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In re Corbett

United States District Court, E.D. California

July 11, 2017





         This matter comes before the Court on California Correctional Peace Officers Association Benefit Trust Fund's (“Appellant” or “Trust”) appeal, pursuant to 28 U.S.C. § 158(a), from the September 21, 2016, oral decision and order of the United States Bankruptcy Court for the Eastern District of California. See ECF Document No. (“Doc.”) 8 at 598-653. Appellant filed its notice of appeal on October 7, 2016. Doc. 1. Appellant filed a brief on January 6, 2017. Doc. 6. Appellee did not file a responsive brief. On April 6, 2017, at the Court's request, Appellant filed a brief pertaining to the effect of Appellee's failure to file a responsive brief.[1] Doc. 11. The Bankruptcy Court found that Appellant was not entitled to an equitable lien against funds awarded to Daisy Corbett (“Appellee” or “Ms. Corbett”) as worker's compensation. For the reasons set forth below, the decision of the Bankruptcy Court as it pertains to the existence of an equitable lien under federal law is vacated.


         The following facts are drawn from the uncontroverted facts, the facts stipulated to for the Bankruptcy Court trial, and Appellant's brief. Appellant does not dispute the factual findings made by the Bankruptcy Court.

         Appellee was employed as a Correctional Counselor at Corcoran State Prison, and was a participant in the employee welfare benefit plan administered by the California Correctional Peace Officers Association (“CCPOA”). Doc. 8 at 417. Appellant is a trust fund and a “self-insured employee welfare benefit plan” maintained by CCPOA which advances money to enrollees prior to their receipt of worker's compensation benefits. Doc. 8 at 417. The Trust is self-funded and self-insured, and is a Disability Benefit Program and a self-funded Employee Welfare Benefit Plan under (“ERISA”). Id. at 133. Appellant has a fiduciary obligation to obtain reimbursement where an injured worker received benefits from Appellant and subsequently receives duplicate benefits for the same period of disability as worker's compensation. Id.

         Appellee was injured at work in 1996 and filed a claim with the Workers' Compensation Appeals Board (“WCAB”), and in 2005 she became unable to work. Id. at 134, 417. While her claim was pending before the WCAB, Appellee sought an advance from the Trust. On October 1, 2005, Appellee signed a reimbursement agreement and assignment of proceeds (the “Agreement”). Id. at 417, 421. The Agreement provided, in part, that payment to Appellee be:

conditioned on the Trust's right of reimbursement up to the full extent of benefits paid by the Program on the claims, in the event [Appellee recovers] (i) damages or proceeds (or if any party or entity recovers damages or proceeds on [Appellee's] behalf), by award, settlement, insurance, or otherwise, for medical and other expenses (regardless of how such award, settlement or otherwise is structured or itemized); or (ii) any proceeds from occupational insurance purchased by [Appellee's] employer, or provided under state workers' compensation acts, employer liability laws, or other laws providing compensation for work-incurred injuries. In consideration of payment of benefits by the Program related to the clams, [Appellee agrees] as follows: To repay and hereby assign to the Trust the proceeds of any and all recovery/ies made from any responsible party or insurer to [Appellee] or to any person or entity on [her] behalf, to the extent of any benefits provided by the Program (minus any share of reasonable attorney's fees, determined according to the Program rules).

Id. at 420. Between August 5, 2005, and May 4, 2007, Appellee was advanced a total of $85, 986.90 from the Trust, which was equal to 65% of Appellee's base pay for that period of time. Id. at 136; 419.

         On February 21, 2008, Appellee filed a voluntary bankruptcy petition under Chapter 7 of U.S. Code Chapter 11. Id. at 418. Appellee did not list her workers' compensation claim on Schedule B, exempt it on Schedule FC, or list the claim in her Statement of Financial Affairs. Id. at 418. Appellee listed CCPOA as a general unsecured creditor to the amount of $56, 658.20 on Schedule F. Id. A Trustee was appointed, who filed a No Asset Report, and on June 3, 2008, Appellee's bankruptcy discharge was entered and her bankruptcy case closed on June 10, 2008. Id. at 137; 418.

         On March 25, 2009, the Trust filed a claim with the WCAB in Ms. Corbett's worker's compensation case in the amount of $85, 986.90. Id. at 418. Pursuant to an agreement between Appellee and the California Department of Corrections and Rehabilitation, Appellee was awarded temporary disability benefits equal to 66.67% of her base pay from November 17 to 19, 1997, November 21 to December 5, 1997, July 14, 1998, to November 1, 1999, and July 11, 2005 to August 5, 2009. Id. at 136-37; 419. The award provided for $85, 986.90 to be withheld pending the resolution of the CCPOA claim. Id. at 429.

         On February 7, 2011, the Trust filed a motion to reopen the bankruptcy case, which was granted on February 11. Id. at 300-01. The Bankruptcy Court reappointed the trustee, who successfully moved the Bankruptcy Court to order the withheld award monies turned over to him. Id. at 303; 608. Appellant filed a proof of claim in Appellee's bankruptcy case asserting its lien against the awarded funds. Id. at 609. The Trustee's final report, filed on July 17, 2012, proposed allocating $76, 202.18 to Appellant. Id. at 332. No objection to the proposed allocation was filed, and the Trustee paid Appellant the proposed sum. Id. at 609. Appellee objected after the Trustee distributed the funds, and filed amended schedules claiming that the $85, 986.90 was exempt. Id. The Trustee objected to the amendment, and, after a hearing, the Bankruptcy Court overruled Appellee's objection. Id. Appellee appealed to the Bankruptcy Appellate Panel (“BAP”), which vacated the Bankruptcy Court's decision and remanded the case. Id.

         Appellant subsequently brought this action to determine the validity, priority, and extent of its lien and seeking declaratory relief that the lien was not discharged and was superior to any claim of exemption. Id. at 610. On September 21, 2016, the Bankruptcy Court entered oral findings of fact and conclusions of law. Id. at 598. The Bankruptcy Court found that the worker's compensation claim was an asset of Appellee's bankruptcy estate and remained an asset of the estate after the bankruptcy case closed. Id. at 617. The Bankruptcy Court also found that Appellant was not entitled to an equitable lien against the award funds under federal law. Id. at 639.

         III. STANDA ...

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