In the
United States Court of Appeals
For the Seventh Circuit

No. 99-1025

In Re:   Mary L. Polis,

Debtor-Appellant.



Appeal from the United States District Court
for the Northern District of Illinois, Eastern
Division.
No. 98 C 5001--James B. Zagel, Judge.



No. 99-1577

Mary L. Polis,

Plaintiff-Appellant,

v.

Getaways, Inc.,

Defendant-Appellee.


Appeal from the United States District Court
for the Northern District of Illinois, Eastern
Division.
No. 98 C 1808--Ann Claire Williams, Judge.


Argued January 13, 2000--Decided June 28, 2000


  Before Posner, Chief Judge, and Bauer and
Rovner, Circuit Judges.

  Posner, Chief Judge. We have
consolidated two appeals that present the
question of how to value a cause of
action for purposes of determining
whether a debtor can exempt it in
bankruptcy. Mary Polis was in Chapter 7
bankruptcy when she learned that she
might have a cause of action against
Getaways, a travel service, under the
Truth in Lending Act, 15 U.S.C. sec.sec.
1601 et seq., and the Illinois consumer
protection statute, 815 ILCS 505/1 et
seq., for concealment of the finance
charge in the $5,995 price that she
agreed to pay over a five-year period for
a travel package that she’d bought from
Getaways. She sought to exempt the cause
of action, assigning it a value of zero.

  At roughly the same time, she became the
first and only named plaintiff in a class
action against Getaways, the class
consisting of persons like herself who
had been victimized (the suit alleges) by
the travel services’s unlawful
concealment of the finance charge in its
installment travel packages. The day
after the filing of the class action she
was discharged from bankruptcy, and a
week later the bankruptcy proceeding was
terminated. Shortly afterward both
Getaways and the trustee in bankruptcy
moved to reopen the bankruptcy proceeding
(see 11 U.S.C. sec. 350(b); In re
Shondel, 950 F.2d 1301, 1304-06 (7th Cir.
1991)) on the ground that Polis’s cause
of action in the class action suit
against Getaways was worth more than $900
and therefore had been improperly
exempted from the estate in bankruptcy.

  Illinois law allows an insolvent debtor
to exempt $2,000 worth of personal
property, 735 ILCS 5/12-1001(b), and
Illinois has taken advantage of the
provision of the Bankruptcy Code that
allows states to substitute their own
exemptions for those in the Code. 11
U.S.C. sec. 522(b); Clark v. Chicago
Municipal Employees Credit Union, 119
F.3d 540, 543 (7th Cir. 1997). Besides
the cause of action, Polis exempted
$1,100 worth of other personal property,
which is why she cannot exempt the cause
of action if it is worth more than $900.
Although a cause of action is perhaps not
"personal property" in the usual sense,
the definition in the Bankruptcy Code of
property belonging to the debtor’s estate
as including (with irrelevant exceptions)
"all legal or equitable interests of the
debtor in property as of the commencement
of the case," 11 U.S.C. sec. 541 (a)(1),
has uniformly been interpreted to include
causes of action, e.g., In re Yonikus,
996 F.2d 866, 869 (7th Cir. 1993), and we
are given no reason to suppose that the
Illinois exemption invoked by Polis is
narrower.

  The bankruptcy court, seconded by the
district court, agreed with the
objectors. 242 B.R. 653 (N.D. Ill. 1998).
The district court (another district
judge) then dismissed the class action on
the ground that Polis did not have
standing to bring it since the trustee
rather than she was the owner of the
claim on which it was based. Neither
party has remarked the oddity of Polis’s
having filed the class action before her
Truth in Lending claim was exempted,
which is to say at a time when it
belonged to the trustee rather than to
her. And speaking of oddities, Polis’s
appeals from the two district court
decisions (why the bankruptcy appeal and
the class action were assigned to
different judges is still another puzzle)
present the spectacle of a plaintiff’s
lawyer disparaging his client’s claim in
order to persuade us that it is indeed
worth less than $900 and a defendant’s
lawyer puffing up that claim in order to
persuade us that it is worth more than
the amount at which the plaintiff is
valuing it. (The trustee has not filed a
brief.) If the plaintiff were arguing
that her claim was worth zero, this would
imply that her class action suit was
frivolous; but her argument is rather
that the claim had no market value. This
is wrong, as we’re about to see, but it
is not inconsistent with her arguing, as
she does, that her claim has a nonmarket
value that a court would recognize by
awarding her damages. She also argues
that if it has a market value greater
than zero, still that value is less than
$900.

  The judges who ruled against Polis were
plainly disturbed by the prospect of
windfall gains to a debtor who by virtue
of having exempted a legal claim from
bankruptcy and thus put it beyond the
reach of her creditors emerges from
bankruptcy owning free and clear what
turns out to be a valuable asset. But
that possibility is built into the
valuation scheme that the Bankruptcy Code
uses to determine whether a debtor has
exceeded her exemption. The Code provides
that the "value" of property sought to be
exempted "means fair market value" on the
date the petition for bankruptcy was
filed, 11 U.S.C. sec. 522(a)(2), unless
the debtor’s estate acquires the property
later. On the date Polis filed her
petition in bankruptcy, she had not yet
sued Getaways, but the legal claim on
which the suit was based, having arisen
out of a transaction (the sale of the
travel package) that had occurred before
the petition was filed, was already
"property" of the debtor and hence of the
debtor’s estate in bankruptcy. Cable v.
Ivy Tech State College, 200 F.3d 467,
472-73 (7th Cir. 1999); In re Carousel
Int’l Corp., 89 F.3d 359, 362 (7th Cir.
1996); In re Smith, 640 F.2d 888, 890
(7th Cir. 1981) (Truth in Lending Act
claims--just as here); Northview Motors,
Inc. v. Chrysler Motors Corp., 186 F.3d
346, 350 (3d Cir. 1999); In re Wischan,
77 F.3d 875, 877 (5th Cir. 1996); Wissman
v. Pittsburgh National Bank, 942 F.2d
867, 869-71 (4th Cir. 1991).

  Although we may assume (without having
any case law to go on) that a Truth in
Lending Act claim is not assignable and
so cannot be the subject of a "market"
transaction in the literal sense, that is
irrelevant. Integrated Solutions, Inc. v.
Service Support Specialties, Inc., 124
F.3d 487, 490-91 (3d Cir. 1997); In re
Wischan, supra, 77 F.3d at 877; Sierra
Switchboard Co. v. Westinghouse Electric
Corp., 789 F.2d 705, 709 (9th Cir. 1986).
Legal claims are assets whether or not
they are assignable, especially when they
are claims for money; as a first
approximation, the value of Polis’s claim
is the judgment that she will obtain if
she litigates and wins multiplied by the
probability of that (to her) happy
outcome. That is roughly how parties to
money cases value them for purposes of
determining whether to settle in advance
of trial. They do so whether or not the
claim is assignable; unassignable claims
(tort claims, for example) command
positive prices in the settlement
"market."

  The possibility that the debtor will
obtain a windfall as a consequence of the
exemptions recognized by the Bankruptcy
Code arises from the fact that the date
of valuation of an asset for purposes of
determining whether it can be exempted is
the date on which the petition for
bankruptcy is filed; it is not a later
date on which the asset may be worth a
lot more. Often property appreciates in a
wholly unexpected fashion. A lottery
ticket that turns out against all odds to
be a winner is merely the clearest
example. A debtor who exempted a painting
thought to be worthless in a market
sense, having a purely sentimental value,
might discover the day after his
discharge from bankruptcy that it had
suddenly increased in value because other
paintings by the artist had just been
bought by the Metropolitan Museum of Art;
the creditors could not reach it,
provided that until then its fair market
value had in fact been slight. Common
stock that had traded at $100 a share on
the date the petition for bankruptcy was
filed might a month later be worth
$1,000, and again the creditors would be
out of luck if the debtor had exempted
her shares by claiming the personal
property exemption for them. And so it is
with a legal claim. It might when it
first accrued have seemed so "far out"
that its fair market value would be well
within the limits of the exemption, and
yet--such are the uncertainties of
litigation--it might turn into a huge
winner.

 This feature of the Code’s valuation
scheme should not be thought a
disreputable loophole. If the assets
sought to be exempted by the debtor were
not valued at a date early in the
bankruptcy proceeding, neither the debtor
nor the creditors would know who had the
right to them. So long as the property
did not appreciate beyond the limit of
the exemption, the property would be the
debtor’s; if it did appreciate beyond
that point, the appreciation would belong
to the creditors, who thus might--if they
still remembered their contingent claim
to the property--reclaim it many years
after the bankruptcy proceeding had
ended. The framers of the Bankruptcy Code
could have made ineligible for exemption
property that has an unusual propensity
to fluctuate in value, thus reserving
windfall gains to the creditors; but they
did not do so, perhaps because of the
difficulty of defining the category or
allocating its fruits across creditors.
An alternative would be to keep the bank
ruptcy proceeding open indefinitely; the
objections are self-evident.

  The need in valuing an asset in advance
to adjust for the uncertainty that its
potential value will be realized is the
key to the mistake made here by the
bankruptcy and district courts. When
there is uncertainty about whether some
benefit, here an award of money in a
class action suit, will actually be
received, the value of the (uncertain)
benefit is less than the amount of the
benefit if it is received. A claim for $X
is not worth $X. A 50 percent chance of
obtaining a $1,000 judgment is not worth
$1,000. As a first approximation it is
worth $500 (less if the owner of the
chance is risk averse, more if he is risk
preferring, but these are refinements
unnecessary to consider in this case).
The failure to make any such adjustment
here was fatal because of the limited
stakes involved in Polis’s claim. A
successful plaintiff in a Truth in
Lending Act suit can obtain actual
damages plus statutory damages, the
latter being equal to twice the finance
charge, except that the statutory damages
are confined within a range from $100 to
$1,000. 15 U.S.C. sec. 1640(a); Cowen v.
Bank United of Texas, FSB, 70 F.3d 937,
941 (7th Cir. 1995). There is no
indication of what the finance charge was
here--Getaways denies there was any
finance charge--or whether Polis suffered
any actual damages. It is quite possible,
therefore, that her total recoverable
damages under the Truth in Lending Act
count of her complaint are only $100, in
which event even a 100 percent
probability of winning would not pierce
the ceiling of her personal property
exemption. Even if she can count on
getting the maximum statutory damages of
$1,000--and there is no reason to suppose
she can--the value of her claim on the
date the petition in bankruptcy was filed
would not exceed $900 unless she had more
than a 90 percent chance of obtaining the
maximum statutory damages, an issue not
discussed by either the bankruptcy court
or the district court. And while it is
true that punitive damages are
recoverable under the Illinois statute on
which Polis is also suing, 815 ILCS
505/10a, no effort has been made to quan
tify that possibility, which may be very
small.

  Getaways did offer Polis $1,500 to
settle the case, which was turned down;
and a refused settlement offer normally
is good evidence of the minimum fair
market value of a claim. The bankruptcy
court thought, therefore, that Getaways’
offer showed that Polis’s claim was worth
at least $900. But the district court was
right to be skeptical about this because
of the class-action nature of the suit.
Since Polis was the only named plaintiff,
since the statute of limitations was
running (has in fact now run), and since
the trustee in bankruptcy apparently had
no interest in pursuing the claim against
Getaways (another reason to doubt the
claim has much value), Getaways had a
chance to kill the class action either by
settling with Polis before the class was
certified, see Mars Steel Corp. v.
Continental Illinois National Bank &
Trust Co., 834 F.2d 677, 680-81 (7th Cir.
1987), or simply by convincing the court
that the claim should not be exempted and
would therefore revert to the trustee. In
other words, for $1,500 Getaways may have
been trying to buy not only Polis’s claim
but also, in effect, the claims of all
the other members of the class as well--
"in effect" because Getaways was not
offering them anything and because the
offer might kill the class action even if
Polis rejected it.
  We suppose it could be argued that
Polis’s "property" for exemption purposes
included not only her claim but also the
strategic position that she might occupy
if she were a (especially if she were the
only) named plaintiff. This strikes us as
a weak argument, straining the statutory
term "property" beyond its reasonable
limits, but in any event it has not been
made and it has thus been forfeited.

  We do not know how much of the $1,500
offer represents the value of Polis’s
claim by itself, and so we cannot use
that offer as a substitute for the
present-value calculation of the claim
that the bankruptcy and district courts
have failed to make. If the only problem
were that they had failed to analyze the
exemption issue correctly, our proper
course would be to remand for better
findings. But we have scoured the record
and have found no evidence from which a
trier of fact could rationally infer that
Polis’s claim was worth more than $900 on
the day she filed for bankruptcy.
Getaways had the burden of proving that
it was worth more, Bankr. R. 4003(c), and
has failed to carry that burden. So the
decision revoking the exemption must be
reversed-- and likewise the decision
dismissing the class action suit. It was
dismissed on the ground that, Polis
having exceeded her exemption, her claim
reverted to the trustee in bankruptcy,
thus depriving her of standing to
maintain the suit (and remember that
there is no other named plaintiff, that
is, no other class representative, to
step into her shoes). She did not exceed
the exemption, as we have seen, and even
if she had, this would not justify
dismissal of her suit, for that would cut
down her exemption without any warrant
for doing so. She was entitled to exempt
$2,000 of her personal property, and
having exempted only $1,100 worth of such
property besides her legal claim against
Getaways was entitled to exempt so much
of that claim as would not pierce the
ceiling of the exemption. In other words
she was entitled to exempt $900 worth of
the fair market value of her claim.
Wissman v. Pittsburgh National Bank,
supra, 942 F.2d at 871.

  This would give her a real stake in the
class action suit even if it were less
than the fair market value of the claim,
the difference being the share of the
claim that belonged to the estate in
bankruptcy. The dismissal of the class
action suit for want of standing was
therefore erroneous even if, contrary to
our conclusion, the claim was worth more
than $900. We need not get into the
question of who would control the
litigation, Polis or the trustee, if they
shared the cause of action in the manner
that we’ve sketched. The issue is
academic, since we have held that the
claim is hers and since anyway the
trustee has indicated no interest in
suing Getaways.

  Although the dismissal of the suit must
therefore be reversed, it is unclear what
follows. For remember that the suit was
filed before Polis’s claim was exempted
and thereby taken out of the debtor’s
estate, which is in the trustee’s
control, not hers. If the district court
therefore had no jurisdiction over her
suit when it was filed, then, since the
statute of limitations has now run on her
claim, barring her from refiling her
complaint, she may be blocked from
continuing with the suit. But we leave
that to be sorted out on remand.
Reversed.
