OPINION
Debtor/Appellant, Jeffrey R. Prochnow, appeals from the denial of his Motion for a Ruling Against a Creditor Based on Violations of the Automatic Stay. For the reasons set forth below, the decision of the Bankruptcy Court is AFFIRMED.
STATEMENT OF FACTS
Prochnow was at all relevant times a duly licensed salesperson — also referred to as a realtor or realtor associate — as defined in the Real Estate License Act of 2000 (225 ILCS 454/1-10 (West 2008)). (Stipulation ¶ 3). Apex Properties Inc., d/b/a Remax Choice of Bloomington, Illinois (ReMax) was at all relevant times a duly licensed real estate broker. (Stipulation ¶ 4).
In August 2006, Prochnow and ReMax, through its predecessor, entered into a Broker-Realtor-Associate Contract (Associate Contract). (Stipulation ¶5). The compensation paid to Prochnow and other realtor-associates licensed with ReMax was arranged on a commission basis. (Stipulation ¶ 7).
The Associate Contract provided:
Broker agrees to pay Realtor-Associate as and for Realtor-Associate’s compensation for services rendered on a commission basis for work done by Realtor-Associate in accordance with the commission schedule adopted by the Broker’s office and in the Policy Manual. No commissions shall be considered earned or payable to Realtor-Associate until the transaction has been completed and the commission has been collected by the Broker.
The Associate Contract also provided that bills paid by ReMax that were actually the responsibility of Prochnow would be due within 30 days of receipt. The parties stipulated, however, that the arrangement on commissions (which this Court interprets as referring to the percentage of commissions) was not placed in writing and that some arrangements regarding ex
Initially, Prochnow received 100% of commissions, less franchise and referral fees. (Stipulation ¶ 8). Under that arrangement, Prochnow also paid rent, certain expenses (including general overhead, expenses required by the local MLS office, and advertising expenses), and interest for unreimbursed charges. (Stipulation ¶8). In October 2007, the parties changed the arrangement so that Prochnow would receive 70% of the commissions he earned with the remaining 30% payable to ReMax. (Stipulation ¶ 8). Under the new arrangement, Prochnow was no longer charged rent but still paid office overhead, other billed expenses, and interest on outstanding balances. (Stipulation ¶ 8).
Historically, ReMax applied a portion of the commission owed to Prochnow to Pro-chnow’s billed expenses. (Stipulation ¶ 9). The amount of the commission applied to expenses was based on the determination of the ReMax broker, in consultation with Prochnow, and changed from time to time to allow Prochnow to retain some commission. (Stipulation ¶ 9)
On August 3, 2009, Prochnow filed his Chapter 7 bankruptcy petition. Prochnow was at that time still a realtor-associate with ReMax and continued in that capacity until January 8, 2010.
On his Schedule F, Prochnow listed an unsecured debt owed to ReMax in the amount of $51,027.47. That debt related to the expenses billed by ReMax which were unpaid at the filing of the petition. (Stipulation ¶ 13).
On his Schedule B, Prochnow affirmatively represented that he had no accounts receivable, no liquidated debts owed to him, and no contingent or unliquidated claims of any nature. On his Schedule G, Prochnow affirmatively represented that he had no executory contracts of any nature.
On September 3, 2009, the Chapter 7 Trustee filed a Report of No Distribution stating he found no assets to administer in the case. On December 3, 2009, Prochnow was granted a discharge. On January 8, 2010, Prochnow ceased working as a realtor-associate with ReMax. (Stipulation ¶ 6). On February 23, 2010, Pro-chnow’s bankruptcy case was closed.
On June 16, 2010, Prochnow, represented by new counsel, filed a Motion to Reopen Case. In the Motion, Prochnow alleged that he became entitled to the payment of compensation from ReMax for real estate commissions from three closings occurring after August 3, 2009, the date Prochnow filed his bankruptcy petition. Prochnow alleged he was entitled those commissions but that ReMax applied the commissions to Prochnow’s pre-petition indebtedness to ReMax. (The commissions were retained by Re-Max after the filing of the bankruptcy petition but before discharge.) Prochnow asked that the bankruptcy case be reopened for the purpose of hearing his motion to hold ReMax in contempt for violation of the automatic stay.
Over the objection of ReMax, the bankruptcy court granted the Motion to Reopen Case. Thereafter, Prochnow filed a Motion for a Ruling Against a Creditor Based on Violation of the Automatic Stay, containing substantially the same allegations as those contained in the Motion to Reopen Case. Prochnow sought an order holding ReMax held in contempt of court for violation of the automatic stay, money damages in the amount of $15,322, and attorney fees.
The commissions at issue included: (1) a commission of $13,829.17 for a sale procured by Prochnow pre-petition but that closed post-petition (the Hudson contract);
In May 2011, the parties filed their Stipulation. In June 2011, the parties filed cross motions for summary judgment. See Bankruptcy Rule 7056 (providing that Rule 56 of the Federal Rules of Civil Procedure apply in adversary proceedings). In its Motion for Summary Judgment, ReMax argued the Fifth Street and Bayberry contract commissions were properly applied to Prochnow’s post-petition debt. ReMax further argued that all the commissions were properly retained by ReMax pursuant to the doctrine of recoupment.
In his Motion for Summary Judgment, Proehnow argued that he had earned the Hudson transaction commission post-petition and that money was not subject to recoupment. Proehnow conceded that he owed the post-petition expenses billed to him, excluding the interest on the pre-petition indebtedness.
The bankruptcy court granted ReMax’s Motion for Summary Judgment, denied Prochnow’s Motion for Summary Judgment, and denied Prochnow’s Motion for a Ruling Against a Creditor Based on Violation of the Automatic Stay. In re Prochnow, — B.R.-,-(Bankr.C.D.Ill.2011). First, the bankruptcy court found that Proehnow had earned the Hudson contract commission pre-petition and that it was part of the bankruptcy estate. Id. at-. Because Proehnow failed to disclose his interest in a share of the Hudson contract commission on his schedules, the bankruptcy court found he was judicially estopped from claiming an interest in those funds. Id.
Second, the bankruptcy court found that Proehnow lacked standing to pursue the Hudson contract commission because his entitlement to the commission became property of the estate and was never abandoned by the Trustee. Id. at-. The bankruptcy court noted that “[tjhese findings are not an invitation to [Proehnow] to seek reappointment” of the Trustee because (1) even if the Trustee were reappointed and abandoned the commission, “the principles of judicial estoppel would still apply to limit [Prochnow’s] claim to the undisclosed commission” and (2) if the Trustee pursued the commission, “ReMax would prevail on its defense of recoupment.” Id. Third, the bankruptcy court found that ReMax’s retention of all of the commissions at issue was in the nature of recoupment and did not violate the automatic stay. Id. at -. Finally, the bankruptcy court found that “even if Re-Max’s actions were in the nature of setoff rather than recoupment, ReMax would ultimately have prevailed in its attempt to retain [Prochnow’s] share of the Hudson [transaction] commission.” Id. at-.
This appeal followed.
JURISDICTION
The Court has appellate jurisdiction over this matter pursuant to 28 U.S.C.
STANDARD OF REVIEW
This court reviews the bankruptcy court’s determination on the cross motions for summary judgment de novo. See In re Solis,
ANALYSIS
On appeal, Prochnow argues: (1) he should not be judicially stopped from claiming any interest in the Hudson contract commission because said commission was earned post-petition and was not an asset of the bankruptcy estate; and (2) the recoupment doctrine does not apply. Prochnow appears to challenge on appeal only ReMax’s application of the Hudson contract commission to the pre-petition debt and not the Fifth Street and Bayberry contract commissions. In any event, this Court finds that the commissions on the Fifth Street and Bayberry contracts, resulting in commissions totaling $1,494.39, were earned post-petition and were properly applied to the post-petition debt totaling $1,600.50. See, e.g., In re Davis,
A. Because the Commission Was Property of the Estate, Prochnow Lacks Standing, and, Alternatively, Is Judicially Estopped From Pursuing the Commission
On appeal, Prochnow argues that he should not be judicially estopped from claiming any interest in the Hudson contract commission because he was not required to disclose the commission on his bankruptcy petition. Specifically, Pro-chnow asserts the commission was earned post-petition, when the real estate closing occurred. In support thereof, Prochnow relies on the language of the Associate Contract which specifically provides: “No commissions shall be considered earned or payable to Realtor-Associate until the transaction has been completed and the commission has been collected by the Broker.” Prochnow further argues that because “[t]he rights under the contract at issue were not contingent or executory at the time of the filing of the Petition for Voluntary Relief’, the commission was not an asset he had to disclose.
ReMax responds that the bankruptcy court did not err by finding that the commission earned was the property of the bankruptcy estate and that Prochnow was judicially estopped from claiming an interest in the commission. ReMax asserts that because ReMax was entitled to the real estate commission at the time of filing, and because Prochnow was in privity with ReMax, Prochnow’s right to his share of the commission was vested when Pro-chnow filed for bankruptcy.
1. The Commission Was Part of the Bankruptcy Estate
The bankruptcy court found that the Hudson contract commission was part of the bankruptcy estate. “Whether property is included in the bankruptcy estate is a question of law.” In re Parsons, 280
Section 541(a) of the Bankruptcy Code defines “property of the estate” to include “all legal or equitable interests of the debtor in the property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). This definition of property of the estate is broad — “including interests of all types and degrees of contingency” — but is generally limited to interests in existence at the time of the commencement of the case. In re Taronji,
“Section 541(a)(6) expands this basic definition of property of the estate to include certain property interests that are acquired after the commencement of the case.” Id. “However, Section 541(a)(6) contains an express exception, exempting ‘earnings from services performed by an individual debtor after the commencement of the case.’ ” In re Jokiel,
On appeal, Prochnow essentially argues that he earned the commission post-petition because the Associate Contract provided that commissions were not earned until the transaction (ie. the closing on the property) had been completed and the commission was collected by Re-Max. This Court first notes that the provision in the Associate Contract merely made Prochnow’s interest contingent. Under Illinois law, a broker (which in this case would be ReMax), is entitled to a commission for the sale of real estate when he procures a buyer who is ready, willing, and able to purchase the real estate on the terms prescribed by the seller. See Inter-group Financial Serv. v. A-G Cooperative Creamery,
This Court notes that the Associate Contract provided that Prochnow had not earned the commission until the transaction was completed, which occurred post-petition. However, at the time Prochnow filed his bankruptcy petition, he had a contingent interest in his portion of the commission. “A debtor’s contingent interest in future income has consistently been found to be property of the bankruptcy estate.” In re Yonikus,
Moreover, the test for determining whether post-petition income is property of the bankruptcy estate depends on whether the income accrues from pre-petition or post-petition services. See In re Laflamme,
Although Prochnow’s right to the commission may have vested post-petition, the payment was actually for pre-petition services. See In re Jokiel,
2. Prochnow Lacks Standing or, Alternatively, Is Judicially Estopped From Pursuing the Commission
After finding that the Hudson contract commission was part of the bankruptcy estate, the bankruptcy court concluded that: (1) Prochnow failed to disclose the commission and was therefore judicially estopped from claiming an interest in the commission; (2) Prochnow had no standing to pursue the commission because the commission became property of the estate and was never abandoned by the Trustee; and (3) those findings were not an invitation to Prochnow to seek reappointment of the Trustee because (a) even if the Trustee was reappointed and abandoned the commissions, judicial estoppel would still apply to limit Prochnow’s claims to the undisclosed commission and (b) ReMax would nonetheless prevail on its defense of re-
On appeal, Prochnow only addresses the bankruptcy court’s finding that ReMax would prevail on its defense of recoupment. Prochnow does not address judicial estoppel except on the ground that the commission was not part of the bankruptcy estate. Neither does Prochnow address the bankruptcy court’s conclusion that Prochnow lacked standing to pursue the commission because it was property of the estate never abandoned by the trustee. Therefore, Prochnow has forfeited these arguments and this Court need not address them. See, e.g., In re McCormick Road Associates,
For the sake of completeness, however, the Court will address standing and judicial estoppel. See Biesek v. Soo Line RR Co.,
Moreover, this Court finds that even if the Trustee did abandon the claim, thereby giving Prochnow standing, Prochnow is judicially estopped from pursuing the commission. See Cannon-Stokes v. Potter,
Here, the bankruptcy court did not abuse its discretion by finding Prochnow
Prochnow was required to disclose any assets on his schedule when he filed his bankruptcy petition. See 11 U.S.C. 521(a)(1)(B)© (requiring that a debtor file a schedule of assets); 11 U.S.C. § 101(5)(A) (defining a claim to include a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured”). As this Court noted above, Prochnow’s interest in the Hudson contract commission at the time he filed for bankruptcy was part of the bankruptcy estate. Prochnow had a duty to report that commission. “Debtors have an absolute duty to report whatever interests they hold in property, even if they believe their assets are worthless or are unavailable to the bankruptcy estate.” In re Yonikus,
However, Prochnow represented on his schedules that he had no accounts receivable, no liquidated debts owed to him, and had no contingent or unliquidated claims of any nature. The Trustee and bankruptcy court relied on Prochnow’s assertion, which ultimately resulted in Prochnow receiving a discharge. Prochnow now seeks the Hudson contract commission by way of his Motion for a Ruling Against a Creditor Based on Violations of the Automatic Stay. Allowing Prochnow to pursue the Hudson contract commission now, after his failure to disclose the asset in his bankruptcy petition, would give Prochnow an unfair advantage and impose an unfair detriment on Prochnow’s creditors.
The Seventh Circuit has held that “a debtor in bankruptcy who denies owning an asset, including a chose in action or other legal claim, cannot realize on that concealed asset after the bankruptcy ends.” Cannon-Stokes,
B. ReMax Was Entitled to the Commission Pursuant to the Doctrine of Re-coupment
Finally, this Court also agrees with the bankruptcy court’s conclusion that even if the Trustee were to pursue the commission for the benefit of the estate or even if Prochnow pursued the commission upon abandonment by the Trustee, ReMax would prevail on its defense of recoupment. See In re Chapman,
The bankruptcy court found that recoupment applied because Prochnow’s claim against ReMax arose from the contractual obligation of ReMax to pay Prochnow commissions pursuant to the terms of the Associate Contract. In re Prochnow, — B.R. at-. The bankruptcy court further noted that ReMax’s claim against Pro-chnow arose from Prochnow’s obligation to reimburse ReMax for expenses advanced pursuant to the Associate Contract. Id. The court found “the rights of the parties pursuant to the Associate Contract are so intertwined that [the bankruptcy court] must find that the obligations do arise from the same transaction.” Id.
On appeal, Prochnow argues that re-coupment does not apply because there was no advancement of compensation and that ReMax merely billed Prochnow on a
ReMax argues that the expenses Pro-chnow owed to ReMax and the commissions earned by Prochnow pre-petition both arose out of the unwritten agreement between Prochnow and ReMax relating to commission and expenses. ReMax argues that ReMax agreed to pay ongoing business expenses by Prochnow and to be subsequently reimbursed by Prochnow from the commissions earned by Prochnow. Therefore, ReMax argues, Prochnow’s earnings were always subject to the debt owed to ReMax, which rendered ReMax’s payment of Prochnow’s business expenses an “advance” on his commissions. According to ReMax, to allow Prochnow to retain his commission — earned entirely through pre-petition efforts — but at the same time discharging the debt ReMax paid for advances of Prochnow’s business expenses, would be unjust.
“Recoupment is an equitable remedy which permits the offset of debts when the respective obligations are based on the same transaction or occurrence.” In re World Access, Inc.,
In this case, the parties stipulated to a historical practice of applying a portion of Prochnow’s commissions earned to outstanding expenses billed. The practical effect of this practice was that ReMax, in essence, advanced commissions to Prochnow. Without those “advancements”, Prochnow could not have earned the Hudson contract commission. Prochnow’s claim to his portion of the Hudson contract commission and ReMax’s claim to reimbursement of the business expenses advanced are so intertwined that Prochnow’s claim cannot be adjudicated without also resolving ReMax’s claim. Therefore, this Court finds the bankruptcy court did not err in finding that ReMax’s retention of the Hudson contract commission constituted a recoupment. See, e.g., Waldschmidt v. CBS, Inc.,
THEREFORE, the decision of the Bankruptcy Court is AFFIRMED. This case is closed.
Notes
. The parties filed, in the bankruptcy court, a Joint Stipulation of Facts (Stipulation), from which the majority of the following facts are taken.