# U ni te d S ta te s B an kr up tc y A pp el la te P an el

For the Eig hth Circu it

__ __ __ __ __ __ __ __ __ __ __ __ __ _

No. 1 2- 60 54

__ __ __ __ __ __ __ __ __ __ __ __ __ _

In re: Mi ch el le Ann Klei n- Swan so n, As su ret y for Yarn Café Inc .; Sc ot t Lawre nc e
Swan so n, As su ret y

for Yarn Café Inc

.

ll ll ll ll ll ll ll ll ll ll l Deb to r s

----- ----- ----- ----- ----- -----

Ran da ll L. Seav er, Tru st ee

ll ll ll ll ll ll ll ll ll ll l Pla in ti

ff - App el le e

v.

Mi ch el le Ann Klei n- Swan so n

ll ll ll ll ll ll ll ll ll ll l Defe nd

an t - Ap pe ll an t

__

__ __ __ __ __

App eal fro m

Uni te d S ta te s B an kr up tc y Co ur t

fo r th e Dis tri ct of M in ne so ta - Mi nn eap ol is

__

__ __ __ __ __

Su bm it te d: Feb ru ary 21 , 20 13

Fil ed : M arch 22 , 20 13

__ __ __ __ __ __

Befo re FEDERMAN, Ch ie f Ju dg e, SCHERM ER an d NAIL, Ban kr up tc y Ju dg es

.

__ __ __ __ __ __

SCHERMER , Ban kr up tc y Ju dg eMi ch el le Ann Klei n- Swan so n (th e “ Deb to r”) ap pe al s fro m a jud gm en t of th e 1

ba nk ru pt cy co ur t: (a) rev ok in g th e Deb to r’s di sc ha rg e pu rs u a n t to 11 U.S.C. §

72 7( d) (2 ); (b ) av oi di ng th e tra ns fer un de r 11 U.S.C. § 5 4 9 o f bo nu s fu nd s sh e

2

rece iv ed po st pe ti ti on fro m he r em pl oyer an d en te rin g jud gm en t fo r reco ve ry of th os e

fu nd s by t h e Ch ap te r 7 tru st ee, Ran da ll L. Seav er (th e “ Trus te e”), pu rs ua nt to 11

U.S.C. § 55 0; an d (c) gr an ti ng a m ot io n fo r co st s fil ed by th e Trus te e pu r su an t to

Fed eral Ru le of Ban kr up tcy Pr oc ed ur e 70 54 (b ). W e ha ve juri sd ic ti on ov er th is ap pe al

fro m t h e f

i n a l ju d g ment of th e ba nk ru pt cy co ur t. Se e 28 U.S.C. § 15 8( b)

. Fo r th e

reas on s s et for th be lo w, we rev ers e.

IS SUE

Th e cen tra l is su e in th is ap pe al is whe th er bo nu s pa y m en ts re c e i v e d

po st pe ti ti on by th e Deb to r fro m he r em pl oyer were pr o p e rty of th e Deb to r’s

ba nk ru pt cy es ta te pu rs ua nt to 11 U.S.C. § 5 4 1

. B e c au se we ho ld th at th e bo nu s

pa y m en ts were n ot pro pe rty o f th e Deb to r’s ba nk ru pt cy es ta te , we m us t re ve rs e th e

b a nk ru pt cy co ur t’s: (a) rev oc at io n of th e Deb to r’s di sc ha rg e un de r 11 U.S

. C

. §

72 7( d) (2 ); (b ) av oi da nc e of th e tra ns fer of th e b o n u s f u nd s un de r 11 U.S.C. § 54 9 3

In he r Not ic e o f App eal , th e Deb to r st at es th at sh e al so ap pe al s fro m a 1

Ju ly 20 11 or de r gr an ti ng su m m ary jud gm en t. The su m m ary jud gm en t or de r was no t

a fin al or de r. Rat he r, th e de ci si on reac he d in th at or de r was i n c o r p o r a t e d in to th e ba nk ru pt cy

co ur t’s jud gm en t o f Sep te m be r 20 , 20 12

.

The ba nk ru pt cy c ou rt’s jud gm en t erro ne ou sl y ci te s 11 U.S.C. § 2

70 7( d) (2 ), rat he r th an 11 U.S.C. § 72 7( d) (2 ), wit h res pe ct to r e v o c a t i o n of th e Deb to r’s di sc ha rg e, whi ch we con si de r to be a typo gr ap hi cal erro r.

The ba nk ru pt cy co ur t di sc us se d va rio us omis si on s an d m is st at em en ts 3

th at it be li ev ed th e Deb to r m ad e on he r Sch ed ul es an d St at em en t of Fi na nc ia l Affai rs

ot he r th an th e Deb to r's fai lu re to di sc lo se th e bo nu se s fro m he r em pl oyer. Howev er, th e Trus te e’s Co m

pl ai nt sp eak s on ly of th e bo nu se s an d t h e Tr us te e co nc ed ed as

m uc h at tri al whe n hi s co un se l sa id “ [n ]ow, we’re on ly se ek in g an d I th in k we m ad e th is cl ear to rev ok e ba se d up on he r co nc eal m en t of th e two bo nu se s an d fai lu re to

-2

-an d reco ve ry o f t h o s e fu nd s un de r 11 U.S.C. § 55 0; an d (c) gr an ti ng th e Trus te e’s

m ot io n fo r co st s u nd er Fe de ral Ru le of B an kr up tc y Pro ced ur e 7 05 4( b)

.

BACKGRO UND

On Ja nu ary 19

, 20 09

, th e Deb to r (to ge th er wit h he r hu sb an d) fil ed a vo lu nt ary

pe ti ti on fo r rel ie f un de r Ch ap te r 7 of Tit le 11 of th e Uni te d St at es Co de (th e

“ Ban kr up tc y Co de ”). In Apr il 20 09

, an or de r was en te red gr an ti ng th e Deb to r an d

he r hu sb an d a Ch ap te r 7 d is ch arg e.

The Debt or

ha s b een em

pl oyed b y In te rn at io na l Bus in es s Mach in es (“ IBM ”)

s in ce 19 96

, an d sh e co nt in ue d to be em pl oyed by IBM on th e pe ti ti on d a t e

. I n

Octo be r 20 07 th e Deb to r ch an ge d he r po si ti on at IBM to be co m e th e Cl ie nt Exe cu ti ve

fo r Oracl e All ia nc e.

On th e pe ti ti on da te

, th e Deb to r was el ig ib le to rece iv e bo nu se s un de r two IBM

pr og ram s: (a) th e Exc el le nc e Award ; an d (b ) th e G r o w t h Driv en Pro fit (“ GDP”)

pr og ram

. IBM de t e r m in ed bo nu se s us in g a cal en da r y ear. The ba nk ru pt cy co ur t

m ad e e x te ns iv e fin di ng s of fact

, m an y of whi ch are no t rel ev an t in li gh t of ou r

de ci si on th at th e IBM bo nu se s were no t pr op ert y of th e Deb to r’s es ta te

. W e se t fo rth

on ly tho se fact s t ha t ar e rel ev an t t o o ur de ci si on

.

The Exc el le nc e Award was a qu art erl y bo nu s pr og ram whe reb y , each qu art er,

IBM was pe rm it te d to al lo cat e fu nd s fo r Exc el le nc e Award s to wor k te am s. The te am

su pe rv is or was th en ch arg ed wit h de ci di ng
, ba se d on each mem be r’s pe rfo rm an ce

du rin g th e qu art er, ho w m uc h, if an y , of t h e Ex c e l l e nc e Award fu nd s fo r he r te am

di sc lo se an d fai lu re to pa y th em ov er. The ot he r th in gs th at we ta lk ed ab ou t, th e ei gh t

or ni ne or te n th in gs
, were al l in tro du ced to es ta bl is h th e req ui si te frau du le nt in te nt .”

The ba nk ru pt cy co ur t di sc us se d th e Deb to r’s ot he r om is si on s an d mi ss ta te m en ts to

de m on st rat e th e Deb to r’s frau du le nt in te nt reg ard in g th e bo nu se s, an d it rev ok ed th e Deb to r’s di sc ha rg e so le ly ba se d on th e Deb to r’s co nd uc t wit h res pe ct to th e bo nu se s.

-3

-wou ld go to each m em be r. The de ci si on to m ak e an award was en ti rel y wit hi n IBM ’s

di sc ret io n. No m em

be r of th e te am was gu aran te ed an Exc e l le nc e Award

. The

su pe rv is or an no un ced th e award s aft er th e cl os e of th e cal en da r qu art er an d, th ro ug h

th e reg ul ar pa y ro ll pr oc es s, IBM pa id th e bo nu se s ab ou t si xt y da y s aft er th e cl os e of

th e qu art er. In Feb ru ary 20 09 (p os tp et it io n)

, th e Deb to r rece iv ed an Exc e l l e n c e

Award in th e am ou nt o f $8 ,00 0 fo r wor k sh e ha d pe rfo rm ed du rin g th e fo ur th

cal en da r qu art er o f 20 08

.

In ad di ti on to t he Exc el le nc e Award , t he Deb to r al so rece iv ed a GDP bo nu s.

I n M a r c h 2 00 9, th e Deb to r rece iv ed th e GDP pr og ram pa y m en t of $1 6,0 72 fo r th e

y ear 20 08

. IBM ba se d GDP bo nu s pa y m en ts on th e “ pe rs on al bu si ne ss co m m it m en t”

of an em pl oyee (an em

pl oyee pe rfo rm an ce met r i c u se d by IBM ) an d IBM ’s y earov er-year pr of

it an d gr owt h. IBM us ua ll y pa id th es e bo nu se s ab ou t si xt y da y s aft er

th e Ja nu ary an no un cem en t of it s op erat in g res ul ts fro m th e y ear. Lik e th e Exc el le nc e

Award

, th e de ci si on whe th er to m ak e a GDP pr og ram pa y m en t was in th e co m pl et e

di sc r e t i on of IBM : th e GDP pr og ram do cu m en ts st at e th at “ [n ]o e m pl oyee earn s or

ot he rwis e be co m es en ti tl ed to pa y m en t, or an y po rti on of a pa y m en t, un de r th e GDP

pr og ram pri or to pa y

m en t b y IBM.”

Pri or to fil in g he r ba nk ru pt cy pe ti ti on
, th e Deb to r ha d co mp l e t ed al l ta sk s

wit hi n he r c o n t r ol to ward ob ta in in g an award un de r ei th er of th e bo nu s pr og ram s.

Howev er, th e award s to th e Deb to r of th e Exc el le nc e Award an d th e GDP bo nu s were

wit hi n th e co m

pl et e di sc ret io n of IBM ; IBM ha d th e rig ht to de ci de it wou ld no t m ak e

an y awa r d t o t h e D eb to r un de r ei th er pr og ram

. No ev id en ce in di cat ed th at IBM

de ci de d to m ak e th e award s to th e Deb to r pr io r to th e pe ti ti on da te

. And th e Deb to r

was no t no ti fie d th at sh e wou ld rece iv e a pa y m en t un de r ei th er pr og ram un ti l aft er sh e

fil ed he r ba nk ru pt cy

pe ti ti on

.

The Deb to r di d no t di sc lo se he r el ig ib il it y fo r or an y in te res t in th e Exc el le nc e

Award or a GDP bo nu s in he r ba nk ru pt cy Sch ed ul es or S t a t em en t of Fi na nc ia l

-4

-Affai rs

. Alt ho ug h th e Deb to r was no ti fie d th at sh e wou ld rece i v e
, a n d sh e ha d

al read y be en pa id

, th e $8 ,00 0 Exc el le nc e Award by th e ti m e of he r § 34 1 m eet in g of

c red it or s, sh e di d no t br in g th is to th e at te nt io n of th e Trus te e. Afte r t h e § 3 4 1

m eet in g, th e Deb to r rece iv ed th e GDP bo nu s. Afte r he r § 34 1 m e e t i n g
, t he Deb to r

en ga ge d in co m

m un ic at io ns wit h th e Trus te e reg ard in g he r rece ip t of th e Exc el le nc e

Award fo r th e fo ur th qu art er of 20 08

, bu t sh e di d no t m en ti on th e GDP bo nu s to th e

Trus te e.

T he T rust ee br ou gh t an ad ve rs ary pr oc eed in g ag ai ns t th e Deb to r, as se rting fi ve

co un ts in hi s Co m

pl ai nt : Co un t I was a st at e la w c la im fo r co nv ers io n of th e two

bo nu s pa y m en ts ; Co un t II was a st at e la w ci vi l th eft cl ai m ; Co un t III was wit hd rawn

b e fo re tri al ; Co un t IV was a cl ai m fo r av oi da nc e an d reco ve ry un de r Ban k r u p t c y

Co de §§ 54 9 an d 55 0 ba se d on th e Deb to r’s al le ge d po st pe ti ti on tra ns fer of th e IBM

bo nu se s t o h ers el f; a nd Co un t V s ou gh t re vo cat io n o f th e Deb to r’s di sc ha rg e u nd er

Ban kr up tc y Co de § 7 27 (d )(2 ).

Th r o u gh a Ju ly 20 11 or de r, th e ba nk ru pt cy co ur t gr an te d pa rti al su m m ar y jud gm en t. As st at ed by t he ba nk ru p t c y c o u r t i n it s “ Fin di ng s of Fac t, Co nc lu si on s of La w, an d Ord er fo r Ju dg men t on Co un ts Fo u r an d Five an d Rep or t an d

Reco mmend

at io n o n C

ou nt s On e a nd Two ” (th e “ Fi nd in gs an d Ord er”) is su ed aft er

tri al

, th e co ur t’s gr an t of su m m ary jud gm en t “ he ld th at th e bo nu se s were co nt in ge nt

in te res ts

, rece iv ed fo r wor k co m pl et ed pr ep et it io n, an d were th us pr op ert y of th e

ba nk ru pt cy es ta te un de r 11 U.S.C. § 54 1( a)(1 ).” In it s Fi nd in gs an d Ord er, th e 4

ba nk ru pt cy co ur t o r d e red th at : (a) pu rs ua nt to § 72 7( d) (2 ), th e Deb to r’s di sc ha rg e

wou ld be rev ok ed (Co un t V); an d (b ) p u r s u a n t t o § § 54 9 an d 55 0 (Co un t IV), th e

Trus te e co ul d reco ve r fro m th e Deb to r th e va lu e of th e two bo nu se s. The ba nk ru pt cy

Sect io ns 54 1( a)(6 ) an d( 7) were al so di sc us se d in th e su m m ary jud gm en t 4
pl ead in gs

.

-5

-co ur t is su ed a rep or t an d reco m m en da ti on to th e Dis tri ct Co ur t on Co un t I (s ta te la w

co nv ers io n) an d C ou nt II (s ta te law ci vi l t he ft)

.

Upo n th e m ot io n of th e Trus te e, th e Dis tri ct Co ur t di sm is se d Co un ts I an d I I

of th e Co m

pl ai nt

, qu ot in g t he ba nk ru pt cy co ur t an d st at in g th at su ch di sm is sa l ha d

no effe ct on th e d et erm in at io n t ha t “ th e bo nu se s in th e am ou nt of $2 4,0 72 rece iv ed

po st pe ti ti on by Defen da nt Mi ch el l e A n n Klei n- Swan so n are pr op ert y of th e

ba nk ru pt cy es ta te

, ” a n d i t rem an de d th e act io n to th e ba nk ru pt cy co ur t fo r en try of

jud gm en t on Co un ts IV an d V

. Th erea fte r, th e ba nk ru pt cy co ur t is su ed a si ng le

do cu m en t en te rin g jud gm en t ag ai ns t th e Deb to r un de r Co un ts IV an d V, an d gr an ti ng

a m ot io n by th e Tr u s t e e f or co st s un de r Fed eral Ru le of Ban kr up tc y Pro ced ur e

70 54 (b ).

STANDARD OF REVIEW

A ba nk ru pt cy co ur t’s fin di ng s of fact are rev ie wed fo r cl ear erro r an d it s

co nc lu si on s of la w are rev ie wed de no vo

. Dre we s v. Vot e (In re Vot e)

, 27 6 F.3 d

10 24

, 10 26 (8 th Ci r. 20 02 ) (ci ta ti on s om it te d)

. “ W he th er pr op ert y is in cl ud ed in th e

b a n k r u p t c y es ta te is a qu es ti on of la w.” Id

. (ci ti ng Rams ay v. Dow de n (In re C e n t

. Ark. Bro ad

. Co

. ), 68 F.3 d 21 3, 21 4 (8 th Ci r. 19 95 ) (ci ta ti on om it te d) ); La w v. St ov er (In re La w)

, 33 6 B.R. 78 0, 78 1 (B.A.P. 8t h Ci r. 20 06 ). The ba nk ru pt cy co ur t’s gr an t

of su m m ary jud gm en t is rev ie wed de no vo

. Pau l v. All re d (In re Pau l)

,

__ _ B.R.

__ _, 20 13 W L70 95 62

, at *2 (B.A.P. 8t h Ci r. Feb

. 28

, 20 13 ) (ci ti ng Pete r v. W ed l

, 15 5 F.3 d

99 2, 9 96 (8t h C ir. 1 99 8) ).

DISCUSS IO N

I. 11 U.S.C. § 54 1( a)

Sect io n 54 1 of th e Ban kr

up tc y Co de de fin es pr op ert y of a de bt or ’s ba nk ru pt cy

es ta te br oa dl y to in cl ud e ge ne ral ly “ al l le ga l or eq ui ta bl e in te res ts of th e de b t or in

pr op ert y as of th e co m

m en cem en t of th e cas e.” 11 U.S.C. § 54 1( a)(1 ). Als o in cl ud ed

-6

-in th e de fin it io n of “ pr op ert y of th e es ta te ” are: “ (6 ) [p ]rocee ds

, pr od uc t, offs pr in g,

ren ts

, or pr of

it s of or fro m pr op ert y o f t h e es ta te

, ex cep t su ch as are earn in gs fro m

se rv ic es pe rfo rm ed by an in di vi du al de bt or aft er th e co m m en cem en t of th e cas e” an d

“ (7 ) [a]ny in te res t in pr op ert y th at th e es ta te acq ui res aft er th e co m m en cem en t of th e

cas e.” 11 U.S.C. §§ 54 1( a)(6 ) an d (7 ). The pa rty se ek in g to in cl ud e pr op ert y in th e

es ta te be ars th e bu rd en of sh owi ng th at th e it em is pr op ert y of th e es ta te

. DeBol d v.

Ca se (In re Tr i-Ri ver Tr ad in g, LLC)

, 32 9 B.R. 25 2, 26 3- 64 (B.A.P. 8t h Ci r. 20 05 ),

af f’d 45 2 F .3d 75 6 (8 th Cir . 20 06 ).

“ The le gi sl at iv e hi st or y of th e 19 78 Ban kr up tc y Co de m ak es cl ear th at de sp it e

th e br oa d sc op e of § 54 1, it ‘is no t in te nd ed to ex pe nd [s ic ] th e de bt or ’s rig ht s ag ai ns t

ot he rs m or e th an th ey ex is t at t h e co m m en cem en t of th e cas e.’ ” Vot e , 27 6 F.3 d at

10 26 (q uo ti ng S. Rep

. No. 95 -9 89

, at 82

, re pr in te d i n 19 78 U.S.C.C.A.N. 57 87

, 58 68 .).

“ Pro pe rty in te res ts are creat ed an d def in ed by st at e la w. Unl es s so m e fed eral

i n t e r e s t req ui res a di ffer en t res ul t, th ere is no reas on why su ch in te res ts sh ou ld b e

an al y zed di ffer en tl y si m

pl y be cau se an in te res te d pa rty i s in vo lv ed in a ba nk ru pt cy

pr oc eed in g.” Bu t n e r v. Uni te d St at es , 44 0 U.S. 48

, 55 (1 97 9) ; Rea ga n v. Reg io ns

Ban k (In re W

et ze l ), 64 9 F.3 d 83 1, 83 4- 3 5 (8 th Ci r. 20 11 ) (“ W hi le fed eral la w

co nt ro ls whe th er th e in te res t is pr op ert y of [th e de bt or ’s] ba nk ru pt cy es ta te

, [s ta te ]

la w def in es th e n at ur e an d e xt en t o f th at in te res t.”) (ci ta ti on s o m it te d)

.

A. 11 U.S.C. § 54 1( a) (1 )

The Trus te e cl ai m s th at (as th e ba nk ru pt cy co ur t de te rm in e d )

, a t t he

co m m en cem en t of th e Deb to r’s ba nk ru pt cy cas e, th e Deb to r ha d a co nt in ge nt in te res t

in th e IBM Exc el le nc e Award an d GDP bo nu s, ren de rin g su ch pa y m en ts pr op ert y of

th e Deb to r’s es ta te

. W e di sa gr ee. As of th e pe ti ti on da te

, th e Deb to r ha d no in te res t

(co nt in ge nt or ot he rwis e) in th e pa y m en ts fro m IBM be cau se IBM ha d t he ab so lu te

di sc ret io n to de ci de th at it wou ld no t m ak e an award to th e Deb to r un de r ei th er of it s

pr og ram s. The Trus te e as se rts th at th e es ta te ha d a co nt in ge nt in te res t in th e bo nu se s

-7

-be cau se th e Deb to r’s rece ip t of su ch bo nu se s c a me f ro m th e Deb to r’s pr ep et it io n

se rv ic es an d IBM bo nu s p r o g r a ms th at were in pl ace pr ep et it io n. The Trus te e al so

no te s th at th e Deb to r was el ig ib le fo r th e bo nu se s on th e pe ti ti on da te

. Bu t IBM di d

no t ex erci se it s di s c r e t i o n t o award th e bo nu se s un ti l po st pe ti ti on an d, as of th e

pe ti ti on da te

, th e Deb to r ha d no th in g m or e th an a ho pe or ex pe ct at io n th at sh e wou ld

rece iv e th e pa y m en ts

. The award s were m ad e po st pe ti ti on an d th ey rig ht fu ll y be lo ng

to th e Deb to r.

Acco rd in g to th e Trus te e, th e co nt in ge nc y th at ex is te d on th e pe ti ti on da te was

IBM ’s ex erci se of it s di sc ret io n to m ak e a w ard s to th e Deb to r. Bu t be fo re IBM

a ct ua ll y ex erci se d it s di sc ret io n po st pe ti ti on
, th e Deb to r ha d no in te res t in ei t h e r

bo nu s po ol

. The refo re, acco rd in g to th e Trus te e’s lo gi c, on th e pe ti ti on d a t e th e

Deb to r wou ld ha ve ha d a co nt in ge nt in te res t i n n ot hi ng

.

Und er Mi nn es ot a la w, no of fer ha s be en m ad e by an em pl oyer an d an em

pl oyee

ha s no co nt ract fo r fu nd s un de r an em pl oyer’s award p r o g r a m, w h en th e em pl oyer

m ai nt ai ns th e rig ht to de ci de in it s so le di sc ret io n w h e t h er it wil l award su ch fu nd s

to th e e m pl oyee. Se e Ch amb er

s v. Th e Tr av el er

s Co s., In c., 76 4 F. Su pp . 2 d 10 71

, 10 87 (D. Mi nn

. 20 11 ); af f’d 66 8 F.3 d 55 9, 56 5- 66 (8 th Ci r. 20 12 ); Gr e n i e r v

. Ai r
Exp re ss In t’l Co rp

., 13 2 F.Su pp 2d 11 98 (D. Mi nn . 2 00 1)

. The Trus te e ha s sh own

no ba si s fo r th e pr op os it io n th at th e Deb to r ha d a le ga l or e q u i ta bl e in te res t in th e

bo nu se s as of th e pe ti ti on da te

. He ci te s Bla cq ue v. Ka lma n, 30 N.W .2d 59 9 (Mi nn

. 19 48 ), as su pp or t fo r hi s be li ef th at th e Deb to r ha d a co nt in ge nt in te res t in th e award

pa y m en ts fro m IBM as of th e pe ti ti on da te

. The Bla cq ue co ur t de ci de d whe th er th e

pu rp os e of

crea ti ng a te st am en ta ry

tru st ha d b een ful ly accompli sh ed in li gh t of th e

in te res ts of co nt in ge nt be ne fic ia rie s. W e do no t in te rp ret th at cas e to de fin e whe th er

th e Deb to r ha d an in te res t, co nt in ge nt or ot he rwis e, fo r th e p ur po se s o f th is ap pe al

.

The fact s th at : (a) th e pa y m en ts fro m IBM t o th e Deb to r were ba se d on he r

pr ep et it io n em

pl oym en t; (b ) th e bo nu s pr og ram s ex is te d on th e pe ti ti on da te ; an d (c)

-8

-th e Deb to r was el ig ib le fo r th e bo nu se s on th e pe ti ti on da te

, do no t ren de r th e bo nu s

pa y m en ts pr op ert y of th e Deb to r’s ba nk ru pt cy es ta te

. In Dre wes v. Vot e (In re Vot e)

, 27 6 F .3d 10 24 (8t h Cir. 20 02 ), Mr. Vote (a farm er) had “ no in te res t o f an y ki nd ” in

go ve rn m en t com

pe ns at io n for cro p lo ss as of th e pe ti ti on da te

. Id

. at 10 27

. Rat he r,

aft er Mr. Vot e fil ed hi s ba nk ru pt cy pe ti ti on
, Co ng res s pa ss ed a la w th at pr ov id ed

as si s t a n c e t o farm ers an d Mr. Vot e rece iv ed pa y m en ts fro m th is pr og ram th at were

fo r hi s pr ep et it io n cro p lo ss es

. Id at 10 26

. The co ur t he ld th at th e pa y m en ts rece iv ed

by Mr. Vot e were n ot pro pe rty of h is ba nk ru pt cy est at e. Id

. at 10 26 -2 7. 5

The tru st ee in Vot e arg ue d th at th e cro p l o s s p ay m en ts were pr op ert y of th e

es ta te un de r Se

ga l v. Roc he ll e , 38 2 U

. S

. 3 7 5 (1 96 6)

. Id

. at 10 26

. The ba nk ru pt cy

co u r t an d th e Trus te e in th is cas e al so rel y on Se ga l

. In Se

ga l

, th e Su pr em e Co ur t

he ld th at a ta x refu nd lo ss -car ry ba ck cl ai m

was i nc lu de d i n p ro pe rty of t he de bt or s’

es ta te s whe re th e lo ss es oc cu rred pr ep et it io n an d th e t a x e s fo r th e carr y ba ck y ears

ha d be en pa id

, bu t th e refu nd co ul d n o t b e cl ai m ed un ti l po st pe ti ti on un de r th e

ap pl ic ab le ta x la ws. Se

ga l

, 38 2 U.S. 37 5. The Co ur t in Se ga l st at ed “ [t]ur ni ng to th e

lo ss -car ry ba ck refu nd cl ai m in th is cas e, we be li ev e it is su ffi ci en tl y ro ot ed in th e pr eba nk ru pt cy pa st an d so li tt le en ta ng le d wit h th e b a n k r u p t s’ ab il it y to m ak e an

un en cu m be red fres h st art th at it sh ou ld be reg ard ed as ‘pro pe rty’

. . . .” Id

. at 38 0. As

st at ed by th e Vot e co ur t “ [i]n Se ga l

, th e Co ur t he ld th at th e de bt or ha d a n e x i s t i n g

in te res t in a ta x refu nd an d fo un d th at th e de bt or ’s in te res t in a lo ss carr y ba ck un de r

th e ta x co de was ‘suf

fic ie nt ly ro ot ed in th e pr e-b an k r u p tc y pa st ’ to be in cl ud ed as

pr op ert y of t he est at e.” Vot e , 27 6 F .3d at 1 02 6 (q uo ti ng Se ga l , 38 2 U.S. at 38 0)

.

The Vot e co ur t di st in gu is he d th e fact s in th at cas e fro m th e fact s in Se ga l

. It

no te d th at th e ap pl ic ab le la w in Se ga l was in pl ace on th e pe ti ti on da te an d, th eref or e,

th e Se ga l de bt or s ha d an “ ex is ti ng in te res t” in a ta x refu nd on th e pe ti ti on da te

. Vot e ,

The Vot e co ur t al so reject ed an arg um en t by t he Trus te e m ad e un de r § 5

54 1( a)(7 ). W e d is cu ss § 5 41 (a)( 7) in m or e d et ai l b el ow.

-9

-27 6 F.3 d at 10 26

. In Vot e , t he rel ev an t la w h ad n o t b e e n e n a c t ed as of th e pe ti ti on

da te an d Mr. Vot e ha d “ a m ere ho pe th at hi s lo ss es m ig ht ge ne rat e rev en ue in th e

fu tu re.” Id

. The Vot e co ur t fo un d it im po rta nt th at th e es ta te no t ob ta in rig ht s gr eat er

th an wha t Mr. Vot e he ld on th e pe ti ti on da te

. Id

. (“ To fi n d f o r t h e t ru st ee on th e

ba si s th at th e pa y m en ts were ‘suf fic ie nt ly ro ot ed ’ wou ld al lo w th e tru st ee to as se rt

m or e ri gh ts th an [Mr.] Vot e h ad at t he co m m en cem en t o f hi s ca se .”).

The fact s of th is cas e are al so di st in gu is ha bl e fro m th os e in Se ga l

, an d rel ia nc e
by th e ba nk ru pt cy co ur t on Se ga l ‘s “ su ffi ci en tl y ro ot e d ” t e s t was im pr op er. Eve n

th ou gh th e Se

ga l de bt or s co ul d no t fo rm al ly m ak e t h e l o s s- carr y ba ck refu nd cl ai m

un de r th e ap pl ic ab le st at ut es un ti l a da te po st pe ti ti on
, th e lo ss es ha d al read y oc cu rred

an d th e de bt or s ha d an in te res t in th e refu nd as of th e pe ti ti on da te

. The ta x la ws were

se t an d al l th at was le ft fo r th e de bt or s to do was to m ak e th e cl ai m

. In co nt ras t, th e

de ci si on whe th er to m ak e th e award pa y m en ts was co m pl et el y wit hi n IBM ’s co nt ro l.

Lik e Mr. Vo te , as o f th e p et it io n d at e th e Deb to r ha d no th in g m or e th an a h op e th at

sh e wou ld rece iv e th e awar d p ay m en ts fro m IBM

. To co ns id er th e pa y m en t to be

pr op ert y of he r es ta te si m pl y be cau se it rel at ed to he r pr ep et it io n em pl oym en t wou ld

be to gi ve th e b an kr up tc y est at e m or e th an th e Deb to r ha d o n t he pe ti ti on da te

.

The ba nk ru pt cy co ur t an d th e Trus te e m ai nt ai n th at St oe bn er v

. Wi c k ( In re

W ic k), 27 6 F.3 d 41 2 (8 th Ci r. 20 02 ), af f’g 24 9 B.R. 90 0 (Ban kr

. D. Mi n n

. 2 0 0 0 )

,

su pp or ts th e pr op os it io n th at th e Deb to r’s IBM bo nu se s were pr op ert y of th e es ta te

. As pa rt of th e sa le of Ms . Wick ’s c om pa ny, Ms . Wick ha d t he op ti on to req ui re t he

co m pa ny to is su e to he r sh ares of th e co m pa ny’ s st oc k aft er sh e rem ai ne d an

em pl oyee of th e co m

pa ny fo r on e y ear po st -s a l e

. I d a t 41 4. Ms

. W ic k fil ed he r

Ch ap te r 7 ba nk ru pt cy pe ti ti on fo ur m on th s in to th e on e-year pe rio d. Id at 41 3. The

Eig ht h Ci rcu it no t e d th at “ [t]he pa rti es ag ree th at up on fil in g Ms

. W ic k’s op ti on s

be cam e pr op ert y of he r b a n k r u p t c y es ta te .” Id

. at 41 5. And th e co ur t st at ed th at

“ [t]he fact th at th e op t i o n s w e r e un ve st ed an d co nt in ge nt on Ms . Wick ’s c on ti nu ed

-1 0-em

pl oym en t do es no t al te r th e fact th at th ey were pr op ert y of th e es ta te .” Id

. (ci ti ng

All en v. Leve

y (In re Al le n) , 22 6 B .R. 85 7, 8 65 -6 6 (B an kr . N.D. Ill . 19 98 ). 6

On th e pe ti ti on da te Ms

. W i c k h a d a n i n te res t in pr op ert y , as st at ed by th e

ba nk ru pt cy co ur t, Ms

. W ic k ha d “ a co nt ra ct ri gh t to rece iv e st oc k in [th e co m pa ny]

,

co nt in ge nt up on [Ms .] W ic k co m pl et in g on e y ear of em

pl oym en t.” St oe bn er v. W ic k

(In re W ic k)

, 24 9 B.R. 90 0, 90 9 (Ban kr

. D. Mi nn

. 20 00 ), af f’d 27 6 F.3 d 41 2. It di d

no t m at te r th at Ms

. W ic k was req ui red t o p e r fo rm po st pe ti ti on se rv ic es

. Id

. In

co nt ras t, th e Deb t o r h e r e h a d no th in g m or e th an a ho pe th at sh e wou ld rece iv e th e

bo nu s pa y m en ts fro m IBM

. IBM ha d th e co m pl et e di sc ret io n to de ci de th at th e

Deb to r wou ld rece iv e no th in g. Wic k do es no t st an d fo r th e pr op os it io n th at th e

Deb to r he ld an in te res t t ha t was pro pe rty of h er es ta te

.

Co nt rary to th e b e l i e f o f t he ba nk ru pt cy co ur t an d th e Trus te e, Boo th v.

Vau gh an (In re Boo th

) , 2 60 B.R. 28 1 (B.A.P. 6t h Ci r. 20 01 ), is no t on po in t, an d it

fai ls to pr ov id e su pp or t fo r th e pr op os it io n th at th e Deb to r he ld an in te res t in th e IBM

award pa y m en ts th at wou ld m ak e su ch pa y m en ts pro pe rty of h er ban kr up tc y es ta te

. Und er a pr of

it sh ari ng pr og ram
, Mr. Bo ot h was en t i t l e d t o a pa y ou t fro m hi s

em pl oyer as lo ng as
, by th e en d of th e cal en da r y ear, th e em pl oyer m ad e a pr of

it an d

Mr. Bo o t h was st il l em

pl oyed. Id

. at 28 4. Mr. Bo ot h fil ed hi s ba nk ru pt cy pe ti ti on

be fo re th e en d of th e cal en da r y ear an d, po st pe ti ti on he rece iv ed a p r o f i t s h a r in g

pa y m en t fo r th e ye a r d u r in g whi ch he fil ed hi s ba nk ru pt cy pe ti ti on

. Id

. The co ur t

ru le d th at th e po rti on of th e pr of it sh ari ng p a ym e nt at tri bu ta bl e to Mr. Bo ot h’s

pr ep et it io n e arn in gs was p ro pe rty of h is ba nk ru pt cy est at e. Id . at 2 90

.

The Eig ht h Ci rcu it ’s o pi ni on in W ic k pr im ari ly add res se s ot he r is su es

. 6

Und er Ban kr up tc y Co de § 54 1( a)(6 ), th e pr oc eed s of th e st oc k op ti on s at tri bu ta bl e

t o Ms

. W ic k’s pr ep et it io n se rv ic es were pr op ert y of th e es ta te an d Ms

. W ic k was

en ti tl ed to th e pr oc eed s at tri bu ta bl e to he r po st pe ti ti on la bo r. W ic k

, 27 6 F.3 d at 41 6-

17

. W e di sc us s § 54 1( a)(6 ) in m or e de ta il be lo w. W ic k al so ad dr es se d an ex em pt io n is su e.

-1 1-On th e pe ti ti on da te

, Mr. Bo ot h he l d t h e r i gh t to pa y m en t pr ov id ed th at th e

em pl oyer m ad e a p ro fit an d M r. Bo ot h was st il l em pl oyed, an d th e co ur t s ta te d t ha t

Mr. Bo ot h’s in te res t was a co nt in ge nt in te res t un de r ap pl ic ab le st at e la w. Id

. at 28 4-

85

. Mr. Bo ot h’s em

pl oyer di d no t res erv e th e di sc ret io n to de ci de whe th er it wou ld

m ak e th e pa y m en t. In co nt ras t, as of th e pe ti ti on da te

, th e Deb to r he re ha d no

co gn iz ab le in te res t in th e pa y m en ts fro m IBM ; sh e ha d on ly a ho pe th at IBM wou ld

ex erci se it s d is cret io n t o a ward th e p ay m en ts

. 7

The Deb to r ci te s to cas es whe re bo nu se s were no t pr op ert y of th e es ta te whe n

em pl oyers m ai nt ai ne d po st pe tit ion dis cr et ion re ga rd ing w he the r to m ak e su ch award s.

Se e, e.g

., Lewi s v. Ch ap

po (In re Ch ap

po )

, 25 7 B.R. 85 2 (E.D. Mi ch

. 20 01 ); Sh ar p

v. Der y , 25 3 B.R. 20 4 (E.D. Mi ch

. 20 00 ); Vog el v. Pal mer , 57 B.R. 33 2 (Ban kr

. W .D.

Va. 19 86 ). B as ed on th e Boo th co ur t’s cri ti ci sm of a st at em en t by t he Sh ar p co ur t 8

th at “ [t]he de te rm in at iv e is su e in th is cas e, th ere f o r e
, i s whe th er Deb to r ha d an

en fo rcea bl e rig ht to rece iv e th e bo nu s ch eck whe n he f i l e d hi s pe ti ti on

. . . .” th e

Trus te e cl ai m s th at cas es ci te d by th e Deb to r fro m th e Si xt h Circ ui t are “ irr el ev an t”

be cau se “ th e en fo rcea bi li ty of a bo nu s rig ht be twee n an in di vi du al an d he r em pl oyer

is irr el ev an t in de te rm in in g whe th er a po te nt ia l bo nu s is pr op ert y of th e es ta te .”

Boo th

, 26 0 B.R. at 28 9- 90 ; Sh ar p, 25 3 B.R. at 20 7. Not wit hs ta nd in g th e en fo rcea bl e
rig ht is su e, th e cas es ci te d by th e Deb to r sh are t h e c o mm on fact th at th e em pl oyer

m ai nt ai ne d di sc ret io n to de ci de whe th er it wou ld m ak e an award to th e e m pl oyee.

And fo r th e pu rp os es of th is a p p eal

, it is no t im po rta nt whe th er a de bt or ’s in te res t

m us t be en fo rcea bl e on th e pe ti ti on da te to be pr op ert y of th e es ta te

. The Deb to r ha d

Non e of th e ad di ti on al cas es ci te d by th e Trus te e, or by th e ba nk ru pt cy 7

co ur t in it s Fin di ng s and Ord er, con vi nc e us th at th e IBM bo nu se s wer e p ro pe rty of

th e Deb to r’s es ta te

.

W e ex pr es s no op in io n reg ard in g th e reas on in g and de ci si on s m ad e by 8

th es e co ur ts wit h re sp ect to ot he r de ta il s of the rel ev an t bo nu se s or em pl oyer pl an s.

-1 2-no ri

gh t to or in te re st in th e IBM bo nu se s (en fo rcea bl e or un en fo rcea bl e, co nt in ge nt

or ot he rwis e) o n t he pe ti ti on da te

. 9

B. 11 U.S.C. §§ 54 1( a) (6 ) an d (7 )

The Trus te e arg ue s fu rth er th at th e “ en ti re v a l u e ” of th e award pa y m en ts is

pr op ert y of th e Deb to r’s es ta te pu rs ua nt to Ban kr up tc y Co de § § 5 4 1 ( a)(6 ) an d (7 ).

Bec au se we ru le th at th e award pa y m en ts were ne ve r pr op ert y of th e es ta te in th e fir st

in st an ce, i t fo ll ows th at th e § § 5 41 (a)( 6) an d (7 ) are in ap pl ic ab le

.

Sect io n 54 1( a)(6 ) in cl ud es in pr op ert y of th e es ta te “ (6 ) [p ]rocee ds , pro du ct

, of fs pr in g, ren ts

, or pr of

it s of or fro m pr op ert y of th e es ta te

, ex cep t s u c h a s are

earn in gs fro m se rv ic es pe rfo rm ed b y a n in di vi du al de bt or aft er th e co m m en cem en t

of th e cas e.” Se e W

ic k

, 27 6 F.3 d at 41 6- 17 ( e s t a te ’s in te res t in pr oc eed s of st oc k

op ti on li m it ed to th os e p ro ceed s at tri bu ta bl e to pr ep et it io n serv ic es of de bt or ). The

Trus te e po si ts th at th e bo nu se s are co m pe ns at io n fo r p r e pe ti ti on se rv ic es th at were

pa id po st pe ti ti on an d, th eref or e, th ey are in cl ud ed in th e es ta te un de r § 5 41 (a)( 6) in

th ei r en ti ret y , an d can no t be ex cl ud ed fro m th e es ta te as earn i n g s fo r po st pe ti ti on

se rv ic es of th e Deb to r. Howev er, fo r § 54 1( a)(6 ) to ap pl y , th ere m us t ex is t pr op ert y

of th e es ta te in th e fi rs t i ns ta nc e ( i.e., th e b on us pa y m en ts m us t h av e b een pro ceed s

of so m et hi ng th at was pr op ert y of th e es ta te ). Bec au se th e Deb to r ha d no in te res t in

th e Exc el le nc e Award an d th e GDP pr og ram pa y m en t on th e pe ti ti on da te

, th e m on ey

sh e r e cei ve d fro m IBM po st pe ti ti on un de r th es e pr og ram s wou ld no t co m e in to th e

es ta te un de r § 54 1( a)(6 ), an d it is of no co ns eq ue nc e whe th er th ey wou ld be ex cl ud ed

as earn in gs fro m

ser vi ces pe rfo rm ed by the Debt or po st pe ti ti on un de r th at sec ti on

.

W e are no t bo un d by th e Boo th de ci si o n a n d

, b e c au se th at cas e is 9

fact ua ll y di st in gu is ha bl e, we do no t op in e reg ard in g it s ho ld in g. Howev er, to th e

ex te nt Boo th co ul d be co ns tru ed to tre at th e IBM bo nu se s as pr op ert y of th e Deb to r’s

es ta te , we di sa gr ee wi th it

.

-1 3-Und er § 54 1( a)(7 ), pr op ert y of th e es ta te in cl ud es “ (7 ) [a]ny in te res t in pr op ert y

th at th e es ta te acq ui re s aft er th e co m m en cem en t of th e cas e.” W he th er th e es ta te

acq ui red an in te res t in th e award pa y m en ts be gs th e qu es ti on in th is ap pe al ; whe th er

th e award pa y m en ts were pr op ert y of th e es ta te

. And th e Trus te e ha s no t sh own ho w

th e es ta te acq ui red an in te res t in su ch fu nd s. Se e Vot e , 27 6 F.3 d 10 27 (tr us te e co ul d

no t sh ow ho w es ta te acq ui red an in te res t in pr ep et it io n cro p l o s s e s f o r whi ch th e

de bt or was c om

pe ns at ed un de r le gi sl at io n e na ct ed po st pe ti ti on ).

II

. The b an k rupt cy co urt e rred by ente ri ng judg m ent a ga in st the Deb to r.
In li gh t of ou r de te rm in at io n th at th e Exc el le n c e A w a rd an d GDP pr og ram

pa y m en ts were no t pr op ert y of th e Deb to r’s ba nk ru pt cy es ta te

, th e Tr us te e is no

l on ge r th e pr ev ai li ng pa rty an d we rev ers e th e ba nk ru pt cy co ur t’s de ci si on s un de r

Ban kr up tc y Co de §§ 72 7( d) (2 ), 54 9 an d 55 0 an d Fed eral Ru le of Ban kr up tc y

Pro ced ur e 7 05 4( b)

.

Sect io n 72 7( d) (2 ) pr ov id es
, in pe rti ne nt pa rt, th at a di sc ha rg e sh al l be rev ok ed

if “ th e de bt or acq ui red pr op ert y th at is pr op er ty of th e e st at e, or be cam e en ti tl ed to

acq ui re pr op ert y th at wou ld be pr op ert y of th e es ta te

, an d kn owi ng ly an d frau du le nt ly

fai le d to rep or t th e a c q u is it io n of or en ti tl em en t to su ch pr op ert y , or to de li ve r or

su rren de r su ch pr op ert y to th e tru st ee.” 1 1 U.S.C. § 72 7( d) (2 ) (em ph as is ad de d)

. 1 0

Sect io n 54 9( a) (th e su bs ect io n up on whi ch th e ba nk ru pt cy co ur t rel ie d in it s Fi nd in gs

an d Ord er) pe rta in s to th e tru st ee’s av oi da nc e of

, “ a tra ns fer of

pr op er ty of th e es ta te

. . . .” 11 U.S.C. § 54 9( a) (em ph as is ad de d)

. Sect io ns 72 7( d) (2 ) an d 54 9( a) do no t

ap pl y be cau se th e IBM pa y m en ts were no t pr op ert y of th e Deb to r’s ba nk ru pt cy es ta te

. Lik ewis e, § 55 0 al lo ws reco ve ry fo r th e es ta te ’s be ne fit of pr op ert y tra ns ferr ed or it s

va lu e “ t o th e ex te nt th at a tra ns fer is av oi de d un de r se ct io n

. . . 5 49

. . .” The re was

no tra ns fer u nd er § 54 9, s o § 55 0 d oe s n ot ap pl y

.

It is no t ewo rth y th at th e Deb to r co ul d ha ve av oi de d th e § 72 7( d) (2 ) 1 0

la wsu it si m

pl y by di sc lo si ng on he r ba nk ru pt cy fil in gs th e po ss ib il it y th at sh e m ig ht

rece iv e p ay m en ts fro m

IBM.

-1 4-Fed eral Ru le of Ban kr up tc y Pro ced ur e 70 54 (b ) st at es th at in cert ai n in st an ces

“ [t]he co ur t m ay al lo w co st s to th e pr eva il in g pa rt y

. . . .” Fed

. R. Ban kr

. P. 70 54 (b )

(em ph as is ad de d) . Th e Trus te e is no lo ng er th e pr ev ai li ng pa rty an d, t he refo re, t he

award of c os ts un de r Ru le 70 54 (b ) is no t ap pr op ria te

.

CONCLUSI ON

The de ci si on of t he ba nk ru pt cy co ur t i s R EVERSED.

-1 5-