Opinion ID: 776065
Heading Depth: 2
Heading Rank: 1

Heading: Mid-Island's Interest in the Withheld Funds

Text: 17 We review de novo the district court's determination that a given item is or is not property of the estate. See In re Renshaw, 222 F.3d 82, 86 (2d Cir. 2000). Property of the estate includes all legal or equitable interests of the debtor in property as of the commencement of the case. 11 U.S.C. § 541(a)(1). This definition is broad and includes even strictly contingent interests. Brown v. Dellinger (In re Brown), 734 F.2d 119, 123 (2d Cir. 1984). The existence of a property interest is determined by state law. Butner v. United States, 440 U.S. 48, 55 (1979). 18 Mid-Island's right to the withheld funds flowed from Empire's agreement with its subscribers to pay providers for services, but New York law modified Mid-Island's rights under those contracts. Although Mid-Island ordinarily had a right to payment from Empire after it provided services to an Empire insured, Section 91.4(i) defeated this contractual right if Mid-Island failed to make its required payments to the State. This unusual blend of contractual and regulatory rights and obligations frames the debate between Mid-Island and Empire. 3 19 As of the date Mid-Island filed its reorganization petition, its right to the withheld funds was contingent on satisfying its obligation to the excess liability pool. Not having made the required payments, Mid-Island had no current possessory interest in the funds when it filed its reorganization petition. N.Y. Comp. Codes R. & Reg., tit. 10 § 91.4(i); see also In re Nemko, Inc., 143 B.R. 980, 987 (Bankr. E.D.N.Y. 1992) (The filing of a petition in bankruptcy does not confer upon the Debtor a right to be paid sooner than it would under the terms of the Contract.). However, the Hospital's speculative and intangible interest in the funds, which was contingent on the satisfaction of its obligations to the State, was property of the estate. See In re Prudential Lines, Inc., 928 F.2d 565, 572 (2d Cir. 1991) (holding that contingent interest in carrying forward net operating loss to offset against future income is property of the estate); In re Neuton, 922 F.2d 1379, 1382-83 (9th Cir. 1990) (holding that debtor's interest in trust income, which was contingent on surviving primary beneficiary, was estate property). 4 20 Finding that the estate had a contingent interest in the withheld funds does not end our inquiry; we must still determine whether Mid-Island's contingent interest gave it a right to profits from or interest on the withheld funds accruing during the period Empire held them. Mid-Island claims a right to profits or interest from the withheld funds both as proceeds or profits of property of the estate pursuant to 11 U.S.C. § 541(a)(6) and on a variety of state law theories. However, no separate analysis is required for Section 541(a)(6) because it conveys no greater right than Mid-Island would have under state law. Thus, we look to state law to determine what, if any obligation, Empire had to invest the funds for Mid-Island's benefit or to pay interest on them.