District Court Affirms Ruling that Settlement Proceeds from Pelvic Mesh Injuries Were Acquired Post-Petition, and Not Property of the Estate, Since Debtor did Not Discover Product Defect Until After Filing Bankruptcy

District Court Affirms Ruling that Settlement Proceeds from Pelvic Mesh Injuries Were Acquired Post-Petition, and Not Property of the Estate, Since Debtor did Not Discover Product Defect Until After Filing Bankruptcy

Chapter 7 Trustee appealed the Bankruptcy Court’s ruling from April 2016 that denied his motion to reopen the case in order to administer valuable property, namely, the Debtor/appellee’s interest in a product liability claim that she did not list on her Schedules.

At issue in the appeal is whether, under 11 U.S.C. § 541 (“§ 541”), the Bankruptcy Court erred by finding that certain settlement proceeds did not constitute property of appellee’s estate because no cause of action had accrued as of the date appellee filed her bankruptcy petition.
After the Debtor filed the case, the Bankruptcy Court approved a Stipulation of Settlement between the Debtor and Trustee with respect to the Trustee’s claims on the Debtor’s real property. This settlement allowed the Trustee to pay a 23% dividend to general unsecured creditors. After this, the Court closed the asset case.

Nearly 10 years after the case was closed, the Trustee moved the Court to reopen the case to administer an undisclosed asset, namely, a product liability claim for personal injuries sustained by appellee that resulted from a pre-petition medical procedure involving the implantation of a defective medical device.

Appellee objected to the motion, arguing that the cause of action arose post-petition. In particular, appellee stated that she underwent a surgery whereby the medical device at issue—a mesh pelvic sling (the “medical device”)—was implanted in 1999.

Nearly five years after the bankruptcy proceeding was closed, the FDA issued an advisory opinion regarding possible defects with the medical device. In 2012, appellee became aware of the possible defects, and contacted a product liability counsel with respect to asserting a claim in connection with those defects. Appellee subsequently asserted a product liability claim, which resulted in a settlement award in the amount of $105,172.26 (the “settlement proceeds”).

The Bankruptcy Court determined that no cause of action had accrued as of the petition date, and, therefore, the settlement proceeds did not constitute property of appellee’s estate. The Trustee appealed this order.

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