CARL B. RUBIN, District Judge.
This matter is before the Court on a petition for review from an order of the Referee in Bankruptcy denying the bankrupt's application that an unliquidated cause of action for personal injury in tort be deemed exempt property within the meaning of Section 70a(5) of the Bankruptcy Act, 11 U.S.C. § 110(a)(5). The Referee, following In re Borchers, 17 Ohio Misc. 146, 46 Ohio O.2d 217 (1968) (per Referee Kelleher), aff'd., October 23, 1970 (S.D.Ohio, E.D.), denied the application and held that the cause of action was "property" within the meaning of the Bankruptcy Act which passed to a trustee in bankruptcy.
The facts of this case are quite straightforward and are well presented in the detailed opinion of the Referee denying the objections of the bankrupt. Briefly summarized, they are as follows: On December 13, 1968, Raymond Cecil Schmelzer, the bankrupt herein, was involved in an automobile accident in which he sustained serious injuries. He filed suit
Section 70(a)(5) of the Bankruptcy Act states in pertinent part as follows:
It will be noticed that there are several distinct aspects to this provision. Subsection 5 of Section 70(a) provides that in general, causes of action which are transferable or which can be levied upon and sold under judicial process, are property which pass to the trustee in bankruptcy. The first clause of the proviso, which was added to this section as an amendment in 1938, specifically excludes from this general rule ex delicto actions, including actions in tort for personal injury, from vesting in the trustee. This clause, however, is modified by the second clause of the proviso which allows the general rule of Subsection 5 to apply to those actions, which under state law, are subject to attachment,
We agree with the Referee who, in In re Borchers, supra, characterized this statutory provision as a "verbalized shell game" of "now you see it, now you don't." 46 Ohio O.2d at 221. We also, however, agree with the interpretation of these provisions as found in McNeilly v. Furman, 8 Terry 565, 47 Del. 565, 95 A.2d 267, 35 A.L.R.2d 1436 (1953) where the Court stated:
95 A.2d at 268, 35 A.L.R.2d at 1439. We therefore conclude that this present appeal is governed solely by the language of the second clause of the proviso to Section 70(a)(5); Ohio law is therefore controlling. See 4A Collier, Bankruptcy, ¶ 70.28(3) (14th ed. 1971).
Since the parties are in agreement that an unliquidated personal injury claim is not subject, under Ohio law, to attachment, garnishment or sequestration, the only question before this Court is whether, in Ohio, such an action is subject to seizure by "other judicial process" and especially by a creditor's bill.
Our analysis of this question must begin with reference to the assignability of personal injury torts as Ohio law, in this area, developed along the lines of this rubric. It has been the law in Ohio from a very early date that personal torts, in the absence of a statute allowing the survival of these claims, are not capable of assignment. See Grant, v. Ludlow's Adm'r, 8 Ohio St. 1, 38 (1857).
At the time Cincinnati v. Hafer, 49 Ohio St. 60, 30 N.E. 197 (1892) was decided, the Ohio survival statute had not yet been broadened to include causes of action involving injury to person. The statutes then in effect, however, did provide that a cause of action to the real or personal property of a decedent did survive to his estate. See, id., at 66, 30 N. E. 197. In Cincinnati v. Hafer, the facts were as follows: A Mrs. Teetor had a claim against the defendant city for damage to her property caused by the city's drainage system. She was also a judgment debtor to one Hafer. Hafer filed a creditor's bill seeking to acquire a lien on an amount, which if recovered by Mrs. Teetor in her suit against the city, would be sufficient to satisfy her indebtedness to him. Mrs. Teetor ultimately won her suit against Cincinnati. The city, which was unaware of Hafer's pending bill against Teetor because court records had been destroyed by a fire in 1884, paid Mrs. Teetor on her judgment. Hafer then sued the city for monies which it should have withheld because of his pending creditor's bill.
The Supreme Court of Ohio posed the question before it as "whether Mrs. Teetor's demand against the city for unliquidated damages was of such a nature that, before it was reduced to judgment, Hafer, a judgment creditor, could, by a suit in the nature of a creditors' bill against her and the city of Cincinnati, acquire a lien in equity on her interest in such demand, and become entitled to payment of the same, in the event of succeeding in his suit." Id., at 64-65, 30 N.E. at 198. The Court, relying on Grant v. Ludlow's Adm'r, supra, and Village of Cardington v. Adm'r of Fredericks, supra, was of the opinion that a creditor's bill could be employed in this fashion and held:
Id., at 66, 30 N.E., at 198-199. Mrs. Teetor's unliquidated claim for damages based upon tort to property was therefore made subject to Hafer's creditor's bill.
There is a strong suggestion in Hafer, as dicta, that an action by way of a creditor's bill would have been a proper procedure against a claim for personal injuries which had "become due" within the meaning of the creditor's bill statute. Id., 49 Ohio St. at 67, 30 N.E. at 199.
Ohio law was not extended beyond this point until Strouss-Hirshberg Co. v. Davidson, supra. In that case Davidson, who was a judgment debtor to Strouss-Hirshberg, had a cause of action in personal injury pending against one Oles. Strouss-Hirshberg filed a petition under the predecessor of what is now Section 2333.01 O.R.C. praying that in the event Davidson recovered against Oles, that recovery should be subject to the judgment the company previously had recovered in Common Pleas Court. Davidson's demurrer to the petition was sustained and on appeal the Court of Appeals reversed. The sole question before the Court was whether an unliquidated claim for tort was a chose in action within the meaning of the creditor's bill statute. The Court of Appeals held that it was, purportedly relying on the decision of the Supreme Court in Hafer, supra.
Although the Strouss-Hirshberg court quoted extensively from Hafer in so extending Ohio law, it made no attempt to explain the substantial deviation it was in fact taking from the opinion in that case. As we have noted above, Hafer held only that a judgment creditor's right extends against unliquidated causes of action for torts against property. Hafer further indicated that such an action against a claim arising from tort to person would lie only after that claim was liquidated or had "become due." These crucial distinctions were not elucidated in Strouss-Hirshberg. See id., 19 O.Law Abs. at 227.
The decision in Strouss-Hirshberg rests, for the most part, on a single passage from Hafer,
The view which we adopt herein, and which we believe is directly traceable back to Hafer, is also consonant with subsequent Ohio cases which have held that a judgment creditor may not proceed directly against a tortfeasor who has subjected his judgment debtor to bodily injury, until the debtor's cause of action against such tortfeasor has developed into a vested right, due and owing as a result of judgment or settlement. See Alms & Doepke Co. v. Johnson, supra. See also Hartford Accident & Indemnity Co. v. Randall, 125 O.St. 581, 585, 183 N.E. 433 (1932); Fire Ass'n of Philadelphia v. State Automobile Mutual Ins. Co., 29 O.Law Abs. 135 (Ct.App. Summit Cty.1938); also see n.3, supra.
In fact, with the exception of In re Borchers, supra, no other Ohio court has adopted the extension of Hafer allowed by the Court in Strouss-Hirshberg. See, Haines v. Public Finance Corp., supra; Alms & Doepke Co. v. Johnson, supra. The Supreme Court of Ohio was recently presented with the opportunity to do so, by way of dicta (as it had done in Hafer), but declined to adopt the Strouss-Hirshberg extension. See Aetna Casualty & Surety Co. v. Hensgen, 22 Ohio St.2d 83, 258 N.E.2d 237, 51 Ohio O.2d 106 (1970). In fact, in that case the Supreme Court recited the limited and classic holding of Hafer by noting merely that "a cause of action to recover for fire damage to property is assignable," 258 N.E.2d at 242, 51 Ohio O.2d at 110.
We conclude in light of the foregoing analysis that the Ohio courts are, at best, divided on the present question.
We note at the outset that:
Sibley v. Nason, 196 Mass. 125, 81 N.E. 887 (1907); also see Rice v. Stone, 83 Mass. 566 (1861); Bethlehem Fabricators v. H. D. Watts Co., 286 Mass. 566, 190 N.E. 828, 93 A.L.R. 1124 (1934); In re Funk, 2 F.Supp. 555 (W.D.Va. 1932), aff'd sub nom. Ruebush v. Funk, 63 F.2d 170 (C.A.4, 1933); Harleysville Mutual Insurance Co. v. Lea, 2 Ariz.App. 538, 410 P.2d 495 (1966); and cases cited in Annot. 40 A.L.R.2d 500, §§ 3, 6(b) (1955).
The fundamental policies of the federal Bankruptcy Act are, instead, to the contrary. While the Act, like many central pieces of legislation, attempts to strike a balance between the disparate interests involved—in the case of bankruptcy between debtors and creditors —it must be remembered that the Act ultimately favors the debtor who invokes its protection. The Act's basic purpose is to give the debtor a "new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt." Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 699, 78 L.Ed. 1230 (1934); Lines v. Frederick, 400 U.S. 18, 19, 91 S.Ct. 113, 27 L.Ed.2d 124 (1970); Perez v. Campbell, 402 U.S. 637, 642, 91 S.Ct. 1704, 29 L.Ed.2d 233 (1971); Aveni v. Richman, 458 F.2d 972 (C.A.6, 1972). The philosophy of our system, well reflected in the very concept of bankruptcy, is that people are entitled to a second chance, on as equal a footing as the law can allow.
In pursuit of this goal the bankrupt, under our approach, is allowed legal dispensation and discharge as to those debts which are "sufficiently rooted in [his] pre-bankruptcy past" and which would, if not discharged, interfere with his "ability to make an unencumbered fresh start". Segal v. Rochelle, 382 U.S. 375, 379-380, 86 S.Ct. 511, 515, 15 L.Ed.2d 428 (1966); Lines v. Frederick, supra; Aveni v. Richman, supra. The Supreme Court has recently reminded us again that the "various provisions of the Bankruptcy Act were adopted in the light of [these] view[s] and are to be construed when reasonably possible in harmony with [them] so as to effectuate the general purpose and policy of the act." Lines v. Frederick, supra, 400 U. S. at 19, 91 S.Ct. at 114; Local Loan Co. v. Hunt, supra, 292 U.S. at 244-245, 54 S.Ct. 695.
These policies constitute the logical underpinnings of a series of decisions that have held that not everything owned by the bankrupt at the time he files his petition is to be considered "property" within the meaning of the Bankruptcy Act. See Local Loan Co. v. Hunt, supra; Segal v. Rochelle, supra. Certain kinds of property such as future wages subject to state pre-garnishment statutes, see Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L. Ed.2d 349 (1969) and accrued but unspent vacation pay, see Lines v. Frederick, supra, represent "specialized" types of property which do not pass to the trustee under Section 70 of the Act. See, Comment, The Growth of Procedural Due Process into a New Substance: An Expanding Protection for Personal Liberty and a "Specialized Type of Property" . . . in our Economic System, 66 N.W.U.L.Rev. 502, 525-532 (1971); Sniadach v. Family Finance Corp., supra, 395 U.S. at 340, 89 S.Ct. 1820; Lines v. Frederick, supra, 400 U. S. at 19, 91 S.Ct. 113. The Supreme Court has recently held, in what is a logical corollary to the notion of specialized property, that at times a trustee has too tenuous a relationship to a given claim to have standing to assert that claim on behalf of the bankrupt estate. See Caplin v. Marine Midland Grace Co. of New York, 406 U.S. 416, 92 S.Ct. 1678, 32 L.Ed.2d 195 (1972) (holding that a trustee, in a proceeding under Chapter X of the Bankruptcy Act, did not have standing to assert, on behalf of the holders of debentures issued by the bankrupt in reorganization, various negligence claims against an indenture trustee).
The award of monetary damages to one who has suffered personal injuries due to the fault of another is premised on the theory that money can adequately compensate for pain and suffering; that money can make a shattered or scarred body whole. This theory, like most, is imperfect and cannot apply to all conceivable situations. However, our law of torts, at present and from the early days of the common law, has operated from this imperfect premise. It seems apparent to this Court that an uncompensated claim for personal injury may seriously complicate the injured's ability to function in the future.
In the context of bankruptcy it cannot be said that the bankrupt is being given a discharge from his preexisting debt and a "fresh start" if his creditors can still look to his unliquidated claim for personal injury for satisfaction. According to the existing theory of tort law, the holder of a claim for injury to his person is not "whole" until that claim has been reduced to a money judgment.
Nor does this Court believe that it would be appropriate to allow the trustee standing to assert the personal injury claim of the bankrupt on behalf of the bankrupt's estate. It must be remembered that the trustee is vested with the legal title to property which passes to him, by operation of law, under the terms of Section 70(a). If we permitted the trustee at bar the legal title to the bankrupt's claim he could conceivably prosecute it, even, perhaps, against the wishes of the bankrupt.
Although this result was reached legally in In re Borchers by the application of principles of a creditor's bill, conceptually the result is not distinguishable from the universally condemned practice of the assignment of personal injury claims. In a creditor's bill situation brought under the provisions of Section 2333.01 O.R.C., see n.2, supra, the judgment creditor merely obtains an equitable lien on the liquidated recovery, if any, that is ultimately made by the injured judgment-debtor. The injured judgment-debtor retains full control over his cause of action; if he decides not to prosecute his claim, his creditor obtains nothing. The situation permitted by the Referee herein allows the trustee unbridled control of the injured bankrupt's cause of action. As
In our view to allow such a claim, either by way of creditor's bill or petition in bankruptcy, to pass freely to one not directly involved in the pain and suffering usually attendant upon such accidents would be to unfeelingly minimize the extent to which the injured person is reduced, physically, psychologically, and as to future earning capacity, by such accidents. This Court, if it allowed such claims to pass freely in these ways, could be encouraging a market in the pain and suffering of unfortunate persons and the law neither does, nor should it, encourage so callous and barbaric a practice. See Rabe v. Hanna, 5 Ohio 530, 532 (1832); Rice v. Stone, supra.
We are particularly mindful that a serious accident, which reduces a person's physical abilities and earning capacity, may be the prime catalyst to his filing a petition for bankruptcy. If this claim could be promptly litigated and recovery made, the injured individual would, perhaps, not have to file for bankruptcy at all. Usually, however, crowded court dockets and sound defense tactics do not allow for the expeditious settlement of these claims. We note that bankrupt herein was involved in the accident in December of 1968. When he filed his petition in bankruptcy in June of 1971, his personal injury claim was still pending in State court. To the best of our knowledge, it is pending to this date—to September of 1972.
To allow this fortuitous delay to the disposition of a bankrupt's claim for personal injuries—a delay which is beyond the control of the bankrupt—to redound to the benefit of his creditors and to his detriment, especially where the bankrupt's economic plight may be directly related to an incapacity flowing from an injury which is the subject of the pending personal injury suit, would be both illogical and unconscionable. In the absence of clear and binding authority upon us, either by way of Supreme Court of Ohio decisional law or legislative edict, see Carmona v. Robinson, supra, we refuse to reach so inequitable a result.
Consequently, we hold that to allow the potential of such a recovery to pass by way of a creditor's bill to the trustee before it has become liquidated is to deny the bankrupt his right, under the federal bankruptcy law, to an "unencumbered fresh start" which is "unhampered
Contrary to the argument advanced by the trustee herein, we do not think our holding will encourage the fraudulent filing for discharge in bankruptcy after a personal injury claim arises, but before it is liquidated. This argument assumes the existence of two independent conditions: first, a potentially meritorious but unliquidated tort claim for personal injuries; and second, a financial situation which would allow one to invoke the protection of the Bankruptcy Act. It is highly unlikely that our decision today will alter the primary behavior of people and cause them to attempt to place themselves into either of these two conditions. But, if the second condition exists, the bankrupt is entitled to a discharge, regardless of the presence of the first condition. This Court cannot comprehend why the situation of the bankrupt's creditors should be improved merely because he was unfortunate enough to sustain a personal injury.
In any event, we will assume, arguendo, that our decision will be an incentive to those holding unliquidated claims for personal injuries and who are in shaky enough economic straits to qualify for discharge in bankruptcy. In this situation the question is who shall benefit from the potential windfall, if a claim for personal injuries can be so characterized. When the question is posed in these terms, it should be clear that we have done no more today than to recognize that the Act, which contains a presumption in favor of the bankrupt, was enacted for the protection of debtors, and that its underlying policies favor the bankrupt. These considerations, noted in Local Loan, supra, and its progeny, compel the courts to give the bankrupt the benefit of the doubt and to resolve close questions in his favor.
Because we decide the question before us as a matter of law the general proposition that the findings of fact of the Referee are to be upheld, unless clearly erroneous, has no applicability to the case at bar. See United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1947); McDowell v. John Deere Industrial Equipment Co., supra; In the Matter of Columbus Malleable, Inc., 459 F.2d 118 (C.A.6, 1972).
While we recognize that the law of Ohio on this question is sufficiently cloudy to allow either possible answer to the question before us, the Supreme Court decision in Lines v. Frederick mandates a conclusion contrary to that reached in In re Borchers, supra.
Had this Court been faced with the problem at the time of Borchers, it is altogether probable that we might have reached the same result. Therefore, to the extent the Referee in the case at bar relied on In re Borchers in denying bankrupt's application that his unliquidated cause of action be deemed exempt property under Section 70(a)(5), his decision will be reversed.
One further question is still before this Court. As we have noted above, the Ohio survival statute was amended in the year Strouss-Hirshberg was decided and broadened to include tort to person. See n.6, supra. Some early Ohio cases
If this Court were to consider the dicta expressed in Grant v. Ludlow's Adm'r, supra, and Village of Cardington, supra, (which of course arose before the amendation of the Ohio survival statute, and which equated survivability and assignability) to be controlling, we would then have a situation where tort claims involving personal injuries could be bought and sold as other commodities; yet the Ohio authorities and this Court, supra, 8 Ohio St. at 13-14, have uniformly rejected this view. See, 5 O. Jur.2d, Assignment, Section 13 at 167, 168; In re Borchers, supra, 17 Ohio Misc. 146, 46 Ohio O.2d at 322.
In the absence of authority directly binding upon us, emanating either from the Supreme Court of Ohio or the General Assembly, the Court will adopt the view that it considers to be more in accord with enlightened public policy. We hold, therefore, that the mere existence of a survival statute which extends to administrators and its survivors the right to bring a wrongful death action for tort done to the person of the decedent, does not create by implication the right of free assignability of personal injury claims in tort.
We note that the view adopted herein is in accord with the trend of modern authority and with the excellent opinion of the Supreme Court of Arkansas in Southern Farm Bureau Casualty Insurance Co. v. Wright Oil Co., supra, where the Court held that:
The reasoning of that court commends itself to us and we therefore adopt its holding in full as far as applicable to the case at bar. See, accord, Forsthove v. Hardware Dealers Mut. Fire Ins. Co., Mo.App., 416 S.W.2d 208 (1967); Harleysville Mut. Insurance Co. v. Lea, supra.
Of course nothing stated herein shall be interpreted as affecting the subrogation, in accordance with law, of insurance claims, see Aetna Casualty & Surety Co. v. Hensgen, supra. Neither shall our opinion be read as suggesting the unconstitutionality of Ohio's creditor's bill statute, see n.2, supra, as interpreted in In re Borchers, supra, on Supremacy Clause grounds because it ". . . directly conflicts with . . . the overriding purpose of the Bankruptcy Act — that the bankrupt shall have `a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt.'" Harris v. Manufacturers National Bank of Detroit, 457 F.2d 631 (C.A.6, 1972), quoting Perez v. Campbell, supra, 402 U.S. at 648, 91 S.Ct. 1704; and Local Loan Co. v. Hunt, supra, 292 U.S. at 248, 54 S.Ct. 695.
It is so ordered.
Id. at 38.
"But the statute not only subjects the judgment debtor's interest in any chose in action, but also any interest he has in `any claim due or to become due.' The term `claim' is comprehensive, and would embrace a demand for money in varied forms, whether on contract, express or implied, or for damages growing out of injury to person or property."
See id., at 67-68, 30 N.E. at 199; also see n. 2, supra.
Section 2305.21 O.R.C., the Ohio Survival Statute, now provides as follows:
The syllabus makes no mention of the reach of a creditor's bill in regard to an unliquidated personal injury claim.
Id., 19 O.L.A. at 227, citing 49 O.St. at 69, 30 N.E. 197; also see n. 4, supra.
Id., 454 S.W.2d at 70, and cases cited therein. We are in agreement with this view.
This Court is also in agreement with the sentiment expressed by the Supreme Court of Illinois in the celebrated case of North Chicago St. Ry. Co. v. Ackley, 171 Ill. 100, 49 N.E. 222 (1897) where that Court held:
Also see Harleysville Mut. Ins. Co. v. Lea, 2 Ariz.App. 538, 410 P.2d 495 (1966); Sibley v. Nason, supra; In re Buda, supra; Saper v. Delgado, 146 F.2d 714 (C.A. 2, 1945) (under New York law); Young v. Roodner, 123 Conn. 68, 192 A. 710 (1937); Annot. 60 A.L.R.2d 1217, §§ 3, 4 (1959). For contra authority see other cases cited at n. 8, supra.