Appeal from the Circuit Court of Cook County. Nos.97-L-50571 98-L-50183
Honorable John Ward, Joanne L. Lanigan, Judge, Presiding.
JUSTICE COLWELL delivered the opinion of the court:
Claimant, Thomas Kearns, obtained an arbitration award against respondent, Thomas Hlady d/b/a Frank Goodness, for injuries Kearns sustained while working for Hlady. Kearns subsequently filed with the Industrial Commission (Commission) a motion for attorney fees and penalties under sections 16 and 19(k) of the Workers* Compensation Act (Act) (820 ILCS 305/16, 19(k) (West 1994)), alleging that Hlady unreasonably and vexatiously refused to pay the award. The Commission, however, found that Hlady's Chapter 7 bankruptcy discharge provided him with reasonable basis not to pay the award. In 97-L-50571, the circuit court of Cook County confirmed the Commission's decision, and Kearns appeals. Kearns also appeals from the circuit court's determination in 98-L-50183 that Kearns' workers' compensation claim against Hlady was discharged by the bankruptcy order.
We agree that Kearns' claim was discharged by the bankruptcy order and therefore affirm the orders of the circuit court.
I. FACTUAL AND PROCEDURAL BACKGROUND
Thomas Hlady was the sole proprietor of a fast food restaurant named Frank Goodness. On August 25, 1988, while working at the restaurant, Kearns was cut with a knife and sustained injuries to his left thumb. He filed an application for adjustment of claim on April 3, 1989, alleging that he suffered severed nerves, veins and tendons in his left hand as a result of the incident. On May 24, 1989, Kearns' attorney sent a certified letter to Hlady notifying him of the pending claim and of a June 6, 1989, arbitration hearing. The letter was sent to Hlady at 5206 West 159th Street, Oak Forest, Illinois, which was the restaurant's address. The return receipt of the letter was signed by "Mary Dwyer" and was dated June 2. Hlady, however, denies ever receiving the letter.
On November 6, 1989, Hlady filed for bankruptcy under Chapter 7 of the United States Bankruptcy Code (11 U.S.C. §727 (1990)) and subsequently moved to Las Vegas, Nevada, where he currently resides. He did not list Kearns' workers' compensation claim on his bankruptcy schedule. On February 21, 1990, the United States Bankruptcy Court issued an order releasing Hlady, "AKA Frank Goodness," from "all dischargeable debts." Kearns was never notified of the bankruptcy proceeding.
On March 18, 1993, an ex parte arbitration hearing was held on Kearns' application for adjustment of claim. Kearns offers no explanation as to why it took so long for the hearing to be held, and the record contains no indication that Hlady was notified of the hearing. Kearns was the only person to testify at the hearing. Following the hearing, the arbitrator found Kearns entitled to eight weeks of temporary total disability benefits, compensation for a 50% loss of the use of his left thumb and $5,679.65 in medical expenses. Nevertheless, Hlady did not pay the award. The arbitrator's decision was mailed to the restaurant's Oak Forest address, but since the restaurant was out-of-business, and since Hlady was living in Las Vegas, Hlady never received the decision. The Commission notified Kearns' attorney by mail that the decision of the arbitrator was undeliverable as addressed.
On March 9, 1995, Kearns filed a motion with the Commission seeking attorney fees and penalties under sections 16 and 19(k) of the Act (820 ILCS 305/16, 19(k) (West 1994)) for Hlady's alleged unreasonable and vexatious nonpayment of the arbitration award. Hlady filed a response to Kearns' motion on July 11, 1995. Citing In re Mendiola, 99 B.R. 864 (Bandkr. N.D. Ill. 1989), Hlady maintained that Kearns' workers' compensation claim was discharged by the bankruptcy order of February 1990, even though the claim was not listed on the bankruptcy schedule.
The Commission agreed with Hlady. Although it found that Kearns "sustained accidental injuries arising out of and in the course of his employment," the Commission wrote, "In cooperation with the court's opinion in Mendiola, we find [Hlady's] bankruptcy discharge assertion constitutes an affirmative defense and provided a reasonable basis for dispute. We hereby deny [Kearns'] Motion for Penalties and Attorneys Fees." Kearns appealed, and, in case number 97-L-50571, the circuit court confirmed the order of the Commission. Kearns timely appealed the circuit court's order.
On February 25, 1998, Kearns filed in the circuit court a Petition for Judgment on Award pursuant to section 19(g) of the Act (820 ILCS 305/19(g) (West 1998)). On May 5, 1998, the circuit court ordered the parties to brief the issue "of whether [Kearns'] claim falls under the 'willful and malicious' exception to the Bankruptcy Code, 11 U.S.C. §§523(a)(6)." Kearns therefore filed a Petition to Determine Dischargeability on September 22, 1998, and Hlady responded in turn. Kearns argued that his workers' compensation claim was excepted from the bankruptcy discharge, since the claim allegedly arose out of Hlady's intentionally tortious conduct. In case number 98-L-50183, the circuit court denied Kearns' petitions, finding that Kearns' underlying claim was discharged by the bankruptcy order of February 1990. Kearns timely appealed that decision, and the appeals from matters 97-L-50571 and 98-L-50183 were consolidated before this court.
The main issue on appeal is whether or not Kearns' workers' compensation claim was discharged by the bankruptcy order of February 1990. Before we reach that issue, however, we must first determine whether the circuit court had jurisdiction to consider Kearns' Petition to Determine Dischargeability. The reason we are concerned with the circuit court's jurisdiction, rather than that of the Commission, is because the Commission did not decide whether Kearns' claim was discharged by the bankruptcy order when it ruled on Kearns' motion for attorney fees and penalties. At the Commission level, Hlady did not raise the bankruptcy discharge as an affirmative defense to Kearns' claim itself (see Mendiola, 99 B.R. at 870); rather, Hlady raised the discharge in an attempt to show that he had a reasonable basis for nonpayment of the arbitration award. Thus, the first time the parties actually litigated the dischargeability issue was after the circuit court ordered the parties to brief that issue.
In considering the jurisdictional issue, a review of the relevant portions of the Bankruptcy Code becomes necessary. Hlady filed for Chapter 7 bankruptcy, and his petition was granted. Section 727(b) of the Bankruptcy Code (11 U.S.C. §727(b) (1990)) defines the scope of a Chapter 7 debtor's discharge. Under that section, a discharge "discharges the debtor from all debts that arose ...