In re Calder, Bankruptcy No. 86A-03558

• Decision Date: 08 December 1988
• Docket Number: Adv. No. 88PA-0021.,Bankruptcy No. 86A-03558
• Parties: In re J. Richard CALDER, Debtor. J. Richard CALDER, Plaintiff, v. Roger SEGAL, Trustee, Defendant.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Utah

94 B.R. 200 (1988)

In re J. Richard CALDER, Debtor.

J. Richard CALDER, Plaintiff, v. Roger SEGAL, Trustee, Defendant.

Bankruptcy No. 86A-03558, Adv. No. 88PA-0021.

United States Bankruptcy Court, D. Utah, C.D.

December 8, 1988.

Julie Bryan, Salt Lake City, Utah, for trustee, Roger Segal.

Carl A. Eklund, Roath & Brega, P.C., Denver, Colo., for debtor.

ORDER

JOHN H. ALLEN, Bankruptcy Judge.

This matter came before the Court on July 17, 1988, on the Plaintiff's Motion for Summary Judgment. After a careful review of the law relating to this motion, the Court makes the following determination.

BACKGROUND

The debtor, J. Richard Calder, (Plaintiff) filed his petition for bankruptcy under chapter 7 of the Bankruptcy Code on August 19, 1986. The defendant, Roger G. Segal, (Defendant) is the trustee of the plaintiff's chapter 7 estate.

Pursuant to his duties as trustee of the estate, defendant received from the chapter 13 trustee a series of checks representing attorney's fees for certain of plaintiff's prepetition services to chapter 13 clients. The Court is called upon to decide whether those fees are property of the estate under 11 U.S.C. § 541. This is the only issue brought by the Complaint.

The defendant claims all fees for plaintiff's services in cases filed before August 19, 1986, the date of the filing of plaintiff's petition, asserting they represent compensation for pre-petition services rendered by the plaintiff. The plaintiff alleges that the fees currently held by the defendant are not property of the estate and should be turned over to the plaintiff by the defendant.

Plaintiff argues that the post-petition payment of allowed attorney's fees are not property of the bankruptcy estate since the fees were based upon pre-petition contingent fee agreements which made payment of fees contingent upon confirmation of the clients' chapter 13 plans, and none of the fees held by the defendant were for plaintiff's services in cases in which the plans were confirmed prior to the filing of the chapter 7 petition. Plaintiff further argues that these contracts are executory contracts, specifically personal service contracts, which cannot be assumed by the defendant and the benefits running from these contracts cannot become property of the estate.

DISCUSSION

Property of the estate is defined in 11 U.S.C. § 541. The commencement of a bankruptcy proceeding creates an estate which is comprised of the debtor's property wherever it may be located. All of the debtor's interest in property, legal or equitable, becomes property of the estate. Aside from exemptions, assets the debtor has on the date of the petition go to the creditors, assets obtained afterwards belong to the debtor. This section is extremely broad and covers both tangible and intangible property, causes of action and property that is out of the debtor's control. Additionally, an interest in property which is acquired by the estate after the proceeding is commenced is estate property. Further, the proceeds, rents, or profits received from property of the estate are also estate property. 11 U.S.C. § 541(a). An important exception contained within this subsection is "for earnings from services performed by an individual debtor after the commencement of the case."

The legislative history of § 541(a)(6) states that the word "proceeds" is not to be defined as narrowly as the definition in the Uniform Commercial Code. S.Rep. No. 989, 95th Cong. 2nd Sess. 82, H.R.Rep. No. 595, 95th Cong. 1st Sess. 368, U.S.Code Cong. & Admin.News 1978, pp. 5787, 5868, 6323. That being so, then the meaning is exceedingly broad. For example, the Court in In re No. 1 Con-Struct Corp., 88 B.R. 452 (S.D.Fla.1988) ruled that the debtor's interest as beneficiary and owner of an insurance policy became property of the estate. Therefore, the trustee not only owned the policy and the beneficial interest, but he also had the right to change beneficiary and had all the rights to the proceeds. Other examples of property of the estate include post-petition appreciation in value of property, In re Paolella, 85 B.R. 974 (Bkrtcy.E.D.Pa.1988); earnings from debtor's law practice, which resulted not from debtor's personal service but from the practice's invested capital, accounts receivable, good will, employment contracts with the firm's staff, client relationships, fee agreements, or the like, In re Fitzsimmon's, 725 F.2d 1208 (9th Cir.1984); percentage of post-petition income from debtor surgeon's business operated as sole-proprietorship, which resulted from return on fixed assets and services performed by associate surgeons, In re Cooley, 87 B.R. 432 (Bkrtcy.S.D.Texas, 1988).

As yet another example of the meaning of this provision, sellers of insurance at times have rights to renewal commissions and other rights growing out of termination of their employment with the companies. It has been held that if the rights were earned by services performed before the petition for relief, the payments made after it are nevertheless assets of the estate. The Court so holding regarded the continuing obligation of the sales person as rather minimal in the matter before it. In re Marshburn, 5 B.R. 711 (Bkrtcy.D.Colo. 1980).

In the case of the individual debtor with earnings from services, § 541(a)(6) creates two pools of assets. One consists of property of the estate, while the other consists of property of the debtor. This result follows from the fact that an individual debtor and the estate are separate entities. In re Myrvold, 44 B.R. 202, 204 (Bkrtcy.D.Minn.1984) aff'd, Koch v. Myrvold, 784 F.2d 862 (8th Cir.1986). Post-petition wages and earnings are not included as property of the estate. Wages and earnings to be included in the debtors estate are those earned pre-petition but unpaid at the time of filing. Matter of Hellums, 772 F.2d 379 (7th Cir.1985); In re Ryerson, 739 F.2d 1423, 1426 (9th Cir. 1984); In re Meade, 84 B.R. 106 (Bkrtcy.S. D.Oh.1988); In re Leff, 84 B.R. 72 (Bkrtcy. N.D.Tex.1988).

The idea that earnings from services performed prior to bankruptcy but paid after filing of the petition are to be included within the bankruptcy estate stems from prior law. The test that has emerged under the Code is whether the after-acquired property is "sufficiently rooted in the pre-bankruptcy past". See S.Rep. No. 989, 95th Cong. 2d Sess. 82, U.S.Code Cong. & Admin.News 1978, p. 5868. Stated differently, if these pre-petition earnings are in essence, accounts receivable, they are property of the estate, In re Fitzsimmon's, 725 F.2d at 1208.

The Court in In re Ryerson, 739 F.2d 1423, pointed out that if there is a legally recognizable interest pre-petition to payments subsequently paid post-petition, these payments are property of the estate.

Although plaintiff submits an affidavit which contains a sample contingent fee agreement, the Court is not convinced that the plaintiff operated under this type of agreement with his clients. He has not produced any actual agreements, nor have any been approved by the Court. In re Benassi, 72 B.R. 44 (D.Minn.1987). In fact, all the plaintiff's § 329 attorney's fee disclosure statements and applications for attorney's fees (Defendant's Exhibit B) set forth a fixed rate that the plaintiff will collect from his clients.

These disclosure statements list an amount as having been paid and an additional amount to be paid. The chapter 13 plans drafted by the plaintiff, (Defendant's Exhibit D), list a fixed sum as "unpaid attorney fees" and the orders confirming the plans (Defendant's Exhibit E) allow for such payment. The chapter 13 Statements (Defendant's Exhibit "C") filed by the various debtors contain promises to pay the plaintiff a fixed amount in connection with each case.

The plaintiff relies on In the Matter of Tonry, 724 F.2d 467 (5th Cir.1984) in which the court found that contingent fee contracts of a debtor-attorney are excluded from the bankruptcy estate. The court identified the contracts in question as personal service executory contracts that cannot be assumed by the trustee in bankruptcy. However, the court in Tonr...