Written by Randall C. Lenhart, Esq.
Edited by Janeen B. Koch, Esq.
Whether or not a plaintiff filed a bankruptcy petition normally comes up in litigation cases in Virginia when the defense is trying to challenge a plaintiff’s medical bills. This is so because some Virginia courts have determined that a plaintiff cannot recover for the amount of her medical bills that have been discharged in bankruptcy. As a result, this bankruptcy issue functions as a limited exception to the collateral source rule. However, the Supreme Court of Virginia recently addressed another bankruptcy issue that should not be overlooked.
In Ricketts v. Strange, et al., 796 S.E.2d 182, 2017 Va. LEXIS 5 (February 16, 2017), the plaintiff filed a personal injury lawsuit shortly before the two year statute of limitations expired on her claim against the defendant. After the defendant learned that the plaintiff had filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Western District of Virginia, he filed a motion for summary judgment and argued that the plaintiff lacked standing to file her complaint. The defendant asserted that the plaintiff’s personal injury claim should have been brought by the bankruptcy trustee because the personal injury claim had not been properly exempted from the bankruptcy estate.
In granting the defendant’s motion for summary judgment, the circuit court determined that because the plaintiff “failed to disclose [her claim against the defendant] with the requisite reasonable particularity under the circumstances,” it “remained part of the . . . bankruptcy estate, [and was] assertable only by the trustee in bankruptcy.” The real problem for the plaintiff was that at the time of the court’s ruling, the statute of limitations on her personal injury claim had expired and the statute of limitations was not tolled with the filing of her personal injury suit because, without standing, the plaintiff’s original suit was a legal nullity. Kocher v. Campbell, 282 Va. 113, 119, 712 S.E.2d 477, 480-81 (2011) (“[A]n action filed by a party who lacks standing is a legal nullity . . . [and] has no tolling effect on the statute of limitations.”).
After the circuit court denied the plaintiff’s motion to amend and substitute the bankruptcy trustee as the plaintiff and dismissed her case, she appealed the case to the Supreme Court of Virginia. On appeal, the Supreme Court of Virginia considered whether the plaintiff had standing to file her personal injury lawsuit after filing Chapter 7 bankruptcy petition. The Court also determined whether the plaintiff could amend her complaint or substitute the bankruptcy trustee as the proper Plaintiff so that her case would not be barred by the statute of limitations.
In determining the issue of standing, the Supreme Court of Virginia noted that the plaintiff was required to list her interests in personal property in the bankruptcy petition and then list the assets she claimed to be exempt from the bankruptcy estate. The Court held that the plaintiff did not adequately identify her personal injury claim in the petition as an asset. As a result, her personal injury claims were not exempt and her cause of action remained an asset of the bankruptcy estate and the circuit court did not err by holding that the plaintiff lacked standing to file suit.
The Supreme Court of Virginia also affirmed the circuit court’s ruling denying the plaintiff’s motion to amend her complaint to substitute the name of the bankruptcy trustee as the plaintiff. The Supreme Court held that while Virginia Code § 8.01-6 provides that “[a] misnomer in any pleading may, on the motion of any party, and on affidavit of the right name, be amended by inserting the right name,” a misnomer is when the right person is improperly named and not where the wrong person is named. In this case, the plaintiff and the bankruptcy trustee were not the same person and therefore there was no misnomer. The Court also held that Rule 3:17 of the Rules of the Supreme Court of Virginia did not allow for substitution because it did not apply in cases where the plaintiff was incapable of prosecuting the case when it was originally filed.
Please note that this outcome would not have happened if the plaintiff had filed a Chapter 13 bankruptcy petition. The Fourth Circuit Court of Appeals, like many other Circuit Courts and Bankruptcy Courts, has made a clear distinction between a Chapter 13 debtor’s standing to bring non-bankruptcy causes of action and a Chapter 7 debtor’s standing to bring the same kinds of claims. Wilson v. Dollar General Corp., 717 F3 337, 343-44 (4th Cir. 2013). In Chapter 7 cases, which require the liquidation and distribution of assets by the trustee, the trustee alone has standing to bring claims. However, in Chapter 13 cases, which involve a reorganization of debt as opposed to a discharge, both the trustee and the debtor have concurrent standing to bring non-bankruptcy causes of action.