In rе Marc William DITTMAR, Debtor. Linda S. Parks, Trustee, Appellant, v. Marc William Dittmar, Appellee. In re Forest Earl Denton; Germaine Ann Denton, Debtors. Linda S. Parks, Trustee, Appellant, v. Forest Earl Denton; Germaine Ann Denton, Appellees. In re John Earl Hulse, Debtor. Linda S. Parks, Trustee, Appellant, v. John Earl Hulse, Appellee. In re Patricia A. Little, Debtor. Linda S. Parks, Trustee, Appellant, v. Patricia A. Little, Appellee. In re Ricky A. Murphy; Denise L. Murphy, Debtors. Linda S. Parks, Trustee, Appellant, v. Ricky A. Murphy; Denise L. Murphy, Appellees. In re Cynthia My Nguyen, Debtor. Linda S. Parks, Trustee, Appellant, v. Cynthia My Nguyen, Appellee. In re Larry E. Letourneau; Donna M. Letourneau, Debtors. Linda S. Parks, Trustee, Appellant, v. Larry E. Letourneau; Donna M. Letourneau, Appellee. In re Michael E. Lowe; Jacqueline E. Flowers-Lowe, Debtors. Carl B. Davis, Trustee, Appellant, v. Michael E. Lowe; Jacqueline E. Flowers-Lowe, Appellee.
Nos. 09-3230, 09-3233, 09-3234, 09-3235, 09-3238, 09-3236, 09-3239, 09-3237
United States Court of Appeals, Tenth Circuit
Sept. 14, 2010
618 F.3d 1199
Seeking to avoid this result, the Individual Defendants suggest that, because Ms. McKissick filed a single complaint alleging identical causes of action against both Gemstar and the Individual Defendants, the claims against them were in fact “such claims.” Yet this, too, is an untenable reading of the contract‘s plain language. Ms. McKissick did bring the same causes of action against both Gemstar and the Individual Defendants (for fraud, negligent misrepresentation, and Exchange Act violations). But her claims against the Individual Defendants had to stand or fall on their own. They became no less claims against the Individual Defendants simply because of their inclusion in a consolidated lawsuit involving claims against Gemstar. It is beyond cavil, for example, that the Individual Defendants might have sought, in appropriate circumstances, to have had the claims against them transferred to a different venue, tried at a different time, or (as happened here) assessed on a different procedural track. The claims against them have always been distinct from—even if based on the same legal theories and conduct and brought in the same complaint as—the claims against Gemstar. Indeed, we doubt vеry much that, if the shoe were on the other foot and Gemstar lost a verdict, the Individual Defendants would gladly accept responsibility for the company‘s judgment because the claims were really against them, too.
* * *
At the end of it all, our essential holdings are these. We affirm the district court‘s grants of summary judgment to Gemstar and to the Individual Defendants on Ms. McKissick‘s claims against them. We vacate its grant of attorney fees to Gemstar and remand to the district court to recalculate them in a manner consistent with this opinion. We deny Ms. McKissick‘s motion to vacate. Finally, we reverse the judgment of the district court awarding attorney fees to the Individual Defendants.
So ordered.
Before KELLY, HOLLOWAY, and LUCERO, Circuit Judges.
KELLY, Circuit Judge.
The Appellants, bankruptcy trustees (“Trustees“), appeal from the judgment of the bankruptcy appellate panel (“BAP“). The BAP determined that Appellees and debtors’ (“Debtors“) stock appreciation rights were not part of Debtors’ bankruptcy estates under
Background
Debtors are former employees of the Boeing Company who became employees of Spirit AeroSystems, Inc. on June 17, 2005, when Spirit acquired Boeing‘s Wichita plant. In re Lowe, 380 B.R. 251, 252 (Bankr.D.Kan.2007). At the time of the sale, Debtors’ unions ratified substantially similar collective bargaining agreements (“the CBA“) with Spirit. In re Dittmar, 410 B.R. 71, 74 n. 7 (10th Cir. BAP 2009). During negotiations, Spirit proposed a 10%
Shortly after ratification of the CBA, Debtors filed their respective bankruptcy petitions over roughly a two-month period between August and October 2005. Dittmar, 410 B.R. at 80. On October 27, 2006, over one year after the bankruptcy filings, Spirit memorialized the EPP in a document. Lowe, 380 B.R. at 255. The full plan document defined which employees were eligible to participate in the EPP, as well as the SARs each eligible employee would receive under the EPP. Id. One month later, on November 27, 2006, a payment event (an IPO) occurred. Id. Ultimately, the SARs were worth $61,440 per employee. Id. Participating employees received $34,556 in cash around December 6, 2006, and 1,034 shares of Spirit Class A common stock around March 15, 2007. Id. at 255-56.
Trustees then filed motions to compel turnover of the distributions received from the SARs as property of the bankruptcy estate pursuant to
A split panel of the BAP affirmed the bankruptcy court‘s judgment but utilized different reasoning. The panel majority determined that the bankruptcy court erred in “(1) relying upon Kansas contract law to interpret the CBA, (2) finding the
Discussion
On appeal from a BAP decision, we review matters of law de novo and the bankruрtcy court‘s factual findings for clear error. Melnor, Inc. v. Corey, 583 F.3d 1249, 1251 (10th Cir.2009). “[W]e treat the BAP as a subordinate appellate tribunal whose rulings are not entitled to any deference (although they certainly may be persuasive).” Mathai v. Warren, 512 F.3d 1241, 1248 (10th Cir.2008).
“For purposes of most bankruptcy proceedings, property interests are created and defined by state law. Once that state law determination is made, however, we must still look to federal bankruptcy law to resolve the extent to which that interest is property of the estate” under § 541. Parks v. FIA Card Servs., N.A., 550 F.3d 1251, 1255 (10th Cir.2008) (citations and quotations omitted);
We first consider whether and to what extent Debtors have an interest in the SARs under Kansas law. Butner v. United States, 440 U.S. 48, 55 (1979); see, e.g., Williamson v. Hall, No. KS-08-088, 2009 WL 4456542, at *8 (10th Cir. BAP Dec. 4, 2009) (holding that “pay on death” accounts were not part of the bankruptcy estate under § 541 because, under Kansas law, debtor had no property interest in the accounts until the dеath of the owner). We then consider whether that interest existed before Debtors filed their bankruptcy petitions. Finally, we turn to whether the SARs are property of the bankruptcy estate under § 541.
A. Nature of Debtors’ Interest
The parties do not address whether the distribution rights at issue would be considered a property interest under Kansas law, although Trustees generally note that Kansas law recognizes that contingent interests are property interests. Aplt. Br. 25; see also In re Allen Bros. Truck Lines, Inc., 329 F.2d 735, 737 (10th Cir. 1964). Our research has not uncovered any Kansas cases with similar facts. As a result, we must predict how the Kansas Supreme Court would rule. See, e.g., Boehme v. U.S. Postal Serv., 343 F.3d 1260, 1264 (10th Cir.2003). To this end, “we are free to consider all resources available, including decisions of [Kansas] courts, other state courts and federal courts, in addition to the general weight and trend of authority.” Id. (internal quotation marks and citation omitted).
Stock appreciatiоn rights are a type of compensation that “give the holder the right to a cash payment or stock in an amount representing the difference between the market price and the fixed or strike price specified on the face of the SAR.” Scholastic, Inc. v. Harris, 259 F.3d 73, 78 (2d Cir.2001) (citing Searls v. Glasser, 64 F.3d 1061, 1064-65 (7th Cir.1995)); see also FASB Accounting Standards Codification, Glossary, “Stock Appreciation Right” (2010). The SARs at issue in this
Debtors’ interest in the SARs is similar to an employee‘s interest in a stock option plan. See, e.g., In re Carlton, 309 B.R. 67, 69-71 (Bankr.S.D.Fla.2004). Employees with stoсk options own contractual rights to purchase stock in the future that are subject to certain limitations of use and to the possibility of defeasance by later events. Id. at 72. Such postponed enjoyment does not disqualify these interests as property. Id. The Carlton court held that “[t]he fact that some of the Options had not accrued and were not exercisable as of the [bankruptcy] petition date, but whose exercise was contingent on the Debtor‘s continued post-petition employment, is of no consequence to the issue of ownership of the Options on the petition date.” Id. That the EPP required a payment event as condition precedent does not alter this analysis. See, e.g., Capital Health Management Group v. Hartley, 301 Ga.App. 812, 689 S.E.2d 107, 109 (2009) (describing a SARs agreement where payment was contingent on the sale of comрany stock).
Once Debtors satisfied the condition for being participating employees (completing ninety days of employment for the new company), they were eligible to participate in the EPP. These employees held contingent property rights. While the value of the SARs before any payment event occurred may have been de minimis, that does not mean that Debtors did not have a property interest in the SARs. The nature of that interest and whether it is legally recognizable is a different question than its valuation.
B. Creation of the Property Right
Trustees argue that the CBA, which was approved before Debtors filed for bankruptcy, created the SARs rights. Aplt. Br. 19-24. Debtors counter that, if their interest is a property interest, it was not created until the EPP was memorialized—which did not occur until after the bankruptcy filings. Aplеe. Br. 7-8. The EPP provisions in the CBA indicate that the program applies to “participating employees,” but “participating employees” was not defined within the CBA document. 1 Aplt.App. 161. The bankruptcy court concluded that Debtors did not have an enforceable right until the EPP document defined which employees were “participating employees.” Lowe, 380 B.R. at 257-58. Taking a different view, the BAP majority concluded that Debtors had a mere expectancy until the payment event occurred. Dittmar, 410 B.R. at 79. We believe the key question is whether the EPP provisions in the CBA were merely “an agreement to agree” or whether they evidenced a binding agreement that would be formalized at a later date. If the latter is the case, Debtors’ property rights were created at the time the CBA was ratified.
While the bankruptcy court construed the CBA relying only on its plain language, interpretation of a CBA is governed by federal law. See Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 210 (1985). In the labor context, parties frequently reach informal or oral collective bargaining agreements that they later intend to formalize. See, e.g., United Steelworkers of Am. v. CCI Corp., 395 F.2d 529, 531-32 (10th Cir.1968) (“[T]he trial court was not clearly erroneous in holding that a binding verbal contract was intended by the parties pending a written formalization of their agreement.“). These agreements are enforceable under federal law, even when they are
We disagree with the bankruptcy court‘s conclusion that the CBA is unambiguous. Lowe, 380 B.R. at 257-58. While many of the EPP provisions are established in the CBA document, there are at least two ambiguities.1 First, the “agree to establish [an EPP]” language in the CBA is susceptible to two possible meanings: (1) it could indicate a present agreеment with the understanding that formalization of the EPP will occur in the future; or (2) it could reflect an agreement not to be bound until the plan has been executed. In addition, the CBA does not define the term “participating employees.”
The summary judgment record contains extrinsic evidence regarding the parties’ intent: (1) the slides describing the EPP presented to the employees prior to the CBA vote, 1 Aplt.App. 137-156; (2) the deposition testimony of Jeff Clark, the former Director of Union Relations for Boeing and then Spirit, who testified about negotiating the CBA, 1 Aplt.App. 28–136; and (3) the SEC S-1 Registration Statements filed before the payment event, 1 Aplt.App. 159. This evidence is uncontroverted; both parties represented to this court at oral argument that there are no disputed material facts.
As noted, after thе bargaining units and Spirit negotiated the CBA and the EPP, Spirit employees assisted in the preparation of a slide presentation that was used to educate union members about the EPP prior to the CBA vote. Aplt. Br. 6; Aplee. Br. 3. The slides indicated that the unions had “negotiated an [EPP] for eligible employees.” 1 Aplt.App. 138. The slides described the nature of the SARs rights, how the rights would be allocated, and which employees would be eligible for the rights. 1 Aplt.App. 137-56. Mr. Clark testified that, “at the time of the bargaining agreement, [t]here was a description about who would be eligible [to participate in the EPP]” and “an agreement about what would constitute [SARs].” 1 Aplt.App. 191. Before the IPO payment event, Spirit filed a series of S-1 Registration Statements with the SEC. Aplt. Br. 11-12; Aplee. Br. 5-6. One filing described Spirit‘s obligations regarding the
We agree with the BAP dissent that summary judgment is usually not an appropriate vehicle for determining the parties’ intent about contract formation. Dittmar, 410 B.R. at 93-94. However, Debtors must raise more than some metaphysical doubt about whether the EPP terms were agreed on during the CBA negotiations given Trustees’ proof on the issue. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986). While intent is usually a question of fact, the evidence supporting contract formation is uncontroverted, and the parties agree that there are no disputed material facts. Under such circumstances, remand for an evidentiary hearing is not warranted, and Trustees are entitled to judgment on this point.
C. Property of the Bankruptcy Estate Under § 541
Under federal law, the bankruptcy estate includes, with enumerated exceptions, “all legal or equitable interests of the debtor in property as of the commencement of the case.”
Adopting the BAP majority‘s reasoning, Debtors argue that their interests were merely “the hope, anticipation, or expectation that in the event of a [pay-
Neither the parties nor the courts below found any cases with similar facts. Instead they rely on contingent employee benefits cases where a program entitling the debtor to payment is in existence before the debtor files for bankruptcy and the eventual payment tо the debtor is contingent on several factors, e.g., employment for a certain amount of time or profitability of the company. These cases help illustrate when a contingent interest is rooted in the pre-bankruptcy past and when the interest is so speculative that it was a mere expectancy at the time the bankruptcy petition was filed.
One line of cases concludes that contingent interests are property of the bankruptcy estate even if the rights do not accrue or are uncertain until a date after the bankruptcy filing. See Booth v. Vaughan, 260 B.R. 281 (6th Cir. BAP 2001); In re Edmonds, 273 B.R. 527 (Bankr.E.D.Mich.2000), aff‘d, 263 B.R. 828 (E.D.Mich.2001). The Booth court applied a broad reading of § 541. There, the CBA provided that hourly workers would receive a profit-sharing payout at the end of the year if (1) the employer made a profit and (2) the employee was еmployed through year end. 260 B.R. at 284. Mr. Booth filed for bankruptcy before a profit was realized and before the end of the year. Id. at 290. The court determined that the right to the bonus was a contingent interest that was property of the estate. Similarly, in Edmonds, the CBA provided that Ford employees would receive a profit-sharing payout at the end of the year if (1) Ford made a profit and (2) the employee was employed at the end of the year. 263 B.R. at 829. Mr. Edmonds filed for bankruptcy on December 15. Id. Noting that “plaintiff had worked all but a few of the days necessary to become entitled to his profit sharing,” the court held that “the profit sharing payment is sufficiently rooted in the pre-bankruptcy past [to be] property of the estate under § 541(a).” Id. at 831. Thus, contingencies like continued employment and company profit do not transform the employee‘s interest into a mere expectancy that is excluded from the bankruptcy estate when the interest is rooted in the pre-bankruptcy past.
We believe the SARs created by the CBA are more akin to the сontingent pre-petition property rights described in the former line of cases than the mere expectancies based on discretionary bonuses described in the latter. Spirit had a contractual obligation to make payments if the IPO occurred. This obligation existed before Debtors filed for bankruptcy.2
REVERSED.
HOLLOWAY, Circuit Judge, dissenting:
I respectfully dissent. I would affirm the judgment of the bankruptcy court. The Debtors’ interests in the stock appreciation rights (SARs) were too uncertain to be included within their bankruptcy estates.
Background
Almost all the relevant facts are noted in the majority opinion, and I will only mention facts that seem most critical to me. As noted in the majority opinion, the SARs at issue here were given for a fifteen year term (Maj. op. at 1203), while Spirit told the eligible employees, including Debtors, that it was “using a five-year period” in planning, which implied that Spirit believed it likely that a “payment event” would probably occur within five years, if it were to occur.
The bankruptcy judge found that Spirit had absolute discretion whether to “sell, merge, or publicly offer stock,” which were the three ways that a “payment event” could occur. Parks v. Dittmar (In re Dittmar), 410 B.R. 71, 77-78 (10th Cir. BAP 2009) (quoting Bankruptcy Court‘s interim order). And there was a further contingency that applied to any of these three possible routes to issuance of the SARs: the “payment event” would first have to result in at least a fifteen per cent “annual profit” to “the initial equity investors.”1
The framework for the analysis.
The majority opinion outlines three steps for the analysis: first, whеther the Debtors have a property interest in the SARs under Kansas law; second, whether the interest existed at the time the Debtors filed their petitions; and third, whether the property interests are property of the bankruptcy estate under
Were the interests recognized as property under state law?
On the first question—whether the benefits are an “interest in property” under Kansas law—we have previously held that as a general rule contingent interests are property in Kansas. Kirby v. United States (In re Allen Bros. Truck Lines, Inc.), 329 F.2d 735, 737 (10th Cir.1964). The property in that case was a contractual right. The bankrupt, a trucking company, had agreed to sell its certificate of convenience and necessity to another, with part of the consideration having been paid at the time of the agreement and the remainder to be paid upon approval of the transfer by the state agency with authority over the matter. Bankruptcy was declared before the sale had been completed. And before the bankruptcy petition was filed, the IRS had notified the buyer of the certificate that it claimed a tax lien on the payment contingently owed to the trucking company. The bankruptcy trustee challenged the tax lien, arguing that there was no “property” to which the lien could attach.
On appeal, we held in favor of the IRS. The parties did not dispute that the certificate itself was property under Kansas law. The bankruptcy trustee, however, argued that because the contested balance of the payment for the certificate was not due until approval by the state agency had been obtained, there was no present prop-
Accordingly, I agree with the majority that the SARs at issue here are property rights under state law.
Did the Debtors have rights when they filed their petitions?
I agree with the majority that the evidence showed that the property interests came into existence with the execution of the collectivе bargaining agreements and thus were in existence when the Debtors filed their petitions.
Were the Debtors’ interests property of their bankruptcy estates?
The third and pivotal issue is whether the Debtors’ property interests in the SARs became property of the bankruptcy estates. Analysis here must begin with the extremely broad language used by the Supreme Court and Congress to describe property of the estate. In a case under the Bankruptcy Act, the Court said that the bankruptcy estate includes “everything of value the bankrupt may possess ... when he files his petition” and that an interest is not excluded “because it is novel or contingent or because enjoyment must be postponed.” Segal v. Rochelle, 382 U.S. 375, 379 (1966). Our court and others have noted that Congress, in passing the Bankruptcy Code, specifically endorsed this language, so it remains valid. See Barowsky v. Serelson (In re Barowsky), 946 F.2d 1516, 1518 (10th Cir.1991).
As the majority opinion discusses, courts nevertheless have found that some property interests are too remote and speculative to be included in the bankruptcy estate. Significantly, the SARs in this case were subject to multiple contingencies and potentially to a very long period of uncertainty.
As the majority opinion notes, no cases have been cited or found that deal with facts closely analogous to those we deal with here. We are further hindered by the lack of analytical guidance offered by the cases. There does not appear to be even a framework to guide us as we contemplate the inherently inexact process of trying to determine what level of uncertainty must be present for a property interest to be outside the scope of section 541(a)(1), a scope that all agree is quite broad indeed.
As the dissenting judge on the BAP noted, while the
general principles governing property of the estate under § 541 generate little controversy, their application varies widely, especially regarding contingent property interests. .... [T]he varying analyses make it difficult to cull any settled, functional rule for determining when a contingent interest is property of the estate. At best, the case law can be said to exist on a continuum. At one end are contingent property interests that were clearly created and rooted in a debtor‘s pre-bankruptcy past, such as a prepetition contract that will result in the debtor receiving payments postpetition. At the other end of thе spectrum are interests so amorphous, so speculative, or subject to so many contingencies, that courts deem them to be “mere expectancies,” rather than existing property interests. Most interests fall in between these two extremes, and often have a mix of characteristics that make it very difficult to ascertain whether the interest has crossed the line from “mere
expectancy” to contingent property interest within the scope of § 541.
Parks v. Dittmar (In re Dittmar), 410 B.R. 71, 84-85 (10th Cir. BAP 2009) (Brown, J. dissenting) (footnotes omitted).
One clear principle that should undergird our analysis is that the facts must be considered as of the date that the Debtors filed their petitions. The bankruptcy estate comprises “all legal or equitable interests of the debtor in property as of the commencement of the case.”
The majority finds that cases involving annual employee bonuses have the most similar context and therefore provide some guidance for our task. Maj. op. at 1208-10.2 As discussed in the majority opinion, a single factor appears to distinguish at least some of the cases holding that an employee bonus is property of the employee‘s bankruptcy estate from those holding the bonus is not property of the estate. That factor is whether the employer had discretion to withhold a bonus, even when all conditions attached to the bonus by that particular employer were satisfied.
The majority apparently accepts the reasoning of the courts which hold that employer discretion whether to grant an annual bonus or not may be decisive. The majority apparently concludes, however, that although discretion whether to award a benefit results in the benefit being outside the bankruptcy estate, discretion to control the conditions that activate the awarding of the benefit does not. I find the distinction unconvincing.
If employer discretion is to be the controlling factor, then I see no reason why the discretion vested in the employer here—which was absolute discretion to create or eschew creating the conditions that would lead to Debtors eventually receiving tangible benefits—should be an exception to such a rule. Moreover, this case can and should be decided without adopting the rule that employer discretion is controlling, as was done in the employee bonus cases cited by the BAP such as Vogel v. Palmer (In re Palmer), 57 B.R. 332 (Bankr.W.D.Va.1986).
In this case, the employer not only had discretion whether to initiate any “payment event” and thus activate its obligation to create the SARs, but its obligation was further conditioned on an arbitrary factor that the event first had to create at least fifteen percent annual profit for the initial investors. Further, and quite significant in my view, the employer here, unlike in the cases discussed by the majority and cited by the parties, retained the power to postpone its decision for up to fifteen years. Given the majority‘s apparent agreement with cases that hold that employer discretion either to pay or to withhold an annual bonus results in the benefit being outside the bankruptcy estate, one would expect that the benefit in this case, with its multiple contingencies and prolonged period of latency, would be an a fortiori case in which the SARs are outside the bankruptcy estates.
Viewing these Debtors’ property rights in the SARs at the time of the commencement of their cases, and mindful of the policy mandating expeditious handling of the estates, I conclude that the SARs were properly held by both courts below to be outside the bankruptcy estates and so not subject to turnover to the Trustees.
Conclusion.
It is challenging to find the demarcation between contingent property interests that are properly included in the estate of a bankrupt and those that are so extremely novel or contingent that they are not so includеd. I conclude and would hold that the SARs at issue here were not part of the Debtors’ estates because at the critical time that the petitions were filed by the Debtors, the interests were subject to multiple contingencies, including the likelihood that they would remain only contingent interests for some years post-petition. I therefore respectfully dissent.
UNITED STATES of America, Plaintiff-Appellee, v. Wilmer LEYVA-MATOS, Defendant-Appellant.
No. 09-2304
United States Court of Appeals, Tenth Circuit
Sept. 21, 2010