Foreman, Matter of, No. 89-4516

• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)
• Writing for the Court: Before POLITZ, KING and WILLIAMS; KING
• Citation: 906 F.2d 123
• Parties: Bankr. L. Rep. P 73,521 In the Matter of: Brian Carl FOREMAN, Debtor. ALLSTATE INSURANCE COMPANY, Plaintiff-Appellee, v. Brian FOREMAN, Defendant-Appellant.
• Docket Number: No. 89-4516
• Decision Date: 02 July 1990

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906 F.2d 123 Bankr. L. Rep. P 73,521 In the Matter of: Brian Carl FOREMAN, Debtor.
ALLSTATE INSURANCE COMPANY, Plaintiff-Appellee,
v.
Brian FOREMAN, Defendant-Appellant. No. 89-4516. United States Court of Appeals,
Fifth Circuit. July 2, 1990.

Ronald J. Bertrand, Lake Charles, La., for defendant-appellant.

Mesonie T. Halley, Jr., Henry E. Yoes, Lake Charles, La., for plaintiff-appellee.

Appeal from the United States District Court for the Western District of Louisiana.

Before POLITZ, KING and WILLIAMS, Circuit Judges.

KING, Circuit Judge:

Defendant-appellant, Brian Foreman (Foreman), sued in state court for continued worker's compensation benefits from the plaintiff-appellee, Allstate Insurance Company (Allstate), for an injury he allegedly received while working for Barras Lighting Electric Company. Ultimately, the state appellate court held that no further benefits were due to Foreman and entered a judgment requiring him to repay Allstate for the benefits received to date. Shortly thereafter, Foreman voluntarily filed a Chapter 7 bankruptcy petition. The bankruptcy court found Foreman's debt to

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Allstate dischargeable. Upon appeal, the district court disagreed and held the debt nondischargeable. We reverse the district court.

I.

Foreman worked as a temporary employee for Barras Lighting Electric Company (Barras) from May 1982 until he was laid-off in June 1983. Approximately one week after he was laid-off, Foreman saw a Doctor Foret (Foret) concerning problems with his knees. Foret diagnosed Foreman as suffering chondromalacia and recommended surgery. Foreman did not elect to undergo surgery at that time.

Barras rehired Foreman later in the summer of 1983. Larry Ted Trish (Trish), the Operations Manager for Barras, gave testimony at the state trial that Foreman asked about medical insurance at the time he was rehired and was told that there was a six month delay before he would be covered by the company hospitalization policy. According to Trish, Foreman responded by saying something--although the record is not entirely clear what--about worker's compensation.

Subsequently, on August 22, 1983, Foreman claimed that he injured himself on the job. He alleged that he heard his left knee "pop" as he ascended a ladder. One of his co-workers then took him to the hospital. From the hospital, Foreman requested to be taken to Foret's office where Foret removed approximately 100 c.c.s of blood and fluid from Foreman's knee. Foret testified before the bankruptcy court that this injury was of a type rarely resulting from the ascension of a ladder or steps, but that the condition of the knee was consistent with some type of trauma or injury having occurred within the prior 24 to 36 hours. Subsequently, in September 1983 and again in 1985, Foret performed surgery on Foreman. As a result of the alleged injury, Allstate ultimately paid $58,612.33 in worker's compensation and medical expenses for Foreman.

In June 1985, Foreman filed a claim in state court against Allstate for further worker's compensation benefits and medical expenses. Allstate averred that Foreman had obtained worker's compensation and medical expenses by filing false claims. At the trial in state court, two of Foreman's co-workers, Joe Don Williams, Jr. (Williams) and David Goss (Goss), testified for Allstate. Both stated that they had heard Foreman complain about his knees prior to the alleged accident. Williams also commented that Foreman had told him that he planned to stage an accident. Additionally, Williams asserted that at some point after the supposed accident, Foreman had thanked him and Goss for not telling the owner of Barras that he had staged the accident.

Although the state trial court noted that the evidence showed that Foreman had made statements to co-workers that he intended to fake an accident in order to ensure that his knee operation would be paid for by worker's compensation, the state trial court ultimately awarded Foreman benefits. The state appellate court, however, reversed the state trial court and entered judgment in favor of Allstate. The Louisiana Supreme Court denied writ on September 21, 1987. Thus, the judgment against Foreman was upheld.

On October 13, 1987, Foreman filed a voluntary Chapter 7 petition for bankruptcy. Subsequently, Allstate filed an objection claiming that the debt owed it by Foreman was not dischargeable pursuant to section 523(a)(2)(A) of the Bankruptcy Code. The dischargeability issue was tried before the bankruptcy court on August 19, 1988. Though the bankruptcy court expressed some hesitation with regard to its conclusion, it particularly noted Foret's testimony before it--supporting a finding of recent injury to Foreman's knee--and concluded that the state trial court holding had been correct. ¹ Thus, after commenting on the liberal nature of the dischargeability statute, the bankruptcy court found that

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Allstate had failed to meet its burden of proof and ruled the debt in question dischargeable.

Allstate appealed the bankruptcy court's judgment. The district court referred the case to a magistrate for a report and recommendation. The magistrate found that "the great weight of the evidence shows that Mr. Foreman manufactured this on-the-job 'accident'[ ]" and recommended that the district court reverse the finding of the bankruptcy court. On June 2, 1989, upon motion of Foreman, the report of the magistrate was stricken from the record. Nevertheless, on June 23, 1989, the district court entered an opinion that, after discussing the facts and background of the case, "adopt[ed]" the analysis in the report and recommendation of the magistrate as its own ruling. Thus, the district court reversed the judgment of the bankruptcy court and held Foreman's debt to Allstate nondischargeable.

II.

In reviewing findings by bankruptcy courts, we and the district courts may only reverse factual findings where we determine that they are clearly erroneous. In re Killebrew, 888 F.2d 1516, 1519 (5th Cir.1989). Legal determinations, of course, we review de novo. In re Compton, 891 F.2d 1180, 1183 (5th Cir.1990). As this appeal hinges upon whether Foreman intentionally deceived Allstate--a factual determination--we apply the clearly erroneous standard. Cf. In re Rubin, 875 F.2d 755, 758 (9th Cir.1989) ("This court expressly has decided that, at least for the purposes of determining the availability of a discharge in bankruptcy, a finding of intent to defraud a creditor is a finding of fact.").

III.

As an initial matter, Foreman contends that the referral of Allstate's appeal from the bankruptcy court's determination of dischargeability to a magistrate resulted in error on three grounds: (1) such referral prevented an effective de novo review by the district court; (2) referral itself was error; and (3) reliance on the magistrate's findings in reaching its own decision was error. Foreman relies on this court's decision in Minerex Erdoel, Inc. v. Sina, Inc. for support. 838 F.2d 781 (5th Cir.), cert. denied, 488 U.S. 817, 109 S.Ct. 57, 102 L.Ed.2d 35 (1988). In Minerex, we held the referral of bankruptcy appeals to magistrates improper, even when such referral took place with the explicit permission of the parties involved. Id. at 786 ("It is reasonable to conclude that had Congress meant for its appeals scheme to include the potential for reference to a magistrate, Congress would have explicitly so provided."); see also In re Evangeline Refining Co., 890 F.2d 1312, 1320 (5th Cir.1989) ("In Minerex ..., we examined the intricate scheme for bankruptcy appeals and determined that it did not allow bankruptcy appeals laid at the district court's door to be referred to a magistrate.").

While we do not quibble with Foreman's interpretation of Minerex as generally proscribing the reference of bankruptcy appeals to magistrates, we find that he has misapplied its teachings to the case at hand. Perusal of the record shows that though the district court initially referred the appeal to a magistrate, upon motion by Foreman, the magistrate's report and recommendation was stricken from the record. ² Some three weeks later, the district court entered an opinion of its own in which it found the debt owed Allstate by

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Foreman nondischargeable. The district court stated that "[a]fter thoroughly reviewing the case," it found that the analysis contained in the stricken magistrate's report was complete and accurate and "adopt[ed] the Report and Recommendation ... as its own ruling[.]" Though we do not condone the district court's practice in striking the report and recommendation from the record and then adopting them as his own, ³ we are convinced by the district court's statements concerning its review that it, indeed, had engaged in an independent consideration of the issues such that we need not reverse on this point.

Foreman makes a number of other claims before this court. Under various guises, most of these address whether the district court committed error in reversing the bankruptcy court and finding his debt to Allstate nondischargeable. We focus on the finding of nondischargeability as the gravamen of Foreman's claims, and--agreeing with Foreman--reverse the holding of the district court. ⁴

Under the current Bankruptcy Code, a...