In re Foster

• Decision Date: 27 June 2002
• Docket Number: Adversary No. 00-3194.,Bankruptcy No. 00-33492.
• Citation: 280 B.R. 193
• Parties: In re Gilbert FOSTER, Debtor. State of Ohio, Bureau of Workers' Compensation, Plaintiff, v. Gilbert Foster, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

280 B.R. 193

In re Gilbert FOSTER, Debtor State of Ohio, Bureau of Workers' Compensation, Plaintiff, v. Gilbert Foster, Defendant.

Bankruptcy No. 00-33492.

Adversary No. 00-3194.

United States Bankruptcy Court, S.D. Ohio, Western Division.

June 27, 2002.

COPYRIGHT MATERIAL OMITTED

Susan K. Cliffel, Assistant Attorney General, Revenue Recovery Section, Columbus, OH, for plaintiff.

Richard P. Arthur, Dayton, OH, for defendant.

Ruth A. Slone-Stiver, Dayton, OH, Chapter 7 Trustee.

MEMORANDUM OPINION

JOHN E. HOFFMAN, Jr., Bankruptcy Judge.

Plaintiff State of Ohio, Bureau of Workers' Compensation (the "BWC"), has filed a Motion for Summary Judgment (the "Summary Judgment Motion") on its complaint, which seeks a judgment that a debt owing from Defendant Gilbert Foster ("Foster" or "Debtor") to the BWC is nondischargeable. The BWC asserts that a factual finding that Foster obtained workers' compensation benefits through fraud, which was made in three separate written decisions and orders (collectively, the "Orders") issued by the Industrial Commission of Ohio (the "Industrial Commission"), should be given preclusive effect by the Court and the resulting obligation to repay the benefits (the "Repayment Obligation") held nondischargeable under 11 U.S.C. § 523(a)(12)(A). In his response to the Summary Judgment Motion (the "Response"), Foster argues that: (1) the factual findings contained in the Orders should not be given preclusive effect because they were not made by a court of competent jurisdiction; and (2) the issue of whether Foster engaged in fraud was not actually litigated in the Industrial Commission proceeding.

This memorandum opinion constitutes the Court's findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52, made applicable in this adversary proceeding by Fed.R.Bankr.P. 7052.

I. Jurisdiction

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and the general order of reference entered in this district. This is a core proceeding. 28 U.S.C. § 157(b)(2).

II. Factual and Procedural Background

The undisputed facts of this case are drawn from the submissions of the parties, including the documents, which are authenticated by affidavit, attached to the Summary Judgment Motion.

Foster is 64 years old. In 1962 he went to work as a laborer for Wagner Manufacturing ("Wagner"). In June 1965, while shoveling sand into a mold, Foster injured his back. In August 1965 Foster filed an Application for Compensation (the "Application") with the BWC seeking payment of benefits for his back injury. The Application was assigned Claim No. 2-426837 (the "First Claim"). Foster received temporary total disability benefits on the First Claim from June 19, 1965 through October 27, 1968.

At some point in 1967 Foster terminated his employment with Wagner. On July 14, 1972, Foster filed a motion with the BWC seeking permanent total disability benefits with respect to the First Claim. A letter report supporting the motion was filed by Albert Kostoff, M.D., who recommended that Foster be awarded permanent total disability benefits. The Industrial Commission found that Foster was totally and permanently disabled as a result of the 1965 back injury and ordered that he receive permanent total disability benefits unless future facts or circumstances warranted discontinuance of the benefits. With respect to the First Claim, the BWC paid Foster temporary total disability benefits from June 19, 1965 through October 27, 1968; permanent partial disability benefits from October 28, 1968 through July 8, 1972; and permanent total disability and Disabled Workers' Relief Fund ("DWRF") benefits from July 9, 1972 through November 20, 1999.

In November 1973 Foster accepted employment as a laborer with the City of Dayton Public Works Department. He worked primarily on a street maintenance crew and his duties included sweeping leaves, filling pot holes, picking up tree limbs, paving, salting, and snow removal. On April 11, 1977, while on the job, Foster injured his back lifting a guardrail. On June 15, 1977, he signed and submitted to the BWC a PE (Public Employee) Application for Payment of Medical Benefits (the "PE Application"). The PE Application was assigned Claim No. PE672737 (the "Second Claim").

At the time Foster submitted the Second Claim, he was receiving permanent total disability and DWRF benefits on the First Claim. On the PE Application, in response to the question "Have you filed any other claims with the Bureau or Ind.Comm. (If yes, give claim no. & body parts)," Foster checked the box marked "Yes" and listed ten other public employee claims. He did not list the First Claim.

The Industrial Commission ultimately awarded Foster permanent total disability and DWRF benefits with respect to the Second Claim. He was paid temporary total disability benefits on the Second Claim from May 30, 1980 until February 18, 1987 and permanent total disability and DWRF benefits from February 19, 1987 through November 20, 1999.

At some point in 1999 the BWC initiated an investigation of Foster after becoming aware that he was receiving permanent total disability and DWRF benefits on both the First and Second Claims. After concluding its investigation, the BWC referred the matter to the Industrial Commission. A hearing was conducted on October 29, 1999 before the Industrial Commission (the "Hearing") at which the BWC sought the following relief: (1) termination of permanent total disability benefits and DWRF benefits as to the First Claim beginning November 12, 1973; (2) a declaration of permanent total disability fraud as to both claims; and (3) a declaration of overpayment, and termination, of all temporary total, permanent total, and DWRF benefits in connection with the Second Claim. The Hearing was conducted before Industrial Commission Hearing Officer Christopher M. Kalafut (the "Hearing Officer"). Foster and his attorney were present at the Hearing; however, Foster did not testify and it does not appear from the record that his attorney made any type of presentation.¹ The Orders — three separate written decisions and orders issued by the Hearing Officer — emanated from the Hearing.

The Hearing Officer's first decision and order (the "First Decision") related to the First Claim, addressing the overpayment of temporary and permanent total disability benefits, the termination of those benefits, and the issue of whether Foster committed fraud in connection with the First Claim. In the First Decision, the Hearing Officer determined that Foster had engaged in fraudulent conduct. His findings were based on the testimony of a workers' compensation investigator (the "Investigator") at the Hearing and the written report of the BWC investigation (the "Investigative Report"). The Hearing Officer found that Foster had concealed the fact that he was working while receiving permanent total disability benefits on the First Claim. Based on a June 15, 1981 letter signed by Foster, which stated that he had not worked since being declared permanently and totally disabled, and Foster's failure to inform the BWC that he was employed while receiving those benefits, the Administrator of the BWC (the "Administrator") paid permanent total disability benefits on the First Claim from the State Insurance Fund (the "Fund"). The Hearing Officer determined that: (1) Foster's statement that he was not working and had not worked was made with knowledge of its falsity and was so inconsistent with the facts that knowledge of its falsity could be inferred; and (2) Foster made misrepresentations to, and concealed facts from, the Administrator with the intent to mislead the Administrator and induce his reliance on the false representations in order to obtain permanent total disability benefits; (3) Foster's fraudulent intent could be inferred from reviewing the entire BWC file, as it contained a number of forms submitted to the BWC that concealed the fact that Foster was receiving benefits while employed; and (4) the statements made by Foster contained in the various forms submitted to the BWC, taken as a whole, indicate an intent to mislead the Administrator and induce reliance on the false information contained in the statements. The Hearing Officer also found that the Administrator justifiably relied on the documents submitted by Foster and that such reliance resulted in the Administrator improperly making payments from the Fund. The Hearing Officer concluded that the BWC had proven the six prima facie elements of common law fraud by a preponderance of the evidence. See Summary Judgment Motion, Exhibit C, Industrial Commission Record of Proceedings, Findings of Fact and Order of the Commission, Claim No. 2-426837 at 3. As a result of his finding of fraud, the Hearing Officer ordered termination of benefit payments with respect to the First Claim and recoupment of the overpayments.²

The Hearing Officer issued two separate written decisions and orders relating to the Second Claim (the "Second Decision" and "Third Decision," respectively). The Second Decision dealt with the overpayment of the temporary total disability payments on the Second Claim. In the Third Decision, the Hearing Officer considered: (1) the overpayment and termination of permanent total disability and DWRF benefits on the Second Claim; and (2) whether Foster had committed fraud in connection with the Second Claim. Virtually identical findings were made by the Hearing Officer in both the Second and Third Decisions. The Hearing Officer's findings in the Second and Third Decisions were based on the Investigator's testimony at the Hearing and the Investigative Report. The Hearing Officer concluded, after reviewing the evidence contained in the BWC's files, that the Debtor had obtained benefits for the Second Claim while receiving permanent total disability benefits on the First Claim. The Hearing Officer determined that: (1) Foster made representations that he had...