Seaver v. Klein-Swanson (In re Klein-Swanson)
| Decision Date | 22 March 2013 |
| Docket Number | BAP No. 12–6054. |
| Citation | 488 B.R. 628 |
| Parties | In re Michelle Ann KLEIN–SWANSON, as surety for Yarn Café Inc.; Scott Lawrence Swanson, as surety for Yarn Café Inc., Debtors. Randall L. Seaver, Trustee, Plaintiff–Appellee v. Michelle Ann Klein–Swanson, Defendant–Appellant. |
| Court | U.S. Bankruptcy Appellate Panel, Eighth Circuit |
OPINION TEXT STARTS HERE
Barbara J. May, argued, Roseville, MN, for Appellant.
Matthew D. Swanson, argued, Randall L. Seaver, on brief, Burnsville, MN, for appellee.
Before FEDERMAN, Chief Judge, SCHERMER and NAIL, Bankruptcy Judges.
Michelle Ann Klein–Swanson (the “Debtor”) appeals from a judgment 1 of the bankruptcy court: (a) revoking the Debtor's discharge pursuant to 11 U.S.C. § 727(d)(2); 2 (b) avoiding the transfer under 11 U.S.C. § 549 of bonus funds she received postpetition from her employer and entering judgment for recovery of those funds by the Chapter 7 trustee, Randall L. Seaver (the “Trustee”), pursuant to 11 U.S.C. § 550; and (c) granting a motion for costs filed by the Trustee pursuant to Federal Rule of Bankruptcy Procedure 7054(b). We have jurisdiction over this appeal from the final judgment of the bankruptcy court. See28 U.S.C. § 158(b). For the reasons set forth below, we reverse.
The central issue in this appeal is whether bonus payments received postpetition by the Debtor from her employer were property of the Debtor's bankruptcy estate pursuant to 11 U.S.C. § 541. Because we hold that the bonus payments were not property of the Debtor's bankruptcy estate, we must reverse the bankruptcy court's: (a) revocation of the Debtor's discharge under 11 U.S.C. § 727(d)(2); 3 (b) avoidance of the transfer of the bonus funds under 11 U.S.C. § 549 and recovery of those funds under 11 U.S.C. § 550; and (c) granting the Trustee's motion for costs under Federal Rule of Bankruptcy Procedure 7054(b).
On January 19, 2009, the Debtor (together with her husband) filed a voluntary petition for relief under Chapter 7 of Title 11 of the United States Code (the “Bankruptcy Code”). In April 2009, an order was entered granting the Debtor and her husband a Chapter 7 discharge.
The Debtor has been employed by International Business Machines (“IBM”) since 1996, and she continued to be employed by IBM on the petition date. In October 2007 the Debtor changed her position at IBM to become the Client Executive for Oracle Alliance.
On the petition date, the Debtor was eligible to receive bonuses under two IBM programs: (a) the Excellence Award; and (b) the Growth Driven Profit (“GDP”) program. IBM determined bonuses using a calendar year. The bankruptcy court made extensive findings of fact, many of which are not relevant in light of our decision that the IBM bonuses were not property of the Debtor's estate. We set forth only those facts that are relevant to our decision.
The Excellence Award was a quarterly bonus program whereby, each quarter, IBM was permitted to allocate funds for Excellence Awards to work teams. The team supervisor was then charged with deciding, based on each member's performance during the quarter, how much, if any, of the Excellence Award funds for her team would go to each member. The decision to make an award was entirely within IBM's discretion. No member of the team was guaranteed an Excellence Award. The supervisor announced the awards after the close of the calendar quarter and, through the regular payroll process, IBM paid the bonuses about sixty days after the close of the quarter. In February 2009 (postpetition), the Debtor received an Excellence Award in the amount of $8,000 for work she had performed during the fourth calendar quarter of 2008.
In addition to the Excellence Award, the Debtor also received a GDP bonus. In March 2009, the Debtor received the GDP program payment of $16,072 for the year 2008. IBM based GDP bonus payments on the “personal business commitment” of an employee (an employee performance metric used by IBM) and IBM's year-over-year profit and growth. IBM usually paid these bonuses about sixty days after the January announcement of its operating results from the year. Like the Excellence Award, the decision whether to make a GDP program payment was in the complete discretion of IBM: the GDP program documents state that “[n]o employee earns or otherwise becomes entitled to payment, or any portion of a payment, under the GDP program prior to payment by IBM.”
Prior to filing her bankruptcy petition, the Debtor had completed all tasks within her control toward obtaining an award under either of the bonus programs. However, the awards to the Debtor of the Excellence Award and the GDP bonus were within the complete discretion of IBM; IBM had the right to decide it would not make any award to the Debtor under either program. No evidence indicated that IBM decided to make the awards to the Debtor prior to the petition date. And the Debtor was not notified that she would receive a payment under either program until after she filed her bankruptcy petition.
The Debtor did not disclose her eligibility for or any interest in the Excellence Award or a GDP bonus in her bankruptcy Schedules or Statement of Financial Affairs. Although the Debtor was notified that she would receive, and she had already been paid, the $8,000 Excellence Award by the time of her § 341 meeting of creditors, she did not bring this to the attention of the Trustee. After the § 341 meeting, the Debtor received the GDP bonus. After her § 341 meeting, the Debtor engaged in communications with the Trustee regarding her receipt of the Excellence Award for the fourth quarter of 2008, but she did not mention the GDP bonus to the Trustee.
The Trustee brought an adversary proceeding against the Debtor, asserting five counts in his Complaint: Count I was a state law claim for conversion of the two bonus payments; Count II was a state law civil theft claim; Count III was withdrawn before trial; Count IV was a claim for avoidance and recovery under Bankruptcy Code §§ 549 and 550 based on the Debtor's alleged postpetition transfer of the IBM bonuses to herself; and Count V sought revocation of the Debtor's discharge under Bankruptcy Code § 727(d)(2).
Through a July 2011 order, the bankruptcy court granted partial summary judgment. As stated by the bankruptcy court in its “ Findings of Fact, Conclusions of Law, and Order for Judgment on Counts Four and Five and Report and Recommendation on Counts One and Two ” (the “Findings and Order”) issued after trial, the court's grant of summary judgment “held that the bonuses were contingent interests, received for work completed prepetition, and were thus property of the bankruptcy estate under 11 U.S.C. § 541(a)(1).” 4 In its Findings and Order, the bankruptcy court ordered that: (a) pursuant to § 727(d)(2), the Debtor's discharge would be revoked (Count V); and (b) pursuant to §§ 549 and 550 (Count IV), the Trustee could recover from the Debtor the value of the two bonuses. The bankruptcy court issued a report and recommendation to the District Court on Count I (state law conversion) and Count II (state law civil theft).
Upon the motion of the Trustee, the District Court dismissed Counts I and II of the Complaint, quoting the bankruptcy court and stating that such dismissal had no effect on the determination that “the bonuses in the amount of $24,072 received postpetition by Defendant Michelle Ann Klein–Swanson are property of the bankruptcy estate,” and it remanded the action to the bankruptcy court for entry of judgment on Counts IV and V. Thereafter, the bankruptcy court issued a single document entering judgment against the Debtor under Counts IV and V, and granting a motion by the Trustee for costs under Federal Rule of Bankruptcy Procedure 7054(b).
A bankruptcy court's findings of fact are reviewed for clear error and its conclusions of law are reviewed de novo. Drewes v. Vote (In re Vote), 276 F.3d 1024, 1026 (8th Cir.2002) (citations omitted). “Whether property is included in the bankruptcy estate is a question of law.” Id. (citing Ramsay v. Dowden (In re Cent. Ark. Broad. Co.), 68 F.3d 213, 214 (8th Cir.1995) (citation omitted)); Law v. Stover (In re Law), 336 B.R. 780, 781 (8th Cir. BAP 2006). The bankruptcy court's grant of summary judgment is reviewed de novo. Paul v. Allred (In re Paul), 488 B.R. 104, 106–07 2013 WL 709562, at *2 (8th Cir. BAP Feb. 28, 2013) (citing Peter v. Wedl, 155 F.3d 992, 996 (8th Cir.1998)).
Section 541 of the Bankruptcy Code defines property of a debtor's bankruptcyestate broadly to include generally “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). Also included in the definition of “property of the estate” are: “(6) [p]roceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case” and “(7) [a]ny interest in property that the estate acquires after the commencement of the case.” 11 U.S.C. §§ 541(a)(6) and (7). The party seeking to include property in the estate bears the burden of showing that the item is property of the estate. DeBold v. Case (In re Tri–River Trading, LLC), 329 B.R. 252, 263–64 (8th Cir. BAP 2005), aff'd452 F.3d 756 (8th Cir.2006).
“The legislative history of the 1978 Bankruptcy Code makes clear that despite the broad scope of § 541, it ‘is not intended to expend [sic] the debtor's rights against others more than they exist at the commencement of the case.’ ” Vote, 276 F.3d at 1026 (quoting S.Rep. No. 95–989, at 82, reprinted in 1978 U.S.C.C.A.N. 5787, 5868.).
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...is not rooted in the pre-bankruptcy past.").145. In re Dittmar, 618 F.3d at 1213 (Holloway, J., dissenting); see also In re Klein-Swanson, 488 B.R. 628, 633 (B.A.P. 8th Cir. 2013) (finding that bonus payments due after filing are not property of the estate because the employer had "absolute......