Opinion
NOT FOR PUBLICATION
ORDER ON TRUSTEE'S MOTION FOR SUMMARY JUDGMENT
PETER W. BOWIE, JUDGE UNITED STATES BANKRUPTCY COURT
INTRODUCTION
Prior to this bankruptcy case, debtor's mother was injured in a slip-and-fall. She sued the store in which it occurred, but passed away before the case was resolved. Before this bankruptcy case was filed, under a California survivor cause of action statute debtor stepped into the case as his mother's successor in interest. After debtor commenced this bankruptcy case, he and his counsel continued to prosecute the action, eventually-reaching a settlement agreement with the defendant. Debtor and the bankruptcy trustee disagree on whether the lawsuit and proceeds thereof are property of the bankruptcy estate and both seek summary judgment.
Because the Court finds that the action became property of the estate as of the petition date, the Court grants summary judgment in favor of the trustee and orders that the remaining proceeds of the lawsuit be turned over to the trustee.
FACTS
In 2009, Virginia Armbruster, the mother of debtor John Armbruster (Debtor), was injured in a "slip-and-fall" accident in a Stater Brothers grocery store. On July 13, 2011, Virginia filed a lawsuit against Stater Brothers seeking damages for her personal injuries (Lawsuit). She was represented by attorney Joseph DiVincenzo of the law firm of Remer, Divincenzo & Griffith (RDG), which is also a defendant in this adversary proceeding. Virginia and RDG had entered into a written retainer agreement, which provided, in part, that RDG would be entitled to 40% of any recovery.
On August 28, 2011, while the Lawsuit was pending, Virginia passed away.
On November 15, 2 011, RDG filed an ex parte motion on behalf of the Debtor to substitute into the Lawsuit as "successor in interest" under California Code of Civil Procedure (CCP) § 377.30. In support of the ex parte application, Debtor declared "I am the successor-in-interest, of Virginia Armbruster as defined in C.C.P. § 377.11, and I succeed to the decedent's interest in the action."
On or about November 15, 2 011, Superior Court Judge Earl H. Maas III entered an order granting the ex parte motion and ordering that "John Armbruster is substituted in as the Plaintiff in this action and shall continue as to decedent's causes of action under CCP § 3 77.20, et seq."
On May 31, 2012 Debtor and his wife Therese filed the petition commencing this bankruptcy case. Plaintiff, Christopher Barclay, was appointed chapter 7 trustee (Trustee). Despite the petition, Debtor, through RDG, continued to prosecute the Lawsuit in the Superior Court. On June 5, 2012, RDG filed a consent to Alternative Dispute Resolution in Superior Court. At some point thereafter, the parties participated in a mediation with mediator Joseph D'Antony.
In a letter to the Trustee dated July 3, 2012, attorney Joseph DiVincenzo acknowledged Debtor's bankruptcy case and that he was aware that the Trustee was looking into the bankruptcy estate's interest in the Lawsuit. He confirmed that Debtor was proceeding with the Lawsuit, but stated that he was authorized by the Superior Court to do so "as the decedent's personal representative." Mr. DiVincenzo explained that Debtor was unlikely to recover anything on the Lawsuit, because any recovery was subject to claims of attorney fees and the claim of Medicare, for medical payments made on the injuries which underlie the Lawsuit.
On August 16, 2012, Mr. DiVincenzo again wrote the Trustee insisting that the bankruptcy estate had no interest in the Lawsuit. Despite the fact that Debtor had been substituted in as successor in interest, Mr. DiVincenzo again represented to the Trustee that Debtor "is not an assignee or legal stakeholder, but merely the estate's representative." Mr. DiVincenzo also explained that the Lawsuit had been settled and dismissed and that the settlement proceeds, $75,000, had been deposited in RDG's trust account.
In an email dated August 17, 2012, the mediator, Joseph D'Antony, set out the terms of the settlement:
Each Plaintiff and Defendant agree to accept the mediator's proposal of settlement at $75,000. The terms set forth by the defendant of: Plaintiff settles the case (1) as successor in interest to the survial (sic) action, (2) as a claimant in a wrongful death claim. Plaintiff is responsible for own costs, fees and liens including Medicare....I have spoken with both Plaintiff and Defense attorneys and they have agreed to these terms .... (emphasis added.) Nothing in the record indicates that Debtor or RDG objected to the mediator's characterization of Debtor's claims.
On or about November 1, 2 012, RDG paid the reduced claim of Medicare (RDG had negotiated the claim down from $22,278 to $18,433.63 on the ground that not all of the expenditures were related to Virginia's accident). RDG also paid itself $30,000 in fees and $2,153.06 in costs in accordance with its retainer agreement with Virginia. The $30,000.00 is 40% of the settlement amount.
Though, as noted above, there is no indication that Debtor or RDG objected to the mediator's characterization of Debtor's claim as, at least in part, a wrongful death claim, on November 21, 2012, Mr. DiVincenzo wrote the Trustee contending that Debtor never asserted a wrongful death claim and that he asserted the personal injury claim merely as the representative of his mother's probate estate. He went on to explain:
Please be advised that the case brought on behalf of the Estate of Virginia Armbruster, in the Superior Court, has been dismissed. The case settled in late August, or early September, of this year. On behalf of my client, the Estate of Virginia Armbruster, the settlement funds were deposited into my trust account, the lien of Medicare was paid, and the fees and costs to my firm pursuant to a written fee agreement were paid. The remaining net settlement proceeds belong to the Estate of Virginia Armbruster, and are subject to the creditors of that Estate. The net settlement proceeds do not belong to John Armbruster, the debtor, and therefore are not the property of his bankruptcy estate, and are not subject to the jurisdiction of the trustee. If, after the Virginia Armbruster Estate is administered, there are any remaining estate proceeds, I will then notify you.
On February 7, 2013, the Trustee filed the complaint commencing this adversary proceeding. The Trustee sought a declaratory judgment that the Lawsuit and the proceeds thereof were property of Debtor's bankruptcy estate and that Defendants violated the automatic stay by proceeding with the Lawsuit. He also sought an order directing Defendants to turn over the Lawsuit and proceeds thereof. The Trustee has filed a motion for summary judgment. Defendants seek a judgment on the pleadings. The Court heard argument on both motions and took them under submission.
DISCUSSION
Under common law a personal injury action expires upon the death of the plaintiff. Quiroz v. Seventh Avenue Center. 140 Cal.App.4th 1256, 1263 (2006). Prior to 1993, this was the state of the law in California. In 1993, California enacted survivor cause of action provisions which are codified in Code of Civil Procedure §§ 337.11, et. seq. These new code sections provide that, with certain limitations and under certain circumstances, a personal injury claim survives the death of the plaintiff and may be carried on by another.
Under CCP § 337.11 et seq., a new plaintiff is substituted in for the deceased. The new plaintiff takes the helm under one of two capacities -"decedent's personal representative or, if none, by the decedent's successor in interest." See CCP § 337.30. "Decedent's personal representative" is not further defined. "Successor in interest" is defined as "the beneficiary of the decedent's estate or other successor in interest who succeeds to a cause of action or to a particular item of the property that is the subject of a cause of action." See CCP § 337.11.
The distinction between personal representative and successor in interest is described in Dillard v. Curtis, the unpublished decision relied upon by Debtor:
If a person dies having a cause of action for injuries suffered during life, the claim 'survives' to his or her estate under California Code of Civil Procedure § 377.20 (formerly, Probate Code § 573) and may be prosecuted by a duly appointed executor or administrator on behalf of the estate. Cal. Civ. P.Code § 377.20, 377.30. If there is no personal representative for the estate (e.g ., the estate is not probated or probate has been completed), the "survival" action may be prosecuted by the decedent's "successor in interest"-the person or persons who succeed, by will or intestacy, to the cause of action or to the particular item of property that is the subject of the action. Cal. Civ. P.Code §§ 377.10, 377.11, 377.30, 377.31; Olson V. Toy, 46 Cal.App.4th 818, 821 n. 2, 54 Cal.Rptr.2d 29 (1996).
2004 WL 2496130 (N.D.Cal. 2004).
Of the two options, Debtor was substituted in as Virginia's successor in interest. In his declaration filed in support of his application to be substituted into the Lawsuit, Debtor made it clear that he was proceeding not as representative, but as successor: "I am the successor-in-interest, of Virginia Armbruster, as defined in C.C.P. § 33 7.11, and I succeeded to the decedent's interest in this action."
Debtor counsel has claimed in letters to the Trustee and in argument before the Court that Debtor was acting as the personal representative of Virginia's estate. However, this is contrary to Debtor's declaration filed in the Superior Court. Counsel also argued that any recovery, net of attorney fees and Medicare reimbursement, would go to Virginia's probate estate. However, counsel provided no authority for such a procedure, and it is contrary to the plain language of the statute. As "successor in interest" Debtor has already "succeeded" to any interest Virginia had. Contrary to the assertions of Debtor, he was not acting as representative of her estate. As explained above, that option was available under § 337.30, but Debtor proceeded as successor in interest.
Counsel for the Debtor also argued that there is no legal distinction between "successor in interest" and "personal representative." The Court disagrees. First, as a matter of common sense, the California legislature would not use two terms separated by "or" if they were synonymous. Debtor's argument would render the "successor in interest" language unnecessary and redundant verbiage. Second, this argument was raised in and rejected by the California Court of Appeal in Exarhos v. Exarhos:
Nicholas asserts that he served "essentially as a representative of Eleni's estate and its beneficiaries." We disagree. Section 377.11 provides that a successor in interest is a person who succeeds to a particular "cause of action...." Section 377.30 provides that where a "cause of action ... passes to the decedent's successor in interest, " under certain circumstances, the successor in interest may commence the cause of action. Thus, a "successor in interest" has the authority to act with respect to the particular cause or causes of action to which he succeeds, rather than the entirety of the decedent's estate. (See Peterson, supra, 154 Cal.App.4th at p. 509, 65 Cal.Rptr.3d 185.)
Exarhos v. Exarhos, 159 Cal.App.4th at 908-09.
As noted above, the mediator indicated that Debtor settled not only Virginia's personal injury claim, but also his own wrongful death claim. Debtor, through counsel, has frequently denied that he asserted a separate wrongful death claim, but there is no indication that he objected to the mediator's recitation of the settlement terms. The Court cannot be certain of the existence or not of the wrongful death claim, as the record contains no copy of the complaint or any amendments thereto. It seems unlikely, since there is no indication that Virginia's death was caused by her accident at Stater Brothers.
If there was a separate wrongful death cause of action, as indicated by the mediator, which was also settled, the conclusion above, that Debtor had already succeeded to the Lawsuit and proceeds thereof, is bolstered. According to the mediator's email, both the survivor claim as well as Debtor's wrongful death claim were settled for a single, undivided payment of $75,000. If Debtor truly represented the Virginia Estate with respect to the survival action, then the settlement payment would have had to be allocated between himself personally with respect to the wrongful death claim, and himself as representative of the Virginia Estate. If there was in fact a wrongful death claim, the only possible conclusion is that both claims belonged to Debtor personally, and no claim of the Virginia Estate was involved.
Debtor also argues that the fact that the proceeds of the Lawsuit are subject to the liens of Medicare and the attorney fee claims of RDG indicates that the Lawsuit cannot belong to Debtor. Debtor provides no authority to support this position. This argument is akin to an argument that a certain asset does not become property of the bankruptcy estate, because it is subject to a mortgage, tax claim or some other lien. In the case at hand, Debtor succeeded to Virginia's Lawsuit subject to whatever liens there were on it. If the claim in Debtor's hands was subject to secured claims against it, then that is what the bankruptcy estate succeeded to when the petition was filed.
For all of the reasons set forth above, the Court concludes that Debtor prosecuted the Lawsuit not as the representative of the Virginia Estate, but rather as her successor in interest, and therefor, upon the filing of the petition, the Lawsuit and the proceeds thereof became property of the bankruptcy estate under Bankruptcy Code § 541.
The Trustee seeks to recover the entire $75,000 settlement payment despite the fact that any recovery was subject to reimbursement payment of the Medicare. It seems clear that Medicare had a legitimate claim/lien against the Lawsuit and proceeds thereof. The Medicare claim appears to have been reduced to the proper amount. Had the Trustee taken over and concluded the Lawsuit, the Medicare claim would have had to have been paid. The Court sees no reason to undo the payment on the Medicare claim. Thus, $18,433.63 of the $75,000.00 settlement proceeds need not be turned over.
The fees and costs of counsel, on the other hand, must be turned over to the Trustee. RDG may be entitled to payment of its fees under the Fee Agreement with Virginia, however, that is not entirely clear. The Fee Agreement provides that RDG is entitled to 40% of any recovery after mediation. The settlement amount was $75,000, so RDG took 40% or $30,000. However, so far as the record before the Court reflects-, RDG had no Fee Agreement with the Debtor. In his November 21 letter to the Trustee, Mr. DiVincenzo explained that his client was the Estate of Virginia Armbruster, though as discussed above, Debtor was proceeding on his own behalf as successor in interest. Further, to the extent the Settlement was attributable at all to the wrongful death claim (if any), there is no support for RDG's taking 40% of that amount. Finally, to the extent RDG provided services to the Debtor post-petition, it would have had to be employed by the estate. The Trustee, as fiduciary of the bankruptcy estate, has a duty to ensure that the compensation paid to counsel is in the best interest of creditors. In re Flugence, 2013 WL 6244758 (5thCir. 2013). RDG must turnover the settlement payment, less only the amounts paid to Medicare. RDG may seek employment and fees in this Court.
CONCLUSION
For the foregoing reasons, the Court hereby enters summary judgment in favor of the Trustee. Counsel for the Trustee shall lodge and serve an order consistent herewith within thirty (30) days of the entry of this Memorandum Decision. RDG's motion for judgment on the pleadings is denied.
IT IS SO ORDERED.