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Mendelsoh v. Ross

United States District Court, E.D. New York

May 9, 2017

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

          Appellant is represented by Holly R. Holecek and Salvatore LaMonica of LaMonica Herbst & Maniscalco,

          Appellee is represented by Michael G. McAuliffe

          MEMORANDUM AND ORDER

          JOSEPH F. BIANCO United States 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. ...


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