604 B.R. 360
Bankr. D. Neb.2019Background
- Debtors Scott and Heather Longnecker filed Chapter 7 on January 25, 2019; trustee objected to claimed exemptions and moved for turnover.
- Scott Longnecker received 373 "Retention Shares" of Union Pacific (granted 2015–2018) under the UP 2013 Stock Incentive Plan; shares are registered in his name with voting and dividend rights but physical delivery is deferred until each 48-month restriction period ends.
- Retention Shares are subject to forfeiture for failure to remain continuously employed during each restriction period; the committee can waive restrictions and UP may withhold shares or wages to satisfy tax withholding obligations.
- Debtors listed a partially vested value of $33,214.60 for the restricted shares on the petition date and claimed exemptions under Neb. Rev. Stat. § 25-1558 (wage/garnishment statute) and § 25-1552 (personal property). Trustee conceded valuation but challenged the exemption classification and sought turnover.
- Court found the shares are property of the estate, are not "earnings subject to garnishment" on the petition date (because they already were awarded and constitute restricted stock), but their value should be prorated for vesting as of the petition date; agreed valuation of $33,214.60 subject to applicable personal property exemptions.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Longnecker) | Held |
|---|---|---|---|
| Whether § 25-1558 (Nebraska wage/garnishment exemption) applies to Retention Shares | § 25-1558 should not apply because statute concerns garnishment and not post-award restricted stock | Retention Shares are earnings/compensation and thus exempt under § 25-1558 even if not garnished | Court: § 25-1558 may be used in bankruptcy absent an actual garnishment, but these Retention Shares were already paid and are personal property, not wages subject to garnishment; § 25-1558 does not exempt them. |
| Whether debtor owned a prorated vested interest in restricted shares on petition date and whether trustee may recover that portion | Trustee: Estate is entitled to the unvested portion's value (or prorated interest) as property of the estate | Longnecker: Claimed only vested portion should be estate property and sought exemption for much of value | Court: Apply prorating per In re Wick; debtor's interest is valued at $33,214.60 as of petition date and debtor must turnover that amount less any applicable § 25-1552 personal property exemption. |
Key Cases Cited
- Schwab v. Reilly, 560 U.S. 770 (2010) (discusses role of exemptions in bankruptcy)
- Kokoszka v. Belford, 417 U.S. 642 (1974) (property that derives from wages does not automatically retain special exemption status)
- Benn v. Cole (In re Benn), 491 F.3d 811 (8th Cir. 2007) (exemption statutes must explicitly identify protected property in bankruptcy context)
- Stoebner v. Wick (In re Wick), 276 F.3d 412 (8th Cir. 2002) (prorating contingent/vesting equity interests for estate valuation)