyers of adequate class representatives by adopting a strategy of settling strong (or weak) causes of action with the bankruptcy trustee. The trustee's purposes and interests are not necessarily congruent with those who would serve as the debtor's lawyers in the class action lawsuit. Even where the trustee is demonic in pursuit of the cause of action, there is still the fact that the trustee, not the debtor or the debtor's lawyers, is in charge of pursuing the claim.
None of this is necessarily true here. I assume, for purposes of decision, that Polis herself is the driving force behind the lawsuit and Getaways is simply offering money because it honestly believes that she is morally or legally entitled to it. The decision being reviewed here does not depend on the parties' motives in litigating the TILA action, but the decision could affect larger stakes than might be readily apparent. With that, I turn to the fundamentals of bankruptcy law and the facts of this case. I review conclusions of law de novo and findings of fact for clear error. See Matter of Salzer, 52 F.3d 708, 711 (7th Cir.1995).
Polis appeals the bankruptcy court's decision to limit her interest in the proceeds of the lawsuit, arguing that the judge improperly valued the case at more than $900 when its fair market value at the time of filing was zero dollars. Essentially, Polis argues that there is no market for causes of action, that speculative value is no value, and that therefore there is more than enough room in her wildcard exemption for the entire cause of action. The issue here is largely whether that zero is a permissible or an impermissible legal fiction, because it is clear that it is a fiction. We know this because, on March 24, 1998, an experienced lawyer filed a federal class action lawsuit against Getaways, claiming violations of TILA and the Illinois Consumer Fraud Act. That case is pending in the Northern District of Illinois, but as estate property must be valued for exemption purposes as of the date the bankruptcy petition is filed, see 11 U.S.C. § 522(2), the bankruptcy court did not have the luxury of waiting to see the final outcome of that case before determining the value of the exemption. Neither, of course, do I.
The amount and type of property that a debtor may exempt is defined by applicable federal and state statutory provisions. See 11 U.S.C. § 522; 735 ILCS 5/12-1001. Here, Polis seeks to exempt the cause of action under the Illinois wildcard provision, which allows a debtor to exempt any property not already designated, up to $2000 in value. 735 ILCS 5/12-1001(b). Potential causes of action, including TILA actions, that exist at the time a bankruptcy petition is filed become property of the bankruptcy estate, see Matter of Yonikus, 974 F.2d 901, 904-05 (7th Cir. 1992), and may be claimed as exempt, in whole or part. See Matter of Smith, 640 F.2d 888, 891 (7th Cir.1981).
As no...
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