In re Hernandez

• Decision Date: 24 January 2020
• Docket Number: Docket No. 124661
• Citation: 2020 IL 124661,443 Ill.Dec. 11,161 N.E.3d 135
• Parties: IN RE Elena HERNANDEZ.
• Court: Illinois Supreme Court

2020 IL 124661

161 N.E.3d 135

443 Ill.Dec. 11

IN RE Elena HERNANDEZ.

Docket No. 124661

Supreme Court of Illinois.

Opinion filed January 24, 2020

Richard D. Grossman, of Chicago, for appellant.

Alan J. Mandel, of Alan J. Mandel, Ltd., of Skokie, and Allan A. Ackerman, of Chicago, for appellees.

Kwame Raoul, Attorney General, of Springfield (Jane Elinor Notz, Solicitor General, and Sarah A. Hunger and Mary C. Labrec, Assistant State's Attorneys, of Chicago, of counsel), amicus curiae.

Kari Beyer, Miriam Hallbauer, and David S. Yen, of LAF, of Chicago, and James J. Haller, of National Association of Consumer Bankruptcy Attorneys, amici curiae.

JUSTICE KARMEIER delivered the judgment of the court, with opinion.

¶ 1 The United States Court of Appeals for the Seventh Circuit has certified for instruction by this court the following question of Illinois law: After the 2005 amendments to section 8 of the Workers' Compensation Act (Act) ( 820 ILCS 305/8 (West 2016) ) and the enactment of section 8.2 of the Act (id. § 8.2), does section 21 of the Act (id. § 21) exempt the proceeds of a workers' compensation settlement from the claims of medical-care providers who treated the illness or injury associated with that settlement?

¶ 2 We accepted the Seventh Circuit's invitation to consider this question pursuant to Illinois Supreme Court Rule 20 (eff. Aug. 1, 1992). We subsequently granted leave to the People of the State of Illinois and to the National Association of Consumer Bankruptcy Attorneys (NACBA) and the Legal Assistance Foundation of Metropolitan Chicago (LAF) to file amicus curiae briefs in support of the position taken by Elena Hernandez, the debtor whose settlement proceeds are at issue. See Ill. S. Ct. R. 345 (eff. Sept. 20, 2010).

¶ 3 For the reasons that follow, we answer the question posed by the Seventh Circuit in the affirmative. Under section 21 of the Act, the proceeds of a workers' compensation settlement are still exempt from the claims of medical-care providers who treated the illness or injury associated with that settlement.

¶ 4 BACKGROUND

¶ 5 We take the facts as the Seventh Circuit has stated them in its certification ruling. See Zahn v. North American Power & Gas, LLC , 2016 IL 120526, ¶ 3, 410 Ill.Dec. 947, 72 N.E.3d 333 ; Yang v. City of Chicago , 195 Ill. 2d 96, 98, 253 Ill.Dec. 418, 745 N.E.2d 541 (2001). Between 2009 and 2011, Elena Hernandez sustained on-the-job injuries and received medical treatment from Ambulatory Surgical Care Facility, Marque Medicos Fullerton LLC, and Medicos Pain and Surgical Specialists, S.C. In December 2016, she filed a voluntary Chapter 7 bankruptcy petition in the Northern District of Illinois. In that petition, Hernandez reported unsecured claims held by the three health care providers we have just mentioned. She owed $28,709.60 to Ambulatory Surgical Care Facility, $58,901.20 to Marque Medicos Fullerton LLC, and $50,161.26 to Medicos Pain and Surgical Specialists, S.C. She reported minimal assets, listing $1300 in bank accounts, some inexpensive jewelry, and her pending workers' compensation claim, which she valued at $31,000.

¶ 6 Two days after filing her petition, Hernandez settled her workers' compensation claim with her employer. The settlement amount appears to have been $30,566.33. Hernandez entered into the settlement without consulting the bankruptcy trustee. The reason she did not consult the trustee is that she believed the full amount of the settlement was exempt under section 21 of the Act ( 820 ILCS 305/21 (West 2016) ). That statute provides, in relevant part:

"No payment, claim, award or decision under this Act shall be assignable or subject to any lien, attachment or garnishment, or be held liable in any way for any lien, debt, penalty or damages, except the beneficiary or beneficiaries of a deceased employee who was a member or annuitant under Article 14 of the ‘Illinois Pension Code’ may assign any benefits payable under this Act to the State Employees' Retirement System." Id.

¶ 7 The health care providers objected to this exemption on the grounds that certain amendments made to the Act in 2005 empowered them to reach her settlement. They also urged the court to disallow the exemption on grounds that the settlement was the product of fraud.

¶ 8 In April 2017 the bankruptcy court heard arguments on the question. During the hearing, the judge focused on process-based concerns regarding Hernandez's settlement—including her failure to notify interested parties or the trustee—rather than the statutory arguments raised by the parties. In the end, the judge summarily denied the exemption without a written opinion.

¶ 9 Hernandez appealed to the United States District Court for the Northern District of Illinois pursuant to 28 U.S.C. § 158(a)(1) (2012). In re Hernandez , 17 CV 3230, 2018 WL 1469000 (N.D. Ill. Mar. 26, 2018). The district court affirmed in an opinion focused exclusively on the relationship between section 21 of the Act ( 820 ILCS 305/21 (West 2016) ) and the 2005 amendments to that Act codified in sections 8 and 8.2 (see Pub. Act 93-721, § 70 (eff. Jan. 1, 2005); Pub. Act 94-277, § 10 (eff. July 20, 2005); Pub. Act 94-695, § 5 (eff. Nov. 16, 2005)). In re Hernandez , 2018 WL 1469000.

¶ 10 Relying on In re McClure , 175 B.R. 21 (Bankr. N.D. Ill. 1994), the district court held that, under section 21, workers' compensation claims are exempt from a debtor's bankruptcy estate against general creditors. In re Hernandez , 2018 WL 1469000, at *2. It concluded, however, that the 2005 amendments "significantly altered" the Act as it pertains to health care providers, striking a "balance" by limiting what providers can charge while allowing them to resume collection efforts following a settlement. Id. at *3. Professing to read the Act as a " ‘harmonious whole’ " and citing interpretive canons against surplusage and absurdity, the district court rejected Hernandez's argument that the 2005 amendments had no bearing on the exemption created by section 21. Id. (quoting Food & Drug Administration v. Brown & Williamson Tobacco Corp. , 529 U.S. 120, 133, 120 S.Ct. 1291, 146 L.Ed.2d 121 (2000) ). In the district court's view, those amendments now permit health care providers to collect payment for their services from an injured employee once the employee's disputed claim has been resolved with the employer. According to the district court, a contrary interpretation was unreasonable because it would undermine a key purpose of the amended Act, namely, ensuring payment for care providers. Id.

¶ 11 Hernandez's motion to alter or amend the judgment was rejected following a hearing, and she appealed to the United States Circuit Court for the Seventh Circuit. In re Hernandez , 918 F.3d 563 (7th Cir. 2019). Before the Seventh Circuit, the parties agreed that, historically, section 21 of the Act created an exemption for workers' compensation claims and awards under Illinois law and that such claims and awards were therefore beyond the reach of creditors in bankruptcy proceedings. Id. at 568. The point was not contested. Rather, as in the district court, the dispute centered on whether the exemption remained in effect after the Act was amended in 2005 with respect to collection efforts by a debtor's health care providers. Id.

¶ 12 Noting that neither our court nor our appellate court has yet addressed the interplay between section 21 of the Act and the 2005 amendments, the Seventh Circuit undertook its own examination of the language of those provisions in light of standard principles of statutory construction and determined that there was support for both sides of the issue. Id. at 569-70. It could find no clear path forward. Because of this uncertainty, because it believed the issue to be one of vital public concern, and because resolution of the question is essential to correct disposition of the case before it, the Seventh Circuit asked this court to answer the certified question we set out at the beginning of the opinion. Id. at 570-71. As noted, we have accepted that request. The federal proceedings have been stayed pending our ruling.

¶ 13 ANALYSIS

¶ 14 The exemption claimed by Hernandez and opposed by her health care providers arises in the context of a federal bankruptcy proceeding. Section 522(b) of the Bankruptcy Code ( 11 U.S.C. § 522(b) (2012) ) allows debtors such as Hernandez to exempt certain property from the bankruptcy estate. While federal law contains provisions specifying what property may be claimed as exempt (see id. § 522(d) ), individual states may opt out of the federal exemption scheme and establish their own. Illinois has exercised that option. See In re Marriage of Logston , 103 Ill. 2d 266, 282, 82 Ill.Dec. 633, 469 N.E.2d 167 (1984) ; In re Clark v. Chicago Municipal Employees Credit Union , 119 F.3d 540, 543 (7th Cir. 1997). Section 12-1201 of the Code of Civil Procedure ( 735 ILCS 5/12-1201 (West 2016) ) provides that residents of this state are "prohibited from using federal exemptions provided in Section 522(d) of the Bankruptcy Code of 1978 ( 11 U.S.C. 522(d) ), except as may otherwise be permitted under the laws of Illinois." What this means is that in federal bankruptcy proceedings, Illinois residents are restricted to exemptions granted by Illinois law. In re Marriage of Logston , 103 Ill. 2d 266, 82 Ill.Dec. 633, 469 N.E.2d 167 (1984).

¶ 15 Under Illinois law, exempt property is any property that the legislature has identified and declared to be free from liability to processes such as seizure and sale, or attachment, to satisfy debts. Id. at 277, 82 Ill.Dec. 633, 469 N.E.2d 167. Numerous statutes enacted by the Illinois legislature recognize such exemptions. Some are included in parts 9 and 10 of the Code of Civil Procedure ( 735 ILCS 5/12-901 to 12-1006 (West 2016)), which deal with homestead exemptions and exemptions for personal property, and explicitly use the word "exemption." Nothing in Illinois law, however, limits allowable...