IN RE: MARC WILLIAM DITTMAR
| Decision Date | 30 March 2011 |
| Docket Number | Case No. 05-17094 |
| Parties | IN RE: MARC WILLIAM DITTMAR, Debtor. |
| Court | U.S. Bankruptcy Court — District of Kansas |
SO ORDERED.
ROBERT E. NUGENT
UNITED STATES CHIEF BANKRUPTCY JUDGE
OPINION DESIGNATED FOR ON - LINE PUBLICATION
BUT NOT PRINT PUBLICATION
MEMORANDUM OPINIONThe debtor Marc Dittmar amended his schedules B and C to add references to two items of personal property and to exempt them after the Tenth Circuit Court of Appeals reversed an order of this Court and held that the items were property of Dittmar's bankruptcy estate under 11 U.S.C. § 541 that are subject to the Trustee's administration.1 The property in question is comprised of the "Spirit bonus" payment received in December of 2006 by former Boeing employees who remained Spirit employees and the stock received by these same employees pursuant to their collective bargaining agreement with Spirit. This Court had previously held that these items of property were not sufficiently rooted in the pre-bankruptcy past to be property of Dittmar's bankruptcy estate.2On the Trustee's appeal, the Circuit reversed this Court's order denying the Trustee's motion for turnover, concluding that the debtor's entitlement to these items were part of his bankruptcy estate. Thereafter, the debtor amended his Schedules B and C to include these assets as property of the estate and claimed them as partially exempt earnings under Kan.Stat.Ann. § 60-2310 (2005).3The Trustee objects to the exemption claim.4
The Trustee bears the burden of proof on exemption objections.5 The parties have stipulated to the relevant facts and have submitted briefs.6 The Court has reviewed the stipulations and briefs and is prepared to rule.7
Dittmar worked for Boeing Commercial Aviation in Wichita under a collective bargaining agreement. In late 2004, an investor group known as Onex became interested in acquiring Boeing's commercial operations in Wichita and began to negotiate with Boeing for the purchase. To accomplish this acquisition, Onex formed a holding entity Spirit AeroSystems Holdings, Inc. ("Spirit"). As part of the ongoing negotiations, Spirit entered into collective bargaining with the International Association of Machinists and the International Brotherhood of Electrical Workers, the two unions representing Boeing Wichita employees. In its dealings with the unions, Spirit sought wage concessions that included a 10 per cent pay cut. In an effort to secure ratification of the contract that included the pay cut, Spirit and the unions negotiated an equity participation program ("EPP"). Under the EPP, union members would receive cash or stock if the company completed an initial public offering, sold out, or merged (any of which was characterized as a "payment event"), so long as the payment event yielded a fifteen percent annual profit to the initial equity investors. If a payment event occurred, each employee who had been employed at Boeing on a date certain (June 17, 2005) and who had worked for 90 continuous working days would receive a cash bonus and shares of Spirit stock. These benefits were called "Stock Appreciation Rights" or "SARs." Prior to Dittmar's petition date, October 7, 2005, the unions verbally agreed to a contract that would contain the EPP. After several attempts, the unions' members ratified the collective bargaining agreements in June, 2005.
On November 16, 2006, a year after Dittmar filed his bankruptcy, Spirit opted to make an initial public offering of stock, a payment event that triggered benefits for Dittmar and his coworkers. Thereafter, Spirit paid him a gross amount of $34,556 resulting in an after-tax payment of $21,546.67.8 On March 29, 2007, Spirit paid Dittmar an additional $30,141.10 which was converted into Spirit equity that, after taxes, was initially valued at $18,792.96.9
The Trustee sought an order for turnover concerning these funds and the stock.10 After discovery and after the parties filed motions for summary judgment in which each agreed that there were no disputed facts, this Court granted summary judgment for Dittmar and denied the turnover in an order dated December 24, 2007.11 This Court concluded that the SARs benefits were too remote to be rooted in the pre-bankruptcy past and were therefore not property of the estate. The Trustee appealed that order to the BAP which affirmed.12 On further appeal, the Tenth Circuit, in a split decision, reversed without remanding the matter.13 The Circuit's mandate effectively operates as an order granting the Trustee's turnover motion. In response to that mandate, Dittmar amended his schedules B and C to claim the SARs as property and to exempt them as exempt compensation under Kan.Stat.Ann. § 60-2310. The Trustee objected to the exemption, asserting that the SARs are not part of Dittmar's "compensation" that is protected from garnishment by the Kansas statute.
The issue here is whether the SARs benefits received by Dittmar constituted compensation that is protected by the Kansas earnings exemption in Kan.Stat.Ann. § 60-2310.14 That statute provides -
only the aggregate disposable earnings of an individual may be subjected to wage garnishment. The maximum part of such earnings of any wage earning individual which may be subjected to wage garnishment for any workweek or multiple thereof may not exceed the lesser of: (1) Twenty-five percent of the individual's aggregate disposable earnings for that workweek or multiple thereof; (2) the amount by which the individual's aggregate disposable earnings for that workweek or multiple thereof exceed an amount equal to 30 times the federal minimum hourly wage, or equivalent multiple thereof for such longer period; or (3) the amount of the plaintiff's claim as found in the order for garnishment.15
As used in the statute, the term "earnings" is defined at subsection (a)(1) as "compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus or otherwise" and "disposable earnings" is defined at subsection (a)(2) as that part of an individual's earnings that remain after legal deductions (like taxes) are taken out.
Do the SARs benefits fall within the definition of "compensation paid or payable for personal services?" The Trustee argues that these benefits were more akin to stock options than wages and, accordingly, are not compensation for work performed in the sense that wages or salary typically are. In addition, she claims that these payments cannot be attributed to any particular pay period, making them more like bonuses than wages. The debtor responds that even the Circuit referred to the SARs as "compensation"16 and claims that these benefits were intended to make up for the pay give-backs that Sprit negotiated in the collective bargaining agreements in 2005, rendering them the functional equivalent of earnings.
The Court concludes that the SARs were compensation paid by Spirit to the debtor as part of the consideration for his prior work. In order to participate in the program, the debtor had to have been employed on "day one" and remain employed on the effective date of the IPO. This sufficiently ties the payment of these benefits to the debtor's personal services: had he rendered no services in the defined period, he would not have been entitled to the payment. In addition, the SARs benefits appear to have been paid as wages with Spirit issuing paychecks with pay-stubs that represented them. The Circuit concluded that Dittmar initially received an interest in these benefits before he filed his petition, even though that interest was contingent upon the occurrence of a payment event and Dittmar's continued employment. Finally, the juxtaposition of the SARs with the wage give-back, while not dispositive, cannot be ignored.
This Court has previously held that Kan.Stat.Ann. § 60-2310 is a wage exemption statute.17 As the Court detailed in Urban, this statute was enacted contemporaneously with Kan. Stat.Ann. § 60-717, the garnishment statute.18 That statute limits the attachment of an order of garnishment to the "nonexempt" portion of a debtor's earnings and defines that "nonexempt" portion as those earnings "not exempt from wage garnishment pursuant to K.S.A. 60-2310."19 As this Court further held in In re Resler, this statute permits a debtor to exempt earned but unpaid wages in the hands of the employer.20 Here, as the Circuit has held, these benefits were unpaid as of the date of Dittmar's petition but he was entitled to them on that date once the conditions precedent to their payment occurred.
The Trustee argues that Dittmar's right to these benefits issue from the payment event, not the work of the debtor. While it is true that were there no IPO, there would be no SARs, it is also true that had the debtor not been employed during the eligibility periods that spanned both pre- and post-petition time, he would not have been eligible for them. Part of his right to these payments is attributable to his continued work for Spirit-indeed that is what his union bargained for and, as the Circuit has concluded, his contingent right to these payments vested pre-petition.
The Trustee relies mostly on state court decisions from other jurisdictions and Kansas bankruptcy court cases to support her assertion that the SARs are more like stock options than wages and are therefore not exempt. Arguing from Resler, she asserts that at Dittmar's filing, Spirit did not hold any of the SARs for payment to him. But that is not the point here-what matters is whether the SARs were, in the words of Kan.Stat.Ann. § 60-2310(a)(1), "compensation paid or payable." The Circuit held that if the SARs were payable, they were owed to Dittmar and that his enforceable right to be paid them arose pre-petition. That is the law of this case.
The Trustee also argues that other courts have held that stock options are not wages. None of those cases speaks to an exemption claim....
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