CARMONA v. ROBINSON

McNICHOLS, District Judge.

This is an appeal from an order of the above court affirming, on petition of review, a decision of the referee in Bankruptcy. We have jurisdiction under 11 U.S.C. § 47.

The undisputed facts, stipulated to below, may be summarized as follows: The appellant, Bernard Carmona, hereinafter referred to as the bankrupt, suffered a personal injury through the alleged negligence of a third party. Suit was filed in the Superior Court of Los Angeles County, State of California, on the claimed cause of action. While the matter was pending, and on May 16, 1962, the bankrupt filed a voluntary petition in bankruptcy and was, on said date, adjudicated a bankrupt. The trustee (appellee) appointed in the bankruptcy action took the position that title to the bankrupt's cause of action for personal injuries vested in the trustee as of the date of bankruptcy. The referee sustained the trustee and on proper petition for review, the District Court affirmed.

We are asked to determine whether or not, in the State of California, title to a cause of action for personal injuries, filed by the bankrupt prior to the petition in bankruptcy, vests in the trustee upon adjudication as a bankrupt. We are persuaded that it does and that we should affirm the District Court.

The National Bankruptcy Act, Sec. 70, sub. a(5),1 paraphrased, provides that the trustee in bankruptcy is vested, by operation of law, in rights of action of the bankrupt for personal injuries where the law of the state makes such actions subject to "attachment, execution, garnishment, sequestration, or other judicial process". Sec. 70, sub. c2 of the Act (sometimes known as the "strong arm clause") provides in part as follows:

Section 688.1, California Code of Civil Procedure, accepted by the parties as the controlling state statute, reads, in part, as follows:

A solution of the controversy requires a resolution of two questions: 1) Whether the California statute (Sec. 688.1, above) is applicable to causes of action founded on personal injuries; and 2) If so, does the right granted by the California law, when read with either Sec. 70, sub. a(5) or Sec. 70, sub. c of the Bankruptcy Act, vest title to such cause of action in the trustee in bankruptcy. As to the application of this California statute to causes of action for personal injuries, we appear to be faced with a case of first impression before an appellate court in California.

The bankrupt makes the point that historically in California, under the Common Law, and in most jurisdictions, choses in action for personal injury were not legally within the reach of creditors of the injured person prior to entry of judgment. He strenuously urges that Sec. 688.1 was not intended to change the law in this regard. No authorities specifically sustaining the position of the bankrupt are presented. On the other hand, the trustee contends that all available California court precedents, dealing with Sec. 688.1, indicate that the statute was intended to permit creditors to perfect a lien on such causes of action.

Our attention has not been directed to a California state court decision which is exactly in point. However, in a relatively recent California case (Apostolos v. Estrada, [1958] 163 Cal.App.2d 8, 328 P.2d 805), it is clear that a lien had been perfected by a creditor under Sec. 688.1 against the debtor's cause of action for personal injuries. The validity of the lien was not a point of controversy in the action, but the language of the court indicates that the court, and all parties, took it for granted that the lien was properly allowed. None of the other California state cases cited in the briefs of the respective parties are helpful to us.

We do find some persuasive authority in the holdings of the U. S. District Courts sitting in California and presided over by judges trained in California law. The matter was squarely before the trial court in the case of In re Farris, 217 F.Supp. 598 (N.D.Cal., 1963). In the Farris case, the trustee in bankruptcy sought to reach the proceeds of an out-of-court settlement of a personal injury case brought by the bankrupt and settled four days prior to the filing of the petition in bankruptcy. The trial judge in Farris considered the rights granted the trustee under Secs. 70, sub. a(5) and 70, sub. c of the Bankruptcy Act in conjunction with Sec. 688.1 of the California Code of Civil Procedure and concluded:

In addition to the foregoing, we have the decision of the Referee in this cause, experienced in California law, and the affirmation of that decision by the District Judge, a lawyer and judge trained in California. Each held that the lien provided for in Sec. 688.1 of the California law extended to personal injury causes of action.

We hold that, under Sec. 688.1 of the California Code of Civil Procedure, a trial court may grant to a creditor a lien upon a plaintiff's cause of action for personal injury.

In providing for such a lien, the California law has made such a right of action "subject to attachment, execution, garnishment, sequestration, or other judicial process" within the meaning of Sec. 70, sub. a(5) of the Bankruptcy Act. Since a creditor "could" have obtained a lien on the cause of action involved in this case, then all the rights, remedies and powers of such a fictitious creditor vested in the trustee (appellee) upon the filing in bankruptcy under the provisions of Sec. 70, sub. c of the Bankruptcy Act.

For the foregoing reasons, we affirm the judgment.