FREDRICK E. CLEMENT, Bankruptcy Judge.
Resolution of this summary judgment motion pivots on a single issue: whether the California Correctional Peace Officers Association acquired a lien that attached to Daisy Corbett's workers' compensation claim before her bankruptcy and established in rem rights (which survive discharge) against her ensuing post-petition award. Finding that its lien did not attach to Corbett's workers' compensation claim before her bankruptcy, the motion will be denied.
Daisy Corbett ("Corbett") was employed by the California Department of Corrections as a correctional counselor. In late 1996, Corbett was assaulted by an inmate and suffered injuries. After convalescing, she returned to work. That same year, Corbett filed a claim with the Workers' Compensation Appeals Board ("WCAB").
During her tenure, Corbett was a member of the California Correctional Peace Officers Association (the "CCPOA"). The CCPOA offers its members the protections of benefit program offered by a disability benefit trust fund. Such a disability benefit trust provides injured members money for living expenses from the date an on-the-job injury occurs (and the employee incurs lost wages) until a workers' compensation award is made. The trust is funded by premiums paid by the plan's participants, by earnings received from investment of those premiums, and, in cases in which the injured member later receives a workers' compensation award, by monies recouped from that settlement or award. Before her injury, Corbett had elected to participate in the disability benefit plan offered by the CCPOA's disability benefit trust fund.
By 2005, Corbett's injuries precluded her from continuing her work as a correctional counselor, and she made a claim for benefits from the trust and signed a "Reimbursement Agreement and Assignment of Proceeds." It provided that the CCPOA Benefit Trust Fund would pay Corbett's claim if Corbett agreed to reimburse the trust from workers' compensation benefits, when and if she received those benefits:
The Reimbursement Agreement also provided for the assignment of her workers' compensation proceeds to the trust:
The Reimbursement Agreement further stated that if Corbett failed to comply with the agreement, "the [disability benefit fund] may offset the amount which should be reimbursed against any benefit that may otherwise be (or become), payable under the [the CCPOA benefit program] on [her] behalf."
Corbett received monies from the disability benefit fund, which have never been repaid from any workers' compensation or other insurance covering work-related injuries.
As of 2008, Corbett's workers' compensation claim remained unresolved.
In 2008, Corbett filed a chapter 7
The CCPOA received timely notice of Corbett's bankruptcy.
Salven did not file an adversary proceeding to avoid the CCPOA's lien based on lack of perfection or otherwise. 11 U.S.C. § 545(2).
Later in 2008, Corbett's chapter 7 bankruptcy was closed.
In 2009, the CCPOA filed a claim with the WCAB for $85,986.90.
The stipulation was captured in the award rendered by the WCAB in favor of Corbett and against defendant California Department of Corrections. The award reserved a determination of the lien issue, stating, "$85,986.90 to be withheld by State Fund from [permanent disability] and/or life pension amounts to resolve the CCPOA lien."
Shortly after the WCAB issued its award, the CCPOA successfully moved to reopen Corbett's bankruptcy case to determine the validity of its lien. Salven was reappointed the chapter 7 trustee.
After the case was reopened, the court granted Salven's motion to compel the State Compensation Insurance Fund (the "State Fund") to turn over the $85,986.90 withheld pursuant to the WCAB Award. Both Corbett and the CCPOA supported the motion. The court ordered the State Fund to turn over the disputed funds to Salven and Salven to place those funds in a blocked account pending resolution of the lien dispute. The State Fund complied, but Salven did not.
In 2011, the CCPOA filed a proof of claim with this court for $85,986.90, which it contended was secured based on the Reimbursement Agreement.
Without ever obtaining resolution of the lien, Salven issued his Final Report, which proposed distribution of the disputed sum of $85,986.90 by paying administrative expenses and the CCPOA's "secured claim" in the amount of $76,202.18. When Corbett failed to file an objection, Salven distributed estate funds accordingly.
After Salven's distribution, Corbett objected and filed amended Schedules B and C, both disclosing and claiming exempt the $85,986.90 withheld on account of the lien claimed by the CCPOA. Salven objected to Corbett's amended claim of exemption and responded to her objection to his Final Report. After a hearing, the court sustained Salven's objection to Corbett's amended exemption claim. The court overruled Corbett's objection to the Final Report based on waiver. Corbett appealed, and the Bankruptcy Appellate Panel vacated the court's orders on these objections and remanded the case for further proceedings. See Corbett v. Salven (In re Corbett), 2014 WL 1647393 (B.A.P. 9th Cir. Apr. 24, 2014).
The CCPOA filed the present adversary proceeding against Corbett requesting a determination of the validity, priority, and extent of its lien, declaratory relief that its lien was not discharged, and declaratory relief that its lien was superior to any claim of exemption in Corbett's workers' compensation award.
The CCPOA moves for summary judgment under Rule 56, arguing that it is entitled to a statutory lien, i.e., a lien under California Labor Code § 4903.1(a) (3) (A), or to an federal common law equitable lien, which trumps Corbett's claim of exemption in the award.
Corbett filed a verified "Response to Complaint to Determine Validity, Priority and Extent of Lien." Her response requests that the court deny the CCPOA's motion for summary judgment, allow her to seek redress for "extreme and willful violations of court orders and discharge order pursuant to [§] 524(a)" and give her "permission to file debtor's motion for contempt and sanctions against the trustee and defendants for conspiresy (sic) bankruptcy funds."
This court has jurisdiction. See 28 U.S.C. §§ 1334, 157(a); General Order No. 182 of the U.S. District Court for the Eastern District of California. This is a core proceeding in which this court may enter final orders and judgment. See 28 U.S.C. § 157(b) (2) (I), (K). Even in a proceeding that is non-core, a bankruptcy court may issue final orders and judgments with the express or implied consent of the parties. 11 U.S.C. § 157(c)(1), (2); Wellness Int'l Network, Ltd. v. Sharif, 135 S.Ct. 1932 (2015). Here, the parties so consented. Status Conf. Hr'g, Dec. 9, 2014.
Federal Rule of Civil Procedure 56 requires the court to grant summary judgment on a claim or defense "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a), incorporated by Fed. R. Bankr. P. 7056. "A fact is `material' when, under the governing substantive law, it could affect the outcome of the case." Thrifty Oil Co. v. Bank of Am. Nat'l Trust & Sav. Ass'n, 322 F.3d 1039, 1046 (9th Cir. 2003) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).
A voluntary chapter 7 bankruptcy case is commenced by filing a petition. 11 U.S.C. § 301(a). The commencement of the case creates an estate. Id. § 541(a). With limited exceptions, that estate comprises all of the debtor's legal and equitable interests in property as of the petition date. Id. § 541(a) (1).
The petition also operates as a stay under § 362(a), which protects both the debtor and the estate. The stay precludes creditors from actions against the debtor to recover or enforce claims incurred prior to the commencement of the case. Id. § 362(a)(1)-(2), (6). It also bars creditors from actions to possess or control property of the estate. Id. § 362(a)(3). Creditors may not create a lien on estate property after the commencement of a case, § 362(a)(4), In re New England Carpet Co, Inc., 26 B.R. 934, 939 (Bankr. D. Vt. 1983), and with narrow exceptions, a creditor may not perfect or continue the perfection of a security interest that attached before the commencement of the case, see §§ 362(a)(4), (b)(3) (allowing perfection of security interests that attached prior to the petition to the extent and within the time frames described in §§ 546(b) and 547(e) (2)).
In this case, Corbett's bankruptcy filing created an estate, and almost every asset owned by her on the date of the bankruptcy filing was property of the estate. See 11 U.S.C. § 541(a)(1); Clark v. Rameker, 134 S.Ct. 2242, 2244-45 (2014); United States v. Whiting Pools, Inc., 462 U.S. 198, 204-05 (1983). Causes of action or claims for relief that accrue before the petition are interests in property included in the estate. Smith v. Arthur Anderson LLP, 421 F.3d 989, 1002 (9th Cir. 2005). Additionally, pre-petition, personal-injury causes of action are property of the estate even if they would not otherwise be assignable under state law. In re Cottrell, 876 F.2d 540, 542-43 (6th Cir. 1989); In re Wood, 291 B.R. 219, 224-25 (B.A.P. 1st Cir. 2003) (workers compensation claims). The estate includes exempt assets, In re Hernandez, 483 B.R. 713, 724-25 (B.A.P. 9th Cir. 2012) and unscheduled assets, In re Blixseth, 684 F.3d 865, 871 (9th Cir. 2012).
It is the trustee's sole and exclusive prerogative to control property of the estate. 11 U.S.C. § 323. A chapter 7 debtor has no post-petition authority to settle or control the disposition of a claim that arose pre-petition. Jones v. Harrell, 858 F.2d 667 (11th Cir. 1988). Judicial proceedings prosecuted or settlements negotiated by a chapter 7 debtor that violate the stay are void. In re Schwartz, 954 F.2d 569, 571 (9th Cir. 1992); In re Gruntz, 202 F.3d 1074, 1081-82 (9th Cir. 2000) (judicial proceedings in violation of the stay are void).
Section 362 describes the duration of the stay. As to estate property, the stay remains until it is no longer property of the estate. 11 U.S.C. § 362(c)(1). Scheduled assets not administered at the time of closing are abandoned to the debtor, but unscheduled assets remain property of the estate. 11 U.S.C. § 554(d); Menk v. Lapaglia (In re Menk), 241 B.R. 896, 913 (9th Cir. 1999); In re Dunning Brothers Co., 410 B.R. 877 (Bankr. E.D. Cal. 2009).
Corbett's workers' compensation claim was unscheduled. As a result, Corbett's claim (and its proceeds) never left the estate and remained subject to the protections of the stay, even after the discharge issued. 11 U.S.C. § 362 (a) (2)-(4).
Furthermore, at least three different acts with respect to her claim violated the continuing stay under § 362(a)(3): (1) the CCPOA's filing of a claim with the WCAB in 2009, presumably to create a lien under California Labor Code § 4903.05; (2) the CCPOA and Corbett's execution of the Stipulation with Request for Award; and (3) the WCAB's issuance of an award based on that stipulation.
As a consequence, the WCAB Award is void as it was issued in violation of the stay. Further, it was ineffective to create or perfect a lien in favor of the CCPOA or otherwise adjudicate its lien claim.
Aside from the invalidity of any lien on the WCAB award given the stay violations, the court considers the effect of Corbett's discharge on CCPOA's lien claim. Most individual chapter 7 debtors receive a discharge, which forgives their personal liability for debts arising before bankruptcy. See 11 U.S.C. §§ 524(a) (2), 727 (b). Section 524(a) (2) describes the effect of a discharge, providing that it "operates as an injunction against . . . an act, to collect . . . any such debt as a personal liability of the debtor."
While § 524(a)(2) precludes recovery on the debtor's personal liabilities, a creditor holding a valid, un-avoided lien that attached before bankruptcy may collect the secured debt after discharge from the debtor's property subject to the lien. See Johnson v. Home State Bank, 501 U.S. 78, 84 (1991); Dewsnup v. Timm, 502 410, 418 (1992) (liens "ride through" bankruptcy); Cortez v. American Wheel, Inc., 191 B.R. 174 (B.A.P. 9th Cir. 1995) (valid but unperfected deed of trust survived debtor's bankruptcy). Stated differently, secured creditors may proceed with actions that are exclusively in rem notwithstanding the issuance of the discharge. In re Echevarria, 212 B.R. 185, 187 (B.A.P. 1st Cir. 1997); Matter of Paeplow, 972 F.2d 730, 735 (7th Cir. 1992) ("[C]reditors are not prohibited from executing a judgment lien against a discharged debtor's property, as long as the judgment was obtained before discharge.").
Section 524(a)(2) precludes a creditor from creating a lien against a debtor's property that is based on a discharged debt. See Matter of Paeplow, 972 F.2d 730, 734-35 (7th Cir. 1992); see also Harris Mfrs. Nat'l Bank, 457 F.2d 631, 635-36 (6th Cir. 1972) (holding that a joint creditor's post-discharge in rem and quasi in rem actions against entirety property are impermissible unless the joint creditor has first obtained a judicial lien against such property before the discharge issues).
Here, Corbett's debt to the CCPOA arose prior to the filing of her bankruptcy case in which her debts were discharged. Salven did not exercise his avoidance powers as to whatever interest CCPOA had. The central question, then, is whether the CCPOA's lien attached to Corbett's workers' compensation claim before Corbett filed bankruptcy such that it retains in rem enforcement rights post-discharge against her workers' compensation award.
As a general rule, California Labor Code § 4900 precludes an injured worker from assigning or encumbering workers' compensation claims before payment.
Cal. Lab. Code § 4900.
Similarly, Labor Code § 4901 exempts workers compensation claims and awards from creditors.
Cal. Lab. Code § 4901.
Sections 4900 and 4901 express long-standing policy ensuring that injured workers, and not others, receive the financial benefits awarded for their injuries:
Pac. Elec. Ry. Co. v. Commonwealth Bonding & Cas. Ins. Co., 55 Cal.App. 704, 708 (1921).
Subject to stated limitations, California recognizes liens against workers' compensation for: (1) applicant's counsel's reasonable attorney's fees; (2) reasonable medical and medical-legal expenses; (3) reasonable living expenses; (4) reasonable burial expenses for deceased employees; (5) reasonable living expenses for the families of injured employees who have deserted or neglected their families; (6) the amount of unemployment compensation disability benefits paid pursuant to the Unemployment Insurance Code; (7) unemployment compensation benefits and "extended duration" benefits paid that overlap with temporary disability benefits awarded; (8) the amount of indemnity granted to crime victims; (9) compensation paid by the Asbestos Workers Account; and (10) self-insured employee welfare benefit plans that have paid living expenses to the extent that there is overlap between those benefits and the temporary disability indemnity award. Cal. Lab. Code §§ 4903, 4903.1; Eskenazi, California Civil Practice Workers' Compensation § 12:2 (2015).
Creditors may obtain a lien in one of two ways. Creditors who believe they are entitled to a lien under Labor Code §§ 4903 and 4903.1 file with the WCAB a claim and serve it upon the injured workers, the employer, the insurer, and their respective attorneys. See Cal. Lab. Code § 4903.05(a). The WCAB determines at the time of its award whether a claimant is actually entitled to a lien against the injured workers' claim and what the amount of that lien should be. See Cal. Lab. Code § 4903. In the alternative, the WCAB has equitable authority, in limited circumstances, to award a lien in favor of the creditors described in §§ 4903 and 4903.1 who have not filed a claim "if it appears . . . that a lien should be allowed if it had been duly requested by the party entitled thereto. . . ." Cal. Lab. Code § 4905.
California decisional law holds that an injured worker has only an "inchoate right to compensation," and those rights only vest when a workers' compensation award issues. Jenkins v. Workmen's Comp. Appeals Bd., 31 Cal.App.3d 259, 264 (1973). California law has further established that a statutory lien against workers' compensation benefits does not arise unless and until an award is made. See Indep. Indem. Co. v. Indus. Accident Comm'n, 2 Cal.2d 397, 401 (1935) ("[T]he lien of a doctor or hospital furnishing medical treatment to an injured employee `is wholly incidental to the principal award, and without such award there can be no lien.'" (quoting Pac. Emp'rs' Ins. Co. v. French, 212 Cal. 139, 141 (1931) (internal quotation marks omitted)).
The seminal case is Pacific Employers' Insurance Company v. French, 212 Cal. 139, 140 (1931). Without the benefit of an underlying workers' compensation claim filed, a physician and a hospital sought to impose liability for medical and hospital treatment rendered to an injured employee on the employer's workers' compensation carrier. The employer and the injured employee were not parties to the proceeding, which was before the Industrial Accident Commission. The Industrial Accident Commission made an award directly against the insurance carrier for the medical and hospital treatments furnished. The carrier appealed. The Supreme Court annulled the award because the commission lacked jurisdiction. In doing so, the court shed light on when workers' compensation liens attach.
French, 212 Cal. at 141-42.
California courts have long understood that the liens authorized by Labor Code § 4903 and 4903.1 attach to injured workers claims only when the WCAB makes its award. State Comp. Ins. Fund v. Indus. Accident Comm'n, 89 Cal.App.2d 821 (1949). In Industrial Accident, an injured employee filed a claim with the Industrial Accident Commission ("Commission"), which the injured employee prosecuted and settled without the benefit of counsel. See id. at 822. Later, with the assistance of counsel, the injured employee applied for an adjustment of compensation. The Commission found that the employee should receive an additional $225, which the carrier paid before the Commission entered its award. The Commission then belatedly entered an award for "$225, payable forthwith, together with interest as provided by law, less the sum of $35.00 payable to [the injured employee's attorney] as attorney's fees." Id. The carrier petitioned to reopen the case to amend the findings to reflect that the award had already been paid, and it petitioned for rehearing. The Commission denied these requests. The State Compensation Insurance Fund sought review of the Commission's action making it subject "to an award to pay for the second time $225, of which $35 was to be paid the employee's attorney." Id. at 823. The court of appeals found relief warranted as to the obligation to pay the $225 twice, and then noted, "The principal dilemma which is now presented is as to the payment of the $35 attorney's fee." Relying on French, 212 Cal. at 139, the court of appeals reasoned:
Indus. Accident, 89 Cal. App. 2d at 824 (citations omitted). Finding that the carrier had fully satisfied the award, leaving no fund which could be impressed with a lien, the court of appeals annulled the Commission's award. Implicit in the result was that applicant's counsel did not have a lien for fees.
California law may contain an exception to this rule of timing for attachment of liens on workers' compensation awards. Creditors who may be entitled to a lien under California Labor Code §§ 4903 and 4903.1 may protect their interests by filing a notice of lien under § 4903.05(a), which might be the time at which attachment occurs so long as the WCAB later approves that lien.
Even if the WCAB award were not void for the reason that it violated the stay, the award was issued post-discharge. And because attachment of liens on workers' compensation awards occurs only when an award is made, the CCPOA's lien could not have attached to the award before Corbett's discharge. But it also could not have attached post-discharge under bankruptcy law.
Corbett received her bankruptcy discharge in 2008. The CCPOA filed its notice of lien claim in 2009. As a result, at the time of the discharge, the WCAB had not entered an award on Corbett's claim and, therefore, the CCPOA held nothing more than an unsecured claim. That claim was discharged before the WCAB issued its award and thus before the CCPOA's lien could have attached.
As a result, Corbett's debt to the CCPOA was discharged before the time of attachment under state law. Its discharged debt precludes attachment of CCPOA's lien. Matter of Paeplow, 972 F.2d 730, 734-35 (7th Cir. 1992); Harris Mfrs. Nat'l Bank, 457 F.2d 631, 635-36 (6th Cir. 1972). CCPOA's lien, therefore, could not attach to the award when it was made because of its discharged debt.
Even if its debt were not discharged, the CCPOA has not yet demonstrated that it falls within the protections of Labor Code § 4903.1, under which it claims liens rights.
Section 4903.1(a) has seven elements.
The CCPOA has not satisfied at least four essential elements for obtaining a statutory lien under the Labor Code. First, it has not demonstrated that it created and perfected its lien as required by Labor Code § 4903.05, as mandated by Labor Code § 4903.1(a). As it now reads,
At a minimum, § 4903.05(a) contains four requirements. The lien claimant must file its claim with the WCAB. The lien claimant must use a claim form approved by the board. The claim form must be accompanied by "a full statement or itemized voucher supporting the lien and justifying reimbursement." It must be served on the injured worker, the employer, the insurer, and the attorneys for the parties.
Because the CCPOA has not demonstrated compliance with Section 4903.05(a), it has not shown that it is entitled to judgment as a matter of law that it has a valid lien on the WCAB award.
Second, the CCPOA has not demonstrated the WCAB made a finding of temporary disability indemnity. While the WCAB did issue an order purporting to make an award, that order was void and need not be accorded full faith and credit. A void adjudication is the same as no adjudication.
Third, the CCPOA has not demonstrated the existence of an overlap between its payments to Corbett and the temporary-disability portion of the WCAB award. A lien against temporary disability indemnity is only "allowed to the extent that the benefits [paid by the trust] have been paid for the same day or days for which temporary disability is awarded." Cal. Lab. Code § 4903(a) (3) (A). But since the WCAB award is void, and not entitled to full faith and credit, In re Gruntz, 202 F.3d 1074, 1081-82 (9th Cir. 2000), any findings in the award as to such an overlap of payments would have been insufficient as a matter of law to support CCPOA's lien. Furthermore, even if the court were to use the WCAB's findings as to the dates for which temporary disability was awarded, a genuine dispute would exist as to a material fact: whether there was complete identity between the dates the CCPOA paid Corbett benefits and the dates the WCAB awarded temporary disability to Corbett.
Fourth, "the self-insured employee welfare benefit plan must provide for "reduction, exclusion, or coordination of loss-of-time benefits on account of workers' compensation benefits." Cal. Lab. Code § 4903.1 (a) (3) (A). The CCPOA has offered no evidence on this issue.
The CCPOA has thus failed to sustain its burden to show the absence of a genuine dispute as to its satisfaction of several essential elements of a statutory lien under Labor Code 4903.1. And the undisputed facts presented do not support the elements necessary for the statutory lien the CCPOA claims, so the CCPOA cannot be entitled to judgment as a matter of law.
Whether the CCPOA holds a valid equitable lien against Corbett's workers' compensation award is a question that involves three distinct, analytical issues. The first is whether California law would recognize an equitable lien as having arisen before Corbett's 2008 bankruptcy. See Cal. Lab. Code §§ 4903, 4903.05. The second is whether California law would entitle the CCPOA to an equitable lien on a WCAB award. And the third is whether an inchoate equitable lien, not perfected during bankruptcy, would ride through bankruptcy and survive discharge. See Matter of Paeplow, 972 F.2d 730, 737 (7th Cir. 1992) (implying that inchoate equitable liens are discharged); Fernandez-Lopez v. Fernandez-Lopez (In re Fernandez-Lopez), 37 B.R. 664, 669 (B.A.P. 9th Cir. 1984) (same); see also Browne v. San Luis Obispo Nat'l Bank (In re Browne), 462 F.2d 129, 133-34 (9th Cir. 1972) (finding that no equitable lien existed where documents failed to create a security interest and holding that no valid lien could exist on debtor's property where discharge released debtor's personal liability on promissory note); Sims v. Jamison, 67 F.2d 409, 410-11 (9th Cir. 1933) (deciding the issue on state law); Kennedy v. Stratton (In re Stratton), 106 B.R. 188 (Bankr. E.D. Cal. 1988); In re N. Am. Coin & Currency, Ltd., 767 F.2d 1573, 1575, 1577-78 (9th Cir. 1985) (expressing reluctance to impose equitable power to create constructive trust given that such a remedy would favor one creditor group at the expense of others similarly situated).
The court addresses first the issue whether an equitable lien, assuming one could be established by the CCPOA, could have arisen before Corbett's bankruptcy case was filed. Generally, a judicially imposed equitable lien is deemed created at the time of the occurrences that gave rise to the underlying substantive right to the lien. Del Conte Masonry Co. v. Lewis, 16 Cal.App.3d 678 (1971). But Labor Code § 4900 alters the times when liens against workers' compensation claims arise. As a matter of public policy, § 4900 precludes a lien against workers' compensation claims from arising prior to payment of such claims. Cal. Lab. Code § 96; Pac. Emp'rs Ins. Co. v. French, 212 Cal. 139, 140 (1931); State Comp. Ins. Fund v. Indus. Accident Comm'n, 89 Cal.App.2d 821 (1949). An exception may exist for lien claimants under §§ 4903 and 4903.1 that have filed and served notices of liens under § 4903.05, even though an award has not issued. Johnson v. Indus. Accident Comm'n, 2 Cal.2d 304, 307 (1936); Indus. Accident, 89 Cal. App. 2d at 824. In this case, Corbett's bankruptcy and discharge occurred in 2008 before the WCAB issued its award in 2011. As a result, no equitable lien could have arisen before Corbett's bankruptcy filing, and the CCPOA's unsecured claim was discharged before any equitable lien it asserts could have attached to Corbett's WCAB award.
Next, the court considers whether California law would entitle the CCPOA to an equitable lien on a WCAB award. It may be questioned whether an equitable lien would be permitted at all given the legislative scheme and detailed statutory conditions for liens on WCAB awards. But Labor Code § 4905 provides for the WCAB's recognition of a lien that could reasonably be classified as an equitable lien. This provision narrowly tailors the circumstances in which such a lien may arise. Labor Code § 4905 provides:
Cal. Lab. Code § 4905.
While this provision allows the WCAB to act without a lien filed in accordance with the statutory scheme, it also restricts the WCAB's discretion by limiting such lien to situations "where a lien should be allowed if it had been duly requested by the party entitled thereto." Id. (emphases added). The phrases "should be allowed" and "the party entitled thereto" strongly support the inference that an equitable lien under Labor Code § 4905 is permitted only if a party has met the substantive statutory elements that would entitle a party to a lien. In the case of a self-insured employee welfare benefit plan, that means the claimant must satisfy the requirements of Labor Code § 4903.1(3) (A). For the reasons discussed,
Given the outcome of the first two issues, court need not reach the third issue, i.e., whether an inchoate equitable lien, not perfected during bankruptcy, would survive discharge.
In short, the CCPOA's unsecured claim was discharged before any equitable lien could have attached to Corbett's WCAB award. California law, moreover, does not entitle the CCPOA to an equitable lien on the undisputed facts in the record. For these reasons, the CCPOA is not entitled to judgment as a matter of law.
For the reasons stated herein, the CCPOA's motion for summary judgment will be denied. The court will issue a separate order.
In most instances, state workers' compensation laws are excepted from ERISA's preemptive effect. See 29 U.S.C. § 1003(b)(3). But see 29 U.S.C. § 1144(a) (superseding "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan"); Pac. Bell v. Workers' Comp. Appeals Bd., 186 Cal.App.3d 1603 (1986). Moreover, CCPOA has not directed this court to any particular provision of California's workers' compensation scheme that offends ERISA. Martori Bros. Distribs. v. James-Massengale, 781 F.2d 1349, 1357-58 (9th Cir.) (describing the kinds of state laws that are preempted), amended by 791 F.2d 799 (9th Cir. 1986).
More importantly, the provisions operative in this case appear to complement, not conflict with, ERISA. Compare Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504 (1981) (striking a portion of New Jersey's Workers' Compensation Act that prohibited reduction of ERISA plan benefits by the amount of the workers' compensation award), with Cal. Lab. Code § 4901.3(a) (3) (A) (conditioning lien by self-insured employee welfare benefit plan on "reduction, exclusion, or coordination of loss-of-time benefits on account of workers' compensation benefits"); see also Richardson v. Lahood & Assoc., 571 So.2d 1082 (1990) (upholding Alabama statute that prohibited reduction of workers' compensation plan benefits by the amount of ERISA payments received). As a result, ERISA does not preempt California workers' compensation law on this point.
