Polis v. Getaways

• Decision Date: 24 July 2000
• Docket Number: N,No. 99-1025,99-1025
• Parties: (7th Cir. 2000) In Re: Mary L. Polis, Debtor-Appellant Mary L. Polis, Plaintiff-Appellant,. v. Getaways, Inc., Defendant-Appellee. o. 99-1577
• Court: U.S. Court of Appeals — Seventh Circuit

Page 899

217 F.3d 899 (7th Cir. 2000)

In Re: Mary L. Polis, Debtor-Appellant

Mary L. Polis, Plaintiff-Appellant,. v. Getaways, Inc., Defendant-Appellee.

No. 99-1025, No. 99-1577

In the United States Court of Appeals For the Seventh Circuit

Argued January 13, 2000

Decided June 28, 2000

Rehearing Denied July 24, 2000

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 98 C 5001--James B. Zagel, Judge.

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 98 C 1808--Ann Claire Williams, Judge. [Copyrighted Material Omitted] Before Posner, Chief Judge, and Bauer and Rovner, Circuit Judges.

Posner, Chief Judge.

We have consolidated two appeals that present the question of how to value a cause of action for purposes of determining whether a debtor can exempt it in bankruptcy. Mary Polis was in Chapter 7 bankruptcy when she learned that she might have a cause of action against Getaways, a travel service, under the Truth in Lending Act, 15 U.S.C. sec.sec. 1601 et seq., and the Illinois consumer protection statute, 815 ILCS 505/1 et seq., for concealment of the finance charge in the $5,995 price that she agreed to pay over a five-year period for a travel package that she'd bought from Getaways. She sought to exempt the cause of action, assigning it a value of zero.

At roughly the same time, she became the first and only named plaintiff in a class action against Getaways, the class consisting of persons like herself who had been victimized (the suit alleges) by the travel services's unlawful concealment of the finance charge in its installment travel packages. The day after the filing of the class action she was discharged from bankruptcy, and a week later the bankruptcy proceeding was terminated. Shortly afterward both Getaways and the trustee in bankruptcy moved to reopen the bankruptcy proceeding (see 11 U.S.C. sec. 350(b); In re Shondel, 950 F.2d 1301, 1304-06 (7th Cir. 1991)) on the ground that Polis's cause of action in the class action suit against Getaways was worth more than $900 and therefore had been improperly exempted from the estate in bankruptcy.

Illinois law allows an insolvent debtor to exempt $2,000 worth of personal property, 735 ILCS 5/12-1001(b), and Illinois has taken advantage of the provision of the Bankruptcy Code that allows states to substitute their own exemptions for those in the Code. 11 U.S.C. sec. 522(b); Clark v. Chicago Municipal Employees Credit Union, 119 F.3d 540, 543 (7th Cir. 1997). Besides the cause of action, Polis exempted $1,100 worth of other personal property, which is why she cannot exempt the cause of action if it is worth more than $900. Although a cause of action is perhaps not "personal property" in the usual sense, the definition in the Bankruptcy Code of property belonging to the debtor's estate as including (with irrelevant exceptions) "all legal or equitable interests of the debtor in property as of the commencement of the case," 11 U.S.C. sec. 541 (a)(1), has uniformly been interpreted to include causes of action, e.g., In re Yonikus, 996 F.2d 866, 869 (7th Cir. 1993), and we are given no reason to suppose that the Illinois exemption invoked by Polis is narrower.

The bankruptcy court, seconded by the district court, agreed with the objectors. 242 B.R. 653 (N.D. Ill. 1998). The district court (another district judge) then dismissed the class action on the ground that Polis did not have standing to bring it since the trustee rather than she was the owner of the claim on which it was based. Neither party has remarked the oddity of Polis's having filed the class action before her Truth in Lending claim was exempted, which is to say at a time when it belonged to the trustee rather than to her. And speaking of oddities, Polis's appeals from the two district court decisions (why the bankruptcy appeal and the class action were assigned to different judges is still another puzzle) present the spectacle of a plaintiff's lawyer disparaging his client's claim in order to persuade us that it is indeed worth less than $900 and a defendant's lawyer puffing up that claim in order to persuade us that it is worth more than the amount at which the plaintiff is valuing it. (The trustee has not filed a brief.) If the plaintiff were arguing that her claim was worth zero, this would imply that her class action suit was frivolous; but her argument is rather that the claim had no market value. This is wrong, as we're about to see, but it is not inconsistent with her arguing, as she does, that her claim has a nonmarket value that a court would recognize by awarding her damages. She also argues that if it has a market value greater than zero, still that value is less than $900.

The judges who ruled against Polis were plainly disturbed by the prospect of windfall gains to a debtor who by virtue of having exempted a legal claim from bankruptcy and thus put it beyond the reach of her creditors emerges from bankruptcy owning free and clear what turns out to be a valuable asset. But that possibility is built into the valuation scheme that the Bankruptcy Code uses to determine whether a debtor has exceeded her exemption. The Code provides that the "value" of property sought to be exempted "means fair market value" on the date the petition for bankruptcy was filed, 11 U.S.C. sec. 522(a)(2), unless the debtor's estate acquires the property later. On the date Polis filed her petition in bankruptcy, she had not yet sued Getaways, but the legal claim on which the suit was based, having arisen out of a transaction (the sale of the travel package) that had occurred before the petition was filed, was already "property" of the debtor and hence of the debtor's estate in bankruptcy. Cable v. Ivy Tech State College, 200 F.3d 467, 472-73 (7th Cir. 1999); In re Carousel Int'l Corp., 89 F.3d 359, 362 (7th Cir. 1996); In re Smith, 640 F.2d 888, 890 (7th Cir. 1981) (Truth in Lending Act claims--just as here); Northview Motors, Inc. v. Chrysler Motors Corp., 186 F.3d 346, 350 (3d Cir. 1999); In re Wischan, 77 F.3d 875, 877 (5th Cir. 1996); Wissman v. Pittsburgh National Bank, 942 F.2d 867, 869-71 (4th Cir. 1991). "The question is what is value was them."

Although we may assume (without having any case law to go on) that a Truth in Lending Act claim is not assignable and so cannot be the subject of a "market" transaction in the literal sense, that is irrelevant. Integrated Solutions, Inc. v. Service Support Specialties, Inc., 124 F.3d 487, 490-91 (3d Cir. 1997); In re Wischan, supra, 77 F.3d at 877; Sierra Switchboard Co. v. Westinghouse Electric Corp., 789 F.2d 705, 709 (9th Cir. 1986). Legal claims are assets whether or not they are assignable, especially when they are claims for money; as a first approximation, the value of Polis's claim is the judgment that she will obtain if she litigates and wins multiplied by the probability of that (to her) happy outcome. That is roughly how parties to money cases value them for purposes of determining whether to settle in advance of trial. They do so whether or not the claim is assignable; unassignable claims (tort claims, for example) command positive prices in the settlement "market."

The possibility that the debtor will obtain a windfall as a consequence of the exemptions recognized by the Bankruptcy Code arises from the fact that the date of valuation of an asset for purposes of determining whether it can be exempted is the date on which the petition for bankruptcy is filed; it is not a later date on which the asset may be worth a lot more. Often property appreciates in a wholly unexpected fashion. A lottery ticket that turns out against all odds to be a winner is merely the clearest example. A debtor who exempted a painting thought to be worthless in a market sense, having a purely sentimental value, might discover the day after his discharge from bankruptcy that it had suddenly increased in value because other paintings by the artist had just been bought by the Metropolitan Museum of Art; the creditors could not reach it, provided that until then its fair market value had in fact been slight. Common stock that had traded at $100 a share on...