In re Powell

• Decision Date: 06 May 2014
• Docket Number: 13–81645,13–81695.,Nos. 13–81312,s. 13–81312
• Citation: 511 B.R. 107
• Court: U.S. Bankruptcy Court — Central District of Illinois
• Parties: In re Damien John POWELL and Constance Regina Powell, Debtors. In re Jason Lee Hobart, Debtor. In re Christopher Doyle, Debtor.

511 B.R. 107

In re Damien John POWELL and Constance Regina Powell, Debtors.

In re Jason Lee Hobart, Debtor.

In re Christopher Doyle, Debtor.

Nos. 13–81312, 13–81645, 13–81695.

United States Bankruptcy Court,

C.D. Illinois.

Signed May 6, 2014.

Steven E. Balk, Silvis, IL, for Constance Regina Powell, Damien John Powell, Debtors.

Steven E. Balk, Silvis, IL, for Debtor Jason Lee Hobart.

William Lester Breedlove, Rock Island, IL, for Christopher Doyle, Debtor.

OPINION

THOMAS L. PERKINS, Bankruptcy Judge.

The primary issue in these cases, consolidated for purposes of the Opinion, is whether an employee's future right to receive a profit sharing payment is property of his chapter 7 bankruptcy estate. Each of the Debtors, Damien John Powell, Jason Lee Hobart, and Christopher Doyle, were employed by Deere & Company as of the date of the filing of their respective bankruptcy petitions. Before the Court are separate motions filed by the chapter 7 trustee in each case, for turnover of a prorated portion of the profit sharing benefits received postpetition by the Debtors from Deere.

Pursuant to a collective bargaining agreement (CBA) between the various divisions of Deere and the International Union United Automobile Aerospace and Agricultural Implement Workers of America and its Locals (Union), the Debtors, as employees and Union members, became eligible to participate in a profit sharing plan.¹ The plan provides that the Plan Year for 2013 runs from October 29, 2012 to October 27, 2013. Section 1 A, describing the type of plan and its purpose, provides:

This Plan is a profit sharing plan. The purpose of the Plan is to provide contingent benefits to employees to reflect their efforts in contributing to the profitability of the Company and to serve as an incentive for the employees further to contribute to the continued and further financial success of the Company and to its ability to provide continued employment opportunities to its employees.

An employee becomes a participant after completing one year of company service. Section 3 B, governing eligibility and participation in the plan, provides:

Any participant shall be eligible for a profit sharing benefit under the Plan for any Plan Year which commences on or after 2 November 2009 provided that he is an active employee of the Company on the last day of that Plan Year or is on leave of absence or layoff from the Company on the last day of that Plan Year, except that any otherwise eligible employee who died, retired, or was employed at a facility of the Company which was sold during such year shall also be covered as if he were an active employee on the last day of that Plan Year.

Section 4 A, establishing the formula for calculating the amount of the benefit, provides in part:

The amount of the benefit which shall accrue for a participant for any Plan Year shall be computed by multiplying the following three elements:

(1) the number of hours worked in that Plan Year by the participant;

(2) the average straight-time hourly rate of pay plus any cost-of-living and general wage increase allowances as of the last day of the Plan Year (or as of the last day of active work of the employee if earlier). In the calculation of the Average Earnings Rate for CIPP employees, weeks in which the employee is required to work when their CIPP plan is not in operation will be excluded from this calculation.

(3) the Profit Sharing Benefit Percent(s) as determined in Paragraph B below times 50%.

The plan provides that any benefits due participants are to be paid to eligible participants not later than January 15th following the end of the Plan Year.

Section 6 D of the plan, governing the employment rights of the participants, provides:

Participation in the Plan will not give any employee of the Company any right to be retained in the service of the Company nor any right to claim any benefit under the Plan unless such right or claim has specifically accrued under the terms of the Plan.

The provision of the plan governing amendment and termination (Section 6 C) provides that any amendment or termination proposed by Deere with respect to union employees, may not be adopted without the consent of the appropriate collective bargaining representative. Finally, the plan provides that the interests of the plan participants are nonassignable, as follows:

The interests of participants and their beneficiaries under the Plan are not in any way subject to their debts or other obligations and may not be voluntarily or involuntarily sold, transferred or assigned by them except with respect to indebtedness owing to the Company.

Powell filed a chapter 7 petition on June 28, 2013; Hobart filed a chapter 7 petition on August 19, 2013; and Doyle's chapter 7 petition was filed on August 26, 2013.² The Trustee sought turnover of a prorated portion of the profit sharing benefits to be received by each of the Debtors in January, 2014, based on the dates of filing of the petitions.³ The Debtors objected to the motions, claiming that the benefits are not property of the bankruptcy estate. There is no dispute as to the essential facts of the cases. Hearings were held and the parties have submitted briefs.

ANALYSIS

Two fundamental, but competing, policies underlie much of bankruptcy law: obtaining a maximum and equitable distribution for creditors while at the same time ensuring a fresh start for individual debtors. BFP v. Resolution Trust Corp., 511 U.S. 531, 563, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994) (citing Stellwagen v. Clum, 245 U.S. 605, 617, 38 S.Ct. 215, 218, 62 L.Ed. 507 (1918)). In general terms, the filing of a chapter 7 petition effects a definite cleavage in time, so that property of the debtor owned on that date becomes property of the bankruptcy estate and after-acquired assets, with certain exceptions, become the debtor's personal property, free of all claims that are discharged in the bankruptcy case. White v. Stump, 266 U.S. 310, 45 S.Ct. 103, 69 L.Ed. 301 (1924).

Section 541 of the Bankruptcy Code broadly defines “property of the estate” to include “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). It is well-settled that this expansive definition of property of the estate includes “every conceivable interest of the debtor,” including interests which are “future, nonpossessory, contingent, speculative, and derivative.” Matter of Yonikus, 996 F.2d 866, 869 (7th Cir.1993), abrogated on other grounds by Law v. Siegel, ––– U.S. ––––, 134 S.Ct. 1188, 1195, 188 L.Ed.2d 146 (2014). Although the question of whether an interest should be classified as property of the estate is one of federal law, a court should first look to state law to determine the nature of the debtor's interest. Butner v. U.S., 440 U.S. 48, 54–55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979); In re Krueger, 192 F.3d 733 (7th Cir.1999).

To determine whether monies not payable until a point in time after the petition date may be included in the estate, the canonical test, originating in Segal v. Rochelle, 382 U.S. 375, 380, 86 S.Ct. 511, 515, 15 L.Ed.2d 428, 432 (1966), queries whether the debtor's interest is “sufficiently rooted in the pre-bankruptcy past” of the debtor so as to warrant its inclusion in the estate. In re Meyers, 616 F.3d 626, 628 (7th Cir.2010); Tyler v. DH Capital Management, Inc., 736 F.3d 455 (6th Cir.2013); In re Jokiel, 447 B.R. 868 (Bankr.N.D.Ill.2011).⁴ Secondly, where an individual debtor's wages or earnings from employment are at issue, the Bankruptcy Code expressly excludes from the estate earnings from services performed postpetition. 11 U.S.C. § 541(a)(6). In the context of an employee's right to a payment from his employer, these two principles must be applied in tandem. While a payment right that is sufficiently rooted in a debtor's prebankruptcy past is generally includable in the bankruptcy estate, any portion of the payment attributable to postpetition services is excludable.

Where a debtor has the right to a future payment under a prepetition contract with his employer, that right thus has its origin in the prepetition period and so passes the threshold test for inclusion in property of the estate. The court must then determine whether the right to the future payment is “sufficiently rooted” in the prepetition period by asking whether any of the services that are the consideration for the payment were performed prepetition. If no significant services were performed prepetition, it is difficult to see how the future payment right could be said to be sufficiently rooted in the prebankruptcy past to warrant inclusion in the estate. But where the future payment is linked, at least in part, to services rendered prepetition, the “sufficiently rooted” inquiry is ordinarily satisfied. If only a portion of the required services were performed prepetition, the court must then allocate a corresponding proportion of the future payment to the estate and exclude the rest.

The Debtors do not dispute that the Deere CBA is a valid and enforceable prepetition contract and that, as a general matter, an employee's rights and benefits under a CBA are interests in personal property under Illinois law. The two basic issues to be addressed are whether the Debtors' interest in the benefit payable under the profit sharing plan is sufficiently rooted in their prebankruptcy past to warrant inclusion in property of the estate and, if so, a determination of the portion of the benefit that is properly included in the estate.

The starting point of the inquiry is the terms and provisions of the profit sharing plan. The plan is labeled a “Profit Sharing Plan” and the payment is referred to as a “profit sharing benefit.” The benefit is computed and paid on the basis of profitability during a “fiscal accounting year” or “Plan Year.” The plan provides that the amount of an employee's benefit that accrues during such year is determined in part by the number of...