Craig, In re, 97-1862

• Decision Date: 11 June 1998
• Docket Number: No. 97-1862,97-1862
• Citation: 144 F.3d 593
• Parties: Bankr. L. Rep. P 77,713 In re: James M. CRAIG, Debtor, Kip M. KALER, Trustee-Appellee. v. James M. CRAIG, Defendant-Appellant, Carrington Health Center, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 593

144 F.3d 593

Bankr. L. Rep. P 77,713

In re: James M. CRAIG, Debtor,

Kip M. KALER, Trustee-Appellee. v. James M. CRAIG, Defendant-Appellant, Carrington Health Center, Defendant-Appellee.

No. 97-1862.

United States Court of Appeals,

Eighth Circuit.

Submitted Nov. 18, 1997.

Decided June 11, 1998.

Roger J. Minch, Fargo, ND, argued, for Defendant-Appellant.

Kip M. Kaler, Fargo, ND, argued, for Trustee-Appellee.

Before BEAM, HEANEY, and JOHN R. GIBSON, Circuit Judges.

JOHN R. GIBSON, Circuit Judge.

Dr. James Craig appeals from the order entered by the district court ¹ affirming the bankruptcy court's summary judgment order that a note given to Dr. Craig by Carrington Health Center for $82,053.75 was not an executory contract and that it should be included in the bankruptcy estate. Craig argues that the promissory note was an executory contract which was never assumed by the Trustee and did not become the property of the estate; that the note should be excluded from estate because the note's only value was the result of services performed by Craig after he filed bankruptcy; that the note had no value at the time Craig filed for bankruptcy because it was subject to contingencies over which Craig and Security State Bank had control; and that the value of the note was a factual issue making summary judgment inappropriate. We affirm the judgment of the district court affirming the decision and order of the bankruptcy court.

Craig, a licensed physician, moved to Carrington, North Dakota in 1991 and began working at Carrington Health Center. On July 19, 1993, he and the Center formalized their relationship by entering an Independent Contractor Services Agreement. On that same day, Craig gave the Center a promissory note for $141,795.91, which was the balance Craig owed to the Center pursuant to a Physician Search Agreement; this note provided that if Craig maintained a full-time medical practice in Carrington until July 19, 1995, the Center would write off the remaining balance. Also on that day, the Center purchased Craig's medical practice, including accounts receivable and personal property, and gave Craig a promissory note for $82,053.75.

In December 1993, Craig borrowed $82,000 from Security State Bank of North Dakota to purchase a house and land. The bank would agree to the loan only if the Center guaranteed the Craig's indebtedness and pledged a certificate of deposit to secure the guarantee. The Center agreed to the guarantee and pledge on the condition that Craig deliver the Center's note to Craig for $82,053.75 to the Center and grant the Center the right to offset its indebtedness to Craig against any amount it would have to pay on the guarantee to Security State Bank. Craig further agreed that the Center's note to him would not become due until the Center had no further liability to Security State Bank on Craig's loan.

Craig filed for Chapter 7 bankruptcy on May 1, 1995. Craig owed the Center on the $141,795.91 promissory note at this time, but on July 19, 1995, the Center forgave this indebtedness because Craig completed his twenty-four month work commitment to the Center.

In June 1996 the Trustee commenced an adversary proceeding seeking to have the note held by the Center turned over to the estate and contending that the estate was entitled to the net amount due Craig from the Center because of the $82,053.75 note. Craig argued, however, that this note should be viewed with all of the other agreements signed on July 19, 1993, as one overall contract. Craig contended that the overall contract was executory in nature; that the Trustee was obligated to assume or reject it within sixty days of filing; and since the Trustee did not do so, it was deemed rejected and no part of it would come into the estate.

The bankruptcy court found that the payment on the $82,053.75 note was not an executory contract, that the contingent nature of the Center's obligation to pay Craig did not prevent its inclusion in the estate and, therefore, the promissory note for $82,053.75 should be turned over to the estate. The bankruptcy court further ruled that the Center may validly set off the $72,791.42 which it paid Security State Bank for the amount it owed Craig on his medical practice. As a result, the bankruptcy court granted summary judgment to the Trustee and ordered the Center to turn over $21,808.84, the principal and interest on the note minus the amount offset.

The district court affirmed the bankruptcy court's order.

I.

We review the district court's disposition of the summary judgment motions de novo. Barker v. Ceridian Corp., 122 F.3d 628, 632 (8th Cir.1997). In doing so, we view the evidence in the light most favorable to the party opposing the motion. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59, 90 S.Ct. 1598, 1609, 26 L.Ed.2d 142 (1970). Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c).

II.

Dr. Craig argues that the promissory note was not property in the bankruptcy estate because it was an executory contract which was not assumed by the Trustee. Under the Bankruptcy Code, if a trustee does not assume an executory contract within sixty days after the order for relief, or within such additional time as the court fixes, then the contract is deemed rejected. 11 U.S.C.A. § 365(d)(1) (1994). In this case, the...