In re Visiting Nurse Ass'n of Western Pennsylvania
| Decision Date | 31 July 1992 |
| Docket Number | Bankruptcy No. 88-649-PGH.,Civ. A. No. 89-2011 |
| Citation | 143 BR 633 |
| Parties | In re VISITING NURSE ASSOCIATION OF WESTERN PENNSYLVANIA, Debtor. K. Lawrence KEMP, Trustee, Plaintiff/Appellant, v. Otis BOWEN, Secretary of Health and Human Services, United States of America, et al., Defendants/Appellees. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
COPYRIGHT MATERIAL OMITTED
K. Lawrence Kemp, Kemp & Kemp, New Kensington, Pa., for plaintiff/appellant.
Alan E. Cech, Office of U.S. Atty., Sanford B. Ferguson, Kirkpatrick & Lockhart, Pittsburgh, Pa., for defendants/appellees.
Blue Cross of Greater Philadelphia, Philadelphia, Pa., pro se.
By order of court dated July 12, 1989, 101 B.R. 462, the United States Bankruptcy Court for the Western District of Pennsylvania required appellant K. Lawrence Kemp, Trustee for the Visiting Nurse Association of Western Pennsylvania ("VNA"), and Vanguard Federal Savings Bank ("Vanguard") to return funds to appellee Otis Bowen, Secretary of Health and Human Services for the United States of America. Appellant then filed this appeal, claiming the bankruptcy court erred in issuing the July 12, 1989 order.
The issues before this court on appeal are:
Appellant's brief, p. 3; appellant's supplemental brief, p. 1; and appellee's brief, p. 1. This court recognizes jurisdiction over the appellant's appeal pursuant to 28 U.S.C. § 158 and affirms the bankruptcy court's opinion.
The relevant facts upon which the bankruptcy court based its decision appear in the stipulation of facts filed by the parties. According to the stipulation of facts, VNA provided home nursing services for which it received Medicare cost reimbursement pursuant to the Periodic Interim Payment Plan ("PIP") codified at 42 C.F.R. § 413.60. Stipulation of Facts, ¶¶ 1-2. Section 413.60 provides that bi-weekly estimated PIP payments be made to service providers throughout each year based on actual costs incurred by the provider during the previous accounting period, subject to various adjustments.1 Additionally, section 413.60(c) provides for a retroactive final settlement at the end of each accounting period based on verified reports of actual costs incurred by the provider during that period. Stipulation of Facts, ¶ 2. VNA received the bi-weekly PIP payments during 1987 based on 1986 costs plus adjustments. Stipulation of Facts, ¶ 3. A final settlement for 1987 has not been completed because VNA has neither filed nor verified final 1987 cost reports. Stipulation of Facts, ¶ 13.
By November 9, 1987, VNA had ceased providing patient services. By November 13, 1987, it terminated some but not all of its employees. Stipulation of Facts, ¶¶ 4, 5. Medicare received notice that VNA had ceased operations by telephone on December 22, 1987, and by letter dated December 29, 1987. Stipulation of Facts, ¶ 8. VNA had failed to effectively communicate its cessation of operations prior to the December 22, 1987 telephone conversation despite having directly communicated with Medicare on at least six separate occasions between November 13, 1987 and December 21, 1987. Stipulation of Facts, ¶ 6, Exhibits A-G.
On December 11, 1987, VNA received a $78,737.31 PIP payment from Medicare. On March 8, 1988, VNA filed a voluntary Chapter 7 bankruptcy petition. Between those dates, it had deposited the funds received from Medicare into a separate bank account, where they remained until Kemp, acting as VNA's Chapter 7 trustee, took possession of them. Stipulation of Facts, ¶ 10.
Kemp then filed a complaint to determine secured status and/or for declaratory judgment in bankruptcy court, arguing that the funds were property of the bankruptcy estate free of any claims. Vanguard agreed with Kemp and sought payment from the bankruptcy estate as a secured party. Medicare asserted that the funds were the property of the United States. It argued that VNA held the funds in a constructive trust, had breached its fiduciary duty, and would be unjustly enriched if it were allowed to retain the December PIP payment. Appellant's brief, pp. 2-3.
The United States Bankruptcy Court for the Western District of Pennsylvania, in an opinion and order by the Honorable Warren W. Bentz, held that the special nature of the PIP program gave rise to a confidential relationship between Medicare and VNA, imposing upon VNA a duty to notify Medicare promptly if it ceased operations. The bankruptcy court found that VNA would be unjustly enriched if it were allowed to keep the PIP payment. Therefore, it held that VNA possessed the PIP payment as a constructive trustee under Pennsylvania law. Finally, the bankruptcy court held that under Pennsylvania law the payment was not subject to the trustee's 11 U.S.C. § 544 strong-arm powers since neither a judgment creditor nor an execution creditor may prevail over the beneficiary of a constructive trust.
It is well-established in the Third Circuit that "findings of fact by the bankruptcy court are reviewable only for clear error." Brown v. Pennsylvania State Employees Credit Union, 851 F.2d 81, 84 (3d Cir.1988) (citing Bankruptcy Rule 8013); e.g., In re Morrissey, 717 F.2d 100, 104 (3d Cir.1983); In re Gianakas, 112 B.R. 737, 741 (W.D.Pa.), aff'd, 917 F.2d 759 (3d Cir.1990). Legal questions, however, are subject to plenary review. Brown, 851 F.2d at 84; Gianakas, 112 B.R. at 741.
Appellant contends that, contrary to the bankruptcy court's findings, no confidential relationship existed between VNA and Medicare. After examining the law and record on appeal, this court affirms the bankruptcy court's finding.
Whether a constructive trust will be imposed is a question of fact in federal bankruptcy court proceedings. In re Heston Oil Co., 63 B.R. 711, 714 (Bankr. N.D.Okla.1986). Furthermore, whether a constructive trust exists generally depends upon applicable state law. Jaffke v. Dunham, 352 U.S. 280, 281, 77 S.Ct. 307, 308, 1 L.Ed.2d 314 (1957); Heston Oil, 63 B.R. at 714. Under Pennsylvania law, a constructive trust exists where "(a) the transfer was procured by fraud, duress, undue influence or mistake or (b) the transferee at the time of the transfer was in a confidential relation to the transferor." Metzger v. Metzger, 338 Pa. 564, 569-570, 14 A.2d 285, 288 (1940) (quoting Restatement of Trusts, § 44) (emphasis in original); see Buchanan v. Brentwood Federal Savings and Loan Assoc., 457 Pa. 135, 153, 320 A.2d 117, 127 (1974).
Therefore, since a constructive trust may be imposed if a confidential relationship exists, and since the issue of whether a constructive trust exists involves a question of fact in a federal bankruptcy court proceeding, this court finds it appropriate to review the bankruptcy court's confidential relationship finding under the clearly erroneous standard of review. See also Buchanan, 457 Pa. at 153, 320 A.2d at 127 (1974) (); Moreland v. Metrovich, 249 Pa.Super. 88, 97, 375 A.2d 772, 776 (1977) (). Neither party cites any applicable case law to the contrary.
Accordingly, this court will not disturb the bankruptcy court's finding "unless the court is left with a definite and firm conviction that a mistake has been committed." Brager v. Blum, 49 B.R. 626 (E.D.Pa.1985) (citing United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 541, 92 L.Ed. 746 (1948)).
The bankruptcy court held that a confidential relationship existed between VNA and Medicare because of the special nature of the PIP program. Appellant argues that the bankruptcy court erred in making this finding of fact under Pennsylvania law because to support such a finding it must be established that:
See appellant's brief, pp. 4-9.
After examining the law and record on appeal, however, this court finds appellant's reliance on Union Trust, Harrison and McClatchy to be misplaced precisely because of the special nature of the Medicare program. Therefore, this court cannot state that the bankruptcy court clearly erred in finding a confidential relationship.
As noted previously, the Medicare regulation at issue requires that "interim payments will be made as often as possible and in no event less frequently than once a month." 42 C.F.R. § 413.60(c). The estimated PIP payment is:
computed by the intermediary to approximate, on the average, the costs of covered inpatient home health services furnished by the provider during the period for which the payment is to be made, and each payment will be made two...
To continue reading
Request your trial