673 B.R. 643
Bankr. W.D. Tex.2025Background
- Ryan and Bridget Taylor filed for Chapter 7 bankruptcy in March 2024; John Patrick Lowe was appointed as Trustee.
- Before bankruptcy, Ryan Taylor had been awarded restricted stock units (RSUs) under a 2021 contract, scheduled to vest in three tranches over three years, contingent on continued employment.
- At filing, Taylor had received shares from two vested tranches; only the third tranche remained unvested, scheduled to vest in November 2024.
- The Trustee moved to compel the Debtors to liquidate the unvested options and turn over proceeds, as no exemption was asserted.
- Debtors conceded the estate's right to the prepetition tranches and the prepetition portion of the third tranche, but argued that value attributable to postpetition work belonged to the debtor.
- A key factual calculation: 78.91% of the final tranche's value is from prepetition labor (to the estate), while 21.09% is from postpetition labor (to Taylor).
Issues
| Issue | Trustee's Argument | Debtors' Argument | Held |
|---|---|---|---|
| Are unvested RSUs property of the estate? | Yes; they are legal interests held on petition date. | Agrees; unvested RSUs are property of the estate on petition date. | Yes; unvested RSUs are property of the estate, per § 541(a). |
| Does value derived from postpetition work on prepetition-granted RSUs go to estate? | Yes; all value should go to estate under prior district ruling (In re Dibiase). | No; postpetition vesting value is "earnings" excluded from estate under § 541(a)(6). | No; postpetition value is "earnings" for debtor, excluded from estate per statutory text and majority of courts. |
| Does characterizing the RSU contract as an executory contract change result? | No substantive argument. | Yes; if executory, Contract should be abandoned to debtor after rejection. | No; even if executory and abandoned, § 541(a) still entitles estate to prepetition value. |
| Who should bear potential tax costs from estate realization? | Did not address. | Estate should cover any increased tax burden on debtors. | Debtors and Trustee should coordinate to minimize tax burden; if disagreement, return to court. |
Key Cases Cited
- Rau v. Ryerson (In re Ryerson), 739 F.2d 1423 (9th Cir. 1984) (provides method for allocating value between estate and debtor based on pre/postpetition employment)
- Wick v. Stoebner (In re Wick), 276 F.3d 412 (8th Cir. 2002) (characterizes earnings from postpetition services as excluded from estate)
- Rivercity v. Herpel (In re Jackson Brewing Co.), 567 F.2d 618 (5th Cir. 1978) (option contracts can be executory contracts under Fifth Circuit law)
- Eastover Bank for Sav. v. Sowashee Venture (In re Austin Dev. Co.), 19 F.3d 1077 (5th Cir. 1994) (effect of executory contract rejection in bankruptcy)