In re Brien

• Decision Date: 21 June 1991
• Docket Number: Bankruptcy No. 88-04869.
• Parties: In re Florence Frances BRIEN, Debtor.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Eastern District of Wisconsin

128 B.R. 220 (1991)

In re Florence Frances BRIEN, Debtor.

Bankruptcy No. 88-04869.

United States Bankruptcy Court, E.D. Wisconsin.

June 21, 1991.

Henry Dorman, Racine, Wis., trustee.

John W. Foley, Racine, Wis., for St. Mary's Medical Center.

Herbert S. Bratt, Milwaukee, Wis., for debtor.

DECISION

DALE E. IHLENFELDT, Bankruptcy Judge.

The trustee, Henry Dorman, and St. Mary's Medical Center, Inc. (St. Mary's), the sole creditor to have filed a claim in this case, have objected to the debtor's claimed exemption of $59,611.50 awarded to her in settlement of a worker's compensation claim submitted by her deceased husband, Marvin Brien (Brien). Other disputes between the parties regarding claimed exemptions have been resolved. The debtor initially claimed the money exempt under § 815.18(31) of the Wisconsin general exemption statutes.¹ She later amended her schedules so as to claim it exempt under § 102.27, a part of the Wisconsin statutes dealing with worker's compensation.

Brien was exposed to welding fumes and grinding dust during the 26 years of his employment, and he had a history of asthma and smoking. He developed chronic lung disease and ceased working on May 9, 1986. He was hospitalized at St. Mary's from January 19, 1987 to March 12, 1987, and again from August 22, 1987, until his death on September 22, 1988. St. Mary's initial claim for the care provided to Marvin Brien totaled $103,694. Receipt of insurance payments has reduced this amount to $61,049.

On November 2, 1988, Mrs. Brien filed a chapter 7 bankruptcy petition, and on March 20, 1989, by reason of Brien's death, probate proceedings were initiated in state court. St. Mary's filed a claim with the probate court, but the amount of its claim greatly exceeds the amount of probate assets.

The worker's compensation claim submitted by Brien was compromised on February 23, 1989. Neither the trustee nor St. Mary's were given notice of nor were parties to that transaction. The compromise agreement provided that in "full settlement of any and all liability (that they) may have, including but not limited to Chapter 102 of the Wisconsin Statutes," Brien's employer and its insurer agreed to pay "the applicant's (Brien's) estate" and his attorney the total sum of $75,000 and (after payment of attorney's fees and costs) that $59,611.50 of that amount was to be disbursed "To Florence Brien, spouse of Marvin Brien, Dec'd." The agreement was subject to approval by the Wisconsin Department of Industry, Labor & Human Relations (DILHR), which approval was given by order dated April 3, 1989. That order, signed by a DILHR Administrative Law Judge, directed payment to "Florence Brien, spouse of Marvin."

No separation of the settlement amount into disability benefits or death benefits was made in the compromise agreement or order of approval. Although the ambiguous language in the compromise agreement indicated the money might be payable to her deceased husband's estate and flow to her as his heir, it was paid directly to the debtor in her personal capacity.

Noting that the agreement included "any and all liability," St. Mary's suggested that part of the payment might be for something other than worker's compensation and thus not protected by § 102.27. In addition, citing § 765.001(2) of the Wisconsin Statutes and the analysis of U.S. District Judge Robert W. Warren in the case of U.S. v. Conn, 645 F.Supp. 44 (E.D.Wis. 1986), St. Mary's argued that "the law of necessaries as that law exists in Wisconsin" makes the debtor liable for Brian's medical expenses. Section 765.001(2) provides: "Each spouse has an equal obligation in accordance with his or her ability to contribute money or services or both which are necessary for the adequate support and maintenance of his or her minor children and of the other spouse." Addressing the application of the Wisconsin Marital Property Act to the doctrine of necessaries, Judge Warren said that the assets of one spouse could be used to pay for the necessary expenses of the other, and that each spouse had an equal obligation to support the other.

In Milwaukee Coke & Gas Co. v. Industrial Comm., 160 Wis. 247, 251, 151 N.W. 245, 246 (1915), the court held, under the statute as it then existed, that when an employee with dependents was injured and temporarily disabled and subsequently died as a result of the injuries, there were "two distinct claims for indemnity: one by the employee himself, for his temporary disablement, and one by the dependents for the death, neither of which claims can be discharged by the owner of the other claim."

Seeking a clarification of the compromise agreement, the trustee wrote to the Administrative Law Judge who had approved the settlement, and received the following response:

It is impossible to tell from the compromise agreement what portion of the funds distributed were for death benefits and what portion were for compensation accrued prior to the date of death. There was a dispute as to the compensability of the injury, permanent disability and temporary total disability from May 9, 1986 to the date of death.

The payments were made directly to Florence Brien per my order of April 3, 1989 and none of the parties appealed that order within the one year statute of limitations. It would be my position that the payments were properly paid to Florence Brien, rather than to the estate of Marvin Brien. I would not have an opinion as to what effect this would have on any bankruptcy proceedings.

Thereafter, this court scheduled a hearing to determine whether the debtor received the funds as the "party entitled thereto" under § 102.27(1), what portion of the $59,611.50 settlement payment, if any, was property of the bankruptcy estate, and if it was property of the bankruptcy estate, whether or not it was exempt under the Wisconsin worker's compensation statutes. The relevant portions of those statutes provide:

102.27 Claims and awards protected; exceptions.

(1) (No) claim for compensation² shall be assignable, but this provision shall not affect the survival thereof; nor shall any claim for compensation, or compensation awarded, or paid, be taken for the debts of the party entitled thereto.

102.46 Death benefit. Where death proximately results from the injury and the deceased leaves a person wholly dependent upon him or her for support, the death benefit shall equal 4 times his or her average annual earnings,. . . .

102.47 Death benefit, continued. If death occurs to an injured employe other than as a proximate result of the injury, before disability indemnity ceases, death benefit and burial expense allowance shall be as follows:

(1) Where the injury proximately causes permanent total disability, they shall be the same as if the injury had caused death, except that the burial expense allowance shall be included in the items subject to the limitation stated in s. 102.46. The amount available shall be applied toward burial expense before any is applied toward death benefit. If there are no surviving dependents the amount payable to dependents shall be paid, as provided in s. 102.49(5)(b), to the fund created under s. 102.65.

(2) Where the injury proximately causes permanent partial disability, the unaccrued compensation shall first be applied toward funeral expenses, not to exceed the amount specified in s. 102.50. Any remaining sum shall be paid to dependents, as provided in this section and ss. 102.46 and 102.48, and there is no liability for any other payments. All computations under this subsection shall take into consideration the present value of future payments. If there are no surviving dependents the amount payable to dependents shall be paid, as provided in s. 102.49(5)(b), to the fund created under s. 102.65.

Section 102.17 gives the procedure for...