United States Court of Appeals

FOR THE EIGHTH CIRCUIT

_____________

No. 01-1312MN

_____________

In re: Susan E. Wick, *

*

Debtor. *

*

John R. Stoebner, *

* On Appeal from the 

Trustee-Appellant, * United States District Court 

* for the District of 

v. * Minnesota.

*

*

Susan E. Wick; Teaching Temps, Inc.; *

Nichols Kaster & Anderson, *

*

Claimants-Appellees. *

___________

Submitted: October 19, 2001

Filed: January 9, 2002

___________

Before BOWMAN, RICHARD S. ARNOLD, and HANSEN, Circuit Judges.

___________

RICHARD S. ARNOLD, Circuit Judge.

The trustee in bankruptcy appeals the District Court’s decision that Susan

Wick, the debtor, is entitled to the entire amount of proceeds from stock options that

were not yet vested when she filed for Chapter 7 bankruptcy. The District Court held
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that the options were fully exempted, and that, in any event, the trustee’s failure to

object to the exemption within 30 days barred the estate from receiving the proceeds.

We reverse. We hold that Ms. Wick exempted the options only partially. The estate

is therefore entitled to the part of the options’ value that is the result of Ms. Wick’s

pre-petition services, less her exemption amount. Accordingly, we remand for entry

of judgment in favor of the trustee for $28,475. 

I.

On July 29, 1997, Ms. Wick filed for Chapter 7 bankruptcy. On Schedule B,

Personal Property, she listed as an asset the “[p]otential right to receive percentage

interest in Teaching Temps, Inc. under employment agreement” and stated its current

market value as “[u]nknown.” Ms. Wick had received this contingent stock option

as part of the sale of her company, Teaching Temps, Inc., in March 1997 to Joseph

Noonan. In order to receive a 24.5% share of the company’s stock, Ms. Wick was

required to remain an employee of Teaching Temps until March 1998, one year

following the date of the agreement. 

Ms. Wick also listed her stock options on Schedule C, Property Claimed as

Exempt. Using the federal “wild card” or “catchall” exemption, 11 U.S.C. §

522(d)(5), as the statutory basis, Ms. Wick listed the stock options, stating the current

market value of the options as “unknown” and the value of her claimed exemption as

“unknown.”

 

At the meeting of creditors, the trustee in Ms. Wick’s case had the opportunity

to question Ms. Wick about the stock options. He requested and received from her

a copy of the employment agreement that described the options. The trustee did not

object to the exemption at that time. On November 4, 1997, Ms. Wick received a

discharge of her debts. She continued to work for Teaching Temps. 
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Eight months later, in July 1998, the trustee wrote to Ms. Wick, asking whether

she was still employed with Teaching Temps and whether she had exercised her

stock-option rights. Ms. Wick responded that she was no longer employed at

Teaching Temps and that she had attempted to exercise her options in April 1998 but

had been “denied.” Her veracity was later questioned by the trustee and the

Bankruptcy Court, because while at the time of her letter she may have believed she

had been fired and would not receive her options, she actually returned to work a few

days later and received her stock certificates in September 1998. Thus, while Ms.

Wick may not have lied to the trustee in her letter, she was not entirely candid and

never informed him of the changed circumstances.

 

On October 2, 1998, Ms. Wick sued Mr. Noonan and Teaching Temps in state

court, requesting a court-ordered buyout of her company stock as authorized by

Minnesota law. On October 23, 1998, Ms. Wick’s bankruptcy case was closed. On

February 26, 1999, shortly before the start of the state trial, the trustee informed Ms.

Wick and Mr. Noonan that he was asserting a claim to Ms. Wick’s stock rights.

However, he did not participate in the trial. The state court ordered the buyout Ms.

Wick requested, valuing her 24.5% share of Teaching Temps at $97,200. The trustee

petitioned to re-open the bankruptcy case and demanded turnover of the $97,200 (the

value of Ms. Wick’s stock) minus the $3,925 exemption.

 

The Bankruptcy Court held a hearing to determine the parties’ rights in the

proceeds of the options. Stoebner v. Wick (In re Wick), 249 B.R. 900 (Bankr. D.

Minn. 2000). It recognized that the closing of a bankruptcy case normally results in

a technical abandonment to the debtor of all unadministered property under § 554(c),

but found that when a debtor gives a trustee false or incomplete information about an

asset, the abandonment is revocable. Neither party contests this ruling. With regard

to the options, the Court found that Ms. Wick’s use of “unknown” for the exemption

amount on her schedule should be construed against her, and that, on the facts of this
1

We calculate that one-third of $4,863 is $1,621, not $1,605 as Ms. Wick’s

counsel argued and both courts found. Since the figure does not affect our analysis,

for simplicity’s sake we use the $1,605 figure in this opinion. 

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case, Ms. Wick intended to exempt the stock options only partially, to the extent of

the remaining dollar amount allowed by law.

 

The Bankruptcy Court cited cases holding that if an asset appreciates postpetition, the estate, rather than the debtor, is entitled to that appreciation. However,

because the options were only one-third into their vesting period (four months of the

one-year period) when Ms. Wick filed for bankruptcy, the Court held that the estate’s

interest was limited to one-third of the option’s overall value minus Ms. Wick’s

$3,925 exemption. The Court ruled that Ms. Wick was entitled solely to the

remaining two-thirds of the options’ value because she had worked for eight months

post-petition to complete the vesting period, and the Bankruptcy Code excludes postpetition earnings from the services of an individual debtor from the bankruptcy estate

under 11 U.S.C. § 541(a)(6). Therefore, the Bankruptcy Court ordered that the

trustee receive $28,475 of the $97,200 at issue. In so doing, it rejected the argument

that Taylor v. Freeland & Kronz, 503 U.S. 638 (1992), barred any judgment in the

trustee’s favor because he failed to object within the 30-day limit provided by Federal

Rule of Bankruptcy Procedure 4003(b). The Bankruptcy Court distinguished Taylor

in several ways and held it inapplicable.

On appeal, the District Court reversed. Stoebner v. Wick (In re Wick), 256

B.R. 618 (D. Minn. 2001). The Court held that Ms. Wick had exempted the entire

asset. It began by valuing the options on the day of filing at $4,863, using trial

evidence introduced by Ms. Wick’s expert witness. Then, it limited the estate to a

one-third interest ($1,605)1

 in the $4,863 because the bankruptcy was filed one-third

of the way into the one-year vesting period. Because Ms. Wick’s available exemption

value ($3,925) exceeded the estate’s one-third interest ($1,605), the Court held that
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the asset was fully exempted, “fell out” of the estate, and vested wholly in the debtor.

Additionally, the Court held that Taylor barred the trustee from challenging the value

of the exemption beyond the 30-day deadline. Accordingly, the Court ordered that

Ms. Wick receive the entire amount of the cash value of the stock, $97,200. 

II.

The trustee appeals, arguing that the Bankruptcy Court correctly determined

the parties’ relative interests. He contends that the estate was entitled to all the

appreciation on one-third of the options, less Ms. Wick’s exemption. He also argues

that Taylor does not apply to the facts of this case. Our standard of review is the

same as that of the District Court. We review factual findings for clear error and legal

conclusions de novo. Northwest Vill. Ltd. v. Franke (In re Westpointe, L.P.), 241

F.3d 1005, 1007 (8th Cir. 2001). We conclude that the trustee is right. The

Bankruptcy Court properly granted the estate one-third of the options’ appreciated

value, minus the debtor’s exemption.

 

The parties agree that upon filing Ms. Wick’s options became property of her

bankruptcy estate. 11 U.S.C. § 541(a)(1) ("[A]ll legal or equitable interests of the

debtor in property as of the commencement of the case” are in the estate). The fact

that the options were unvested and contingent on Ms. Wick’s continued employment

does not alter the fact that they were property of the estate. See Allen v. Levey (In

re Allen), 226 B.R. 857, 865-66 (Bankr. N.D. Ill. 1998) (“A contingency is no bar to

property interest becoming property of the bankruptcy estate, even if the contingency

requires additional post-petition services, and even if the right to enjoyment of the

property may be defeated.”).

Section 522 of the Bankruptcy Code allows debtors to exempt property from

the estate, subject to certain limitations. Ms. Wick sought to exempt her stock

options and listed the options on her exemption schedule. She listed “unknown” as
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the current market value of the options. This designation was presumably designed

to reflect the fact that contingent, unvested options are not easy to value. Under the

federal exemption scheme applicable to her case, Ms. Wick had available to her the

“wildcard” exemption of 11 U.S.C. § 522(d)(5) that allows a debtor to claim as

exempt an interest in any property, up to a dollar limit. The parties agree that Ms.

Wick had $3,925 left for her use after exempting other property. They disagree,

however, on whether Ms. Wick intended to exempt the asset in full or in part.

We believe the Bankruptcy Court correctly determined that the options were

partially exempted. The facts suggest that Ms. Wick, her counsel, and the trustee

understood that the options were only partially exempt. The trustee requested a copy

of the employment agreement and followed up on whether Ms. Wick’s options had

vested. These actions were logical only if he believed the estate had an ongoing

interest in the options. Then, the trustee took Ms. Wick’s assurance that her options

were denied at face value. In her response to the trustee, Ms. Wick did not question

the trustee’s follow-up on the options, which suggests that she too understood that the

options were only partially exempt. Further, Ms. Wick’s counsel acknowledged in

a July 22, 1999, letter to the trustee that the estate had at least some, if a minimal,

interest in the options. In re Wick, 249 B.R. at 907. (“[I]t is our position . . . that we

have claimed the majority of [the options] as exempt.”) 

 

We reject Ms. Wick’s contention that listing “unknown” as the current market

value of the exemptions is sufficient as a matter of law to make an asset fully exempt.

Indeed, it may signal nothing more than that the asset has not been valued or that the

debtor is unsure of how to come up with an accurate market value. While it is true

the trustee did not object to Ms. Wick’s exemption, this does not mean that the asset

was fully exempted. Here, when a specific dollar figure given by statute limited the

amount of the exemption, and the trustee did not forsake an interest in the options,

either through inadvertence or misjudgment, listing “unknown” does not, by itself,
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render the options fully exempt. Ms. Wick exempted only up to $3,925 of the value

of the options, not the entire asset. 

Having determined that the options were only partially exempted, we must

decide how to divide the proceeds from the options between Ms. Wick and the estate.

The options greatly appreciated in value when they vested and were liquidated by

court order. As a result, $97,200 is at issue between the parties. In this case,

determining whether the estate or the debtor is entitled to the appreciation on options

is complicated by 11 U.S.C. § 541(a)(6). This provision excludes from property of

the estate “earnings from services performed by an individual debtor after the

commencement of the case.” Therefore, the estate’s interest is limited to the pro rata

portion of the proceeds that are related to the debtor’s pre-petition services. Allen,

226 B.R. at 867. An individual debtor is entitled to any appreciation that results from

post-petition services. 11 U.S.C. § 541(a)(6).

 

The Bankruptcy Court used the date when Ms. Wick filed bankruptcy to divide

the appreciation between pre- and post-petition earnings. In other words, the Court

gave the estate the pro rata portion of the options that corresponds to the percentage

of the vesting period that had passed before Ms. Wick filed bankruptcy. We agree

with this approach. The terms of the stock-option agreement required Ms. Wick to

work for one year following the agreement in order for the options to vest. At the time

of filing, she had worked for four months. The estate is entitled to the benefit from

this pre-petition labor. Since four months is one-third of the one-year vesting period,

the estate is entitled to one-third of the final, appreciated value of the stock, less the

exempted amount. (One-third of $97,200 is $32,400. Ms. Wick’s exemption of

$3,925 is subtracted from the $32,400, leaving $28,745 as the estate’s interest.)

Judgment should enter in favor of the trustee in the amount of $28,745.

 

Ms. Wick is entitled to the rest of the proceeds from the appreciated stock

options. She completed the vesting period when she continued to work for eight
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months after filing for bankruptcy. Eight months is two-thirds of the one-year vesting

period, and so she may retain this pro rata portion of the appreciation, which is the

result of her post-petition services. Therefore, Ms. Wick receives the benefit of her

post-petition labor, as mandated by 11 U.S.C. § 541(a)(6). 

III.

The parties have argued vigorously over the effect of the Supreme Court’s

decision in Taylor v. Freeland & Kronz, 503 U.S. 638 (1992), on this case. In Taylor,

the debtor listed a lawsuit with “unknown” value on her exemption schedule. Id. at

640. The debtor told the trustee that she estimated she might win $90,000 in the suit.

Id. The trustee did not object, despite the fact that the debtor had only a small

exemption amount available and was claiming the entire asset exempt. Id. at 642.

Taylor stated that he doubted that the lawsuit would have value, saying it might be

a “nullity.” Id. at 641. When the debtor was awarded $110,000 in her lawsuit, the

trustee demanded that the debtor turn over the money. Id. The Supreme Court held

that the trustee’s failure to object, when he could have made a valid objection if he

had acted promptly, prevented him from later challenging the validity of the

exemption. Id. at 642.

In this case, we are not confronted with a trustee who believed the asset was

worthless. The trustee in Ms. Wick’s case consistently expressed an interest in the

asset. Further, Ms. Wick listed a valid statutory basis for her asset, § 522(d)(5), and

had sufficient exemption value left to exempt the options partially. The Bankruptcy

Court was correct–the trustee had no basis to object to Ms. Wick’s claimed

exemption. While such an objection perhaps would have led to an earlier resolution

of the parties’ interests, the estate is not barred from recovery because no timely

objection was made.

 
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The District Court found Taylor to be controlling authority. Because we hold

that the asset was only partially exempted, our application of Taylor differs. We do

not think that the Bankruptcy Code and Rules oblige a trustee to object every time a

debtor partially exempts an asset in order to preserve the estate’s interest. Since

exemptions are routinely smaller than the assets they are designed to protect (for

example, with homes), objections would multiply greatly if Taylor were read so

broadly. Further, in these situations, the judge would have nothing to determine after

the objections, except that the debtor is exempting the asset to the extent the Code

allows–a result that is clear from the face of the exemption schedule and § 522. In

Taylor, the Court found that the debtor “in fact claimed the full amount as exempt”

but did not have a right to exempt more than a small portion of the asset. 503 U.S.

at 642. The Court went on to note specifically that the trustee “as a result, apparently

could have made a valid objection under § 522(l) and Rule 4003 if he had acted

promptly.” Id. This case is distinguishable, and we therefore hold that Taylor does

not bar the estate’s interest. 

The judgment of the District Court is reversed. We remand for entry of an

order affirming the judgment of the Bankruptcy Court. 

A true copy. 

Attest:

 CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.