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In re Crisp

July 31, 1975

IN THE MATTER OF LEONARD CRISP, BANKRUPT. STATE OF CONNECTICUT, COMMISSIONER OF FINANCE AND CONTROL, APPELLANT,
v.
LEONARD CRISP, APPELLEE



Appeal from order of the United States District Court for the District of Connecticut, T. Emmet Clarie, Chief Judge, confirming order of bankruptcy judge which held dischargeable a debt owed by bankrupt to state for institutional care. Affirmed.

Feinberg, Timbers and Van Graafeiland, Circuit Judges. Van Graafeiland, Circuit Judge, concurring.

Author: Feinberg

FEINBERG, Circuit Judge:

The Commissioner of Finance and Control of the State of Connecticut appeals from an order of Chief Judge T. Emmet Clarie of the United States Court for the District of Connecticut, which confirmed an order of Bankruptcy Judge Saul Seidman and dismissed the Commissioner's petition for review. The bankruptcy judge found that a debt owed by the bankrupt-appellee Leonard Crisp to the State for treatment at a state psychiatric hospital was dischargeable in bankruptcy. Appellant Commissioner claims that this debt may not be discharged because it is not provable under the Bankruptcy Act, because the creditor State has not waived its sovereign immunity, and because discharge is barred by the eleventh amendment. We affirm.

I

Leonard Crisp filed a voluntary petition for bankruptcy on March 8, 1974. The attached schedules listed the Connecticut Department of Finance and Control as an unsecured creditor having a non-priority claim of $1,623.65, which was disputed. This claim arose out of Crisp's hospitalization in Norwich State Hospital. Under section 17-295 of the Connecticut General Statutes, a patient in such a hospital is billed according to his ability to pay. In 1970, Crisp became eligible for Social Security Disability benefits, and on the basis of this income the Commissioner billed Crisp for treatment at a low per diem rate from November 1970 to June 1972.*fn1 An "Itemized Statement" rendered April 2, 1974, after the bankruptcy petition was filed, gave Crisp credit for a payment of $70 and showed a balance due of $1,623.65. The actual cost to the State of Crisp's hospitalization was, of course, much greater, amounting to $10,250.82.

In the bankruptcy proceeding, the Commissioner first filed a proof of claim for $1,623.65 and objected to discharge of the scheduled debt in that amount. Then, after some procedural difficulties not now relevant, the Commissioner also filed an application to have the debt declared nondischargeable, a procedure open to him under 1970 amendments to the Bankruptcy Act, see section 17c(1) of the Bankruptcy Act, 11 U.S.C. § 35(c)(1); Bankruptcy Rule 409. The bankruptcy judge held that the debt was dischargeable under section 63a(4) of the Bankruptcy Act, 11 U.S.C. § 103(a)(4), as an open account or as an obligation based upon an implied contract.

The Commissioner appealed to the district court. After hearing testimony from an official of the Department of Finance and Control and oral argument, Chief Judge Clarie dismissed the petition for review and confirmed the order of the bankruptcy judge. This appeal followed.

II

Appellant's most substantial argument is based upon the claimed unusual nature of Crisp's obligation to the State under Connecticut law. We are told that the amount of Crisp's obligation is not certain because if Crisp acquires more assets at some time in the future, he might become liable for the entire actual cost ($10,250.82) of his hospital treatment or at least for some portion of it greater than the $1,693.65 he has been billed.

Section 17-295(b) of the Connecticut General Statutes Annotated (1975) provides that if a person receiving care in a state mental hospital "is found unable to pay the per capita cost, [the commissioner of finance and control] shall bill such . . . person . . . at a rate which he finds such person . . . able to pay, provided the total billing . . . shall not exceed the per capita cost."*fn2 Section 17-295(c) makes the "patient . . . legally liable . . . for the support of [himself] in such institution in accordance with his ability to pay. . . ." However, another provision, confusingly codified as section 17-295b, imposes upon the patient "who . . . has received care" the further liability "to reimburse the state for any unpaid portion of per capita cost" in accordance with standards for reimbursement applicable chiefly to public assistance recipients. These give the State a priority claim over all other unsecured claims against "property of any kind or interest in any property, estate or claim of any kind," which the beneficiary of state aid may acquire, "for the full amount paid to him or in his behalf. . . ." C.G.S.A. § 17-83e. Upon the patient's death, the State has a claim against his estate to the extent it is not needed for support of spouse and children with priority over all unsecured claims, except minimal allowances for medical, funeral, burial, and administrative expenses, for "all amounts paid on behalf of . . . such person . . . for which the state has not been reimbursed . . . ." C.G.S.A. § 17-83g; see also § 17-300.

Under sections 295(b) and (c), Crisp was billed only $1,693.65 as the amount he was found "able to pay." The Commissioner argues, however, that section 295b imposes an additional liability, which may arise at any time in the future when Crisp becomes able to pay it, for all or part of the additional unbilled cost of treatment. Testimony before Judge Clarie revealed that the State has enforced such an obligation "twenty years" after the hospitalization. The precise amount of the additional claim cannot now be known, according to appellant, because it depends on the patient's future success in acquiring assets. Therefore, since the claim cannot now be liquidated, it is neither provable nor allowable and cannot be discharged.

Section 63a of the Bankruptcy Act lists nine categories of debts which may be proved, including in subdivision (4) those which are founded upon "a contract express or implied." Provision of care to an incapacitated person is a traditional example of a situation giving rise to quasi-contractual liability. See Restatement of Restitution §§ 112, 113 (1937). Although the care here has been provided by the state rather than by a private person, the analogy still seems appropriate. However, the State has limited the patient's quasi-contractual obligation in sections 295(b) and (c) to the amount he is able to pay. Even if the source of the liability is regarded as purely statutory, the bankruptcy court in the exercise of its equitable powers could denominate it quasi-contractual to establish provability and dischargeability. See 3A Collier, Bankruptcy para. 63.24, at 1889-91 (14th ed. rev. 1972). As in Nathanson v. NLRB, 344 U.S. 25, 27, 97 L. Ed. 23, 73 S. Ct. 80 (1952), the liability "is an indebtedness arising out of an obligation imposed by statute -- an incident fixed by law to the . . . relationship," here that between hospital and patient. Crisp's obligation is thus an example of a liability created by statute, which "is quasicontractual in its origin and basis." Brown v. O'Keefe, 300 U.S. 598, 606, 81 L. Ed. 827, 57 S. Ct. 543 (1937). "A liability upon quasi-contract is one upon an 'implied contract,' and so provable in bankruptcy [section 63a(4), other citations omitted], if the other conditions of allowance are found to be fulfilled." Id. at 607.

Quoting from State v. Romme, 93 Conn. 571, 107 A. 519 (Conn. 1919), Connecticut argues that the debt is not provable under section 63a(4) because in providing social services the State "enters into no contract relation." But characterization of an obligation as quasi-contractual for purposes of discharge in bankruptcy does not establish a "contract relation." Cf. 3A Collier, supra. It merely describes the legal effect of actions the parties have taken for purposes of application of the "implied contract" provision of section 63a(4). Moreover, in Romme the State had made a claim against the estate of a patient, who had been institutionalized, for the expense of caring for her. The court made the quoted statement in the context of answering a claim that the statute allowing such a claim impaired the obligation of contract ...


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