                                                                                                                           Opinions of the United
2009 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


4-23-2009

City of Wilkes-Barre v. Robert Sheils, Jr.
Precedential or Non-Precedential: Non-Precedential

Docket No. 08-1412




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                                                       NOT PRECEDENTIAL

                        UNITED STATES COURT OF APPEALS
                             FOR THE THIRD CIRCUIT


                                     No. 08-1412
                                    _____________

                              In re: GEORGE W. COLE,
                                               Debtor

                              CITY OF WILKES-BARRE,
                                            Appellant
                                        v.

                           ROBERT P. SHEILS, Jr., Trustee


                    On Appeal from the United States District Court
                         for the Middle District of Pennsylvania
                             District Court No. 07-cv-01238
                    District Judge: The Honorable James M. Munley


                   Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
                                   April 14, 2009

                        Before: MCKEE, SMITH, Circuit Judges
                            and STEARNS, District Judge*

                                 (Filed: April 23, 2009)


                                        OPINION


SMITH, Circuit Judge.

       *The Honorable Richard G. Stearns, District Judge of the United States District
Court for the District of Massachusetts, sitting by designation.


      Under the Pennsylvania Heart & Lung Act (HLA), the City of Wilkes-Barre (City)
was obligated to pay police officer George Cole wages and medical expenses during the

period that Cole was unable to work after being severely injured in the line of duty. Cole

subsequently brought a personal injury action against the third parties responsible for his

injuries. The City then sought to recover its HLA payments by asserting a right of

subrogation against the settlement Cole won in his personal injury action. Presently, the

City appeals from a determination by the United States District Court for the Middle

District of Pennsylvania that Section 1720 of the Motor Vehicle Financial Responsibility

Law (MVFRL)1 bars the City from asserting a right of subrogation against Cole’s

settlement proceeds. We will vacate the District Court’s judgment and remand the case to

the District Court for further consideration consistent with this opinion.

                                              I.

       Cole was severely injured in 1996 when a Luzerne County vehicle struck his

police cruiser. He was unable to return to work for nine years. During those nine years,

the City paid Cole HLA benefits totaling $425,945.69. Meanwhile, Cole also sued

Luzerne County for the injuries he had suffered. While Cole’s personal injury action was

pending, he filed a voluntary petition for Chapter 7 bankruptcy. Robert Sheils, Jr., the

appellee, was appointed trustee for Cole’s bankruptcy estate. In 2005, the United States

Bankruptcy Court for the Middle District of Pennsylvania approved a settlement of Cole’s

personal injury action according to which the trustee received $495,000.

       In 2004, however, the City asserted a common-law right of subrogation to recover



       1
           75 Pa. Cons. Stat. Ann. § 1720.

                                              2
its HLA payments from Cole’s personal injury settlement. The Bankruptcy Court rejected

the City’s claim. That Court concluded that Cole was immune from subrogation pursuant

to 77 Pa. Stat. Ann. § 501 and granted the trustee’s motion for summary judgment.

       The City appealed the Bankruptcy Court’s decision to the District Court under 28

U.S.C. § 158. The District Court noted that it did not necessarily disagree with the

Bankruptcy Court’s reasoning but denied the City’s appeal on a separate ground: the

District Court determined that the City’s right of subrogation was barred by Section 1720

of the MVFRL. The City now appeals from that determination.

                                             II.

       We have jurisdiction pursuant to 28 U.S.C. § 158(d). We review the District

Court’s legal conclusions de novo and its findings of fact for clear error. Citicorp Venture

Capital, Ltd. v. Committee of Creditors Holding Unsecured Claims, 323 F.3d 228, 232

(3d Cir. 2003). When applying substantive Pennsylvania law, we must defer to decisions

of the Pennsylvania Supreme Court. Where the Pennsylvania Supreme Court has not

directly addressed an issue, we must predict how that Court would rule. See Travelers

Indem. Co. of Ill. v. DiBartolo, 131 F.3d 343, 348 (3d Cir. 1997).

                                            III.

                                             A.

       Before addressing the District Court’s determination that § 1720 of the MVFRL

bars the City from asserting a right of subrogation to recover HLA payments, we briefly

review the relevant law. The HLA provides lost wages and medical benefits to certain

public employees, such as police officers and firefighters, who face significant risks in the

                                             3
ordinary course of their professions.2 Cunningham v. Pa. State Police, 507 A.2d 40, 43

(Pa. 1986) (“The [HLA] was created to ensure that, if these employees were injured or

otherwise disabled in the course of carrying out their hazardous duties, they would be

guaranteed continued full income until their return to duty.”). HLA benefits are thus

similar to workers’ compensation wage and medical benefits under the Workers’

Compensation Act (WCA),3 except that the HLA guarantees qualifying employees their

full income, instead of a fraction of their income, until they return to duty. Also, whereas

the WCA provides employers with a statutory right of subrogation to recover WCA

payments from an employee’s tort recovery, 77 Pa. Stat. Ann. § 671, the HLA does not.

Fulmer v. Commonwealth of Pa., 647 A.2d 616, 619 (Pa. Commw. Ct. 1994).

Nevertheless, the Pennsylvania Supreme Court has recognized an equitable right of

subrogation by which a state entity may recover wages and medical benefits paid to a



       2
         Act of June 28, 1935, P.L. 477, as amended, 53 Pa. Stat. Ann. §§ 637, 638.
Section 637 of the HLA states:
       (a) Any member of the State Police force . . . who is injured in the performance
       of his duties . . . and by reason thereof is temporarily incapacitated from
       performing his duties shall be paid by the Commonwealth of Pennsylvania if
       a member of the State Police force, by which he is employed, his full rate of
       salary . . . until the disability arising therefrom has ceased. All medical and
       hospital bills, incurred in connection with any such injury, shall be paid by the
       Commonwealth of Pennsylvania . . . . During the time salary for temporary
       incapacity shall be paid by the Commonwealth of Pennsylvania . . . any
       workmen’s compensation received or collected by any such employee for such
       period shall be turned over to the Commonwealth of Pennsylvania . . . and paid
       into the treasury thereof, and if such payment shall not be so made by the
       employee the amount so due the Commonwealth of Pennsylvania . . . shall be
       deducted from any salary then or thereafter becoming due and owing . . . .
       3
           Act of June 2, 1915, P.L. 736, as amended, 77 Pa. Stat. Ann. §§ 1–1031.

                                              4
police officer injured in the line of duty. See Topelski v. Universal South Side Autos, Inc.,

180 A.2d 414 (1962); see also Phila. v. Phila. Rapid Transit Co., 10 A.2d 434 (1940).

       In 1984, however, the Pennsylvania legislature enacted the MVFRL. Sections

1720 and 1722 of the MVFRL apply to actions “arising out of the maintenance or use of a

motor vehicle.”4 Section 1720 initially barred an employer’s right of subrogation to

recover workers’ compensation payments, and Section 1722 barred an injured employee’s

right to seek workers’ compensation payments in an action against the party that caused

the injuries. Specifically, Section 1720 provided:

       “In actions arising out of the maintenance or use of a motor vehicle, there
       shall be no right of subrogation or reimbursement from a claimant’s tort
       recovery with respect to workers’ compensation benefits, benefits available
       under section 1711 (relating to required benefits), 1712 (relating to
       availability of benefits) or 1715 (relating to availability of adequate limits)
       or benefits paid or payable by a program, group contract or other
       arrangement whether primary or excess under section 1719 (relating to
       coordination of benefits).”

75 Pa. Cons. Stat. Ann. § 1720 (Subrogation). Section 1722 provided:

       “In any action for damages against a tortfeasor, or in any uninsured or
       underinsured motorist proceeding, arising out of the maintenance or use of a
       motor vehicle, a person who is eligible to receive benefits under the
       coverages set forth in this subchapter, or workers’ compensation, or any
       program, group contract or other arrangement for payment of benefits as
       defined in section 1719 (relating to coordination of benefits) shall be
       precluded from recovering the amount of benefits paid or payable under this
       subchapter, or workers’ compensation, or any program, group contract or
       other arrangement for payment of benefits as defined in section 1719.”

75 Pa. Cons. Stat. Ann. § 1722 (preclusion of recovering required benefits).

       But Sections 1720 and 1722 were repealed in 1993 to the extent they relate to


       4
           75 Pa. Cons. Stat. Ann. §§ 1720, 1722.

                                              5
workers’ compensation payments (the 1993 Repeal). 75 Pa. Cons. Stat. Ann. § 1720 (“75

Pa. Cons. Stat. Ann. § 1720 is repealed insofar as it relates to workers’ compensation

payments or other benefits under the Workers’ Compensation Act, pursuant to 1993, July

2, P.L. 190, No. 44, § 25(b)”); 75 Pa. Cons. Stat. Ann. § 1722 (same as to Section 1722).

Thus, Section 1722 no longer deprives a plaintiff of the right to plead in a tort action

against the party that caused the injuries, the amount of benefits paid or payable to him,

and Section 1720 no longer deprives an employer of a right of subrogation to seek

recovery of WCA payments. Sections 1720 and 1722, and their partial repeals in 1993, do

not mention HLA benefits, however. Therefore, Pennsylvania case law must guide the

determination of whether Section 1720 bars an employer’s right of subrogation to recover

HLA payments.

                                             B.

       The District Court relied on Fulmer, 647 A.2d 616, to conclude that Section 1720

barred the City from asserting a right of subrogation against Cole’s personal injury

settlement.5 In 1987, Fulmer, a state trooper, was seriously injured in an automobile

accident. Two years later, he instituted a personal injury action against the driver who

struck his cruiser. In the meantime, the State Police had paid Fulmer HLA benefits; they

then sought to assert a right of subrogation against Fulmer’s personal injury action


       5
        The District Court also cited City of Pittsburgh v. Workers’ Compensation Appeal
Board (Williams), 810 A.2d 760, 762 n.5 (Pa. Commw. Ct. 2002) (holding that the
Pittsburgh Police Department did not illegally terminate an officer’s HLA benefits and
that the Police Department was entitled to a subrogation interest against the officer’s
third-party settlement), to support its reasoning. But City of Pittsburgh provides only a
conclusory note referring to Fulmer and its holding does not depend on that note.

                                              6
recovery.

       The Commonwealth Court explained that “[b]enefits received under the [HLA]

effectively replace workmen’s compensation benefits for those employees covered [by

the HLA].” Id. at 619. In view of this identity between WCA and HLA payments, the

Commonwealth Court decided that the catch-all clause of Section 1720 (“or benefits paid

or payable by a program, group contract or other arrangement”) extended to HLA

payments and that Section 1720 barred the State Police from asserting a right of

subrogation against Fulmer’s personal injury proceeds. Id. at 620. The Court also

expressed concern for the equities of the case. It observed that allowing a right of

subrogation would prevent Fulmer from being fully compensated for his injury because

Section 1722 barred him from seeking his wage and medical benefits in a personal injury

action. Id. Consequently, subrogation, in conjunction with the Section 1722 bar, would

have left Fulmer without full compensation for his injuries—an inequitable result.

       Since the 1993 Repeal, however, Section 1722 no longer bars an employee from

seeking to recover amounts corresponding to WCA benefits in a personal injury action,

and a key rationale to Fulmer’s holding no longer exists. See id. at 618 n.3. (“[The 1993

Repeal] has no impact on [Fulmer’s] case. . . . [W]e express no opinion on the effect of

[the 1993 Repeal] on the Heart and Lung Act in a case arising after the effective date of

[the 1993 Repeal].”). Nevertheless, Fulmer does provide useful guidance insofar as it

recognized the identity between workers’ compensation and HLA benefits in the

application of Section 1720. Drawing on Fulmer, the Commonwealth Court subsequently

ruled on exactly the question presented in this appeal. In Brown v. Rosenberger, 723 A.2d

                                              7
745, 747 (Pa. Commw. Ct. 1999), the Court determined that Sections 1720 and 1722 did

not bar an employer’s right of subrogation or an employee’s right to seek the amounts

corresponding to HLA payments in a personal injury action.

       In Brown, a state trooper was injured when her police cruiser was struck by

another vehicle. After the accident, the State Police paid her full salary and medical

expenses as required under the HLA. The State Police recovered 66 and 2/3's of Brown’s

salary from its workers’ compensation insurance carrier and sought to recover the balance

of her salary and medical costs from the tortfeasor by right of subrogation.

       The trial court relied on Fulmer to equate HLA and workers’ compensation

benefits, observing that “the clear effect of [Fulmer’s] holding was to treat Heart and

Lung Act benefits the same as workers’ compensation benefits for the purposes of the

prohibitions to subrogation and pleading as found in Sections 1720 and 1722 of the

[MVFRL].” Brown v. Rosenberger, 40 Pa. D. & C.4th 432, 439 (Pa. Com. Pl. 1998).

Recognizing that the 1993 Repeal “reinstated the right of an employer or benefit provider

and plaintiff to seek subrogation and to plead lost wages and medical benefits in any

action against a third-party tort-feasor in a motor vehicle case,” the trial court determined

that “the pre-[MVFRL] principle of equity and unjust enrichment must again operate to

allow recovery against a third-party tort-feasor for all losses sustained, and must also

allow a benefit provider to be subrogated to any recovery of benefits.” Id. The trial court

concluded that Section 1720 did not bar the State Police from asserting a right of

subrogation:

       [A]s a matter of law, the plaintiff may plead, prove and recover those amounts

                                              8
       paid to her through the Heart and Lung Act, as well as those amounts paid by
       the workers’ compensation carrier. The Heart and Lung Act provider and the
       workers’ compensation carrier shall have the right of subrogation to any third-
       party tort-feasor.

Id. at 440. The Commonwealth Court endorsed this reasoning and conclusion to affirm

the trial court’s judgment. Brown, 723 A.2d at 747 (“[W]e find that the issues presented

to this Court have been thoroughly reviewed and addressed in the opinion of the [trial

court]. Accordingly, we affirm on the basis of the trial court’s opinion . . . .”).

       We agree with Brown’s reasoning, which comports, moreover, with the purpose of

subrogation as stated in Pennsylvania case law:

       “[T]he rationale for the right of subrogation is threefold: to prevent double
       recovery for the same injury by the claimant, to insure that the employer is not
       compelled to make compensation payments made necessary by the negligence
       of a third party, and to prevent a third party from escaping liability for his
       negligence . . . . [S]ubrogation is just, because the party who caused the injury
       bears the full burden; the employee is made ‘whole,’ but does not recover
       more than what he requires to be made whole; and the employer, innocent of
       negligence, in the end pays nothing.”


Hannigan v. Workers’ Comp. Appeal Bd. (O’Brien Ultra Serv. Station), 860 A.2d 632,

635 (Pa. Commw. Ct. 2004) (internal quotations omitted). As Fulmer recognized, HLA

and WCA wage and medical benefits are similar for the purposes of subrogation and

pleading under Sections 1720 and 1722 of the MVFRL. The HLA and WCA both ensure

that the employees they cover receive lost wages and medical benefits after suffering an

injury that prevents them from working for some period of time. Where the employee

may seek HLA benefits from a third-party in a tort action, the purpose of subrogation has

as much pertinence for HLA benefits as it does for WCA benefits. After reviewing


                                               9
Pennsylvania case law, we conclude that Section 1722 does not bar Cole from pleading

HLA payments in his personal injury action, and Section 1720 does not bar the City from

asserting an equitable right of subrogation against Cole’s tort recovery.

       Accordingly, we will vacate the District Court’s judgment and remand the case to

the District Court for further consideration in accordance with this opinion.




                                             10
