Opinion
Case No. 00-10494-RLJ-7.
July 8, 2005
MEMORANDUM OPINION AND ORDER
The Court considers the question whether the debtor's interest in a class action recovery as a class action claimant is property of the bankruptcy estate. The issue arises from the motion filed by the debtor Margaret Monger under which Monger requests that the Court determine the status of Monger's $1,677.96 recovery under a class action suit. Monger contends she gets the money because, she argues, the recovery is not an asset of the bankruptcy estate as it was obtained after confirmation of her chapter 13 bankruptcy plan, but prior to discharge. Harvey Morton, the chapter 7 trustee, argues that the recovery is property of the estate and thus subject to his administration as it arises from a cause of action that existed prior to the filing of Monger's bankruptcy case.
The Court has jurisdiction over this matter under 28 U.S.C. § 1334(b); this is a core proceeding pursuant to 28 U.S.C. § 157(b).
The parties provided few details regarding the class action suit. Basically, Monger learned on March 8, 2004, that she was to receive net proceeds of $1,677.96 as a member of a class that had used the anti-diabetic drug Rezulin. Monger took Rezulin from the fall of 1997 through sometime in early 1999. She filed bankruptcy under chapter 13 of the Bankruptcy Code on June 20, 2000. Her chapter 13 plan was confirmed by the Court on March 22, 2001. On December 16, 2003, Monger's bankruptcy case was converted to a chapter 7 proceeding. Monger testified that, prior to filing bankruptcy, she remembered seeing commercials regarding potential lawsuits arising from the use of Rezulin. Monger further testified that she has not sustained any obvious injury or ill effects from the use of Rezulin. Her first real notification that she may be a potential member of a class in a class action suit was from a questionnaire she received on March 11, 2002. Monger completed the questionnaire and heard nothing further for approximately two years. After making an inquiry, Monger was advised on March 8, 2004, that she would receive approximately $4,400 as part of a settlement with the manufacturer of the drug.
Monger states that the gross amount of her recovery was $4,463.27, but, after deducting attorney's fees and other costs, the net recovery is $1,677.96.
See note 1.
The filing of a bankruptcy petition creates an estate that consists of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). Monger filed her case under chapter 13. Section 1306 (11 U.S.C.) provides in relevant part as follows:
(a) Property of the estate includes, in addition to the property specified in section 541 of this title. [sic]
(1) all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first.
11 U.S.C. § 1306. The conversion of Monger's case from chapter 13 to chapter 7 raises section 348(f)(1) of the Code, which states as follows:
Except as provided in paragraph (2), when a case under chapter 13 of this title is converted to a case under another chapter of this title —
(A) property of the estate in the converted case shall consist of property of the estate, as of the date of the filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion. . . .
11 U.S.C. § 348(f)(1). Paragraph 2 provides that if the chapter 13 debtor converts the case in bad faith, the property in the converted case consists of the property of the estate as of the date of the conversion. Id. at (f)(2). The trustee does not assert that Monger's conversion to chapter 7 was done in bad faith. Thus, Monger's estate, after conversion, consists of the property in the estate at the time of the filing of the petition that Monger remained in possession or in control of as of the date of conversion. See id. For the funds at issue to constitute an asset of Monger's estate, the underlying cause of action must have arisen prior to her bankruptcy filing. See 11 U.S.C. § 348(f)(1); see also Matter of Swift, 129 F.3d 792, 795 (5th Cir. 1997). Stated differently, the cause of action must have accrued prior to Monger filing bankruptcy. Matter of Swift at 795.
In this case, there is no evidence that Monger suffered any injury prior to filing bankruptcy from her use of Rezulin or that she had any pre-petition "contact, privity, or other relationship" with the manufacturer of Rezulin. See Matter of Wheeler, 137 F.3d 299, 301 (5th Cir. 1998). Monger, not showing any ill effects from using Rezulin, had no reason to believe she had a claim. She was not made aware of any potential claim until, at the earliest, she received the questionnaire on March 11, 2002. The Court concludes that Monger's $1,677.96 recovery as a class action claimant did not accrue pre-petition and, therefore, is not property of the bankruptcy estate. It is, therefore,
ORDERED that Monger's recovery, not constituting property of the estate, shall be distributed to her.