In re Carroll

586 B.R. 775

IN RE Brian CARROLL and Patty Carroll, Debtors.

Case No. 09–90311–E–7

Docket Control No. GMW–3

United States Bankruptcy Court, E.D. California.

Signed June 6, 2018

Thomas P. Hogan, Modesto, CA, for Debtor.

G. Michael Williams, Stockton, CA, for Debtor.

MEMORANDUM OPINION AND DECISION

Ronald H. Sargis, Judge United States Bankruptcy Judge

Patricia Carroll, a co-debtor in this case ("Debtor"), filed her Motion for the court to "Determine Product Liability Settlement Is Not Property Of The Bankruptcy Estate." Motion, Dckt. 75.¹ Debtor has filed the declarations of her attorney (Dckt. 77) and herself (Dckt. 78) in support of the Motion. In addition, Debtor has filed as documentary evidence the FDA July 2011 Urogynecologic Surgical Mesh Update in support of the Motion. Dckt. 79.

Michael McGranahan, the Chapter 7 Trustee ("Trustee"), filed his Opposition to the Motion. Dckt. 87. Additionally, three declarations were filed in opposition to the Motion: Declaration of Trustee's Counsel (Dckt. 88), Declaration of Trustee (Dckt. 89), and Declaration of Counsel for Class Action Settlement (Dckt. 90). The Trustee filed documentary evidence opposing the Motion and asserting the interests of the bankruptcy estate in this case ("Bankruptcy Estate") in the claims, which included the Debtor's Schedules, Class Action Settlement documents, and the FDA July 2011 Urogynecologic Surgical Mesh Update (same as submitted by Debtor). Dckt. 91.

Debtor responded, presenting rebuttal evidence in the form of a second Declaration by Debtor's counsel. Dckt. 96. Debtor submitted additional rebuttal documentary evidence consisting of a May 9, 2017 Decision of the District Court for the Eastern District of New York and a second copy of the FDA July 2011 Urogynecologic Surgical Mesh Update (authenticated by Debtor's counsel's supplemental declaration). Dckt. 97.

Upon review of the evidence presented and determination of applicable law, this court determines that the rights and claims which are the subject of the Class Action Settlement, and the Class Action Settlement Proceeds thereof, are property of the Bankruptcy Estate in this case. 11 U.S.C. § 541(a). Further, such determination is without prejudice to Debtor claiming exemptions in said property of the Bankruptcy Estate² or the Trustee objecting to such claim of exemption.

CORE MATTER PROCEEDING AND PROPER ADJUDICATION PROCEDURE

The Motion presents the court with a core matter proceeding—determination of property of the bankruptcy estate pursuant to 11 U.S.C. § 541. 28 U.S.C. §§ 1334 and 157, and the referral of bankruptcy cases and all related matters to the bankruptcy judges in this District. E.D. Cal. Gen. Order 182, 223. The Supreme Court provides in Federal Rule of Bankruptcy Procedure 7001 that an adversary proceeding is necessary to determine the issues presented. In their respective declarations, counsel for Debtor (Declaration ¶ 5, Dckt. 77) and counsel for the Chapter 7 Trustee (Declaration ¶ 19, Dckt. 88) state that they and their clients consent to have these interests and rights adjudicated as a contested matter.

At the February 1, 2018 hearing, the court addressed this procedural issue with the parties. At said hearing, both Parties confirmed on the record that they consented to the determination of their clients' respective interests in the property at issue in this contested matter, waiving the right to have those interests adjudicated in an adversary proceeding. Such waiver by the parties, electing to proceed by contested matter proceeding is permissible. Feld v. Zale Corp. (In re Zale Corp.) , 62 F.3d 746, 763 (5th Cir. 1995) ; 10 Collier on Bankruptcy P 7001.01, FN. 10.

The court concurs with the election by the Parties to proceed by contested matter. Both are represented by experienced, knowledgeable counsel. No prejudice exists for either Party, nor the court, out of the election.

ISSUES PRESENTED AND POSITIONS ADVANCED BY THE PARTIES

The Debtor requests that this court determine that the product liability settlement proceeds, flowing from a transvaginal mesh patch implant (the "Device"), which claim is now listed on Amended Schedule B, are not property of the Bankruptcy Estate. The Class Action lawsuit (Debtor was not the class action plaintiff, but subsequently determined to be a class member) has resulted in the claims and rights at issue having a value of $240,000.00—the "Class Action Settlement Proceeds" distribution for Debtor's claim. Debtor has now claimed an exemption of $240,000.00 pursuant to California Code of Civil Procedure § 704.140 in the Class Action Settlement Proceeds on Amended Schedule C. Dckt. 54.

Debtor's bankruptcy case was filed on February 6, 2009, with Debtor receiving her discharge on May 19, 2009 (Dckt. 31). Debtor relates that she had a transvaginal mesh patch implanted on August 22, 2003 (five and one-half years prior to the bankruptcy case being filed), which resulted in subsequent medical issues, leading to Debtor pursuing her rights to the class action recovery in 2015. Dckt. 78.

Debtor argues that she did not "know" about any "legal claim" that was available to her until 2014, and as such, the claim was not "sufficiently rooted" in her prepetition past such that it would be an interest of the Bankruptcy Estate. Debtor argues that her claim did not accrue until 2014 when she learned of a United States Food and Drug Administration ("FDA") warning and when she subsequently that year learned about being able to sue the manufacturer of her transvaginal mesh patch.

Therefore, Debtor argues that the settlement proceeds are not part of the Bankruptcy Estate in this case and requests that the court issue an order holding the same.

Debtor's Authorities and Arguments

Debtor's legal basis for this argument begins with citing to Butner v. U.S. , 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979), for the basic proposition that while determination of what is property of a bankruptcy estate arises under the Bankruptcy Code, the federal judges look to state law or other applicable non-bankruptcy law to make the determination of interests in property. Specifically, Debtor asserts that the federal court shall look to state law to determine when a claim "accrues," and that the property of the bankruptcy estate pursuant to 11 U.S.C. § 541 consists only of the interests of Debtor as of the commencement of the bankruptcy case.

Focusing on the assertion that as of the commencement of the bankruptcy case no claim had "accrued" for Debtor, and therefore no claim could exist for purposes of 11 U.S.C. § 541(a) to make it property of the Bankruptcy Estate, Debtor directs the court to California Code of Civil Procedure § 312, which provides:

§ 312. Commencement of civil actions

Civil actions, without exception, can only be commenced within the periods prescribed in this title, after the cause of action shall have accrued, unless where, in special cases, a different limitation is prescribed by statute.

As addressed at the hearing, this is the general rule governing civil actions requiring them to be timely prosecuted. Debtor focuses on the use of the word "accrued" in this provision setting forth the general rule against the presenting of stale claims arising under California law.

Debtor's discussion continues, directing the court to the proposition that a cause of action does not accrue (for purposes of the running of the statute of limitations on bringing an action) until all of the elements of the claim exist. Debtor directs the court to Norgart v. Upjohn , 21 Cal. 4th 383, 87 Cal.Rptr.2d 453, 981 P.2d 79 (1999) for the proposition that no cause of action "accrues," so therefore no cause of action could "exist," so therefore there could be no cause of action to become property of the Bankruptcy Estate, and therefore Debtor's claims arising from the prepetition medical treatment with the Device could not be property of the Bankruptcy Estate, but are all Debtor's post-petition assets.³

In responding to the Trustee's Opposition, Debtor advances her case by pressing the Delayed Discovery Rule.⁴ Debtor argues that she did not become aware of the potential defective nature of the pelvic mesh device until 2014. Reply, Dckt. 94. Debtor argues that after consulting with an attorney in 2005 about the device, she was informed by that attorney that there was no factual or legal basis to believe that the mesh implant was defective at that time, meaning that she had no knowledge of a viable claim. Therefore, because Debtor asserts she did not know of a claim, then no claim could have existed when this case was filed because the running of the statute of limitations was tolled under the Delayed Discovery Rule.

Debtor agrees with the Chapter 7 Trustee's reading of In re Goldstein that the Bankruptcy Appellate Panel "found that if a claim could have been [brought], it has accrued." Debtor contends that no claim could have been brought because she did not know she had a claim when the bankruptcy case was filed. Debtor believes that it is the existence of the July 2011 FDA Update that caused her to "know" of a claim, thus the claim cannot exist before July 2011.

It appears that Debtor asserts an "all for me and nothing for you" position, contending that all of the claims and rights, from which the Class Action Settlement Proceeds flow, are either: (1) Debtor's post-petition property because Debtor asserts that she did not have "knowledge" of such rights or possible claim; or (2) Bankruptcy Estate Property if the claims existed prepetition. As presented by Debtor, the existence or non-existence of the claim, rights, and Class Action Settlement Proceeds turns on the Debtor's personal, non-legal, "knowledge" of the law and the existence of such existing, enforceable rights.

CHAPTER 7 TRUSTEE's OPPOSITION

Michael McGranahan (the "Chapter 7 Trustee") filed an opposition on January 17, 2018. Dckt. 86. The Chapter 7 Trustee alleges that determination of whether the settlement proceeds are property...