In re Laflamme, Bankruptcy No. 05-11723-JMD.

• Decision Date: 12 November 2008
• Docket Number: Bankruptcy No. 05-11723-JMD.,Adversary No. 07-1210-JMD.
• Citation: 397 B.R. 194
• Parties: In re Karen L. LaFLAMME, Debtor Olga L. Bogdanov, Chapter 7 Trustee, Plaintiff v. Karen L. Laflamme, Defendant.
• Court: U.S. Bankruptcy Court — District of New Hampshire

397 B.R. 194

In re Karen L. LaFLAMME, Debtor Olga L. Bogdanov, Chapter 7 Trustee, Plaintiff v. Karen L. Laflamme, Defendant.

Bankruptcy No. 05-11723-JMD.

Adversary No. 07-1210-JMD.

United States Bankruptcy Court, D. New Hampshire.

November 12, 2008.

COPYRIGHT MATERIAL OMITTED

Taruna Garg, Esq., Murtha Cullina LLP, Boston, MA, for Plaintiff.

Michael Burke, Esq., Law Office of Gould and Burke, Meredith, NH, for Defendant.

MEMORANDUM OPINION

J. MICHAEL DEASY, Bankruptcy Judge.

I. INTRODUCTION

The Court has before it cross-motions for summary judgment. Olga L. Bogdanov (the "Plaintiff" or the "Trustee"), the chapter 7 trustee of the estate of Karen L. Laflamme (the "Debtor" or the "Defendant"), commenced this adversary proceeding seeking recovery of commissions received by the Debtor on account of her former employment as a real estate broker. Plaintiff alleges these real estate commissions are property of the Debtor's bankruptcy estate and are subject to turnover under §§ 541 and 542 of the Bankruptcy Code.¹ On July 14, 2008, Plaintiff filed a motion for summary judgment (Doc. No. 28) ("Plaintiff's SJ Motion") arguing the commissions were earned prepetition even though they were received postpetition, and, thus, were property of the estate. On July 15, 2008, Defendant filed a motion for summary judgment (Doc. No. 29) ("Defendant's SJ Motion") arguing that her employment agreement with her former real estate office precluded a finding that she had a right to the commissions prepetition. Defendant also argues that, under § 348(f)(1)(A), the commissions were no longer property of the estate upon conversion of her chapter 13 case to chapter 7 since the Debtor was allowed to use the proceeds during the administration of her chapter 13 case and the money was not in her possession on the date of conversion. On September 23, 2008, after a hearing on the motions, the Court took the matter under advisement.

This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the "Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire," dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).

II. DISCUSSION

Under Rule 56(c) of the Federal Rules of Civil Procedure, made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7056, a summary judgment motion should be granted only when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." "Genuine," in the context of Rule 56(c), "means that the evidence is such that a reasonable jury could resolve the point in favor of the nonmoving party." Rodriguez-Pinto v. Tirado-Delgado, 982 F.2d 34, 38 (1st Cir. 1993) (quoting United States v. One Parcel of Real Property, 960 F.2d 200, 204 (1st Cir.1992)). "Material," in the context of Rule 56(c), means that the fact has "the potential to affect the outcome of the suit under applicable law." Nereida-Gonzalez v. Tirado-Delgado, 990 F.2d 701, 703 (1st Cir.1993). Courts faced with a motion for summary judgment should read the record "in the light most flattering to the nonmovant and indulg[e] all reasonable inferences in that party's favor." Maldonado-Denis v. Castillo-Rodriguez, 23 F.3d 576, 581 (1st Cir.1994). When faced with cross motions for summary judgment, courts apply the same standard to the respective nonmoving parties. Medeiros v. Vincent, 431 F.3d 25, 29 (1st Cir.2005).

Although neither party disputes the documents included by the other party in the summary judgment record, this matter is before the Court on cross motions for summary judgment, not on a stipulated factual record. Accordingly, the Court may only decide whether, on the summary judgment record, either party deserves judgment as a matter of law. If the Court identifies any material factual disputes, it may not resolve the dispute. Boston Five Cents Savings Bank v. Sec'y of the Dep't of Hous. and Urban Dev., 768 F.2d 5, 11-12 (1st Cir.1985); see Cowell v. Hale (In re Hale), 289 B.R. 788, 791-93 (1st Cir. BAP 2003).

A. Undisputed Facts

The undisputed summary judgment record, consisting of affidavits of the Trustee and the Debtor, supported with various documents, establishes the following. The Debtor filed a chapter 13 bankruptcy petition on April 28, 2005 (the "Petition Date"). At the time she filed her petition, the Debtor was a self-employed real estate broker working for Wolfeboro Bay Real Estate, LLC ("WBR"). On the Petition Date, the Debtor had already completed two sales of real estate which were pending in escrow but waiting to close. The sales contract for the first transaction was signed on January 26, 2005 (the "Germain/Greenwald Deal") with a closing date scheduled for early June 2005. The sales contract for the second transaction was signed on February 26, 2005 (the "Livingston/Caine Deal") with a closing date scheduled for late June 2005. The Germain/Greenwald Deal closed on June 15, 2005 and the Debtor received a net commission of $22,750.00.² The Livingston/Caine Deal eventually closed on August 10, 2005³ and the Debtor received a net commission of $19,202.40. On September 9, 2005, upon consideration of the chapter 13 trustee's motion to dismiss or convert, and with the Debtor's consent, the Court entered an order converting the chapter 13 case to chapter 7 (Doc. No. 42) (the "Conversion Date"). The Plaintiff was appointed as the chapter 7 trustee of the Debtor's bankruptcy estate shortly thereafter. After investigation, the Plaintiff commenced this adversary proceeding to recover the commission proceeds.⁴

B. Analysis

The Plaintiff argues the real estate commissions, totaling $41,952.40, were earned prepetition and are therefore property of the estate under § 541(a) and subject to turnover under § 542(a). The Plaintiff posits that New Hampshire law provides that a real estate broker is entitled to a commission if he or she procures a ready, willing, and able buyer to purchase the property. Since the Debtor had obtained signed sales contracts on two sales prepetition, any commissions received postpetition are property of the Debtor's chapter 7 estate. The Debtor did not object to Plaintiffs SJ Motion but instead filed her own summary judgment motion. The Debtor argues she had no enforceable right to the commissions because her employment agreement with WBR provided that any commissions would not be given to the broker until three days after WBR received the proceeds, and, therefore, she had no legal interest until the commissions were received by WBR. The Debtor alternatively argues that even if the commissions were property of the estate when she filed her chapter 13 case, when her case was converted to chapter 7, property of the estate did not include the commissions since they were used to pay her expenses during her chapter 13 case and the proceeds were no longer in her possession or control as required by § 348(f)(1)(A). The Plaintiff responded by asserting that § 1306(a) augments the normal "property of the estate" definition in § 541 by including property a debtor acquires or earns from services after the commencement of the case. The filing of a chapter 13, Plaintiff contends, should not provide a debtor with freedom to use property of the estate to the detriment of creditors.

1. Property of the Estate on the Petition Date

Section 541(a)(1) of the Bankruptcy Code creates an estate upon the filing of a bankruptcy petition that includes "all legal or equitable interests of the debtor in property as of the commencement of the case." Section 541(a)(1) is construed broadly and while the meaning of the language is a matter of federal law, the existence and extent of a debtor's interest is ordinarily governed by state law. Abboud v. The Ground Round, Inc. (In re The Ground Round, Inc.), 482 F.3d 15, 17 (1st Cir.2007) (citing Butner v. United States, 440 U.S. 48, 54-55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979)); Pasteurized Eggs Corp. v. Bon Dente Joint Venture (In re Pasteurized Eggs Corp.), 296 B.R. 283, 289 (Bankr.D.N.H.2003). The definitive test for determining whether postpetition income of the debtor will be deemed property of the estate is whether that income accrues from postpetition services of the debtor. Boyle v. Stefurak (In re Sloan), 32 B.R. 607, 611 (Bankr.E.D.N.Y.1983). Property of the bankruptcy estate will include a debtor's commission "if all acts of the debtor necessary to earn it are rooted in the pre-bankruptcy past." Id. (citing Segal v. Rochelle, 382 U.S. 375, 380, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966)).

The Debtor's employment agreement with WBR incorporated a "Policies and Procedures Manual" (the "Manual") which sets forth several provisions on commissions. The Manual provides that "[c]ommissions will be paid to salespersons within three working days after [the] Company has received the gross commission." The Manual also provides that when a client refuses to pay a fee, the Company "will have sole discretion as to the legal remedies to be taken to collect the commission, and will not be bound to do so. If the Company elects to take legal action, the costs of the action will be borne by the Company and the salesperson in the same proportion as the commission would have been split."

The extent of the Debtor's interest in the commissions is governed by New Hampshire law. "When interpreting a written agreement, [New Hampshire courts] give the language used by the parties its reasonable meaning, considering the circumstances and the context in which the agreement was negotiated, and reading the document as a whole." Behrens v. S.P. Constr. Co., Inc., 153 N.H. 498, 503, 904 A.2d 676 (2006). "Absent ambiguity, the parties' intent will be determined from...