In re Booth
| Decision Date | 16 March 2001 |
| Docket Number | No. 00-8053.,00-8053. |
| Citation | 260 BR 281 |
| Parties | In re Douglas E. BOOTH, Debtor. Douglas E. Booth, Appellant, v. Elizabeth A. Vaughan, Trustee, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Sixth Circuit |
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ARGUED AND ON BRIEF: L. Douglass McCrury, UAW LEGAL SERVICES PLAN, Toledo, Ohio, for Appellant.
ARGUED AND ON BRIEF: Elizabeth A. Vaughan, Toledo, Ohio, for Appellee.
Before: AUG, BROWN, and RHODES, Bankruptcy Appellate Panel Judges.
The bankruptcy court granted the Trustee's motion for turnover of a pro rata portion of a postpetition profit sharing payment that the Debtor received from his employer. On appeal, the Debtor argues that because he filed his bankruptcy petition before his employer calculated its profits at the end of the year, he had no legal or equitable interest in the profit sharing when he filed and therefore no part of the payment is property of the estate.
The Panel concludes that when the Debtor filed bankruptcy, his interest in his employer's profit sharing plan did come within the broad concept of property of the estate found in 11 U.S.C. § 541(a)(1). The Panel so concludes because the Debtor's interest in the profit sharing payment was sufficiently rooted in his prepetition employment, even though that interest was contingent and therefore unenforceable when he filed bankruptcy. The Panel also rejects the Debtor's contention that whatever interest he had in his employer's profit sharing was held in a trust and is thus not property of the estate under 11 U.S.C. § 541(c)(2). Accordingly, the order of the Bankruptcy Court is AFFIRMED.
The first issue on appeal is whether the Debtor had any interest in his employer's profit sharing when he filed his bankruptcy petition. The second issue is whether that interest was held in a beneficial trust.
The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Northern District of Ohio has authorized appeals to the BAP. A final order of a bankruptcy court may be appealed by right under 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it "`ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.'" Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879(1989) (citations omitted).
Conclusions of law are reviewed de novo. See Nicholson v. Isaacman (In re Isaacman), 26 F.3d 629, 631 (6th Cir. 1994). "De novo review requires the Panel to review questions of law independent of the bankruptcy court's determination." First Union Mortgage Corp. v. Eubanks (In re Eubanks), 219 B.R. 468, 469 (6th Cir. BAP 1998) (citation omitted).
On September 17, 1999, Douglas Booth filed a chapter 7 bankruptcy petition. When he filed his bankruptcy petition, Booth was employed by DaimlerChrysler Corporation, which has a profit sharing program pursuant to its collective bargaining agreement with the United Auto Workers Union. To receive a profit sharing payment under this program, DaimlerChrysler must have profits for a given year and an employee must be employed by DaimlerChrysler at the end of the year. Further, the program provides that the funds are non-assignable until they are distributed.
On December 7, 1999, the Trustee filed a "Motion for Turnover" of "any Bonus or Profit Sharing check received from the Debtor's Employer for 1999, upon receipt." Booth objected to the Trustee's motion, arguing that when his petition was filed, he had no interest in any profit sharing and that if he had any interest, it was in the form of a beneficial interest in a trust.
On March 3, 2000, Booth received a profit sharing payment from DaimlerChrysler in the amount of $4,866.51.
On June 20, 2000, the bankruptcy court entered its Memorandum Opinion and Decision holding that the pro rata part of the Debtor's profit sharing that related to his prepetition earnings was property of the bankruptcy estate. This appeal followed.
The Debtor first argues that based on two factors, he had no legal or equitable interest in the profit sharing when he filed his bankruptcy petition. First, his employer had not yet declared a profit for the year. Second, his employment could have been terminated before the end of the year. The issue, therefore, is whether these contingencies compel the conclusion that under § 541(a)(1), the bankruptcy estate has no interest in the profit sharing.
The analysis begins with the applicable statutory provision. United States v. Ron Pair Enters., 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989); Landreth Timber Co. v. Landreth, 471 U.S. 681, 105 S.Ct. 2297, 85 L.Ed.2d 692 (1985).
Section 541 of the Bankruptcy Code defines property of the bankruptcy estate as follows:
11 U.S.C. § 541(a)(1).
According to the legislative history, the purpose of § 541(a) is to "bring anything of value that the debtors have into the estate." H.R. Rep. No. 95-595, at 176 (1977), reprinted in 1978 U.S.C.C.A.N. 5787, 5963, 6136.
The determination as to whether a debtor's interest in property is property of the bankruptcy estate is a question of federal law. However, state law generally controls the question of whether the debtor has an interest in property. See Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979).
Under Ohio law, "a contingent interest is one in which there is no present fixed right of either present or future enjoyment; but in which a fixed right will arise in the future under certain specified contingencies." Cleveland Trust Co. v. McQuade, 106 Ohio App. 237, 142 N.E.2d 249, 257 (1957) (citation omitted). Therefore, in this case, the Debtor's interest in his employer's profit sharing constituted a contingent interest at the time of the petition.
Significantly, under Ohio law, a contingent interest is fully alienable and may be attached by creditors. Moore v. Foresman, 172 Ohio St. 559, 179 N.E.2d 349, 353 (1962). It follows that a contingent interest is an interest in property that becomes property of the estate under § 541(a)(1) when a bankruptcy petition is filed.
The United States Supreme Court came to the same conclusion in a case decided under the Bankruptcy Act. The Supreme Court stated, "The term `property' has been construed most generously and an interest is not outside its reach because it is novel or contingent or because enjoyment must be postponed." Segal v. Rochelle, 382 U.S. 375, 379, 86 S.Ct. 511, 515, 15 L.Ed.2d 428 (1966). In that case, the Supreme Court held that the debtors' claim for a loss carry-back tax refund is property of the estate, even though it is contingent when the petition is filed. There, as here, the debtors asserted that because the refund could not be claimed until the end of the year, it was not property of the estate, but the Supreme Court concluded that this circumstance was not sufficient to take the interest out of the estate. In addition, there, as here, the debtors argued that certain postpetition events might eliminate the claim altogether, but again the Supreme Court rejected this argument.
Similarly, in applying the Bankruptcy Code of 1978, the courts have, across a wide variety of circumstances, almost uniformly adhered to the view that contingent interests are property of the estate under § 541(a)(1). In each of the following circumstances, the debtor's contingent interest was held to be property of the estate:
A debtor's contingent right to a postpetition employment termination payment under a prepetition employment agreement. Rau v. Ryerson (In re Ryerson), 739 F.2d 1423 (9th Cir.1984).
A debtor's contingent interest in an earned income tax credit, even when the petition is filed before the end of the tax year. Baer v. Jones (In re Montgomery), 224 F.3d 1193 (10th Cir.2000); Johnston v. Hazlett (In re Johnston), 209 F.3d 611, 612 (6th Cir.2000) (); see also cases collected in In re Johnston, 209 F.3d at 612 n. 2.
A debtor's interest in her husband's separately titled property that was contingent on the outcome of their pending divorce case. In re Greer, 242 B.R. 389, 396 (Bankr.N.D.Ohio 1999).
A debtor's contingent claim against a third party. Borock v. Mathis (In re Clipper Int'l Corp.), 154 F.3d 565, 567 (6th Cir.1998) ; Bauer v. Commerce Union Bank, Clarksville, Tennessee, 859 F.2d 438, 440-41 (6th Cir.1988); In re Yonikus, 996 F.2d 866, 869 (7th Cir.1993) ( ); Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A....
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