RODNEY RYAN , JILL RYAN , and FORTUNE & MCGILLIS , S.C. v. Branko Prpa Md, LLC

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 22-1536
R ODNEY R YAN , JILL R YAN , and F ORTUNE & M CGILLIS , S.C.,
Appellants,
v.
BRANKO PRPA MD, LLC,
Appellee.
____________________
Appeal from the United States District Court for the
Eastern District of Wisconsin.
No. 2:21-cv-449 — Brett H. Ludwig, Judge.
____________________
A RGUED S EPTEMBER 30, 2022 — DECIDED D ECEMBER 19, 2022
____________________
Before WOOD, S T. EVE, and K IRSCH , Circuit Judges.
K IRSCH , Circuit Judge. Rodney Ryan signed a worker’s com-
pensation settlement with his employer that set aside $400,000
for disbursement to the doctors who treated him for his work-
place injury. He then filed for bankruptcy and tried to keep
those funds for himself while having his debts to his doctors
eliminated. The bankruptcy court recognized Ryan’s attempts
for what they were and rejected them. Ryan appealed to the
district court, which affirmed. So do we.

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2 No. 22-1536
I
A
When an individual faces financial distress—an inability
to pay his creditors—he may file for bankruptcy. Doing so
freezes his financial universe. None of his assets can be used
to pay any debts outside of the normal course—things like
keeping food on the table, gas in the car, etc.—until the bank-
ruptcy petition is resolved, or “discharged.” When the peti-
tion is discharged, the debtor’s liabilities are (with certain ir-
relevant exceptions) eliminated.
One of the first steps in the bankruptcy process is to deter-
mine the debtor’s estate. The estate comprises the pot of assets
that will be divided amongst creditors according to various
rules. Although § 541(a) of the Bankruptcy Code (found in Ti-
tle 11) purports to define the property of the estate, much of
what is or is not within the estate is governed by state law.
That is, the Code looks to state property law to define the es-
tate unless there is a bankruptcy reason to modify state law—
the so-called “Butner Principle,” after Butner v. United States,
440 U.S. 48 (1979).
To define the estate, the debtor lists what he owns on
forms called schedules. The schedules also list how much the
debtor owes and to whom. A party that is listed as a creditor
on a schedule receives notice of the debtor’s petition. An in-
terested party, like a creditor, may object to the schedules for
one reason or another. Doing so often creates what is known
as an adversary proceeding—essentially a lawsuit within the
bankruptcy proceeding—to determine how a particular asset
or liability should be disposed of. See Fed. R. Bankr. P. 7001.

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No. 22-1536 3
The Code (through § 522) and state law exempt certain
property from the reach of creditors. Exempt property differs
from property that is excluded from the estate altogether. Ex-
empt property is a part of the estate, but it will not be liqui-
dated and divided amongst creditors. It remains the debtor’s
to have and to hold. Excluded property, on the other hand, is
completely unaffected by the bankruptcy. So if, for example,
the debtor holds legal, but not equitable, title to property, it is
excluded from the estate pursuant to § 541(d). State law is of-
ten essential in determining whether a party owns legal, but
not equitable, title to an asset.
This case asks us to determine whether a portion of a Wis-
consin worker’s compensation settlement that was set aside
for the doctors who treated the employee is exempt property
or whether it is excluded property.
B
Rodney Ryan sought worker’s compensation benefits for
an alleged workplace injury. When his employer denied his
claim, he contested the denial before the Wisconsin worker’s
compensation commission. But before any final adjudication
was made, Ryan and his employer settled. They entered into
a Compromise Agreement: “[T]he Employer and Insurer will
pay as follows: $150,000 to Rodney Ryan, minus attorney fees
and costs listed below; $400,000 to the Trust Account of For-
tune & McGillis for disbursement to medical providers and
lienholders, it being understood that from any balance re-
maining Mr. Ryan shall receive 80% and Fortune & McGillis
shall receive 20%.” Fortune & McGillis, the law firm Ryan
hired to help him pursue his claims, received $30,000 in fees

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4 No. 22-1536
for its work.* And the employer agreed to fund a Medicare Set
Aside to help cover Ryan’s future medical expenses.
A state administrative law judge approved the Settlement
in full. The ALJ’s Order authorizing the Settlement provided:
“Within 21 days from the date of this order, the respondent
and insurance carrier shall pay to the applicant, Rodney Lee
Ryan, the sum of One hundred twenty thousand dollars
($120,000.00); to the applicant’s attorney, Richard A. Fortune,
the sum of Thirty thousand dollars ($30,000.00) as fees; and to
the Trust Account of Fortune & McGillis SC, the sum of Four
hundred thousand dollars ($400,000.00) for disbursement to
medical providers and lienholders, it being understood that
from any balance remaining the applicant, Rodney Lee Ryan,
shall receive 80 percent and Fortune & McGillis SC shall re-
ceive 20 percent.”
Less than a month later and before any of the $400,000 was
distributed to his doctors, Ryan (jointly with his wife, Jill) filed
for bankruptcy. In his bankruptcy schedules, Ryan attempted
to exempt the $400,000 that the Order set aside “for disburse-
ment to medical providers” from the bankruptcy estate.
Ryan’s argument for exemption rested on a provision of Wis-
consin law—Wisconsin Statutes § 102.27(1)—that says no
“claim for [worker’s] compensation, or compensation
awarded, or paid, [may] be taken for the debts of the party
entitled thereto.” Ryan argued that since state law exempted
that property from creditors’ reach outside of bankruptcy,
that property was likewise unreachable in bankruptcy.
* Fortune & McGillis is also an appellant in this case. For simplicity, we
use “Ryan” to refer to all appellants.

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No. 22-1536 5
Ryan’s bankruptcy schedules also disclosed that he owed
more than $800,000 in unpaid medical bills to various credi-
tors, including Dr. Branko Prpa. Prpa is a Milwaukee surgeon
who treated Ryan after his workplace injury. When he learned
that Ryan was seeking to exempt the $400,000, Prpa filed
(through his LLC) an objection. That objection also yielded an
adversary proceeding before the bankruptcy court to deter-
mine whether the $400,000 would flow to Ryan as exempt
property or was excluded and would flow to Prpa and his fel-
low medical creditors.
Prpa’s objection sprang from another provision of Wiscon-
sin law. Section 102.26(3)(b)(2) says that, “[a]t the request of
the claimant[,] medical expense[s], witness fees[,] and other
charges associated with the claim may be ordered paid out of
the amount awarded.” According to Prpa, the $400,000 set
aside by the Order for “medical providers and lienholders”
constituted “medical expense[s] … ordered paid out of the
amount awarded.” As a result, those funds were never Ryan’s
because they were held in trust by Fortune & McGillis for the
doctors’ benefit—Ryan had at most legal, but not equitable,
title to them. Since the filing of bankruptcy neither adds nor
subtracts from the property held by the debtor, Prpa argued
that those assets remained available for disbursement to
Ryan’s doctors notwithstanding the bankruptcy petition.
The bankruptcy court granted Prpa’s motion for summary
judgment, concluding that Ryan could not exempt the
$400,000. The bankruptcy court reasoned that the Order cre-
ated an express trust in favor of Prpa and his fellow doctors:
there was (1) a trustee, Fortune & McGillis; (2) a beneficiary,
the “medical creditors and lienholders”; and (3) trust prop-
erty, the $400,000. The bankruptcy court concluded that even

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6 No. 22-1536
if there were no express trust, there were grounds to impose
a constructive trust because allowing Ryan to keep the
$400,000 would have amounted to unjust enrichment result-
ing from a wrong. Either way, the result was the same: the
$400,000 was not Ryan’s property, so it was not a part of his
bankruptcy estate.
The district court affirmed in all respects. This timely ap-
peal followed.
II
Ryan renews his contention that Wisconsin law prohibits
the $400,000 from going to anyone but him. Because the deci-
sion to grant summary judgment turned on the application
and effect of Wisconsin law, we owe no deference to the lower
courts’ conclusions. In re Mississippi Valley Livestock, Inc.,
745 F.3d 299, 302 (7th Cir. 2014).
We turn first to whether Ryan has an equitable interest in
the $400,000 the Order set aside for his doctors, then take up
the question of whether Wisconsin statutes supersede the Or-
der’s text.
A
The text of the Settlement and the Order approving it es-
tablished an express trust in favor of medical creditors like
Prpa. In Wisconsin, an express trust is created when three
things converge: (1) a trustee, who holds the trust property
and is subject to equitable duties to manage it for the benefit
of another; (2) a beneficiary, to whom those duties are owed;
and (3) trust property, which is held by the trustee for the ben-
eficiary. Wisconsin Med. Soc’y v. Morgan, 787 N.W.2d 22, 38
(Wis. 2010); Sutherland v. Pierner, 24 N.W.2d 883, 886 (Wis.
1946). Whether a trust is created “depends not so much on the

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No. 22-1536 7
language used, as on the characteristics and purposes of the
relationship.” In re Mueller Travel Agency, Inc., 201 N.W.2d 589,
592 (Wis. 1972) (cleaned up).
Both the bankruptcy court and the district court looked to
the structure of the agreement and its intended purpose to
conclude that the Order created an express trust. Their con-
clusion is correct. The Order commands the employer and its
insurer to deposit the $400,000 into Fortune & McGillis’s
“Trust Account.” Wisconsin Supreme Court Rule 1.15(b)(1)
makes clear that attorney trust accounts are used for funds
belonging to clients and third parties, so the first requirement
of an express trust—a trustee—is satisfied. Fortune & McGil-
lis knew that Ryan’s medical creditors had an interest in the
$400,000 because the Order said as much. That makes the doc-
tors the beneficiaries—the second requirement. Finally, the
$400,000 is the trust property. Because all three elements of an
express trust are satisfied, the Order created an express trust
for the benefit of Ryan’s medical creditors.
The bankruptcy court’s citation to In re Lenk, 44 B.R. 814
(Bankr. W.D. Wis. 1984), is helpful. In Lenk, the debtor was
potentially liable for a car accident caused by his uninsured
minor son. The Wisconsin Department of Transportation re-
quired the debtor to deposit funds with it in the event of a
judgment against the son. The funds were raised by mortgag-
ing the family home, which was ultimately foreclosed upon.
The father filed for bankruptcy and tried to claim the funds as
a “homestead exemption”—a provision that allows a debtor
to keep his home. A judgment was eventually entered against
the son for the car accident, and the deposited funds were
used to satisfy the judgment. Id. at 815−16. The Lenk court con-
cluded that the funds were not protected by the homestead

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8 No. 22-1536
exemption because they were not a part of the estate: a trust
was created—even though no magic words were used—when
the father handed the funds to the Department of Transporta-
tion for the benefit of the accident victim. Id. at 816−17.
The story is much the same here. The employer’s insurer
paid $400,000 to Fortune & McGillis for the benefit of Ryan’s
doctors. And, just as in Lenk, there was a possibility that some
of that money could come back to Ryan: here, if the medical
expenses were negotiated and resolved for less than $400,000;
in Lenk, if the son was found not liable for the accident. In both
cases, the clear intent was to deposit funds with a neutral in-
termediary for the benefit of a third party. Since neither Ryan
nor Lenk held equitable title to the trust property, it was ex-
cluded from both estates. 11 U.S.C. § 541(d); see In re Marrs-
Winn Co., Inc., 103 F.3d 584, 589 (7th Cir. 1996) (holding that
the “bankruptcy estate does not include property held in trust
for another”).
None of Ryan’s counterarguments persuades. Ryan makes
much of the fact that the Order does not contain the magic
words “for the benefit of” or “to be held in trust.” True
enough, but the Order’s language—“for disbursement to”—
is an even more powerful indicator that Ryan has no equitable
interest in the funds. If a trust is created “for the benefit of”
someone, the trust might pay interest to the beneficiary either
without distribution of the principal or with the principal ul-
timately returning to the trust’s settlor. If, on the other hand,
a trust receives funds “for disbursement to” someone, the set-
tlor likely has no prospect of seeing those funds again.
Ryan points to the specificity with which the Order directs
payment to Ryan’s attorneys: When the Order wants to direct

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No. 22-1536 9
funds to a specific recipient, it knows how to do so, he argues.
Two points in response.
First, the lack of specificity in the Order makes sense as to
medical providers whose identities or debts may have been
unknown to the insurer and the worker’s compensation ALJ.
Recall, the Settlement came before the bankruptcy petition, so
the ALJ did not have the benefit of the bankruptcy schedules
listing what Ryan owed and to whom.
Second, the Order’s specificity as to the amount payable to
Ryan’s attorneys complies with the strict regulation of attor-
ney’s fees in Wisconsin worker’s compensation awards: At-
torneys are entitled to no more than 20% of a claimant’s
award. Wis. Stat. § 102.26(2). The Settlement awarded Ryan
$150,000 “minus attorney fees and costs” of $30,000. The Or-
der, in turn, directed that $120,000 be paid to Ryan and
$30,000 be paid to Fortune & McGillis. Both scrupulously ad-
hered to the 20% limit. No such limit exists on payments to
doctors who rendered care to the injured employee.
Ryan suggests there was never an intent to give the doc-
tors any sort of special interest in the funds because everyone
knew that the doctors were owed far more than $400,000. But
state interpleader actions can sort out how much of a haircut
each doctor will have to take on his or her claims. See Kaiser v.
Prudential Ins. Co. of Am., 76 N.W.2d 311, 316 (Wis. 1956) (“The
purpose of filing an interpleader in such circumstances is to
allow the contesting parties to have their rights determined in
a Court of equity so as to protect the Plaintiff from double li-
ability, and to preserve intact the rights of any claimant to the
fund, but not to confer any additional rights upon claim-
ants.”) (quoting Johnson v. Johnson, 139 F.2d 930, 933 (5th Cir.
1943)). Some recovery is surely preferable to no recovery,

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10 No. 22-1536
which is what Ryan asks us to approve. Indeed, as we under-
stand it, a state court proceeding to resolve how much each
doctor will take from the $400,000 remains stayed pending
resolution of this appeal.
Interpleader is also the answer to Ryan’s observation that
the trust puts Fortune & McGillis in something of an awk-
ward position. Thanks to the residuary provision, it stands to
gain 20¢ for every dollar that it doesn’t disburse to the medi-
cal providers to whom it owes fiduciary duties. Such an ar-
rangement is far from unusual for attorneys, and allowing a
state court to sort out who gets what takes the pressure off of
Fortune. It bears noting that Fortune, like its client, agreed to
the Settlement’s terms—this was not foisted upon it. And, of
course, Fortune would be in the exact same position notwith-
standing the bankruptcy petition.
Our conclusion that the Order created an express trust in
which Ryan has at most legal, but not equitable, interest
means we can pass over in silence the question of whether the
imposition of a constructive trust was warranted.
B
Ryan contends that regardless of whether a trust was cre-
ated, Wisconsin law prohibits the $400,000 from going to an-
yone but him.
Wisconsin Statutes § 102.27(1) reads, in relevant part, that
no “claim for compensation, or compensation awarded, or
paid, [may] be taken for the debts of the party entitled
thereto.” Ryan argues that, since he is the only one who can
file for worker’s compensation, he is the only “party entitled
thereto,” and therefore the “compensation” (including the
$400,000) cannot be taken to satisfy his debts to the doctors.

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No. 22-1536 11
Prpa counters that Ryan waived § 102.27(1)’s protections
when he asked the ALJ to approve the Settlement because
“[a]t the request of the claimant[,] medical expense[s], witness
fees and other charges associated with the claim may be paid
out of the amount awarded.” Wis. Stat. § 102.26(3)(b)(2). By
asking the ALJ to approve the Settlement creating the trust,
Ryan gave that money to the doctors, Prpa argues.
We need not linger on this point. In Wisconsin, worker’s
compensation settlements are ineffective until approved by
the state agency that oversees them. See Wis. Stat. § 102.16(1);
Wis. Admin. Code, Dep’t of Workforce Dev. § 80.03(2); Dowe
v. Specialty Brass Co., 262 N.W. 605, 606 (Wis. 1935). By asking
the ALJ to approve the Settlement, Ryan “requested” that his
“medical expenses” “be paid out of the amount awarded.”
Section 102.27(1) thus offers Ryan no relief.
Ryan contends that if we construe the Settlement and Or-
der this way, any creditor could come after a lump sum pay-
ment made after a worker is injured—exactly what § 102.27(1)
prohibits. But that begs the question: Ryan’s payment wasn’t
one lump sum. Part of it went to him—that’s protected from
creditors by § 102.27(1). Part of it went to his lawyers—his
creditors can’t touch that because it is not Ryan’s. And part of
it was held in trust for his doctors—his creditors can’t touch
that, either, because Ryan holds no equitable title to those
funds. See 11 U.S.C. § 541(d). Prpa concedes that if the award
had been a lump sum, as most tort awards are, he’d have no
case. But it wasn’t, so he does.
Finally, Ryan has no answer for the economic reality of his
argument. The practical effect of Ryan’s reading would be
that Prpa and the other doctors are forever barred from col-
lecting on their debts while Ryan takes the $400,000 free and

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12 No. 22-1536
clear. The first result is unremarkable; bankruptcies almost al-
ways leave some creditors wanting. The second, by contrast,
is almost unheard of. We think it unlikely—to put it mildly—
that the ALJ or the insurer would have ever agreed to the Set-
tlement if they had known that not a penny would flow to the
doctors who incurred hundreds of thousands of dollars in ex-
penses caring for Ryan. We are also mindful that, contrary to
his counsel’s assertions at oral argument, Ryan used the spec-
ter of bankruptcy as leverage when negotiating with Prpa.
R.4-4 at 211−12. Ryan cannot explain why Prpa would have
negotiated if the debts were going to be discharged. Nor can
Ryan explain why he declined to seek clarification from the
ALJ as to whether the disputed funds were “set aside” by the
Order. Prpa was not a party to the Settlement, so that avenue
was unavailable to him.
In short, § 102.27(1) and § 102.26(3)(b)(2) coexist such that
where, as here, a claimant requests that funds from his
worker’s compensation award be set aside for his medical
providers, those funds are not protected from his doctors’
reach.
C
The final wrinkle to iron out is what effect, if any, we must
give the Order’s residuary provision. The Order says that an-
ything left after the doctors take from the $400,000 is to be split
80/20 between Ryan and Fortune. Ryan argues that this resid-
ual interest in the $400,000 is enough to bring all $400,000 into
his estate—that the mere prospect of receiving some crumbs
entitles him to the whole pie.
We note at the outset that Ryan’s undisputed medical
debts are roughly $800,000. That’s much more than the

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No. 22-1536 13
$400,000 set aside to pay those debts. But even if we assume
the debts are negotiated such that Ryan would actually see
some crumbs, foundational bankruptcy principles show why
that alone does not bring the full $400,000 into Ryan’s estate.
Although § 541’s definition of the “property of the estate”
is to be construed broadly and includes contingent interests,
it is axiomatic that the property of the estate includes the
debtor’s claims to property—not the property itself. Chicago
Board of Trade v. Johnson, 264 U.S. 1, 12 (1924). That is, the bank-
ruptcy estate takes property subject to any preexisting claims
or limitations on the debtor’s ability to use or dispose of the
property. Id. “A debtor’s interest in a portion of property does
not subject the entire property to § 541. Nor does a debtor’s
claim to property mean that the entire property is part of the
bankruptcy estate.” In re Carousel Int’l Corp., 89 F.3d 359, 362
(7th Cir. 1996).
An example illustrates how this principle resolves any
concern posed by the residuum. Suppose someone slips and
falls at a shop because of an employee’s negligence. At that
moment, she has a claim against the store—an unliquidated
chose in action “only to be enjoyed after its satisfaction or en-
forcement.” Chicago Board of Trade, 264 U.S. at 12. Until her
claim is liquidated, either through settlement or entry of judg-
ment in her favor, she has no right to seize the store’s funds.
It is the favorable resolution of her suit that gives her title to
the shop’s funds.
Now suppose our shopper is forced into bankruptcy by
the medical expenses she incurs from her fall. At all times, her
estate’s property is the same inside of bankruptcy as it would
be outside. “A debtor’s property does not shrink by happen-
stance of bankruptcy, but it does not expand, either.” Douglas

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14 No. 22-1536
Baird, Elements of Bankruptcy 97 (6th ed. 2014). Unless the
bankruptcy trustee settles or wins a judgment against the
store, the estate property includes only an unliquidated claim.
So too here. Even if the contingent remainder interest is a
part of Ryan’s estate, that is all that is a part of the estate, not
the full $400,000. Put § 102.27(1) aside for the moment. Until
the contingency is resolved—here by fulfilment of the trust
purpose, in our slip-and-fall hypothetical by settlement or en-
try of judgment in the tort suit—the estate has no right to dis-
tribute any of the $400,000 to creditors. Upon liquidation,
Ryan would be vested with equitable title in whatever funds
remain. So if Fortune ably negotiates with the medical provid-
ers such that a portion of the $400,000 remains, that portion
would become property of the estate for Ryan’s creditors to
divide. But because the trust’s purpose has not yet been ful-
filled, Ryan currently has equitable title to none of the
$400,000. “To hold otherwise would necessarily lump into the
bankruptcy estate assets owned by others, but only claimed
by the debtor.” Carousel Int’l Corp., 89 F.3d at 362.
Ryan never listed his claim to the residuum—in which he
does have equitable title—on his bankruptcy schedules, so we
need not resolve whether he could have exempted that claim
under § 102.27(1). For present purposes, it is enough to return
to the principle outlined in Chicago Board of Trade: the property
of the estate includes the debtor’s interests in property—
no more, no less.
III
In sum, we conclude that the Order created an express
trust in favor of medical creditors like Prpa and that, by ask-
ing the ALJ to approve the Settlement’s identical terms, Ryan

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No. 22-1536 15
requested that his medical expenses be paid out of his award.
The bankruptcy and district courts were right to sustain
Prpa’s objection.
A FFIRMED

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