Memorandum of Decision Re: Exemption of Personal Injury Claim

IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re RITA MARIE CARR,                                                                     No. 92-12222      Debtor. ___________________________/
Memorandum of Decision
     When the debtor filed her Chapter 7 petition in 1992, she had a personal injury action pending in Los Angeles Superior Court. As the result of binding arbitration in 1994, the debtor has been awarded $44,000.00. She has claimed the award as exempt under California Code of Civil Procedure section 704.140. The trustee has filed a timely objection, arguing that because some of the creditors are health care providers the award cannot be exempted.      While both sides have termed the issue raised here to be a novel issue of first impression, this is only because they have both misread the statute. Section 704.140(a) exempts a cause of action for personal injury. Section 704.140(b) exempts a settlement or award for a personal injury. Section 704.140(c), relied upon by the trustee, is an exception to section 704.140(b), not section 704.140(a). On the day of filing, the debtor had a cause of action, not an award. Thus, the entire cause of action is exempt under section 704.140(a). The fact that long after the filing the cause of action was converted to an award does not bring the other sections into play; assets are characterized for exemption purposes as of the date of filing. In re Hall, 1 F.3d 853, 855 (9th Cir.1993).      Even if the award had been made before the bankruptcy, the trustee's position would have little merit. While he has not clearly articulated whether he relies on section 544(a)(1) or section 544(b) of the Code, the former section is not applicable because it gives him only the status of a general creditor, not one with special rights. Section 544(b) gives the trustee the special rights of actual creditors, but only to the extent of their rights. Thus, the arbitration award would only be nonexempt to the extent of the health care providers' claims. The court reiterates, however, that this paragraph is not relevant to the case because on the day of filing the debtor had a cause of action only.      For the foregoing reasons, the trustee's objection will be overruled. Counsel for the debtor shall submit an appropriate form of order immediately.
Dated: August 16, 1994                                                                                                   _______________________                                                                                                                                                    Alan Jaroslovsky                                                                                                                                                    U.S. Bankruptcy