Debtor’s Product Liability Claim Arising out of Pre-petition Hip Replacement was Not Property of the Estate

Debtor’s Product Liability Claim Arising out of Pre-petition Hip Replacement was Not Property of the Estate

Roger and Vickie (“Debtors”) amended their schedule B in the bankruptcy case to include their products liability claim against a manufacturer arising out of Roger’s hip replacement.  Debtors also amended their schedule C to claim 100% of the value of the claim exempt under state law The Chapter 7 trustee (“Trustee”), filed an objection to Debtor’s amended exemption claim. Debtors responded to the objection, arguing that Roger needs all of the funds that may derive from his products liability claim for support.

On September 18, 2017, the parties filed a stipulation, agreeing to limit the issue for the Court to determine at this time to whether Debtors’ claim against the manufacturer of the alleged defective hip device is property of the estate.  The parties filed pre-hearing briefs, along with declarations and affidavits with attachments.

On October 18, 2017, the Court conducted a hearing at which the parties argued their positions and answered questions from the Court. The Court continued the hearing to allow the parties to supplement the record. The parties submitted additional documentary evidence and filed supplemental briefs.

On November 15, 2017, the Court conducted a second hearing concerning the objection. Thereafter, the Court took the issues under advisement. Having considered the parties’ evidence, briefs, and arguments, as well as the applicable law, this Memorandum sets forth the Court’s findings, conclusions, and reasons for its disposition of the objection.

Roger had issues with his hip for several years but did not have an operation to attempt to fix the medical issue related to the hip replacement until 2011.

On March 26, 2012, Debtors retained an attorney for matters related to Roger’s hip revision.  On January 2, 2013, Debtors filed a products liability action against the manufacturer of the components used in Roger’s hip replacement surgery in the United States District Court for the District of New Jersey.  In their complaint, Debtors included causes of action for strict liability, negligence, breach of implied warranty of merchantability, and breach of express warranty.

Over four years later, in a letter dated March 29, 2017, the law firm representing Debtors in the products liability litigation informed Trustee that the manufacturer had offered Debtors approximately $235,000 to settle their claims. On March 30, 2017, Trustee filed a motion to reopen Debtors’ bankruptcy case to administer Debtors’ products liability claim and any recovery, which he believed were property of the bankruptcy estate. The Court entered an order reopening Debtors’ bankruptcy case on March 31.

On April 14, 2017, Debtors amended their schedule B in the bankruptcy case to include the products liability claim against the manufacturer arising from the hip replacement “and subsequent difficulties that developed in 2011.”  The amended schedule provides that the claim was of “unknown” value.  At the same time, Debtors also amended their schedule C to claim 100% of the value of the products liability claim exempt under state law. On April 28, Trustee objected to Debtors’ claim of exemption.

Roger submitted to a Rule 2004 Examination in August, 2017. During the exam, he testified that he needed the hip revision surgery because “the disc that went up above the ball . . . was shifting . . . [and] it was no longer attached.”  He also testified that his original hip replacement surgery in 2007 solved the pain he was having prior to the surgery. He recalled that it was sometime after he fell “in the early spring or late [sic] of 2010” that he started noticing that when he walked, his hip “started to hurt worse than it used to.”

The Court must decide whether Debtors’ products liability claim against the hip replacement device manufacturer is property of the bankruptcy estate under § 541(a)(1) because it was a “legal or equitable interest[] of the debtor in property as of the commencement of the [bankruptcy] case . . . wherever located and by whomever held[.]

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