601 B.R. 514
Bankr. C.D. Ill.2019Background
- Debtor Jennifer Brown, an at-will, non-union employee of Caterpillar, participated in Caterpillar's Short-Term Incentive Plan (STIP) under which annual bonuses are paid; STIP documents expressly make awards discretionary and revocable until actually paid.
- Parties stipulated the STIP bonus is discretionary and that no employee has a right to a bonus until the money is deposited.
- Debtor filed Chapter 7 on August 17, 2018 (62.7% through the calendar year); Trustee sought turnover of 62.7% of the 2018 STIP bonus as property of the estate.
- Trustee argued the bonus was sufficiently rooted in the prepetition past to be estate property; Debtor argued any prepetition roots did not create a prepetition property interest under Illinois law.
- The court considered whether the debtor had a legal or equitable interest in the bonus under 11 U.S.C. § 541(a)(1) as of the petition date, applying state-law principles to determine the existence of any property interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether all or part of an anticipated STIP bonus payable postpetition is property of the bankruptcy estate under §541(a)(1) | Trustee: bonus has sufficient prepetition roots (62.7%) and thus should be estate property | Debtor: bonus is discretionary under STIP and thus only an expectancy, not a prepetition property interest | Court: Denied — no portion of the bonus is estate property because under Illinois law debtor had only an expectancy on petition date |
Key Cases Cited
- Segal v. Rochelle, 382 U.S. 375 (1966) (articulated the "sufficiently rooted in the pre-bankruptcy past" test for property characterization under the Bankruptcy Act)
- Butner v. United States, 440 U.S. 48 (1979) (state law determines nature and extent of property interests for bankruptcy purposes)
- United States v. Whiting Pools, Inc., 462 U.S. 198 (1983) (estate succeeds to no greater rights than debtor held on petition date)
- In re Burgess, 438 F.3d 493 (5th Cir. 2006) (rejected Segal's "sufficiently rooted" as a standalone federal test where no prepetition legal interest under state law existed)
- In re Meyers, 616 F.3d 626 (7th Cir. 2010) (addressed allocation methods for tax refunds and questioned sufficiency of the "sufficiently rooted" test)
- In re Carlson, 263 F.3d 748 (7th Cir. 2001) (prepetition contingent fee rights treated as estate property only to extent enforceable under state law on petition date)
- In re Yonikus, 996 F.2d 866 (7th Cir. 1993) (contingencies do not necessarily defeat estate claim when rights were created prepetition)
- Duldulao v. Saint Mary of Nazareth Hosp. Ctr., 115 Ill.2d 482 (1987) (employee handbook can create enforceable contractual rights absent disclaimers)