In re: Susan E. Wick, Debtor. John R. Stoebner, Trustee-Appellant, v. Susan E. Wick; Teaching Temps, Inc.; Nichols Kaster & Anderson, Claimants-Appellees.
No. 01-1312MN
United States Court of Appeals FOR THE EIGHTH CIRCUIT
Submitted: October 19, 2001 Filed: January 9, 2002
On Appeal from the United States District Court
Before BOWMAN, RICHARD S. ARNOLD, and HANSEN, Circuit Judges.
RICHARD S. ARNOLD, Circuit Judge.
The trustee in bankruptcy appeals the District Court’s decision that Susan Wick, the debtor, is entitled to the entire amount of proceeds from stock options that were not yet vested when she filed for Chapter 7 bankruptcy. The District Court held that the options were fully exempted, and that, in any event, the trustee’s failure to object to the exemption within 30 days barred the estate from receiving the proceeds. We reverse. We hold that Ms. Wick exempted the options only partially. The estate is therefore entitled to the part of the options’ value that is the result of Ms. Wick’s pre-petition services, less her exemption amount. Accordingly, we remand for entry of judgment in favor of the trustee for $28,475.
I.
On July 29, 1997, Ms. Wick filed for Chapter 7 bankruptcy. On Schedule B, Personal Property, she listed as an asset the “[p]otential right to receive percentage
Ms. Wick also listed her stock options on Schedule C, Property Claimed as Exempt. Using the federal “wild card” or “catchall” exemption,
At the meeting of creditors, the trustee in Ms. Wick’s case had the opportunity to question Ms. Wick about the stock options. He requested and received from her a copy of the employment agreement that described the options. The trustee did not object to the exemption at that time. On November 4, 1997, Ms. Wick received a discharge of her debts. She continued to work for Teaching Temps. Eight months later, in July 1998, the trustee wrote to Ms. Wick, asking whether she was still employed with Teaching Temps and whether she had exercised her stock-option rights. Ms. Wick responded that she was no longer employed at Teaching Temps and that she had attempted to exercise her options in April 1998 but had been “denied.” Her veracity was later questioned by the trustee and the Bankruptcy Court, because while at the time of her letter she may have believed she had been fired and would not receive her options, she actually returned to work a few days later and received her stock certificates in September 1998. Thus, while Ms. Wick may not have lied to the trustee in her letter, she was not entirely candid and never informed him of the changed circumstances.
On October 2, 1998, Ms. Wick sued Mr. Noonan and Teaching Temps in state court, requesting a court-ordered buyout of her company stock as authorized by Minnesota law. On October 23, 1998, Ms. Wick’s bankruptcy case was closed. On February 26, 1999, shortly before the start of the state trial, the trustee informed Ms. Wick and Mr. Noonan that he was asserting a claim to Ms. Wick’s stock rights. However, he did not participate in the trial. The state court ordered the buyout Ms. Wick requested, valuing her 24.5% share of Teaching Temps at $97,200. The trustee petitioned to re-open the bankruptcy case and demanded turnover of the $97,200 (the value of Ms. Wick’s stock) minus the $3,925 exemption.
The Bankruptcy Court held a hearing to determine the parties’ rights in the proceeds of the options. Stoebner v. Wick (In re Wick), 249 B.R. 900 (Bankr. D. Minn. 2000). It recognized that the closing of a bankruptcy case normally results in a technical abandonment to the debtor of all unadministered property under
The Bankruptcy Court cited cases holding that if an asset appreciates post-petition, the estate, rather than the debtor, is entitled to that appreciation. However, because the options were only one-third
On appeal, the District Court reversed. Stoebner v. Wick (In re Wick), 256 B.R. 618 (D. Minn. 2001). The Court held that Ms. Wick had exempted the entire asset. It began by valuing the options on the day of filing at $4,863, using trial evidence introduced by Ms. Wick’s expert witness. Then, it limited the estate to a one-third interest ($1,605)1 in the $4,863 because the bankruptcy was filed one-third of the way into the one-year vesting period. Because Ms. Wick’s available exemption value ($3,925) exceeded the estate’s one-third interest ($1,605), the Court held that the asset was fully exempted, “fell out” of the estate, and vested wholly in the debtor. Additionally, the Court held that Taylor barred the trustee from challenging the value of the exemption beyond the 30-day deadline. Accordingly, the Court ordered that Ms. Wick receive the entire amount of the cash value of the stock, $97,200.
II.
The trustee appeals, arguing that the Bankruptcy Court correctly determined the parties’ relative interests. He contends that the estate was entitled to all the appreciation on one-third of the options, less Ms. Wick’s exemption. He also argues that Taylor does not apply to the facts of this case. Our standard of review is the same as that of the District Court. We review factual findings for clear error and legal conclusions de novo. Northwest Vill. Ltd. v. Franke (In re Westpointe, L.P.), 241 F.3d 1005, 1007 (8th Cir. 2001). We conclude that the trustee is right. The Bankruptcy Court properly granted the estate one-third of the options’ appreciated value, minus the debtor’s exemption.
The parties agree that upon filing Ms. Wick’s options became property of her bankruptcy estate.
We believe the Bankruptcy Court correctly determined that the options were partially exempted. The facts suggest that Ms. Wick, her counsel, and the trustee understood that the options were only partially exempt. The trustee requested a copy of the employment agreement and followed up on whether Ms. Wick’s options had vested. These actions were logical only if he believed the estate had an ongoing interest in the options. Then, the trustee took Ms. Wick’s assurance that her options were denied at face value. In her response to the trustee, Ms. Wick did not question the trustee’s follow-up on the options, which suggests that she too understood that the options were only partially exempt. Further, Ms. Wick’s counsel acknowledged in a July 22, 1999, letter to the trustee that the estate had at least some, if a minimal, interest in the options. In re Wick, 249 B.R. at 907. (“[I]t is our position . . . that we have claimed the majority of [the options] as exempt.“)
We reject Ms. Wick’s contention that listing “unknown” as the current market value of the exemptions is sufficient as a matter of law to make an asset fully exempt. Indeed, it may signal nothing more than that the asset has not been valued or that the debtor is unsure of how to come up with an accurate market value. While it is true the trustee did not object to Ms. Wick’s exemption, this does not mean that the asset was fully exempted. Here, when a specific dollar figure given by statute limited the amount of the exemption, and the trustee did not forsake an interest in the options, either through inadvertence or misjudgment, listing “unknown” does not, by itself, render the options fully exempt. Ms. Wick exempted only up to $3,925 of the value of the options, not the entire asset.
Having determined that the options were only partially exempted, we must decide how to divide the proceeds from the options between Ms. Wick and the estate. The options greatly appreciated in value when they vested and were liquidated by court order. As a result, $97,200 is at issue between the parties. In this case, determining whether the estate or the debtor is entitled to the appreciation on options is complicated by
The Bankruptcy Court used the date when Ms. Wick filed bankruptcy to divide the appreciation between pre- and post-petition earnings. In other words, the Court gave the estate the pro rata portion of the options that corresponds to the percentage
Ms. Wick is entitled to the rest of the proceeds from the appreciated stock options. She completed the vesting period when she continued to work for eight months after filing for bankruptcy. Eight months is two-thirds of the one-year vesting period, and so she may retain this pro rata portion of the appreciation, which is the result of her post-petition services. Therefore, Ms. Wick receives the benefit of her post-petition labor, as mandated by
III.
The parties have argued vigorously over the effect of the Supreme Court’s decision in Taylor v. Freeland & Kronz, 503 U.S. 638 (1992), on this case. In Taylor, the debtor listed a lawsuit with “unknown” value on her exemption schedule. Id. at 640. The debtor told the trustee that she estimated she might win $90,000 in the suit. Id. The trustee did not object, despite the fact that the debtor had only a small exemption amount available and was claiming the entire asset exempt. Id. at 642. Taylor stated that he doubted that the lawsuit would have value, saying it might be a “nullity.” Id. at 641. When the debtor was awarded $110,000 in her lawsuit, the trustee demanded that the debtor turn over the money. Id. The Supreme Court held that the trustee’s failure to object, when he could have made a valid objection if he had acted promptly, prevented him from later challenging the validity of the exemption. Id. at 642.
In this case, we are not confronted with a trustee who believed the asset was worthless. The trustee in Ms. Wick’s case consistently expressed an interest in the asset. Further, Ms. Wick listed a valid statutory basis for her asset,
The judgment of the District Court is reversed. We remand for entry of an order affirming the judgment of the Bankruptcy Court.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.