Preston J Grundmeyer and Gayle E Grundmeyer

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF LOUISIANA

IN RE: CASE NO. 18-11238

PRESTON J. AND GAYLE E.

GRUNDMEYER SECTION “B”

DEBTORS CHAPTER 7

MEMORANDUM OPINION

This matter came before the court as a hearing on the motion of the Chapter 7 Trustee to

reopen the bankruptcy case, withdraw the report of no distribution, re-appoint the Trustee, and

waive the filing fee (P-19). The Trustee alleges in his motion that the debtor has filed a claim in

state court related to a product liability suit and that such claim was unscheduled in the debtor’s

bankruptcy case. Although the Trustee’s motion does not actually ask for turnover of funds, the

Trustee asks that the case be opened so he can administer funds related to the state court personal

injury suit. Because the court finds that under the very specific set of facts presented in this case

the debtor’s litigation rights are not property of the estate, the motion is denied.

I. Background Facts

The facts which gave rise to this contested matter are not seriously disputed, and the court

finds them to be as follows. The debtors, Preston and Gayle Grundmeyer, filed their petition for

relief under Chapter 7 of the U.S. Bankruptcy Code on May 14, 2018. The Trustee filed a notice

of disclaimer and abandonment on June 26, 2018, and the debtors received their discharge on

August 27, 2018. On August 30, 2018 the case was closed. On March 28, 2019, the Trustee

filed his motion to reopen the case alleging that debtor Preston Grundmeyer had filed a lawsuit in

state court on December 11, 2018 seeking damages for exposure to benzene and benzene

containing products that had caused him to develop Non-Hodgkin’s Lymphoma and other

physical injuries. The Trustee also has alleged that as a result of this suit, the debtor will receive

a distribution in an amount sufficient for administration, and that the debtor’s interest in these

claims was not disclosed in his schedules.

The debtors filed an objection to the motion to reopen stating that Mr. Grundmeyer had

not received his diagnosis until after the bankruptcy case had closed, so there was no claim to

disclose on the bankruptcy schedules. Also, and important to the court’s analysis, Mr.

Grundmeyer had an unrelated diagnosis of renal cancer prior to the bankruptcy case. As a result

of the renal cancer Mr. Grundmeyer received frequent monitoring by his doctors to ensure that if

the renal cancer recurred, it would be caught in a timely fashion. The debtors included with their

objection copies of medical reports dated January 31, 2018, March 6, 2018, and May 21, 2018,

that all showed that as of these dates Mr. Grundmeyer had not yet been diagnosed with the Non-

Hodgkin’s Lymphoma. Also included was a copy of the September 2018 diagnosis of the Non-

Hodgkin’s Lymphoma. The debtors also included a copy of the state court suit, which alleges

that Mr. Grundmeyer was exposed to the products causing his injuries in the 1960s and 1970s,

and that he was diagnosed with Non-Hodgkin’s Lymphoma on September 24, 2018, and that he

learned of the connection between his diagnosis and possible benzene exposure in November

2018. The September 24, 2018 diagnosis occurred after the bankruptcy case was closed on

August 30, 2018.

II. Legal Analysis

The Trustee argues that the personal injury claim of Preston Grundmeyer is property of

the estate, because it originated in pre-petition exposure to benzene. The debtors argue that the

claim is not property of the estate because the Non-Hodgkin’s Lymphoma developed post-

petition, and the lawsuit could not have been filed until Mr. Grundmeyer sustained damages, i.e.

the time when he developed a medical problem on September 24, 2018 connected with Non-

Hodgkin’s Lymphoma.

Section 541(a)(1) of the Bankruptcy Code classifies property of the estate as “all legal or

equitable interests of the debtor in property as of the commencement of the case.” In Matter of

Burgess, 438 F.3d 493 (5th Cir. 2006), the U.S. Fifth Circuit Court of Appeals stated:

Thus, the scope of § 541 is broad: that section brings into the estate all of the

debtor’s legal and equitable interests “wherever located and by whomever held.”

However, the Code also provides a temporal limitation: property of the estate is

determined at “[t]he commencement of the case.” The case is commenced, and

the estate created, when the bankruptcy petition is filed.

In Burgess, the debtor was a farmer who suffered a pre-petition crop loss. Post-petition,

the Agricultural Assistance Act of 2003 was passed. Under that Act the debtor qualified for

funds to compensate him for his pre-petition crop loss. The Fifth Circuit held that the funds were

not the property of the bankruptcy estate because the payment was not property of the estate

under § 541(a)(1) or “proceeds” of property of the estate under § 541(a)(6). A rehearing en banc

was granted and the majority of the court determined the question presented was temporal and

posed the question: “ When did Burgess acquire a legal interest in the disaster-relief payment?

In other words, did the crop loss itself entitle Burgess to the money? Or was it the combination

of the Burgess’s crop loss and the enactment of the 2003 Act that gave him that interest?”1 The

Fifth Circuit determined that the latter combination of events gave the debtor an interest in the

refund. The court held that although the scope of § 541 is broad, bringing into the estate, “all of

the debtor’s legal and equitable interests wherever located and by whomever held,” the Code,

“also provides a temporal limitation: property of the estate is determined at the commencement

of the case. The case is commenced, and the estate created, when the bankruptcy petition is

1 In re Burgess, 438 F.3d at 497.

filed.”2 Because the legislation providing the payment was not enacted until after the debtor had

filed for bankruptcy the debtor “had no interest, contingent or otherwise, in the disaster-relief

payment when he filed his bankruptcy petition.”3

In Burgess, the Chapter 7 Trustee argued that the disaster relief payments were the

property of the bankruptcy estate for two reasons. The Trustee first argued that through the loss

of his crop, Burgess had a contingent interest in the post-petition relief payment at the time of the

bankruptcy. The Fifth Circuit rejected this argument for two reasons. First, the Supreme Court

in Segal v. Rochelle used the “sufficiently rooted test” to support its classification of the payment

to the debtor as property of the estate.4 The Burgess court held that the “sufficiently rooted test”

used in Segal had not survived the enactment of the Bankruptcy Code because § 541 clearly

defines what is property of the estate.5 Second, the majority distinguished Segal from the

situation in Burgess because in Segal the debtor did have a pre-petition legal interest in the

property.6 In Segal the tax legislation in question was enacted before the debtor filed his

petition. That legislation, “gave the debtor a claim for a tax refund if certain conditions were

met. It was the combination of the law and the conditions made legally relevant by the law that

conferred on the debtor a prepetition legal interest: the claim for a refund.”7 By contrast,

although the crop loss in Burgess was suffered pre-petition, the relevant legislation was not

passed until after the bankruptcy petition was filed. In reaching this conclusion, the Burgess

court followed the analysis of the Eighth Circuit in In re Vote, the Ninth Circuit in In re Schmitz,

2 Id. at 496 (internal citations omitted).

3 Id at 503.

4 Segal Cotton Products v. Rochelle, 382 U.S. 375, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966).

5 In re Burgess, 438 F.3d at 498. The “sufficiently rooted test” referred to in Burgess is a reference to the former

§70(a)(5) of the Bankruptcy Act. Under §70(a) of the Act, whether an asset was included within the estate varied in

accordance with (1) an individual examination of the legal nature of the asset, and (2) in light of the purposes of the

Bankruptcy Act. Burgess, 438 F.3d at 499.

6 Burgess, 438 F.3d at 499.

7 Id.

and the Middle District of Georgia in In re Bracewell.8 These courts had determined that the

definition of property at the commencement of the case was temporal and that “a mere hope that

crop-disaster-relief legislation would be enacted” was not enough to constitute an interest,

“contingent or otherwise,” at the time of filing.9 The Trustee in Burgess also argued that the

crop loss itself was property of the estate and the relief payment constituted proceeds of that

property. The Fifth Circuit rejected this argument as well.”10 Burgess was a close decision, and

the minority issued a lengthy dissent that pointed out, among other things, that under Louisiana

state law the crop insurance payment received by the debtor would have been proceeds (as

defined by the Louisiana version of the UCC) that should have come into the estate under §

541(a)(6). The majority in Burgess rejected this analysis.

The bankruptcy cases cited by the debtor are instructive as to how other bankruptcy

courts have generally ruled when a debtor has a tort claim that may include both pre and post-

petition elements. Many of the cases that address whether a personal injury claim is property of

the estate look to when the cause of action accrues, and this is determined by underlying state

law.11 Then many of them look to Segal v. Rochelle, 382 U.S. 375, 86 S.Ct. 511, 15 L.ed.2d.

428 (1966), to determine whether the property interest existed before the debtor filed the

bankruptcy petition.12

8 In re Vote, 276 F.3d 1024 (8th Cir. 2002); In re Schmitz, 270 F.3d 1254 (9th Cir. 2001); In re Bracewell, 322 B.R.

698 (M.D. Ga. 2005).

9 Burgess, 438 F.3d at 503.

10 Id.

11 Butner v. U.S., 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) (property interests are created and defined

by state law).

12 Segal tells courts to examine whether the interest at stake is sufficiently rooted in the debtor’s pre-bankruptcy

past so as to require it be deemed property of the estate. Although many courts looking at this issue conduct a Segal

analysis, courts in the Fifth Circuit do not, because, as stated above, the Fifth Circuit held in In re Burgess, 438 F.3d

493, 498 (5th Cir. 2006) that Segal’s “sufficiently rooted” test did not survive the enactment of the Bankruptcy Code.

In re Purcell, 573 B.R. 859 (Bankr.D.Kan. 2017) concerned a debtor who had a personal

injury claim stemming from a faulty pelvic mesh device that was implanted after the debtor

received her discharge, but while the bankruptcy case was still open. The debtor did not have an

injury from the device until over a year after the case had closed, however, and so the court

found that under Kansas law, which requires an injury to be “reasonably ascertainable to the

injured party” for the statute of limitations to begin to run on a tort claim, the debtor’s personal

injury claim was not property of the estate. The Purcell court reasoned that because the device

was not implanted until three years after the Chapter 13 case was filed, and after the debtor

received her discharge, but before the case could be closed, under both Kansas law and the Segal

test, the debtor’s interest in the personal injury suit was not property of the estate.

In Mendelsohn v. Ross, 251 F.Supp.3d 518 (E.D.N.Y. 2017) the court also found that the

debtor’s interest in settlement proceeds from a medical device implanted pre-petition that caused

injury and was removed post-petition was not property of the estate. The Ross case analyzed the

matter using the Segal test, and determined that because the debtor had not suffered an injury

pre-petition, the interest in the settlement proceeds was not sufficiently rooted in the debtor’s

pre-bankruptcy past. See also In re Harber, 553 B.R. 522 (Bankr.W.D.Pa. 2016), where the

court held that the most critical elements of the debtor’s claim had not taken root as of the time

her bankruptcy was filed, including that she had not sustained an injury, had not incurred any

damages, did not exhibit any symptoms pre-petition, and did not purposely delay any medical

evaluation; In re Vasquez, 581 B.R. 59 (Bankr.D. Vt. 2018) (defective medical device implanted

pre-petition, but debtor did not discover that device was cause of medical problems until four

years after bankruptcy case was filed, so under Vermont law, personal injury suit was not

property of the estate).

Other cases have found the personal injury action to be property of the estate. These

include In re Carroll, 586 B.R. 775 (Bankr.E.D.Cal. 2018) (debtor had faulty medical device

implanted pre-petition, and suffered injury pre-petition but did not learn of cause of action until

several years post-petition when FDA issued a warning about the device, but date of injury not

date of knowledge was determinative, so suit was property of the estate) and In re Richards, 249

B.R. 859 (Bankr.E.D.Mich. 2000) (time when claim accrues under state law is not the proper

test, rather Segal’s “sufficiently rooted in pre-bankruptcy past” inquiry is proper, and thus

debtor’s tort suit for asbestosis stemming from exposure in the 1960s and 70s but diagnosed

post-petition was sufficiently rooted in the past to qualify as property of the estate).

Here, the Trustee cites Cole v. Celotex Corp., 599 So.2d 1058 (La. 1992) and Austin v.

Abney Mills, Inc., 824 So.2d 1137 (La. 2002) in support of his argument that under Louisiana

law, the debtor’s cause of action accrued pre-petition, and is therefore property of the estate. In

Cole, the Louisiana Supreme Court examined the effect of a comparative fault law passed by the

state legislature on the claims of refinery workers who had been exposed to asbestos. The law,

which would have limited the potential recovery to which the workers were entitled, was passed

after the workers had been exposed to the asbestos, but before their injuries had manifested. In

determining that the comparative fault law did not apply retroactively, the court discussed how

legal concepts for handling traditional tort claims were inadequate for use in cases dealing with

long-term exposure to asbestos because of the lengthy period between exposure and the

manifestation of an injury. The Cole court concluded that “the key relevant events giving rise to

a claim in long-latency occupational disease cases are the repeated tortious exposures resulting in

continuous on-going damages, although the disease may not be considered contracted or

manifested until later.” This reasoning provided the basis for the court to further decide that

when the tortious exposure occurred before the new law’s effective date, the new law could not

apply retroactively, thus allowing the injured workers to assert their claims without the

limitations imposed by the new law.

Abney Mills, the other case relied upon by the Trsutee, involved a tort suit filed against

the plaintiff’s former employers and the executive officers of those former employers. The

defendants moved for summary judgment invoking their immunity under Louisiana statutes

concerning workers’ compensation that limited employee’s recovery for certain occupational

diseases. The plaintiff suffered from mesothelioma as a result of his exposure to asbestos and

asbestos containing materials during the course of his employment with the defendants. The

Louisiana workers’ compensation statute, prior to 1975 did not include mesothelioma as a

disease covered by the statute, but in 1975 the statute was amended so that it would cover a

much broader array of occupational diseases. Thus, much like in the Cole case, the Louisiana

Supreme Court was again faced with the question of whether a law could retroactively limit the

plaintiff’s recovery. The Abney Mills case further expanded on the holding of Cole, by adopting

the “significant tortious exposure” theory for determining when a cause of action accrues in

long-latency occupational disease cases. This allowed the court to hold that the workers’ claims

had accrued at the time of exposure, thus prohibiting retroactive application of the workers’

compensation law.

These cases lead to an interesting interplay in Louisiana law between the time a cause of

action accrues, and the time when prescription begins to run. The holdings in the Cole and Abney

Mills cases tell us that the cause of action accrues when the plaintiff’s exposures are “significant

and such exposures later result in the manifestation of damages.”13 But the plaintiff who has had

13 Austin v. Abney Mills, Inc., 824 So.2d 1137, 1153-54 (La. 2002).

a cause of action accrue under this rule still is not able to file suit until damages have manifested,

because under Louisiana law, three elements are required for a tort claim: fault, causation and

damages. Thus, it is not until the damages have actually occurred that the suit may be filed, and

prescription begins to run. If the damages never manifest, then there is no cause of action to be

pursued. This problem is pointed out by the dissent in Abney Mills:

Another problem is the majority’s holding that a party’s cause of action can

accrue before he has a right to assert it. If the plaintiff had tried to bring his cause

of action for mesothelioma at the time the majority says it accrues, i.e., upon

significant exposure to asbestos which according to the majority could have

occurred over 27 years ago (prior to 1975), his case would have been thrown out

of court. While it may be true that a cause of action can arise before the party

sustains all of the damages occasioned by the defendant’s negligence, the party

still has to have some cognizable, as opposed to speculative, damages before his

cause of action accrues.14

The majority of the bankruptcy cases that address whether personal injury tort claims are

property of the estate, come to the same conclusion, even though they may get there in different

ways. Even where some of the tortious conduct may have occurred pre-petition, where the

damages have not manifested until post-petition, the cause of action is not property of the estate.

The court finds that this comports with the result reached in Burgess. There, the legislation

giving the debtor a right to payment for his lost crops was enacted post-petition, so the payment

was not property of the estate. Here, the debtor was not diagnosed with Non-Hodgkins

Lymphoma as of the date of the filing, but instead was not diagnosed until after his bankruptcy

case had closed. In another case, with different facts, it might not be so easy to ascertain whether

the debtor had actually contracted the disease pre or post-petition. But it is clear that here, with

the number of medical exams right before the debtor filed his petition, that he did not receive a

diagnosis of the disease until after the petition date. Accordingly, the court holds that any

14 Austin v. Abney Mills, Inc., 824 So.2d 1137, 1160 (La. 2002)(internal citations omitted).

settlement funds the debtor may receive are not property of the estate. The Trustee’s motion to

reopen the case is denied. A separate order will be entered.

New Orleans, Louisiana, July 24, 2019.

y A. Brown

.S. Bankruptcy Judge

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