584 B.R. 44
Bankr. D. Idaho2018Background
- Debtors Roger and Vickie Bolton had a 2007 right total hip replacement; Mr. Bolton later underwent revision surgery in January 2011 due to persistent groin pain.
- Debtors filed chapter 7 on July 2, 2009; the case was closed as no-asset in 2011 and later reopened by trustee in 2017 after settlement communications.
- Debtors sued the hip-component manufacturer in New Jersey in 2013 for products liability; by March 2017 a $235,000 settlement offer had been conveyed to the trustee.
- Debtors amended their schedules in April 2017 to list the products-liability claim and claimed the entire claim exempt under Idaho Code § 11-604(1)(c); the Chapter 7 trustee objected.
- Central legal question: whether the Boltons’ products-liability cause of action was property of the bankruptcy estate under 11 U.S.C. § 541(a)(1) as of the July 2, 2009 petition date.
Issues
| Issue | Plaintiff's Argument (Bolton) | Defendant's Argument (Trustee) | Held |
|---|---|---|---|
| Whether the products-liability cause of action was property of the estate under § 541(a)(1) | Claim arose after the petition because injury was not objectively ascertainable until at least Nov. 2009; thus not estate property | Cause of action accrued prepetition because symptoms began before July 2009 and were documented by Dr. Wright | Held: Not property of the estate; injury was not objectively ascertainable on petition date |
| Whether the postpetition claim is "sufficiently rooted in the prebankruptcy past" (Segal doctrine) | Postpetition claim is not rooted in any prepetition entitlement; accrual occurred after filing, so Segal does not apply | Even if accrual was postpetition, the claim is sufficiently linked to prepetition events (implantation) and should be estate property | Held: Not sufficiently rooted; postpetition cause of action cannot be included absent prepetition legal entitlement |
| Whether the trustee met burden to show accrual prepetition | N/A (Debtors contest accrual) | Trustee must show objective medical proof of injury existed prepetition; argues November 2009 notes suffice | Held: Trustee failed to meet burden—medical evidence was equivocal and inconclusive prepetition |
| Remedy for disputed exemption if claim not estate property | Debtors asserted exemption of full value under Idaho law | Trustee objected to exemption asserting estate interest | Held: Because claim is not estate property, trustee’s objection is moot and will be denied |
Key Cases Cited
- Segal v. Rochelle, 382 U.S. 375 (U.S. 1966) (postpetition benefit may be estate property if "sufficiently rooted in the prebankruptcy past")
- Butner v. United States, 440 U.S. 48 (U.S. 1979) (property interests are defined by state law)
- Cusano v. Klein, 264 F.3d 936 (9th Cir. 2001) (accrual for bankruptcy purposes occurs when claim "could have been brought")
- In re Ryerson, 739 F.2d 1423 (9th Cir. 1984) (postpetition payments under a prepetition contract may be estate property to extent tied to prepetition services)
- State Farm Life Ins. Co. v. Swift (In re Swift), 129 F.3d 792 (5th Cir. 1997) (damages are prerequisite to accrual of a cause of action)
- In re Schmitz, 270 F.3d 1254 (9th Cir. 2001) (postpetition rights created by regulation not property when prior conduct had no prepetition value)
- Gladstone v. U.S. Bancorp, 811 F.3d 1133 (9th Cir. 2016) (broad interpretation of § 541 and estate formation upon filing)