In Re Jokiel
447 B.R. 868
Bankr. N.D. Ill.2011Background
- Debtor Jokiel filed Chapter 7 on July 29, 2009 while serving as EVP and CFO of SUA under an employment agreement with a pre-petition severance provision.
- Merger between SUA and Tower Group occurred June 21, 2009; post-merger termination of Jokiel occurred February 28, 2010 triggering change-in-control severance rights.
- On November 13, 2009 Jokiel signed a general release for vesting of unvested options and a severance payment of $1,215,000 (net of withholdings) after the merger.
- The severance provision pre-dates the petition and the right to payment was established as of the petition date, regardless of post-petition termination timing.
- Trustee sought turnover of all severance payments received; Debtor argued severance is earnings from post-petition services excluded from the estate by 11 U.S.C. § 541(a)(6).
- Court applied a pro rata by days allocation to split the severance between pre- and post-petition services, with $699,023.33 determined to be estate property not exempted.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether severance payment is property of the estate under 541(a) despite § 541(a)(6) exception. | Trustee contends the right to severance is pre-petition property non-exempt. | Debtor argues severance reflects post-petition earnings for services performed. | Majority: severance largely rooted in pre-petition past; property of the estate. |
| How to allocate pre- and post-petition portions of the severance. | Trustee seeks full pre-petition entitlement; pro rata allocation not required. | Severance size fixed; post-petition work preserves eligibility, warrants pro rata split. | Court adopts pro rata by days allocation; 4.9% ($35,976.67) excluded as post-petition earnings. |
| Whether Debtor can exempt the severance under Illinois exemptions. | Debtor may exempt as unemployment benefit or wage-related exemption. | Exemption not properly asserted or pursued; reliance on exemptions inappropriate. | Exemption issue not decided; turnover required; exemptions not properly claimed or listed. |
| Whether the Debtor’s amended Schedule C or disclosure affects turnover. | Amended Schedule C would allow exemptions and remove asset from estate. | Amendment not properly filed; turnover governed by 542(a) regardless of exemptions. | Amendment not properly in front of court; turnover unaffected at present. |
Key Cases Cited
- In re Yonikus, 996 F.2d 866 (7th Cir. 1993) (section 522 exemptions; broad reach of estate; exemption interplay)
- In re Meyers, 616 F.3d 626 (7th Cir. 2010) (pro rata by days approach to allocate pre- and post-petition tax refunds; Meyers cited for standard)
- In re Ryerson, 739 F.2d 1423 (9th Cir. 1984) (test for pre/post-petition earnings rooted in pre-bankruptcy past; pro rata concept used)
- Segal v. Rochelle, 382 U.S. 375 (1986) (rootedness of pre-bankruptcy past; foundational norm for property inclusion)
- In re Prince, 85 F.3d 314 (7th Cir. 1996) (earnings from services performed; narrow construction of § 541(a)(6))
- In re Stinnett, 465 F.3d 309 (7th Cir. 2006) (disability/payments; service requirement for § 541(a)(6))
- In re LaSpina, 304 B.R. 814 (Bankr. S.D. Ohio 2004) (non-compete payments generally not excluded as earnings for post-petition services)
- In re Andrews, 80 F.3d 906 (4th Cir. 1996) (non-compete payments not excluded as earnings under § 541(a)(6))
- Haynes v. United States, 679 F.2d 718 (7th Cir. 1982) (post-petition obligations; earlier view of earnings exclusion; later narrowing)