Court Opinion

ID: 855970
Source: CourtListenerOpinion
Date Created: 2013-03-22 15:14:03.246605+00
Date Added: 2024-06-11T13:22:40.464007
License: Public Domain

United States Bankruptcy Appellate Panel
                           For the Eighth Circuit
                       ___________________________

                               No. 12-6054
                       ___________________________

In re: Michelle Ann Klein-Swanson, As surety for Yarn Café Inc.; Scott Lawrence
                     Swanson, As surety for Yarn Café Inc.

                              lllllllllllllllllllllDebtors

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

                           Randall L. Seaver, Trustee

                       lllllllllllllllllllll Plaintiff - Appellee

                                          v.

                         Michelle Ann Klein-Swanson

                     lllllllllllllllllllll Defendant - Appellant
                                      ____________

                 Appeal from United States Bankruptcy Court
                  for the District of Minnesota - Minneapolis
                                  ____________

                          Submitted: February 21, 2013
                             Filed: March 22, 2013
                                 ____________

Before FEDERMAN, Chief Judge, SCHERMER and NAIL, Bankruptcy Judges.
                            ____________

SCHERMER, Bankruptcy Judge
      Michelle Ann Klein-Swanson (the “Debtor”) appeals from a judgment1 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. See 28 U.S.C. § 158(b). For the
reasons set forth below, we reverse.

                                       ISSUE
      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

      1
              In her Notice of Appeal, the Debtor states that she also appeals from a
July 2011 order granting summary judgment. The summary judgment order was not
a final order. Rather, the decision reached in that order was incorporated into the
bankruptcy court’s judgment of September 20, 2012.
      2
             The bankruptcy court’s judgment erroneously cites 11 U.S.C. §
707(d)(2), rather than 11 U.S.C. § 727(d)(2), with respect to revocation of the
Debtor’s discharge, which we consider to be a typographical error.
      3
              The bankruptcy court discussed various omissions and misstatements
that it believed the Debtor made on her Schedules and Statement of Financial Affairs
other than the Debtor's failure to disclose the bonuses from her employer. However,
the Trustee’s Complaint speaks only of the bonuses and the Trustee conceded as
much at trial when his counsel said “[n]ow, we’re only seeking and I think we made
this clear to revoke based upon her concealment of the two bonuses and failure to

                                         -2-
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).

                                 BACKGROUND
       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

disclose and failure to pay them over. The other things that we talked about, the eight
or nine or ten things, were all introduced to establish the requisite fraudulent intent.”
The bankruptcy court discussed the Debtor’s other omissions and misstatements to
demonstrate the Debtor’s fraudulent intent regarding the bonuses, and it revoked the
Debtor’s discharge solely based on the Debtor’s conduct with respect to the bonuses.

                                          -3-
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

                                         -4-
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

      4
             Sections 541(a)(6) and(7) were also discussed in the summary judgment
pleadings.

                                        -5-
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).

                           STANDARD OF REVIEW
       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 (B.A.P. 8th Cir. 2006). The bankruptcy court’s grant
of summary judgment is reviewed de novo. Paul v. Allred (In re Paul), ___ B.R. ___,
2013 WL709562, at *2 (B.A.P. 8th Cir. Feb. 28, 2013) (citing Peter v. Wedl, 155 F.3d
992, 996 (8th Cir. 1998)).

                                   DISCUSSION
I.     11 U.S.C. § 541(a)
       Section 541 of the Bankruptcy Code defines property of a debtor’s bankruptcy
estate 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

                                         -6-
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 (B.A.P. 8th Cir. 2005),
aff’d 452 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.).

       “Property interests are created and defined by state law. Unless some federal
interest requires a different result, there is no reason why such interests should be
analyzed differently simply because an interested party is involved in a bankruptcy
proceeding.” Butner v. United States, 440 U.S. 48, 55 (1979); Reagan v. Regions
Bank (In re Wetzel), 649 F.3d 831, 834-35 (8th Cir. 2011) (“While federal law
controls whether the interest is property of [the debtor’s] bankruptcy estate, [state]
law defines the nature and extent of that interest.”) (citations omitted).

       A.     11 U.S.C. § 541(a)(1)
       The Trustee claims that (as the bankruptcy court determined), at the
commencement of the Debtor’s bankruptcy case, the Debtor had a contingent interest
in the IBM Excellence Award and GDP bonus, rendering such payments property of
the Debtor’s estate. We disagree. As of the petition date, the Debtor had no interest
(contingent or otherwise) in the payments from IBM because IBM had the absolute
discretion to decide that it would not make an award to the Debtor under either of its
programs. The Trustee asserts that the estate had a contingent interest in the bonuses

                                          -7-
because the Debtor’s receipt of such bonuses came from the Debtor’s prepetition
services and IBM bonus programs that were in place prepetition. The Trustee also
notes that the Debtor was eligible for the bonuses on the petition date. But IBM did
not exercise its discretion to award the bonuses until postpetition and, as of the
petition date, the Debtor had nothing more than a hope or expectation that she would
receive the payments. The awards were made postpetition and they rightfully belong
to the Debtor.

       According to the Trustee, the contingency that existed on the petition date was
IBM’s exercise of its discretion to make awards to the Debtor. But before IBM
actually exercised its discretion postpetition, the Debtor had no interest in either
bonus pool. Therefore, according to the Trustee’s logic, on the petition date the
Debtor would have had a contingent interest in nothing.

       Under Minnesota law, no offer has been made by an employer and an employee
has no contract for funds under an employer’s award program, when the employer
maintains the right to decide in its sole discretion whether it will award such funds
to the employee. See Chambers v. The Travelers Cos., Inc., 764 F. Supp. 2d 1071,
1087 (D. Minn. 2011); aff’d 668 F.3d 559, 565-66 (8th Cir. 2012); Grenier v. Air
Express Int’l Corp., 132 F.Supp 2d 1198 (D. Minn. 2001). The Trustee has shown
no basis for the proposition that the Debtor had a legal or equitable interest in the
bonuses as of the petition date. He cites Blacque v. Kalman, 30 N.W.2d 599 (Minn.
1948), as support for his belief that the Debtor had a contingent interest in the award
payments from IBM as of the petition date. The Blacque court decided whether the
purpose of creating a testamentary trust had been fully accomplished in light of the
interests of contingent beneficiaries. We do not interpret that case to define whether
the Debtor had an interest, contingent or otherwise, for the purposes of this appeal.

      The facts that: (a) the payments from IBM to the Debtor were based on her
prepetition employment; (b) the bonus programs existed on the petition date; and (c)

                                         -8-
the Debtor was eligible for the bonuses on the petition date, do not render the bonus
payments property of the Debtor’s bankruptcy estate. In Drewes v. Vote (In re Vote),
276 F.3d 1024 (8th Cir. 2002), Mr. Vote (a farmer) had “no interest of any kind” in
government compensation for crop loss as of the petition date. Id. at 1027. Rather,
after Mr. Vote filed his bankruptcy petition, Congress passed a law that provided
assistance to farmers and Mr. Vote received payments from this program that were
for his prepetition crop losses. Id at 1026. The court held that the payments received
by Mr. Vote were not property of his bankruptcy estate.5 Id. at 1026-27.

       The trustee in Vote argued that the crop loss payments were property of the
estate under Segal v. Rochelle, 382 U.S. 375 (1966). Id. at 1026. The bankruptcy
court and the Trustee in this case also rely on Segal. In Segal, the Supreme Court
held that a tax refund loss-carryback claim was included in property of the debtors’
estates where the losses occurred prepetition and the taxes for the carry back years
had been paid, but the refund could not be claimed until postpetition under the
applicable tax laws. Segal, 382 U.S. 375. The Court in Segal stated “[t]urning to the
loss-carryback refund claim in this case, we believe it is sufficiently rooted in the pre-
bankruptcy past and so little entangled with the bankrupts’ ability to make an
unencumbered fresh start that it should be regarded as ‘property’ . . . .” Id. at 380. As
stated by the Vote court “[i]n Segal, the Court held that the debtor had an existing
interest in a tax refund and found that the debtor’s interest in a loss carryback under
the tax code was ‘sufficiently rooted in the pre-bankruptcy past’ to be included as
property of the estate.” Vote, 276 F.3d at 1026 (quoting Segal, 382 U.S. at 380).

       The Vote court distinguished the facts in that case from the facts in Segal. It
noted that the applicable law in Segal was in place on the petition date and, therefore,
the Segal debtors had an “existing interest” in a tax refund on the petition date. Vote,

      5
            The Vote court also rejected an argument by the Trustee made under §
541(a)(7). We discuss § 541(a)(7) in more detail below.

                                           -9-
276 F.3d at 1026. In Vote, the relevant law had not been enacted as of the petition
date and Mr. Vote had “a mere hope that his losses might generate revenue in the
future.” Id. The Vote court found it important that the estate not obtain rights greater
than what Mr. Vote held on the petition date. Id. (“To find for the trustee on the
basis that the payments were ‘sufficiently rooted’ would allow the trustee to assert
more rights than [Mr.] Vote had at the commencement of his case.”).

       The facts of this case are also distinguishable from those in Segal, and reliance
by the bankruptcy court on Segal ‘s “sufficiently rooted” test was improper. Even
though the Segal debtors could not formally make the loss-carryback refund claim
under the applicable statutes until a date postpetition, the losses had already occurred
and the debtors had an interest in the refund as of the petition date. The tax laws were
set and all that was left for the debtors to do was to make the claim. In contrast, the
decision whether to make the award payments was completely within IBM’s control.
Like Mr. Vote, as of the petition date the Debtor had nothing more than a hope that
she would receive the award payments from IBM. To consider the payment to be
property of her estate simply because it related to her prepetition employment would
be to give the bankruptcy estate more than the Debtor had on the petition date.

       The bankruptcy court and the Trustee maintain that Stoebner v. Wick (In re
Wick), 276 F.3d 412 (8th Cir. 2002), aff’g 249 B.R. 900 (Bankr. D. Minn. 2000),
supports the proposition that the Debtor’s IBM bonuses were property of the estate.
As part of the sale of Ms. Wick’s company, Ms. Wick had the option to require the
company to issue to her shares of the company’s stock after she remained an
employee of the company for one year post-sale. Id at 414. Ms. Wick filed her
Chapter 7 bankruptcy petition four months into the one-year period. Id at 413. The
Eighth Circuit noted that “[t]he parties agree that upon filing Ms. Wick’s options
became property of her bankruptcy estate.” Id. at 415. And the court stated that
“[t]he fact that the options were unvested and contingent on Ms. Wick’s continued

                                         -10-
employment does not alter the fact that they were property of the estate.” Id. (citing
Allen v. Levey (In re Allen), 226 B.R. 857, 865-66 (Bankr. N.D. Ill. 1998).6

       On the petition date Ms. Wick had an interest in property, as stated by the
bankruptcy court, Ms. Wick had “a contract right to receive stock in [the company],
contingent upon [Ms.] Wick completing one year of employment.” Stoebner v. Wick
(In re Wick), 249 B.R. 900, 909 (Bankr. D. Minn. 2000), aff’d 276 F.3d 412. It did
not matter that Ms. Wick was required to perform postpetition services. Id. In
contrast, the Debtor here had nothing more than a hope that she would receive the
bonus payments from IBM. IBM had the complete discretion to decide that the
Debtor would receive nothing. Wick does not stand for the proposition that the
Debtor held an interest that was property of her estate.

        Contrary to the belief of the bankruptcy court and the Trustee, Booth v.
Vaughan (In re Booth), 260 B.R. 281 (B.A.P. 6th Cir. 2001), is not on point, and it
fails to provide support for the proposition that the Debtor held an interest in the IBM
award payments that would make such payments property of her bankruptcy estate.
Under a profit sharing program, Mr. Booth was entitled to a pay out from his
employer as long as, by the end of the calendar year, the employer made a profit and
Mr. Booth was still employed. Id. at 284. Mr. Booth filed his bankruptcy petition
before the end of the calendar year and, postpetition he received a profit sharing
payment for the year during which he filed his bankruptcy petition. Id. The court
ruled that the portion of the profit sharing payment attributable to Mr. Booth’s
prepetition earnings was property of his bankruptcy estate. Id. at 290.

      6
              The Eighth Circuit’s opinion in Wick primarily addresses other issues.
Under Bankruptcy Code § 541(a)(6), the proceeds of the stock options attributable
to Ms. Wick’s prepetition services were property of the estate and Ms. Wick was
entitled to the proceeds attributable to her postpetition labor. Wick, 276 F.3d at 416-
17. We discuss § 541(a)(6) in more detail below. Wick also addressed an exemption
issue.

                                         -11-
      On the petition date, Mr. Booth held the right to payment provided that the
employer made a profit and Mr. Booth was still employed, and the court stated that
Mr. Booth’s interest was a contingent interest under applicable state law. Id. at 284-
85. Mr. Booth’s employer did not reserve the discretion to decide whether it would
make the payment. In contrast, as of the petition date, the Debtor here had no
cognizable interest in the payments from IBM; she had only a hope that IBM would
exercise its discretion to award the payments.7

        The Debtor cites to cases where bonuses were not property of the estate when
employers maintained postpetition discretion regarding whether to make such awards.
 See, e.g., Lewis v. Chappo (In re Chappo), 257 B.R. 852 (E.D. Mich. 2001); Sharp
v. Dery, 253 B.R. 204 (E.D. Mich. 2000); Vogel v. Palmer, 57 B.R. 332 (Bankr. W.D.
Va. 1986).8 Based on the Booth court’s criticism of a statement by the Sharp court
that “[t]he determinative issue in this case, therefore, is whether Debtor had an
enforceable right to receive the bonus check when he filed his petition. . . .” the
Trustee claims that cases cited by the Debtor from the Sixth Circuit are “irrelevant”
because “the enforceability of a bonus right between an individual and her employer
is irrelevant in determining whether a potential bonus is property of the estate.”
Booth, 260 B.R. at 289-90; Sharp, 253 B.R. at 207. Notwithstanding the enforceable
right issue, the cases cited by the Debtor share the common fact that the employer
maintained discretion to decide whether it would make an award to the employee.
And for the purposes of this appeal, it is not important whether a debtor’s interest
must be enforceable on the petition date to be property of the estate. The Debtor had

      7
              None of the additional cases cited by the Trustee, or by the bankruptcy
court in its Findings and Order, convince us that the IBM bonuses were property of
the Debtor’s estate.
      8
             We express no opinion regarding the reasoning and decisions made by
these courts with respect to other details of the relevant bonuses or employer plans.

                                        -12-
no right to or interest in the IBM bonuses (enforceable or unenforceable, contingent
or otherwise) on the petition date.9

      B.      11 U.S.C. §§ 541(a)(6) and (7)
      The Trustee argues further that the “entire value” of the award payments is
property of the Debtor’s estate pursuant to Bankruptcy Code §§ 541(a)(6) and (7).
Because we rule that the award payments were never property of the estate in the first
instance, it follows that the §§ 541(a)(6) and (7) are inapplicable.

       Section 541(a)(6) includes in property of the estate “(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.” See Wick, 276 F.3d at 416-17 (estate’s interest in proceeds of stock
option limited to those proceeds attributable to prepetition services of debtor). The
Trustee posits that the bonuses are compensation for prepetition services that were
paid postpetition and, therefore, they are included in the estate under § 541(a)(6) in
their entirety, and cannot be excluded from the estate as earnings for postpetition
services of the Debtor. However, for § 541(a)(6) to apply, there must exist property
of the estate in the first instance (i.e., the bonus payments must have been proceeds
of something that was property of the estate). Because the Debtor had no interest in
the Excellence Award and the GDP program payment on the petition date, the money
she received from IBM postpetition under these programs would not come into the
estate under § 541(a)(6), and it is of no consequence whether they would be excluded
as earnings from services performed by the Debtor postpetition under that section.

      9
              We are not bound by the Booth decision and, because that case is
factually distinguishable, we do not opine regarding its holding. However, to the
extent Booth could be construed to treat the IBM bonuses as property of the Debtor’s
estate, we disagree with it.

                                        -13-
       Under § 541(a)(7), property of the estate includes “(7) [a]ny interest in property
that the estate acquires after the commencement of the case.” Whether the estate
acquired an interest in the award payments begs the question in this appeal; whether
the award payments were property of the estate. And the Trustee has not shown how
the estate acquired an interest in such funds. See Vote, 276 F.3d 1027 (trustee could
not show how estate acquired an interest in prepetition crop losses for which the
debtor was compensated under legislation enacted postpetition).

II.   The bankruptcy court erred by entering judgment against the Debtor.
      In light of our determination that the Excellence Award and GDP program
payments were not property of the Debtor’s bankruptcy estate, the Trustee is no
longer the prevailing party and we reverse the bankruptcy court’s decisions under
Bankruptcy Code §§ 727(d)(2), 549 and 550 and Federal Rule of Bankruptcy
Procedure 7054(b).

         Section 727(d)(2) provides, in pertinent part, that a discharge shall be revoked
if “the debtor acquired property that is property of the estate, or became entitled to
acquire property that would be property of the estate, and knowingly and fraudulently
failed to report the acquisition of or entitlement to such property, or to deliver or
surrender such property to the trustee.”10 11 U.S.C. § 727(d)(2) (emphasis added).
Section 549(a) (the subsection upon which the bankruptcy court relied in its Findings
and Order) pertains to the trustee’s avoidance of, “a transfer of property of the estate
. . . .” 11 U.S.C. § 549(a) (emphasis added). Sections 727(d)(2) and 549(a) do not
apply because the IBM payments were not property of the Debtor’s bankruptcy estate.
Likewise, § 550 allows recovery for the estate’s benefit of property transferred or its
value “to the extent that a transfer is avoided under section . . . 549. . .” There was
no transfer under § 549, so § 550 does not apply.

      10
             It is noteworthy that the Debtor could have avoided the § 727(d)(2)
lawsuit simply by disclosing on her bankruptcy filings the possibility that she might
receive payments from IBM.

                                          -14-
       Federal Rule of Bankruptcy Procedure 7054(b) states that in certain instances
“[t]he court may allow costs to the prevailing party. . . .” Fed. R. Bankr. P. 7054(b)
(emphasis added). The Trustee is no longer the prevailing party and, therefore, the
award of costs under Rule 7054(b) is not appropriate.

                                CONCLUSION
      The decision of the bankruptcy court is REVERSED.

                                        -15-