Ryan v. Branko PRPA MD LLC
| Decision Date | 02 March 2022 |
| Docket Number | 21-cv-0449-bhl |
| Court | U.S. District Court — Eastern District of Wisconsin |
| Parties | RODNEY RYAN, JILL RYAN, FORTUNE & MCGILLIS, SC, Appellants, v. BRANKO PRPA MD LLC, Appellee. |
DECISION AND ORDER
This case concerns the appeal of a March 24, 2021 Bankruptcy Court decision and order in Branko Prpa MD, LLC v. Rodney Ryan Jill Ryan, and Fortune & McGillis, SC (In re Ryan), Case No. 19-19833-beh, Adversary No 19-02209-beh, 629 B.R. 616 (Bankr. E.D. Wis. 2021). At issue is whether the Bankruptcy Court committed error when it determined that settlement funds expressly designated for payment of medical expenses in a state worker's compensation administrative order were excluded from and never part of the appellants' bankruptcy estate. Having considered the issues raised in this appeal, the arguments of the parties, the relevant portions of the record, and the applicable principles of law, the Court affirms the Bankruptcy Court's decision.
After suffering work injuries in 2016, while employed by Gleason Marvin Contractor, Inc., Rodney Ryan sought worker's compensation benefits under Wis.Stat. Ch. 102. Ryan was represented in the matter by Attorney Richard Fortune of Fortune & McGillis S.C. (FMSC). After three years of litigation, Ryan, his employer, and their workers' compensation insurer, West Bend Mutual Insurance Company entered into a “full and final” Compromise Agreement dated August 27, 2019. According to the Agreement the parties acknowledged that Ryan claimed to have sustained an injury “while performing services growing out of and incidental to his employment, ” for which he sought “various benefits under Chapter 102 [the Worker's Compensation Act of Wisconsin], including but not limited to, indemnity and medical expense.” (R. 4-4 at 37-38.) In terms of the settlement payment, the Agreement provided:
[T]he Employer and Insurer will pay as follows: $150, 000 to Rodney Ryan, minus attorney fees and costs listed below; $400, 000 to the Trust Account of Fortune & McGillis for disbursement to medical providers and lienholders, it being understood that from any balance remaining Mr. Ryan shall receive 80% and Fortune & McGillis shall receive 20%[.]
(R. 4-4 at 39.)
The parties submitted the Agreement to Wisconsin Worker's Compensation Administrative Law Judge Donald J. Doody, who granted approval on September 17, 2019. The resulting Office of Worker's Compensation Hearing (OWCH) Order provided:
Within 21 days from the date of this order, the respondent and insurance carrier shall pay to the applicant, Rodney Lee Ryan, the sum of One hundred twenty thousand dollars ($120, 000.00); to the applicant's attorney, Richard A. Fortune, the sum of Thirty thousand dollars ($30, 000.00) as fees; and to the Trust Account of Fortune & McGillis SC, the sum of Four hundred thousand dollars ($400, 000.00) for disbursement to medical providers and lienholders, it being understood that from any balance remaining the applicant, Rodney Lee Ryan, shall receive 80 percent and Fortune & McGillis S.C. shall receive 20 percent.
(R. 4-4 at 13.) The only payment at issue in this appeal is the $400, 000 payment to the Trust Account of Fortune & McGillis (Disputed Funds).
Ultimately, notwithstanding the terms of the OWCH Order, no payments were made to medical providers or lienholders. On October 11, 2019, less than a month after the OWCH Order was issued, Rodney Ryan and his spouse, Jill Ryan, filed a voluntary petition under Chapter 7 of the Bankruptcy Code. In their Amended Schedules, the Ryans listed their Workers Compensation payment as a “financial asset” with a total value of $781, 000.00, [1] and claimed an exemption in the entire amount. (R. 4-7 at 32, 35.) The Ryans also listed Branko Prpa, MD, LLC (Prpa) as a creditor with an unsecured claim in the amount of $445, 684.00 for medical services provided as a result of Ryan's 2016 injuries. (R. 4-3 at 25.) The Ryans' schedules also listed approximately $425, 000.00 in other unsecured medical debt. (R. 4-3 at 16-31.)
On December 16, 2019, Prpa filed an adversary complaint seeking a determination that the Disputed Funds were not part of the Ryans' bankruptcy estate and were held in trust for the benefit of medical providers or, alternatively, the imposition of a constructive trust. (R. 4-4 at 1 9.) Prpa also filed a separate objection to the Ryans' claim of exemption over the funds. (R. 4-3 at 60-62.)
On March 24, 2021, the Bankruptcy Court granted Prpa's motion for summary judgment and sustained the objection to the Ryans' claim of exemption in the Disputed Funds. (R. 4-4 at 3-93; 4-3 at 76-107.)
This Court has jurisdiction over the appeal of the Bankruptcy Court's order under 28 U.S.C. §158(a). The Bankruptcy Court's findings of fact are reviewed for clear error, and its conclusions of law are reviewed de novo. See Stamat v. Neary, 635 F.3d 974, 979 (7th Cir. 2011).
No facts are in dispute. The question on appeal is whether the Bankruptcy Court erred when it concluded that: (1) the OWCH Order created an express trust in favor of Ryan's medical providers and lienholders; (2) Wisconsin Statute §102.27, which protects compensation claims from creditors, did not preclude a trust in favor of creditors in a debtor's worker's compensation settlement proceeds (3) even if the OWCH Order did not create an express trust for the benefit of Ryan's medical providers and lienholders, there was a basis to impose a constructive trust on the Disputed Funds; and (4) the Ryans' remainder interest in the settlement funds was insufficient to bring the proceeds into the bankruptcy estate.
A. The Bankruptcy Court's Analysis.
The Bankruptcy Court concluded that the OWCH Order created an express trust in favor of the debtors' medical providers. The Bankruptcy Court identified three elements necessary under Wisconsin law for the creation of a trust: (1) a trustee, who holds property and is subject to equitable duties to deal with it for the benefit of another, (2) a beneficiary, to whom the trustee owes equitable duties to deal with trust property for its benefit, and (3) trust property, which is held by the trustee for the beneficiary. (R. 4-4 at 373 (citing Sutherland v. Pierner, 249 Wis. 462, 467, 24 N.W.2d 883 (1946).) The Bankruptcy Court explained that, based on the text of the OWCH order, each of these three elements was met: FMSC was a trustee, the medical providers and lienholders were the beneficiaries, and the disputed $400, 000 was trust res to be held by FMSC for the benefit of the medical providers and lienholders. (R. 4-4 at 376-77.) Additionally, as the disputed funds never became property of the estate, the Bankruptcy Court held there was no merit to the Ryans' claim of exemption of those funds. (R. 4-4 at 379.)
Wis. Stat. §102.27(1) (emphasis added). The Bankruptcy Court explained this provision needed to be viewed in context of the statute as a whole, including Wis.Stat. §102.26(3), which authorizes different categories of payments from a worker's compensation claim. Section
102.26(3) provides in relevant part:
Reading sections 102.27(1) and 102.26(3) together, the Bankruptcy Court concluded that not all funds ordered to be paid pursuant to an OWCH order approving a compromise constitute compensation to which the employee claimant is entitled. Based on the entirety of the statutory scheme, the Bankruptcy Court held that the $400, 000 was not compensation to which Ryan was entitled pursuant to §102.27, and that the only portion of the compromise amount which Ryan could protect pursuant to §102.27 was the $120, 000 paid directly to him. (R. 4-4 at 381-83.)
In the alternative, the Bankruptcy Court held that even if it were to conclude that the OWCH Order did not create an express trust for the benefit of Ryan's medical providers and lienholders, it would impose a constructive trust on the $400, 000. (R. 4-4 at 385.) Under Wisconsin law, a constructive trust will be imposed if: (1) a trust is needed to avoid unjust enrichment and (2) the party obtained title to specific res via fraud, duress, abuse of a confidential relationship, mistake, commission of a wrong, or any form of unconscionable conduct. (R. 4-4 at 385 (citing Wilharms v. Wilharms, 93 Wis.2d 671, 287 N.W.2d 779 (1980).)
The Bankruptcy Court concluded that the unjust enrichment prong was met because, based on its interpretation of §§102.26(3) and 102.27(1), the $400, 000 was not compensation to which Ryan was entitled. It further...
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