Scarlett v. Barnes

• Decision Date: 26 November 1990
• Docket Number: No. 90-0381-CV-W-3.,90-0381-CV-W-3.
• Parties: Joyce Ann SCARLETT, Appellant, v. Gary D. BARNES, Trustee, Appellee.
• Court: U.S. District Court — Western District of Missouri

121 B.R. 578 (1990)

Joyce Ann SCARLETT, Appellant, v. Gary D. BARNES, Trustee, Appellee.

No. 90-0381-CV-W-3.

United States District Court, W.D. Missouri, W.D.

November 26, 1990.

Jamie K. Lansford, Benson & McKay, Kansas City, Mo., for appellant.

Gary D. Barnes, Linde, Thomson, Langworthy, Kohn & Van Dyke, P.C., Kansas City, Mo., for appellee.

OPINION MEMORANDUM AND ORDER

ELMO B. HUNTER, Senior District Judge.

This is an appeal from the Bankruptcy Court's Order and Judgment sustaining the Trustee's objection to appellant Scarlett's claim of exemption to a cause of action for legal malpractice. Scarlett filed a petition under Chapter 7 of the Bankruptcy Code, 11 U.S.C. § 301, on November 19, 1984. The Bankruptcy Court filed a Discharge of Debtor on February 28, 1985, and a Final Decree on June 6, 1985. More than four years later, on November 15, 1989, Scarlett filed a motion to reopen the case for the purpose of disclosing a cause of action for legal malpractice which had already accrued at the time of her discharge.¹

The Bankruptcy Court reopened the case and Scarlett filed amended schedules disclosing the existence of the cause of action and claiming it as exempt property. The Trustee objected to the claim of exempt property, and the Bankruptcy Court held a hearing on February 12, 1990. The court concluded that the cause of action for legal malpractice is not a purely personal one, is assignable under Missouri law and is, therefore, not exempt from attachment and execution.

The parties agree that the cause of action is property of the bankruptcy estate because it accrued prior to the issuance of the Final Decree discharging Scarlett.² The parties disagree, however, as to whether Scarlett's interest in the cause of action may be exempted from the bankruptcy estate pursuant to Mo.Rev.Stat. § 513.427. Missouri, by enacting § 513.427, "opted out" of the federal exemption scheme and adopted instead those exemptions existing under Missouri law. Specifically, § 513.427 makes exempt, for bankruptcy purposes, "any property that is exempt from attachment and execution under the law of the state of Missouri. . . ." Thus, the narrow question before the Court is whether Scarlett's right of action for legal malpractice is "exempt from attachment and execution under the law of the state of Missouri."³

The court below, in this case and in at least one previous decision, has concluded that a cause of action, if assignable, is subject to attachment and execution under Missouri law. In re Scarlett, No. 84-003605-W-7-FWK (Bankr.W.D.Mo. Feb. 16, 1990) (order denying claim of exemption); see also In re Jones, 102 B.R. 730, 732 (Bankr.W.D.Mo.1989) ("the lender liability cause of action held by Debtors is assignable, and thus, not exempt under Missouri law"); but cf. In re Gaines, 106 B.R. 1008, 1019 (Bankr.W.D.Mo.1989) ("the assignability of property is not an element in determining whether property may be exempted under Mo.Rev.Stat. § 513.427"). The Court agrees that whether a cause of action is exempt from attachment and execution depends on whether it is assignable.

Most states, relying on the theory that unliquidated damages are contingent, do not permit creditors to reach claims for unliquidated damages by attachment or garnishment. 6 Am.Jur.2d Attachment and Garnishment § 127. No Missouri court has squarely addressed the subject, but Missouri courts have followed, for more than a century, a similar rule that a "debt for which an attachment may issue must possess an actual character and not be merely possible, and dependent upon a contingency which may never happen." Hearne v. Keath, 63 Mo. 84, 89 (1876); see also State ex rel. Government Employees Ins. Company v. Lasky, 454 S.W.2d 942, 950 (Mo.Ct.App.1970) (an insurer's contractual obligation to defend insured was not a "debt" owing to the insured and was not subject to attachment). Thus, it appears certain that Missouri would join those jurisdictions which have held that a claim or cause of action for unliquidated damages is not subject to traditional attachment and execution.

Despite the fact that a debtor's claim for unliquidated damages is beyond usual means of attachment and execution, such a claim is not necessarily beyond all reach of legal process. Missouri courts have long recognized the equitable remedy of the creditor's bill. Shockley v. Harry Sander Realty Co., 771 S.W.2d 922, 924-25 (Mo.Ct.App.1989). A creditor's bill is a remedy which is available when "neither execution nor garnishment is effective to reach intangible or equitable assets of the debtor, even when those assets are not subject to exemption." Dobbs, Remedies § 1.3 at p. 11. It is clear, therefore, that a claim for unliquidated damages is not ipso facto exempt simply because it is not subject to the traditional means of attachment and execution. There is no reason to believe that by enacting § 513.427 the Missouri legislature intended to create an exemption for intangible and equitable assets that cannot be reached by ordinary legal process even though those assets may be within reach of a creditor's bill.

While Missouri courts have not had occasion to address the scope of the § 513.427 phrase "attachment and execution," this Court construes § 513.427 to provide an exemption for property that is not only not subject to attachment and execution (in the technical, narrow sense of the phrase), but that is also not subject to a creditor's bill. A strict interpretation of § 513.427 — that "attachment and execution" means "attachment and execution" and no more or less — would be unnecessarily hypertechnical and would serve no legitimate purpose. Such an interpretation of § 513.427 would frustrate the clear intention of the legislature to permit an exemption for property which is beyond the reach of legal process. Thus, while Scarlett's malpractice claim is not subject to attachment and execution because it, like all tort claims, is unliquidated, whether it is exempt depends on whether it is subject to a creditor's bill.

Again the Court is faced with a question of first impression under Missouri law. Other jurisdictions have held that personal tort claims may not be reached by a creditor's bill, but that tort claims arising for injury to property are subject to a creditor's bill. Hudson v. Plets, 11 Paige 180, 183-84 (N.Y.Ch.1844). See also 21 Am.Jur.2d Creditor's Bills § 57; 21 C.J.S. Creditor's Suits § 29. The distinction rests on the assignability of the claim. Assignable claims are subject to a creditor's bill, but nonassignable claims — claims which are personal in nature — cannot be reached by a creditors bill.⁴ Thus, if a debtor's cause of action is not assignable, a court cannot coerce the debtor, by means of a creditor's bill, to assign the cause of action to his creditor. Under Missouri law, a tort claim "in which the wrong is regarded as one to the person rather than an injury affecting the estate or property" is not assignable. State ex rel. Park Nat. Bank v. Globe Indemnity Co., 332 Mo. 1089, 61 S.W.2d 733, 736 (1933). Logic dictates, then, that Missouri would follow those jurisdictions which have held that personal tort claims are not subject to a creditor's bill.

In the present case, whether or not Scarlett's legal malpractice claim is an assignable claim subject to a creditor's bill and thus not exempt, depends on whether the claim is characterized as a personal tort claim. If so, it may be exempted from the bankruptcy estate. See In re Mitchell, 73 B.R. 93 (Bankr.E.D.Mo.1987) aff'd mem. 855 F.2d 859 (8th Cir.1988) (holding that personal injury claims are not subject to attachment and execution and are therefore exempt property).⁵ The court below held that the claim is not a personal tort claim and is therefore not exempt.

In order to determine whether Missouri courts would classify legal malpractice as a non-assignable, personal tort claim, it is necessary to understand why personal tort claims are not assignable. Under early common law, almost no cause of action was assignable. Forsthove v. Hardware Dealers Mutual Fire Insurance Co., 416 S.W.2d 208, 214 (Mo.Ct.App.1967). The rule was that because a cause of action did not survive the death of the complaining party, it could not be assigned. Id. at 214-15. As the law of survivability evolved, so did the law of assignability. Nevertheless, Missouri, like other jurisdictions, retained its rule that personal tort claims are not assignable even if survivable. Id. The rationale for retaining this rule of non-assignability for personal tort claims is one of public policy prohibiting the "trafficking in law suits for pain and suffering." Id. at 217 (citing Rice v. Stone, 83 Mass. 566 (1861)). It is clear, however, that Missouri's public policy is broader than that stated by the Rice court, for it prohibits the assignment of causes of action "`for torts for personal injuries, and for wrongs done to the person, the reputation, or the feelings of the injured party, and those based on contracts of a purely personal nature, such as promises of marriage.'" State ex rel. Park Nat. Bank v. Globe Indemnity Co., 332 Mo. 1089, 61 S.W.2d 733, 736 (1933) (citing 2 R.C.L. 596, § 3).⁶

Several jurisdictions have prohibited the assignment of legal malpractice claims, citing public policy as the reason for the prohibition. See, e.g., Schroeder v. Hudgins, 142 Ariz. 395, 690 P.2d 114 (Ct.App. 1984); Goodley v. Wank & Wank, Inc., 62 Cal.App.3d 389, 133 Cal.Rptr. 83 (Ct.App. 1976); Aaron v. Allstate Insurance Co., 559 So.2d 275 (Fla.Dist.Ct.App.1990); Brocato v. Prairie State Farmers Insurance Association, 166 Ill.App.3d 986, 117 Ill. Dec. 849, 520 N.E.2d 1200 (Ill.App.Ct.1988); Moorhouse v. Ambassador Insurance Co., 147 Mich.App. 412, 383 N.W.2d 219 (Ct. App.1985); Chaffee v. Smith, 98 Nev. 222, 645 P.2d 966 (1982). See also Gunn v. Mahoney, 95 Misc.2d 943, 408 N.Y.S.2d 896, 900 (Sup.Ct.1978) (cause of action against attorney was transferable...