Morlan, David A. v. Universal Guaranty ( 2002 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 01-3795
DAVID A. MORLAN,
Plaintiff-Appellant,
v.
UNIVERSAL GUARANTY LIFE INSURANCE COMPANY, et al.,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Southern District of Illinois.
No. 99 C 274—G. Patrick Murphy, Chief Judge.
____________
ARGUED MAY 28, 2002—DECIDED JULY 26, 2002
____________
Before BAUER, POSNER, and WILLIAMS, Circuit Judges.
POSNER, Circuit Judge. This appeal from the dismissal of
a class action presents novel issues at the intersection of
bankruptcy and class action law. A procedural chronology
will help in framing them.
April 1999. David Morlan files this class action suit as
the representative of a class of insurance agents of the
defendants, affiliated insurance companies that main-
tain employee welfare benefit plans. 29 U.S.C. § 1002(1).
Morlan’s suit charges that the defendants, in breach of
the fiduciary duty that ERISA imposes on fiduciaries of
pension and welfare plans, see 29 U.S.C. § 1109(a), improp-
2 No. 01-3795
erly treated him and the other members of the class as in-
dependent contractors, when actually they were em-
ployees of the defendants and so were entitled to the
health, vacation, and other benefits to which the defen-
dants’ plans entitled the defendants’ acknowledged em-
ployees.
May 1999. Morlan files for bankruptcy.
September 1999. The bankruptcy court (1) orders Morlan’s
debts discharged, on the basis of the trustee’s report that
the estate in bankruptcy has no assets and that consequent-
ly the trustee has made no distribution to the creditors,
and (2) dismisses the bankruptcy proceeding.
January 2000. Morlan files an amended complaint in the
class action suit.
August 2000. The suit is certified by the district court as
a class action with Morlan the only named plaintiff.
September 2001. Having learned about the bankruptcy, the
district judge decertifies the class in Morlan’s ERISA suit
and dismisses the suit without prejudice. Morlan’s claim
under ERISA, the judge reasons, became an asset of the
estate in bankruptcy and was not abandoned by the trust-
ee. So when the class was certified, the named plaintiff
(Morlan) had no standing to sue because he did not own the
claim that he was suing upon.
Morlan asks us to reverse the dismissal of his suit.
The dismissal presupposes the assignability of Morlan’s
ERISA claim to the trustee in bankruptcy; if it was assign-
able and assigned, it became property of the estate in bank-
ruptcy, as in In re Polis, 217 F.3d 899, 901 (7th Cir. 2000);
if it was not assignable, Morlan rather than the trustee
was entitled to sue to enforce it.
ERISA requires pension plans to include a provision for-
bidding the assignment or alienation (these are synonyms,
No. 01-3795 3
Riordan v. Commonwealth Edison Co., 128 F.3d 549, 552
(7th Cir. 1997), except that the addition of “alienation” to
“assignment” makes crystal clear that the anti-assign-
ment provision bars involuntary as well as voluntary as-
signments) of pension-plan benefits, 29 U.S.C. § 1056(d)(1);
Plumb v. Fluid Pump Service, Inc., 124 F.3d 849, 863 (7th Cir.
1997), and thus keeps such property out of the plan par-
ticipant or beneficiary’s estate in bankruptcy. 11 U.S.C.
§ 541(c)(2); Patterson v. Shumate, 504 U.S. 753, 760 (1992);
In re Weinhoeft, 275 F.3d 604, 605 (7th Cir. 2001). Some types
of claim are nonassignable voluntarily but assignable in-
voluntarily, as in In re Polis, supra, 217 F.3d at 901. Tort
claims, for example, normally are not assignable, but they
do become property of the claimant’s estate in bankrupt-
cy by operation of bankruptcy law. ERISA’s anti-assign-
ment clause, however, as the Patterson and Weinhoeft cases
make clear, bars the latter type of assignment as well.
ERISA imposes no similar requirement on welfare plans;
nor do the plans at issue in this case contain a clause
forbidding assignment or alienation. Since, however,
Morlan’s claim is in part a claim for pension benefits, in
part it is indeed nonassignable; and so the dismissal of
his suit was improper. But it will make a difference on re-
mand whether he can sue on all or only the pension part
of his claim; and so we proceed to a consideration of wheth-
er the part of his claim that concerns welfare benefits was
assignable.
Several cases hold that welfare benefits are generally
nonassignable, just as pension benefits are, despite the ab-
sence of a counterpart to section 1056(d)(1) applicable
to welfare benefits. These cases reason that because ERISA
authorizes suits for plan benefits only by participants,
beneficiaries, fiduciaries, or the Secretary of Labor, 29
U.S.C. § 1132(a), an assignee who does not come under one
4 No. 01-3795
of these descriptions is ineligible to maintain the suit. See,
e.g., Simon v. Value Behavioral Health, Inc., 208 F.3d 1073,
1080-82 (9th Cir. 2000).
The cases, it is true, carve an exception for medical
benefits assigned to a health-care provider in exchange
for health care, a common method of financing such care.
See, e.g., Principal Mutual Life Ins. Co. v. Charter Barclay
Hospital, Inc., 81 F.3d 53, 55-56 (7th Cir. 1996). That would
not support a conclusion that Morlan’s ERISA claim for
welfare benefits was assignable to the trustee in bankrupt-
cy, however, because the trustee is not a health-care pro-
vider. Our court has a case of that sort, but our opinion
in that case takes no position on whether other types of
welfare benefit are assignable and if so whether there is
any restriction on who the assignees may be. Plumb v.
Fluid Pump Service, Inc., supra, 124 F.3d at 863 and n. 15.
However, in Kennedy v. Connecticut General Life Ins. Co., 924
F.2d 698, 700 (7th Cir. 1991), we rejected the reasoning later
adopted in cases like Simon by holding that a properly
assigned ERISA claim makes the assignee a participant
or beneficiary within the meaning of the Act.
Only the Fifth Circuit has actually held that claims for
such benefits are assignable without restrictions. The prin-
cipal case is Hermann Hospital v. MEBA Medical & Benefits
Plan, 845 F.2d 1286, 1289 (5th Cir. 1988), which, though it
too concerned health benefits, based its holding that they
are assignable on the absence of a statutory provision
forbidding their assignment, a ground independent of the
nature of the welfare benefits or whom they are assigned
to. Another Fifth Circuit decision, Texas Life, Accident, Health
& Hospital Service Ins. Guaranty Ass’n v. Gaylord Entertain-
ment Co., 105 F.3d 210, 214-15 (5th Cir. 1997), holds that
claims for welfare benefits are assignable regardless of their
nature, though the ground of the decision (a ground equally
No. 01-3795 5
applicable to pension plans, by the way—and Texas Life
involved a pension plan, not a welfare plan) is one we have
difficulty understanding. It is that benefits, and a claim
that benefits were withheld in breach of the plan admin-
istrator’s fiduciary obligations, are different animals, so
that the statutory anti-assignment provision is interpret-
able as forbidding assignment of benefits but not of ben-
efit claims that have matured into causes of action.
Now that we must decide the issue, we hold that
claims for welfare benefits, not limited to health-care bene-
fits, are assignable, provided of course that the ERISA plan
itself permits assignment, assignability being a matter
of freedom of contract in the absence of a statutory bar.
Kennedy v. Connecticut General Life Insurance Co., supra,
924 F.2d at 700. The absence of a counterpart to the anti-
assignment provision for pension plans is telling; and in
this regard we do not understand how the courts that have
held welfare benefits nonassignable square their conclusion
with the Supreme Court’s decision in Mackey v. Lanier
Collection Agency & Service, Inc., 486 U.S. 825, 837-38 (1988),
which held that, precisely because there is no anti-assign-
ment provision for welfare plans, ERISA does not prohibit
a state from garnishing benefits payments due plan partici-
pants. See In re Taft, 184 B.R. 189, 191 (E.D.N.Y. 1995). Gar-
nishment and an assignment for the benefit of creditors
are the same kind of animal.
Pertinent too is the general principle of the law that
contractual claims (which is the essential character of claims
to benefits pursuant to private pension or welfare plans) for
the payment of money are assignable. In re New Era, Inc., 135
F.3d 1206, 1210 (7th Cir. 1998); Citibank, N.A. v. Tele/Re-
sources, Inc, 724 F.2d 266, 268 (2d Cir. 1983); Collins Co. v.
Carboline Co., 532 N.E.2d 834, 841 (Ill. 1988); E. Allan
Farnsworth, Contracts § 11.2, p. 707 (3d ed. 1999). This
principle, however, comes with an important exception,
6 No. 01-3795
which turns out to be pertinent to this case, for cases
in which “the personal acts and qualities of one of the
parties form a material part of the contract.” First Illinois
National Bank v. Knapp, 615 N.E.2d 75, 77-78 (Ill. App. 1993).
If you made a contract with John Singer Sargent for him
to paint your portrait, he could not assign his contractual
duty to another painter without your consent. Nor could
you assign your automobile liability insurance policy to
another driver, since he might be in a different risk class
from you. And likewise Morlan could not assign to the
trustee in bankruptcy his right to participate in his em-
ployer’s welfare benefits plans, thus substituting the trustee,
or the creditors, for himself—that would be nonsensical.
Insofar as Morlan is seeking past monetized or mon-
etizable benefits, this problem does not arise, because
such a claim is independent of all personal differences
between Morlan on the one hand and the trustee or credi-
tors on the other, and so it is assignable. But he is claiming
both past and future benefits, and, consistent with the
“personal obligations” doctrine, the future benefits are not
assignable—so here is another piece of his claim that, like
his claim for pension benefits, clearly remained with him
despite the bankruptcy. Still, the conclusion from the
analysis thus far is that the trustee could take over at least
a chunk, for all we know the biggest chunk, of Morlan’s
claim as an asset of the bankrupt estate, and this conclu-
sion requires us to consider whether that chunk was re-
vested in Morlan, enabling him to sue to enforce it in his
class action suit. If it was not revested, if it was not his
property, he did not have standing to sue for it. For if it
was not his property he would not benefit from an order
requiring the defendants in the class action suit to render
up the property.
After a suit is certified as a class action, a loss of standing
by the named plaintiff does not destroy or (if it affects just
No. 01-3795 7
one of several claims) curtail the federal court’s jurisdic-
tion; he can be replaced by a member of the class who has
standing. Parole Commission v. Geraghty, 445 U.S. 388, 398
(1980). But until certification, the jurisdiction of the dis-
trict court depends upon its having jurisdiction over the
claim of the named plaintiffs when the suit is filed and
continuously thereafter until certification, Walters v. Edgar,
163 F.3d 430, 432 (7th Cir. 1998); Nelson v. Murphy, 44 F.3d
497, 500 (7th Cir. 1995); Lusardi v. Xerox Corp., 975 F.2d 964,
974-75 (3d Cir. 1992), because until certification there is
no class action but merely the prospect of one; the only
action is the suit by the named plaintiffs. Morlan declared
bankruptcy in May 1999, before the class was certified.
Upon that declaration he lost the chunk of his ERISA
claim that we’re concerned with in this part of the opinion;
it fell into the estate in bankruptcy. But in September the
bankruptcy proceeding was dismissed, and there is an ar-
gument, as we’re about to see, that the effect of that dis-
missal was to revest Morlan with his entire claim.
That might seem too late to save Morlan’s standing
to sue on the entire claim were it not for his having
filed an amended complaint in January 2000. That filing
cured any problem. Quite apart from the relation-back
doctrine of Fed. R. Civ. P. 15(c), which allows even jurisdic-
tional defects in the original complaint to be cured provided
the amended complaint relates back, as this one did,
e.g., E.R. Squibb & Sons, Inc. v. Lloyd’s & Cos., 241 F.3d 154,
163 (2d Cir. 2001) (per curiam); Black v. Secretary of Health
& Human Services, 93 F.3d 781, 790 (Fed. Cir. 1996); Flores
v. Cameron County, 92 F.3d 258, 272-73 (5th Cir. 1996), the
filing of the amended complaint was the equivalent of filing
a new suit, and so it wouldn’t matter had there been no
jurisdiction over Morlan’s original suit, Illinois ex rel. Barra
v. Archer Daniels Midland Co., 704 F.2d 935, 939 (7th Cir.
1983); Sun Refining & Marketing Co. v. Rago, 741 F.2d 670,
8 No. 01-3795
672 (2d Cir. 1984); see also Carver v. Condie, 169 F.3d 469,
472 (7th Cir. 1999); Duda v. Board of Education, 133 F.3d 1054,
1057 (7th Cir. 1998); Wellness Community-National v. Wellness
House, 70 F.3d 46, 49 (7th Cir. 1995); Ferdik v. Bonzelet, 963
F.2d 1258, 1262 (9th Cir. 1992), unless one wanted to make
a fuss over the filing fee. The only significance of relation
back is avoidance of the bar of the statute of limitations,
Flores v. Cameron County, supra, 92 F.3d at 272-73, and that is
not an issue here.
Clearly, then, if the assignable part of Morlan’s ERISA
claim, having been transferred to the estate in bankruptcy
by operation of law when Morlan filed for bankruptcy, was
abandoned before the amended complaint was filed,
he could sue to enforce it, because the effect of a trustee’s
abandoning a claim is to revest the ownership of it in the
debtor. E.g., Koch Refining v. Farmers Union Central Ex-
change, Inc., 831 F.2d 1339, 1346 n. 9 (7th Cir. 1987); Catalano
v. Commissioner, 279 F.3d 682, 685 (9th Cir. 2002); In re
Interpictures Inc., 217 F.3d 74, 76 (2d Cir. 2000) (per curiam).
And actually, despite the attention we’ve been paying to
getting the sequence right, the sequence doesn’t matter; for
when property of the bankrupt is abandoned, the title
“reverts to the bankrupt, nunc pro tunc, so that he is treated
as having owned it continuously.” Wallace v. Lawrence
Warehouse Co., 338 F.2d 392, 394 n. 1 (9th Cir. 1964); see also
Sessions v. Romadka, 145 U.S. 29, 51-52 (1892); Catalano v.
Commissioner, supra, 279 F.3d at 685; In re Dewsnup, 908 F.2d
588, 590 (10th Cir. 1990) (per curiam). The purposes of
retroactive vesting include to protect against the running of
the statute of limitations, Sessions v. Romadka, supra, 145 U.S.
at 52, and to compensate the trustee for any cost he may
have incurred in maintaining the property during his
custody of it. Brown v. O’Keefe, 300 U.S. 598, 602-03 (1937)
(Cardozo, J.).
No. 01-3795 9
In arguing that the trustee abandoned Morlan’s claim,
Morlan points to four things: the tape recording of a credi-
tors’ meeting at which he stated under oath in response to
a question from the trustee about his assets: “I think I might
be involved in a class action lawsuit involving an insurance
company I used to work for”; a letter from the trustee to
Morlan’s lawyer stating that the trustee had decided to
“abandon any claim the bankruptcy estate might have to
any future proceeds arising from that lawsuit”; the “trust-
ee’s report of no distribution and statement of abandonment
of property,” submitted to the bankruptcy court; and the
bankruptcy judge’s order approving “the Trustee’s state-
ment of abandonment and report of no distribution,” dis-
charging the trustee, and closing the “no asset” case.
No doubt the trustee wanted and intended to abandon
Morlan’s claim. But the defendants argue, and the dis-
trict court agreed, that the trustee’s attempt to abandon
failed because the trustee failed to comply with the statu-
tory requirements for abandoning an asset that is part of
the debtor’s estate. The requirements are exacting, in rec-
ognition of the potential harm to creditors from the trustee’s
abandoning property to which they would otherwise be
entitled because it is property of the estate in bankrupt-
cy, and of the fact that “abandonment is revocable only in
very limited circumstances, such as ‘where the trustee is
given incomplete or false information of the asset by the
debtor, thereby foregoing a proper investigation of the
asset.’ ” Catalano v. Commissioner, supra, 279 F.3d at 686.
So let us consider the requirements for effective abandon-
ment. The Bankruptcy Code provides that “after notice
and a hearing,” the trustee, either on his own volition or
under order by the bankruptcy court, “may abandon any
property of the estate that is burdensome to the estate or
that is of inconsequential value and benefit to the estate.”
10 No. 01-3795
11 U.S.C. § 554(a). In addition, property that the bankrupt-
cy court orders the trustee to abandon is deemed aban-
doned, § 554(b), and likewise property that has been
scheduled, § 521(1), but “not otherwise administered at
the time of the closing of a case.” § 554(c). Property not
abandoned under one of these three subsections remains
property of the debtor’s estate—“unless the court orders
otherwise.” § 554(d).
Section 521(1), to which subsection 554(c) refers, requires
the debtor to file (so far as bears on this case) a schedule
of his assets. Morlan did so, but he did not list his ERISA
claim on the schedule, and so abandonment was not au-
thorized by section 554(c). As for section 554(a), the trustee
did not notify the creditors that he was considering aban-
doning Morlan’s claim, or conduct a hearing on the matter.
Of course, if after notice the creditors don’t want a hearing,
the failure to conduct one would not nullify the abandon-
ment. A requirement of “notice and a hearing” really means
notice and the opportunity for a hearing. In fact the Bank-
ruptcy Code is explicit in defining “after notice and a
hearing” as “authorizing an act without an actual hearing
if such notice is given properly” and no interested party
requests a hearing. 11 U.S.C. § 102(1)(B). See In re Trim-X,
Inc., 695 F.2d 296, 300 (7th Cir. 1982). But there was no no-
tice here and so section 554(a) isn’t available either. Nor is
(b)—the bankruptcy judge did not order the trustee to
abandon anything.
As for subsection (d), the bankruptcy judge’s order clos-
ing the case as a no-asset, no-distribution bankruptcy in
part on the basis of a “statement of abandonment” might
seem interpretable as the “order[ing] otherwise” to which
the subsection refers. But no, because the statement of
abandonment that the trustee submitted to the bankruptcy
court and that the court in effect incorporated by reference
No. 01-3795 11
in its order says only that “any scheduled property is aban-
doned” (emphasis added), and Morlan’s ERISA claim was
not scheduled.
We conclude that the abandonment of the assignable
and thus assigned part of Morlan’s claim by the trustee
was not in compliance with section 554 and was therefore
ineffective. But this does not end the case. We must de-
cide what the consequences of noncompliance were and
specifically whether they included dismissal of the class
action. Clearly not dismissal in its entirety, since part of
Morlan’s claim was nonassignable; but dismissal of the
assignable part of the claim. In addressing this question we
begin by noting that it was virtually inevitable that the
trustee would abandon the claim, precisely because it
was the claim of the representative plaintiff in a class ac-
tion suit, albeit a suit not yet certified for class action treat-
ment. What trustee in bankruptcy would think it worth-
while to insert himself in the place of the named plaintiff?
We are not surprised to find very few cases in which
trustees in bankruptcy have done so. Compare In re Polis,
supra, 217 F.3d at 903-04. The named plaintiff in a class
action usually has only a small stake in the action, Culver v.
City of Milwaukee, 277 F.3d 908, 910, 913 (7th Cir. 2002); White
v. Sundstrand Corp., 256 F.3d 580, 586 (7th Cir. 2001), and
while the stakes for the class as a whole may be large, very
few of the benefits of settling the class action or prosecut-
ing it to judgment would be received by the trustee (which
is to say the creditors), since he would just be the named
plaintiff’s surrogate. Most of the benefits would go to the
other members of the class and to the lawyers for the
class, so that the trustee, as class representative yet having
fiduciary obligations exclusively to the estate in bankruptcy,
would have a potential conflict of interest, as noted in the
only cases we’ve found in which a trustee in bankruptcy
did attempt to prosecute a class claim. Maddox & Starbuck,
12 No. 01-3795
Ltd. v. British Airways, 97 F.R.D. 395, 397 and n. 2 (S.D.N.Y.
1983); In re Plywood Anti-Trust Litigation, 76 F.R.D. 570,
579 (E.D. La. 1976); In re Ball, 201 B.R. 204, 207 (Bankr. N.D.
Ill. 1996). If despite this the trustee did take over rather than
abandon the named plaintiff’s claim and status as class
representative, he would quickly resign the representative
role to someone else. In the normal case and probably in
this case the trustee’s involving himself in the class action
suit even just to the extent of unburdening himself of the
role of class representative would not be worth the bother.
That is doubtless why he tried to abandon Morlan’s claim.
Likewise it is doubtful that any of Morlan’s creditors
would have wanted the trustee to involve himself in the
class action, though this would depend on the value of
Morlan’s claim, which we don’t know. The expenses the
trustee incurred in prosecuting the claim would be sub-
tracted from the assets of the estate in bankruptcy, though
it turned out there were no other assets—another good
reason for abandonment of the debtor’s claim: how was
the trustee to finance the class action? The creditors, or at
least those who attended the creditors’ meeting (a poten-
tially significant qualification), knew from Morlan’s state-
ment at the creditors’ meeting that Morlan had another, an
unscheduled, asset, consisting of a legal claim of some sort,
and so they could have objected, invoking section 554, when
they learned that the trustee intended to treat the bank-
ruptcy as a no-asset, no-distribution bankruptcy. We cannot
find any indication in the record that the trustee formal-
ly notified the creditors in advance that he would treat
Morlan’s bankruptcy so, though they could have guessed
it from the fact that Morlan’s schedule of assets filed in
the bankruptcy proceeding lists only some clothing and
other personal effects of small value. The creditors didn’t
object to the closing of the case without any payment to
them and it is now nearly three years since it was closed and
No. 01-3795 13
during this period no creditor has moved to reopen it (see
11 U.S.C. § 350(b); In re Shondel, 950 F.2d 1301, 1306 (7th
Cir. 1991); Miller v. Shallowford Community Hospital, Inc.,
767 F.2d 1556, 1559 n. 4 (11th Cir. 1985) (per curiam)) on the
ground that the debtor’s estate contained an asset after
all, namely the ERISA claim (or on any other ground, for
that matter).
By this time, any claim the creditors might have to step
into Morlan’s shoes in the class action may well have been
abandoned or otherwise forfeited. See In re FBN Food
Services, Inc., 82 F.3d 1387, 1395-96 (7th Cir. 1996); In re
Haker, 411 F.2d 568, 569 (5th Cir. 1969) (per curiam). With
no fixed time limits on reopening a bankruptcy proceed-
ing analogous to the limits in some subsections of Fed.
R. Civ. P. 60(b), see Fed. R. Bankr. P. 9024; In re Bianucci,
4 F.3d 526, 528 (7th Cir. 1993); In re Emmerling, 223 B.R.
860, 864-65 (2d Cir. BAP 1997), the equitable origins and
character of bankruptcy point to laches as the proper doc-
trinal guide to cutting off belated efforts to reopen. See,
e.g., Hawxhurst v. Pettibone Corp., 40 F.3d 175, 181 (7th
Cir. 1994); In re Bianucci, supra, 4 F.3d at 528; In re Centric
Corp., 901 F.2d 1514, 1519 (10th Cir. 1990); In re Ridill, 1 B.R.
216, 218 (C.D. Cal. 1979). Laches requires a showing of
(1) unwarranted delay (2) prejudicial to the party opposing
the reopening, e.g., National R.R. Passenger Corp. v. Morgan,
122 S.Ct. 2061, 2077 (2002); Cox v. McBride, 279 F.3d 492,
494 (7th Cir. 2002), and might well bar a reopening here,
because of the combination of the creditors’ failure to
pursue the revelation at their meeting that Morlan had a
legal claim with the prejudice to Morlan’s class action
suit should the creditors at this late date seek to intervene
to take back a chunk of it. Still, we hesitate to be too em-
phatic in this suggestion since, as noted earlier, not all
the creditors may have been present at the creditors’ meet-
ing, and anyway Morlan’s reference there to his claim was
vague and fleeting.
14 No. 01-3795
And there is a distinct possibility that at least when the
class was certified back in March 2000, only six months
after the bankruptcy proceeding ended, the creditors could
have persuaded the bankruptcy court to reopen it and
could have established in the reopened proceeding that
part of the ERISA claim really did belong to the debtor’s
estate rather than to the debtor personally. But this possi-
bility does not show that Morlan lacked standing to sue
to enforce that part of the claim when the class was certi-
fied. That the creditors might be able to reopen the bank-
ruptcy proceeding and wrest a piece of Morlan’s ERISA
claim from him placed a cloud over his title, but stand-
ing does not require a perfectly clear title to the claim
sued upon. United States v. $557,933.89, More or Less, in
U.S. Funds, 287 F.3d 66, 75, 78-79 (2d Cir. 2002); United States
v. Rodriguez-Aguirre, 264 F.3d 1195, 1204 (10th Cir. 2001).
This is a corollary of the probabilistic character of the re-
quirement of standing, upon which we have commented
in other cases, such as Diaz v. Duckworth, 143 F.3d 345,
347 (7th Cir. 1998), and Price v. Pierce, 823 F.2d 1114,
1118 (7th Cir. 1987); see also Hohn v. United States, 262 F.3d
811, 818 (8th Cir. 2001). “A reasonable probability that a
plaintiff will get an apartment that he wants sooner if
he wins his suit is a sufficiently tangible expected bene-
fit of suit to confer standing under the liberal principles
that prevail nowadays,” as we said in Price; and like-
wise here, because when the class was certified there was
a reasonable probability (since ripened into a near certain-
ty) that Morlan would be able to keep any proceeds from
the suit rather than having to turn them over to his credi-
tors. It would help in assessing this probability to know
the size of the assignable portion of Morlan’s claim; the
smaller it was, the less likely a reopening; but the proba-
bility falls so far short of certainty as not to disturb our
conclusion that Morlan had a sufficient interest in the as-
No. 01-3795 15
signable portion of the claim to have standing to sue to en-
force it. The defendants’ argument amounts to saying
that they, because Morlan’s creditors might still try to take
away Morlan’s claim from him, cannot be sued; that
they, because the trustee or the bankruptcy judge may have
dropped the ball, are to get off scot free. We cannot see
the sense of that.
This way of putting their argument suggests, moreover,
an alternative basis for rejecting the defendants’ challenge
to Morlan’s standing. The steps that the trustee took to
abandon Morlan’s claim would suffice to establish aban-
donment under the ordinary principles applicable to
abandonment, e.g., United States v. Locke, 471 U.S. 84,
98 (1985); Vieux v. East Bay Regional Park District, 906 F.2d
1330, 1341 (9th Cir. 1990); People ex rel. Illinois Historic
Preservation Agency v. Zych, 710 N.E.2d 820, 825 (Ill. 1999), a
fundamental doctrine of property law; it is only the pro-
visions of the Bankruptcy Code regarding abandonment
that cast doubt on whether Morlan’s claim really did revest
in him. But those provisions are intended for the bene-
fit of creditors, none of whom complained or is complain-
ing about the trustee’s failure to comply with them. They
are not intended for the benefit of alleged violators of the
debtor’s legal rights, and so the defendants are the ones who
lack standing—standing to object to the abandonment of
Morlan’s claim. See Warth v. Seldin, 422 U.S. 490, 500 n. 12
(1975); North Shore Gas Co. v. E.P.A., 930 F.2d 1239, 1243 (7th
Cir. 1991). The possession of a legally protectable inter-
est is a prerequisite to suing because otherwise the pos-
sessor of that interest would find himself unable to en-
force it if another person, an officious intermeddler, had
brought suit to enforce it (like a bounty hunter) first.
Singleton v. Wulff, 428 U.S. 106, 114 (1976) (plurality opin-
ion); People Organized for Welfare & Employment Rights
16 No. 01-3795
(P.O.W.E.R.) v. Thompson, 727 F.2d 167, 173 (7th Cir. 1984);
Frank Rosenberg, Inc. v. Tazewell County, 882 F.2d 1165,
1170 (7th Cir. 1989); Joyner v. Mofford, 706 F.2d 1523, 1526-
27 (9th Cir. 1983). This principle has been enforced with
particular stringency precisely in bankruptcy proceedings,
to prevent confusion over the ultimate ownership of the
assets formerly owned by the bankrupt. In re Westwood
Community Two Ass’n, Inc., No. 01-14473, 2002 WL 1299123,
at *2 (11th Cir. June 13, 2002); In re Troutman Enterprises, Inc.,
286 F.3d 359, 364 (6th Cir. 2002); In re PWS Holding Corp.,
228 F.3d 224, 248 (3d Cir. 2000); Kane v. Johns-Manville Corp.,
843 F.2d 636, 643, 644 (2d Cir. 1988). Given the strong
possibility that an effort by Morlan’s creditors at this late
date to seize his legal claim would be barred by the doc-
trine of laches, no one can be said to have a higher title to
the claim than he, so that if he lacks standing, no one
has standing.
The judgment is reversed with directions to reinstate
Morlan’s class action suit.
REVERSED AND REMANDED.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-97-C-006—7-26-02