Davis, Trustee v. Erie Insurance

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
In re:
Michael & Eleanor Kovacs,
Debtors.
______________________________
Steven Davis, Chapter 7 Trustee,
Plaintiff,
v.
Erie Family Life Insurance Co., et al.,
Defendants.
)
)
)
)
)
)
)
)
)
)
)
)
)
Case No. 08-14703
Chapter 7
Adversary Proceeding
No. 09-1339
Judge Arthur I. Harris
MEMORANDUM OF OPINION 1
This matter is currently before the Court on the unopposed motion of the
Chapter 7 Trustee (trustee) for summary judgment. For the reasons that follow: (1)
the trustee’s motion for summary judgment is granted as to Erie Family Life
1 This Memorandum of Opinion is not intended for official publication.
The court incorporates by reference in this paragraph and adopts as
the findings and orders of this court the document set forth below.
This document was signed electronically on January 28, 2010, which
may be different from its entry on the record.
IT IS SO ORDERED.
Dated: January 28, 2010
_____________________________
Arthur I. Harris
United States Bankruptcy Judge
__________________________________________________________________________________________
09-01339-aih Doc 11 FILED 01/28/10 ENTERED 01/29/10 09:18:13 Page 1 of 8

Insurance Company (Erie Insurance), and (2) the trustee is directed to seek an entry
of default and default judgment against defendant Eleanor Kovacs.
FACTS AND PROCEDURAL HISTORY
Unless otherwise indicated the following facts are undisputed. On
June 19, 2008, the debtors, Michael & Eleanor Kovacs (debtors), filed a voluntary
petition under Chapter 13 of the Bankruptcy Code (Case # 08-14703). On
July 29, 2008, the debtors filed a notice of voluntary conversion to Chapter 7
(Docket #13). After the debtors’ case was converted, Steven Davis was appointed
as Chapter 7 Trustee.
1. Structured Settlement Annuity from Erie Insurance
According to the debtors’ bankruptcy petition, In May, 2005, Eleanor
Kovacs, agreed to a structured settlement annuity (annuity). Erie Insurance issued
the annuity (structured settlement certificate # 602-678PO). In December, 2005,
Eleanor Kovacs sold a portion of her interest in the annuity. The debtors did not
claim the annuity as exempt property. The trustee asserts that the current value of
the annuity is approximately $5,300.00.
2. The Current Adversary Proceeding
On October 12, 2009, the trustee filed this adversary proceeding against Erie
Insurance and debtor Eleanor Kovacs seeking an order finding that the annuity is
2
09-01339-aih Doc 11 FILED 01/28/10 ENTERED 01/29/10 09:18:13 Page 2 of 8

property of the estate, and directing the defendants to turnover the annuity, or its
value, pursuant to 11 U.S.C. § 542(a). On November 4, 2009, Erie Insurance filed
its answer. Eleanor Kovacs has not responded or otherwise appeared. On
December 11, 2009, the trustee filed a motion seeking summary judgment. Neither
defendant responded to the trustee’s motion seeking summary judgment, and the
Court is ready to rule.
JURISDICTION
The Court has jurisdiction over this action. Actions seeking turnover of
property of the estate are core proceedings under 28 U.S.C. § 157(b)(2)(E). The
Court has jurisdiction over core proceedings under 28 U.S.C. § 1334 and 157(a)
and Local General Order No. 84, entered on July 16, 1984, by the United States
District Court for the Northern District of Ohio.
SUMMARY JUDGMENT STANDARD
Federal Rule of Civil Procedure 56(c), as made applicable to bankruptcy
proceedings by Bankruptcy Rule 7056, provides that a court shall render summary
judgment:
if the pleadings, depositions, answers to interrogatories, and admissions on
file together with the affidavits, if any, show that there is no genuine issue as
to any material fact and that the moving party is entitled to a judgment as a
matter of law.
3
09-01339-aih Doc 11 FILED 01/28/10 ENTERED 01/29/10 09:18:13 Page 3 of 8

The party moving the court for summary judgment bears the burden of showing
that “there is no genuine issue as to any material fact and that [the moving party] is
entitled to judgment as a matter of law.” Jones v. Union County, 296 F.3d 417,
423 (6th Cir. 2002). See generally Celotex Corp. v. Catrett, 477 U.S. 317,
322 (1986). Once the moving party meets that burden, the nonmoving party “must
identify specific facts supported by affidavits, or by depositions, answers to
interrogatories, and admissions on file that show there is a genuine issue for trial.”
Hall v. Tollett, 128 F.3d 418, 422 (6th Cir. 1997). See, e.g., Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 252 (1986) (“The mere existence of a scintilla of
evidence in support of the plaintiff’s position will be insufficient; there must be
evidence on which the jury could reasonably find for the plaintiff.”). In
determining the existence or nonexistence of a material fact, a court will review the
evidence in a light most favorable to the nonmoving party. See Tennessee
Department of Mental Health & Mental Retardation v. Paul B., 88 F.3d 1466,
1472 (6th Cir. 1996).
DISCUSSION
A. Annuity as Property of the Estate
Before addressing the trustee’s motion for turnover the Court must first
determine whether the annuity is property of the estate. The trustee is only entitled
4
09-01339-aih Doc 11 FILED 01/28/10 ENTERED 01/29/10 09:18:13 Page 4 of 8

to a turnover of property which is part of the debtors’ bankruptcy estate. See In re
Osterwalder, 407 B.R. 291, 294 (Bankr. N.D. Ohio 2008) (“Thus, although not
specifically stated in § 542, fundamental to the concept of ‘Turnover’ is that the
asset to be turned over must be property of the debtor’s bankruptcy estate.” (citing
In re Bracewell, 454 F.3d 1234, 1243 (11th Cir. 2006))). Section 541 of the
Bankruptcy Code defines “property of the estate.” Subject to a few, specifically
enumerated exceptions, the estate consists of all legal and equitable interests in
property a debtor has at the commencement of a Chapter 7 case. 11 U.S.C. § 541.
The Sixth Circuit has held, “the scope of section 541(a)(1) is broad,
includes tangible and intangible property, and allows the bankruptcy ‘trustee to
regain possession of property in which the debtor had equitable as well as legal
title.’” Demczyk v. Mutual Life Ins. Co. (In re Graham Square), 126 F.3d 823, 831
(6th Cir. 1997) (quoting United States v. Whiting Pools, 462 U.S. 198, 204 (1983)).
Relying on the broad language of section 541, many courts have held that the
debtor’s interest in a cause of action is property of the estate. See Cottrell v.
Schilling (In re Cottrell), 876 F.2d 540, 542 (6th Cir. 1989); Sierra Switchboard
Co. v. Westinghouse Electric Corp., 789 F.2d 705, 707 (9th Cir. 1986) (“The scope
of section 541 is broad and includes causes of action.”); Tignor v. Parkinson, 729
F.2d 977, 981 (4th Cir. 1984) (“The debtor’s claims for injuries to the person,
5
09-01339-aih Doc 11 FILED 01/28/10 ENTERED 01/29/10 09:18:13 Page 5 of 8

whether unliquidated as when the petition was filed, or settled as occurred during
the proceeding, are thus property of the bankrupt estate”). Courts have also held
that proceeds from a settlement of a cause of action are property of the estate. See
In re Wiley, 184 B.R. 759, 765 (N.D. Iowa 1995); Walro v. Striegel (In re Striegel),
131 B.R. 697 (S.D. Ind. 1991); In re Robinson, 292 B.R. 599, 606 (Bankr. S.D.
Ohio 2003); Doucet v. Cooper (In re Cooper), 263 B.R. 835, 837 (Bankr. S.D.
Ohio 2001) (“Prepetition personal injury claims, as well as the settlement proceeds
from such claims are property of the bankruptcy estate.”).
Eleanor Kovacs, entered into a settlement, which resulted in her receiving
the annuity at issue. The trustee asserts the annuity is property of the estate.
Neither defendant has disputed the trustee’s contention. Based on the broad scope
of section 541, and the relevant case law the Court finds that the annuity is
property of the estate.
B. Turnover of the Annuity to the Trustee
The trustee seeks an order directing the defendants to turnover the annuity,
or its value, to the trustee pursuant to 11 U.S.C. § 542(a) . Section 542(a) provides
in pertinent part:
(a) 	an entity, other than a custodian, in possession, custody, or
control, during the case of property that the trustee may use, sell, or lease
under section 363 of this title, or that the debtor may exempt under section
6
09-01339-aih Doc 11 FILED 01/28/10 ENTERED 01/29/10 09:18:13 Page 6 of 8

522 of this title, shall deliver to the trustee, and account for, such property
or the value of such property, unless such property is of inconsequential
value or benefit to the estate.
The plain language of § 542(a) is clear that subject to a few, specifically
enumerated exceptions a party holding valuable property of the debtor’s bankruptcy
estate that is not exempt under § 522 must surrender the property to the trustee.
See In re Osterwalder, 407 B.R. at 294 (citing Whiting Pools, Inc., 462 U.S. at
202-03); French v. Johnson (In re Coomer), 375 B.R. 800, 803 (Bankr. N.D. Ohio
2007).
The Court has determined that the annuity is property of the estate. The
trustee has asserted that the annuity has a value of $5,300.00, neither defendant has
disputed the trustee’s valuation. The debtors did not claim the annuity as exempt.
Accordingly, the trustee is entitled to an order directing Erie Insurance to turnover
the annuity, or its value.
C. Trustee Must Seek Entry of Default and Default Judgment Against Defendant
Eleanor Kovacs
The trustee would also be entitled to summary judgment against defendant
Eleanor Kovacs if she had filed an answer, but she has not done so. Absent
evidence that defendant Eleanor Kovacs was properly served and in default of
answer, the Court cannot enter a judgment against her. Accordingly, unless the
7
09-01339-aih Doc 11 FILED 01/28/10 ENTERED 01/29/10 09:18:13 Page 7 of 8

trustee obtains an agreed order with defendant Eleanor Kovacs, the trustee must
proceed against her by seeking entry of default and default judgment.
CONCLUSION
For the reasons stated above, the trustee’s motion for summary judgment is
granted as to Erie Insurance, which is ordered to turnover the annuity, or its value,
to the trustee within 21 days of the date of this Memorandum of Opinion. The
trustee is directed to seek an entry of default and default judgment against
defendant Eleanor Kovacs.
IT IS SO ORDERED.
8
09-01339-aih Doc 11 FILED 01/28/10 ENTERED 01/29/10 09:18:13 Page 8 of 8