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City of Wilkes-Barre v. Robert P. Sheils

May 23, 2011


The opinion of the court was delivered by: Judge Munley

(Bankruptcy Appeal)


Before the court is the instant bankruptcy appeal. Having been fully briefed, the matter is ripe for disposition.


In 1996, George Cole ("Cole"), a City of Wilkes-Barre ("the City") police officer, was injured in a car accident in the course of his employment. Luzerne County employed the other driver. Between April 12, 1996 and May 9, 2005, the City paid Cole's lost wages and medical bills, totaling $425,945.69, pursuant to the Pennsylvania Heart and Lung Act ("HLA"), 53 PA. STAT. §§ 637-38. Cole initiated a personal injury suit against Luzerne County and the driver of the other vehicle involved in the accident in 1996 which eventually settled.

In 2000, Cole also filed a voluntary petition for Chapter 7 protection under the United States Bankruptcy Code. Robert Sheils was appointed trustee. On January 4, 2005, the trustee filed an amended petition to approve the settlement of Cole's personal injury action. The settlement was for $569,376.31. After disbursements for attorneys fees and expenses, the bankruptcy estate netted $372,176.96, which is currently held in a certificate of deposit. These are the only assets currently held by the trustee.

On October 1, 2004, the City filed a proof of claim with the Bankruptcy Court, arguing that it had a secured claim based on subrogation for the amount of the total pre-petition and post-petition HLA benefits paid to the debtor since his accident. The City sought an order directing the Trustee to hold all of the settlement proceeds in a constructive trust for the benefit of the City. The parties filed motions for summary judgment. On May 16, 2007, Bankruptcy Judge Thomas granted summary judgment to the trustee, finding that the City was not entitled to subrogation for its payments under the HLA because Cole, as a public employee, was afforded sovereign immunity under Section 23 of the Act of July 2, 1993, P.L. 190, No. 44 (Worker's Compensation Act ("WCA") amendments). (Opinion of the Bankruptcy Court (Doc. 2-35) at 2-3).

The City appealed the Bankruptcy Court's decision to this court, under 28 U.S.C. § 158. We denied the City's appeal, determining that Section 1720 of the Motor Vehicle Financial Responsibility Law ("MVFRL"), 75 PA. CONS. STAT. ANN. § 1720, barred the City's right of subrogation against Cole's settlement proceeds. (Order of January 25, 2008 (Doc. 13-2)). We did not address Judge Thomas's basis of decision-- that of sovereign immunity. (Id.)

On February 4, 2008, the City further appealed our determination to the United States Court of Appeals for the Third Circuit. (Notice of Appeal (Doc. 14)). The Court of Appeals reviewed whether or not the City's right of subrogation was barred by Section 1720 of the MVFRL. (Opinion Filed April 23, 2009 (Doc. 18-2)). The court noted that Section 1720 was repealed by Section 25(b) of Act 44 (WCA amendments) insofar as it barred an employer's subrogation to WCA benefits. The court foundno basis for treating HLA benefits different from WCA benefits, therefore Section 25(b) of Act 44 reinstated an employer's right of subrogation to HLA benefits. The Court of Appeals did not consider the sovereign immunity argument because this court did not rely on it. The court vacated our judgment and remanded the case for further consideration consistent with its opinion.

Following remand, the parties engaged in settlement negotiations. (See October 16, 2009 Correspondence (Doc. 19)). On February 12, 2010, we directed the City to advise the court on the status of negotiations. (Doc. 20). On April 15, 2010, noting that the City had not submitted a status report, we granted the City's bankruptcy appeal and reversed Judge Thomas's order granting the Trustee's motion for summary judgment. (Doc. 21).

On April 29, 2010 and May 6, 2010, the Trustee filed his motions for reconsideration and to enforce a settlement, respectively. (Docs. 22, 23). The Trustee also filed a Notice of Appeal on May 12, 2010. (Doc. 24). The United States Court of Appeals for the Third Circuit docketed the appeal but stayed the case pending the resolution of the motion for reconsideration. (Order of May 20, 2010 (Doc. 28)). Reviewing the motion for reconsideration, we agreed with the Trustee that neither our original January 25, 2008 Opinion, the April 23, 2009 Opinion of the Third Circuit, nor our April 15, 2010 Order had considered the Bankruptcy Court's stated basis of decision-- that the Trustee, standing in the shoes of Cole, was entitled to sovereign immunity from the City'sclaim of subrogation. Accordingly, the Trustee's motion for reconsideration was granted. At the Trustee's request, we stayed the case pending the decision of the Supreme Court of Pennsylvania on this precise issue. See Oliver v. City of Pittsburgh, 987 A.2d 680 (Pa. 2009) (granting petition for allowance of appeal).*fn1

We are advised that Oliver has been decided. The Supreme Court of Pennsylvania found that Section 25(b) of Act 44 repealed Section 1720 of the MVFRL only as it related to WCA benefits and was silent as to HLA benefits. Therefore, Section 25(b), "[b]y its plain terms . . . does not impact any anti-subrogation mandates pertaining to HLA benefits." Oliver v. City of Pittsburgh, 11 A.3d 960, 966 (Pa. 2011).*fn2 Although the majority of the Commonwealth Court, en banc, below, could discern no basis for distinguishing WCA and HLA benefits, the Pennsylvania Supreme Court did.

The HLA applies to protect employees serving the public in essential, high-risk professions. The design is to ensure that, if they are temporarily disabled in the performance of their duties, these critical-services personnel do not suffer salary losses or incur the expense of medical care and treatment. See 53 P.S. § 637(a); see, e.g., City of Erie v. WCAB (Annunziata), 575 Pa. 594, 602--604 & n. 6, 838 A.2d 598, 603--04 & n. 6 (2003) (discussing the statutory framework of the HLA). Although the WCA also embodies a similar remedial scheme, the HLA's more favorable treatment of public-safety employees who are temporarily disabled suggests against treating an overlap as an equivalency.

In summary, Section 25(b) repealed Sections 1720 of the MVFRL "insofar as [it] relate[d] to workers' compensation payments or other benefits under the Workers' Compensation Act." Act of July 2, 1993, P.L. 190, No. 44, ยง 25(b). By its plain terms, such provision ...

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