Opinion
Case No. 03-13950.
April 28, 2005
ORDER GRANTING THE CHAPTER 7 TRUSTEE'S MOTION FOR TURNOVER
I. Introduction
The trustee in this case seeks to recover proceeds the debtor received as a result of a wrongful death suit involving the death of the debtor's mother. The trustee contends that the wrongful death proceeds ("proceeds") are property of the estate under 11 U.S.C. § 541(a)(1). The debtor argues that the proceeds are not property of the estate, because the proceeds do not constitute an "inheritance" as described in 11 U.S.C. § 541(a)(5). Based upon the following analysis, this Court finds that the proceeds received by the debtor are property of the estate and the trustee's turnover motion is granted.
II. Facts
Both parties agree on the relevant facts to this dispute. The debtor filed her Ch. 7 petition on May 22, 2003. At the time the petition was filed, a wrongful death claim involving the death of the debtor's mother was pending in state court. At the time her mother died, the debtor was one of six children who were the mother's next of kin. After the debtor received her discharge, the wrongful death claim was settled. On October 27, 2003 the probate court entered an order distributing the proceeds from the settlement equally among the decedent's children in accordance with Ohio Rev. Code § 2125.03(A)(1). As a result of the probate court order, the debtor received $17,000, which represented her share of the settlement proceeds.
III. Analysis
The issue now before the Court is whether the debtor had a recognizable interest in the wrongful death claim at the time of filing that was property of the bankruptcy estate under 11 U.S.C. § 541. The debtor argues that the wrongful death proceeds are not an "inheritance" as the term is used in § 541(a)(5)and therefore, the proceeds are not property of the estate. The debtor supports her position by referring to Ohio Rev. Code § 2125.02, which mandates that the children of the decedent receive a direct distribution of any wrongful death proceeds, instead of first placing the proceeds in the decedent's probate estate and then distributing the proceeds through the probate system. Ohio Rev. Code § 2125.02(A)(1)(2005).
Any property that is acquired by a debtor through "bequest, devise or inheritance" within 180 days of the filing of a bankruptcy petition is property of the bankruptcy estate. 11 U.S.C. § 541(a)(5)(A)(2005).
The court disagrees with the debtor's analysis and finds that the relevant issue in this dispute is not whether the proceeds constitute an inheritance, but instead, whether the debtor had a property interest in the underlying wrongful death claim at the time she filed her bankruptcy petition. Any such interest, along with any proceeds stemming from the pre-petition interest may fall within the definition of property of the estate contained in 11 U.S.C. § 541. Under 11 U.S.C. § 541, property of the estate includes, "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541 (a)(1). It is clear Congress intended that courts interpret the term "property of the estate" broadly. In re Johnson, 209 F.3d 611, 613 (6th Cir. 2000).
In accordance with § 541(a)(6), any proceeds derived from property of the bankruptcy estate are also considered property of the estate. 11 U.S.C. § 541(a)(6). Therefore, if the debtor had an interest in the wrongful death claim which then became property of the estate upon the filing of the petition, the proceeds derived from the claim would also be property of the estate.
While federal law controls whether a debtor's interest in property is part of the bankruptcy estate, state law determines whether a debtor has an interest in property. Butner v. United States, 440 U.S. 48, 55 (1979). Thus, in order for the debtor's share of the wrongful death proceeds to be included in the bankruptcy estate, the debtor must have first had an interest in the underlying wrongful death claim under state law at the time she filed her bankruptcy petition. In Ohio, wrongful death claims are governed by Ohio Rev. Code § 2125, Civil Action for Wrongful Death, as no common law tort action for wrongful death existed.Keaton v. Ribbeck, 391 N.E. 2d 307, 309 (Ohio 1979); Karr v. Sixt, 67 N.E. 2d 331, 332 (Ohio 1946); Minglewood Coal Ice Co. v. Carson, 166 N.E. 237, 247 (Ohio 1928).
A wrongful death claim is brought in the name of the personal representative of the decedent, but the claim is brought for the exclusive benefit of the decedent's surviving spouse, children and next of kin. Ohio Rev. Code § 2125.02(A)(1). The date of the decedent's death is the point in time used to determine what individuals are beneficiaries of the wrongful death action. Ohio Rev. Code § 2125.02(A)(3)(a). As previously stated, the debtor in this case was the daughter of the decedent and therefore as of the date of her mother's death an intended beneficiary of the wrongful death action. Ohio Rev. Code § 2125.02 (A)(1) and (3)(a).
The next relevant issue is what type of interest, if any, does a statutory beneficiary have under Ohio Rev Code. § 2125.02. A statutory beneficiary does not have the right to bring the wrongful death suit in his or her own name. Id. However, courts "will look beyond the nominal party whose name appears formally upon the record and will treat as the real party him whose interests are involved in the litigation — one responsible for instituting an action and who actively participates in its prosecution." Gibson v. Soloman, 23 N.E. 2d 996, 999 (Ohio 1939). Thus, numerous Ohio courts have found that the personal representative is only a nominal party in a wrongful death suit, and the real parties in interest are the statutory beneficiaries. Burwell v. Maynard, 255 N.E. 2d 628, 629 (Ohio 1970), citing Wolf Adm'r v. Lake Erie W. Ry. Co., 45 N.E. 708 (Ohio 1896).
As the real parties in interest, children of the decedent may receive compensatory damages for loss of companionship, prospective inheritance, and mental anguish. Ohio Rev. Code § 2125(B)(3)and (4). Under Ohio law, a rebuttable presumption arises that the decedent's children suffered damages as a result of the wrongful death. Ohio Rev. Code § 2125.02(A)(1). In addition, the statutory beneficiaries are subject to any applicable defenses to their wrongful death claim, including res judicata and contributory negligence on the part of the decedent.Id., citing, Gibson, supra, 23 N.E. 2d at 999, Wolf, supra, 45 N.E. at 711, Brinkman v. Baltimore Ohio Rd. Co., 172 N.E. 2d 154, 160 (Ohio 1960). The beneficiaries are also bound by any general release which may apply. Id.
When all beneficiaries are on an equal degree of consanguinity to the decedent, proceeds resulting from a wrongful death suit shall be distributed according to the beneficiaries wishes. Ohio Rev. Code § 2125.03(A)(1). However, if the beneficiaries do not agree on a distribution scheme, the court may adjust each beneficiary's share of the proceeds in an equitable manner. Id.
After reviewing the Ohio wrongful death statutes, it is clear that the debtor held an interest in the claim at the time of her mother's death. The personal representative plays a very small role and after filing the complaint has virtually no effect on the eventual outcome of the litigation. In fact, the eventual outcome of the litigation, in terms of damages, is entirely dependent upon the beneficiaries' relationship with the decedent. Thus, based upon the Ohio statute, the debtor held a beneficial interest in the wrongful death claim at the time she filed her petition.
The final issue is whether the debtor's interest in the wrongful death claim falls within the definition of "property of the estate", as contained in 11 U.S.C. § 541, which states:
(a) The commencement of the case under section 301, 302 or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.
Prior to the Bankruptcy Act of 1978, the Supreme Court interpreted the definition of the term "property" to include interests that were novel or contingent. Segal v. Rochelle, 382 U.S. 375, 379 (1966). The definition of the term "property" as contained in the Rochelle opinion was subsequently adopted by the Bankruptcy Reform Act of 1978. Barowsky v. Serelson, 946 F.2d 1516, 1518 (10th Cir. 1991). Legislative history indicates the purpose of § 541(a) is "to bring anything of value that the debtors have into the estate." Booth v. Vaughan (In re Booth), 260 B.R. 281 (6th Cir. BAP 2001) citing H.R. Rep. No. 95-595 at 176 (1977). Beneficial interests which have no present value, but may have some future value based upon the fulfillment of certain contingencies are property of the estate.Id. at 286; Potter v. Drewes (In re Potter), 228 B.R. 422, 424 (8th Cir. BAP 1999). With the exception of a debtor's potential exemption rights, any appreciation in value of estate property accrues for the benefit of the trustee. Id. citing In re Paolella, 85 B.R. 974, 976 (Bankr. E.D. Pa. 1988).
The Court finds the current set of facts analogous to the factual scenario in In re Potter. supra, 228 B.R. at 423. InPotter, the court found that the debtor's beneficial interest in a trust was property of the estate under § 541. Id. The debtor in Potter attempted to argue that the asset had no value at the time of filing and that the trustee was only entitled to the value of the asset at the time of filing. Id. The Potter court determined that, "[n]othing in Section 541 suggests that the estate's interest is anything less than the entire asset, including any changes in its value which might occur after the date of filing." Id.
The current case is similar to the Potter case in that in both cases, the respective debtors held a beneficial interest at the time of filing. In the Potter case, the interest arose as a result of a trust document, while in the current case, the debtor's interest arose as a result of the Ohio wrongful death statute. Regardless of how the interest arose, the fact remains that beneficial interests are property of the estate under § 541(a)(1). Thus, a beneficial interest in a wrongful death claim that arises prior to the filing of a petition and is recognized under state law, is property of the estate.
The Court in In re Tidwell also held that an interest in a wrongful death suit is property of the estate. 19 B.R. 846 (Bankr. E.D. Va. 1982). The Tidwell Court dealt with Va. Rev. Code § 8.01-53, which is almost identical to the Ohio wrongful death statute. Unfortunately, the Tidwell Court provided no rationale for its holding and simply stated that, "[i]f the state court makes no award to the debtor, obviously, there is no property for the estate. But if it does, there is." Id.
The debtor cites In re Surowitz, 94 B.R. 438 (E.D. Mich. 1988) as support for her position that the proceeds stemming from the wrongful death claim are not property of the estate. TheSurowitz case was decided under Michigan's Wrongful Death Act. That Act differs from the Ohio Civil Action for Wrongful Death act in making a distinction between damages, as for loss of financial support, suffered by survivors, and damages, as for funeral expenses, which would be inheritance. As we have seen, the Ohio statute deals only with damages to survivors.
As to survivor damages the Michigan court in the Surowitz case held them not to be property of the bankruptcy estate. But there is a fundamental factual distinction which makes Surowitz inapplicable here. In Surowitz, the death which gave rise to the wrongful death claim occurred after the debtor had filed his bankruptcy petition. Id. at 439. In the current case, the death of the debtor's mother occurred prior to the debtor filing her bankruptcy petition. Thus, the debtor held an interest in the underlying wrongful death action prior to the debtor's filing of bankruptcy. The debtor's interest in the wrongful death suit, because it accrued prior to the filing of the petition, is property of the bankruptcy estate under 11 U.S.C. § 541(a)(1).
IV. Conclusion
This Court holds that the debtor held a property interest in the wrongful death claim under Ohio law at the time she filed her petition, and that interest is therefore property of the bankruptcy estate under § 541. In addition, any increase in value of that asset accrues for the benefit of the estate under § 541(a)(6). Therefore, the trustee's motion for turnover of the $17,000 in proceeds stemming from the settlement of the wrongful death action in which the debtor held a beneficial interest is granted.
It is so ordered.