Branko PRPA MD LLC v. Ryan (In re Ryan)
| Decision Date | 24 March 2021 |
| Docket Number | Case No. 19-29833-beh,Adversary No. 19-02209-beh |
| Citation | 629 B.R. 616 |
| Parties | IN RE: Rodney RYAN and Jill Ryan, Debtors. Branko PRPA MD LLC, Plaintiff, v. Rodney and Jill Ryan, and Fortune & McGillis, S.C., Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Wisconsin |
Bruce G. Arnold, Lindsey M. Greenawald, Timothy H. Posnanski, Husch Blackwell LLP, Milwaukee, WI, for Plaintiff.
Jeffrey A. DeMatthew, DeMatthew Law Office, Claire Ann Richman, Steinhilber Swanson LLP, Abraham Michelson, Racine, WI, for Defendant.
DECISION ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND OBJECTION TO DEBTORS' CLAIM OF EXEMPTIONS
A state administrative order confirming settlement of a worker's compensation claim placed funds for the claimant-employee's medical care providers in a trust account pending disbursement. The same order provided separate payment directly to the employee, and a percentage fee directly to his counsel. The employee then filed for bankruptcy, and he and his worker's compensation counsel sought to prevent the funds designated for medical expenses from reaching those providers by having the debtor exempt them in his bankruptcy case. One of the medical care providers to whom the debtor owed a substantial sum initiated this adversary proceeding seeking to protect his interest in the segregated funds by asking the Court to declare an express trust or to impose a constructive trust. For the same reasons, he objected to the debtors' claimed exemption in the funds.
After a review of the summary judgment briefs, affidavits, oral presentations from the plaintiff and defendants, as well as the filings in both this adversary proceeding and the debtor-defendants' main bankruptcy case, the Court grants summary judgment in favor of the plaintiff-creditor.
Because this dispute concerns exemptions from property of the estate, it is a core proceeding under 28 U.C. § 157(b)(2)(B). The Court has jurisdiction under 28 U.S.C. § 1334 and the Eastern District of Wisconsin's July 16, 1984, order of reference entered under 28 U.S.C. § 157(a).
Debtor-defendant Rodney Ryan claims to have been injured at his workplace, Gleason Marvin Contractors, Inc. (the Employer) on August 22, 2016. AP-ECF Doc. No. 21, ¶ 8.1 On September 8, 2016, Ryan presented a worker's compensation claim to his Employer's insurer, West Bend Mutual Insurance Co. (the Insurer), which, in turn, reported the claim to the Department of Administration, Division of Hearings & Appeals, Office of Worker's Compensation Hearings (OWCH).2 Id. Ryan was represented in the matter by Attorney Richard Fortune of Fortune & McGillis law firm (Fortune, or Fortune firm). AP-ECF Doc. No. 20, ¶ 3.
After Ryan's August 2016 injuries, Branko Prpa MD, LLC (Prpa) provided substantial medical services to him. AP-ECF Doc. No. 21, ¶ 9. At the time Mr. Rodney Ryan and Mrs. Jill Ryan filed their joint bankruptcy case, they owed Prpa at least $445,684.00. ECF Doc. No. 15, at 25.
Ryan's worker's compensation claim did not go to a final administrative hearing. Instead, via signatures dated August 27, 2019 and September 6, 2019, Ryan, Fortune, the Employer, and the Insurer entered into a "full and final" Compromise Agreement. AP-ECF Doc. No. 1-1; and 51-2, at 4.3 According to the Agreement, Ryan claimed to have sustained an injury "while performing services growing out of and incidental to his employment," for which he sought "various benefits under Chapter 102 [the Worker's Compensation Act of Wisconsin] ("the Act"), including but not limited to, indemnity and medical expense." Id. The Compromise Agreement also expressly stated that the Employer and the Insurer disputed that Ryan had sustained a compensable injury, and therefore denied liability. AP-ECF Doc. No. 51-2, at 5. Nevertheless, the Employer and Insurer agreed to settle any potential liability under the Act as follows:
AP-ECF Doc. No. 51-2, at 5–6 (emphasis added). On September 17, 2019, the Compromise Agreement was approved by Order of Administrative Law Judge Donald Doody of the OWCH. AP-ECF Doc. No. 1-2; and 51-2, at 24–25.4 The OWCH Order mirrors much of the Compromise Agreement and provides, in pertinent part:
Within 21 days from the date of this order, the respondent [employer Gleason Marvin Contractors, Inc.] and insurance carrier shall pay to the applicant, Rodney Lee Ryan, the sum of One hundred twenty thousand dollars ($120,000.00); to the applicant's attorney, Richard A. Fortune, the sum of Thirty thousand dollars ($30,000.00) as fees; and to the Trust Account of Fortune & McGillis SC, the sum of Four hundred thousand dollars ($400,000.00) for disbursement to medical providers and lienholders , it being understood that from any balance remaining the applicant, Rodney Lee Ryan, shall receive 80 percent and Fortune & McGillis SC shall receive 20 percent.
AP-ECF Doc. No. 51-2, at 25 (emphasis added). There is no evidence in the summary judgment record of any negotiations, or payments in full or in part, to medical providers or lienholders after the OWCH Order was entered.
Less than one month after Judge Doody entered his Order approving the compromise, Mr. and Mrs. Ryan filed for Chapter 7 bankruptcy relief. ECF Doc. No. 1. In their Amended Schedule A/B, the debtors listed the payment under the OWCH Order as a "financial asset," and recorded it as having a total value of $781,000.00.5 ECF Doc. No. 41, at 6. In their Amended Schedule C, the debtors exempted the same amount, citing Wisconsin Statute § 102.27. Id. at 9.
As for their debts, in addition to the $445,684.00 that the debtors reported owing Prpa for medical services, the debtors' schedules also listed approximately $425,000.00 in other unsecured medical debt. ECF Doc. No. 15, at 16–31. The debtors also scheduled the Fortune firm as an unsecured creditor, owed $0.00, with the notation "NOTICE ONLY." Id. at 22.
On December 16, 2019, Prpa, as a scheduled creditor, filed an objection to the debtors' claimed exemption of the payment under the OWCH Order, specifically objecting to the exemption of the $400,000 held in the Fortune firm trust account. ECF Doc. No. 21. Prpa simultaneously filed this adversary proceeding against the debtors and the Fortune firm. AP-ECF Doc. No. 1.
A month later, on January 22, 2020, the debtors received a joint discharge in their "no asset" Chapter 7 bankruptcy. ECF Doc. No. 43.
Prpa moved for summary judgment on Counts I and II of its adversary complaint. AP-ECF Doc. No. 51.6 The Court held oral arguments and thereafter the parties filed supplemental briefing at the Court's request.
Plaintiff Prpa asserts two theories to argue that the $400,000 held in the Fortune firm trust account is not property of the estate. First, under the plain language of the OWCH Order, the parties created an express trust containing $400,000 for the benefit of medical providers and lienholders. Second and alternatively, because those funds were not properly disbursed, the Court should impose a constructive trust for the benefit of medical providers like Prpa. Prpa contends that the $400,000 is not property of the estate under either theory, therefore the debtors' claimed exemption in those funds is invalid. If the parties (Ryan, the Employer, and the Insurer) had intended the settlement amounts to be a lump sum for the sole benefit of Ryan, then the Agreement (and Order confirming it) could have provided for such a single lump sum. Instead, the OWCH Order specifically "carved out" a payment amount for Ryan, including a statutory fee amount for the Fortune firm, and then an amount for medical providers and lienholders.7 Prpa argues that the only interest that the debtor may claim in the $400,000 is a possible reversionary interest.
In their responses, both the Ryans and the Fortune firm affirmatively assert that all funds itemized in the Order are estate property which can be fully protected by an exemption created by the Wisconsin Worker's Compensation Act. The defendants argue that they hold both legal and equitable title to the $400,000 funds, and any attempt of creditors to claim an interest would be contrary to the worker's compensation statutory scheme. The defendants' various additional arguments will be addressed below, and for the reasons discussed, are without merit.
Summary judgment is appropriate if the pleadings and affidavits on file reveal no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a) (incorporated by Fed. R. Bankr. P. 7056 ). At the summary judgment stage, "facts must be viewed in the light most favorable to the nonmoving party only if there is a ‘genuine’ dispute as to those facts." Scott v. Harris , 550 U.S. 372, 380, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007). The moving party bears the burden to establish that there is no genuine issue about any material fact....
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