Parks, et al v. Dittmar

Filing

[9796986] Reversed. Terminated on the merits after oral hearing. Written, signed, published. Judges Kelly, authoring; Holloway, dissenting; Lucero. Mandate to issue. [09-3230, 09-3233, 09-3234, 09-3235, 09-3236, 09-3237, 09-3238, 09-3239]

Parks, et al v. Dittmar

Case: 09-3230

Document: 01018495299

FILED Date Filed: U n i t e d States Court 1 Appeals 09/14/2010 Page: of T e n t h Circuit

Doc. 0

S e p t e m b e r 14, 2010
PUBLISH U N I T E D STATES COURT OF APPEALS T E N T H CIRCUIT
E l i s a b e t h A. Shumaker C l e r k of Court

I n re: MARC WILLIAM DITTMAR, Debtor. ---------------------------L I N D A S. PARKS, Trustee, Appellant. v. M A R C WILLIAM DITTMAR, Appellee. _______________________________ I n re: FOREST EARL DENTON; G E R M A I N E ANN DENTON, Debtors. -------------------------L I N D A S. PARKS, Trustee, Appellant, v. F O R E S T EARL DENTON; G E R M A I N E ANN DENTON, Appellees. 09-3233 N o . 09-3230

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_______________________________ I n re: JOHN EARL HULSE, Debtor. ------------------------L I N D A S. PARKS, Trustee, 09-3234 Appellant, v. J O H N EARL HULSE, Appellee. _______________________________ I n re: PATRICIA A. LITTLE, Debtor. -------------------------L I N D A S. PARKS, Trustee, Appellant, v. P A T R I C I A A. LITTLE, Appellee. _______________________________ 09-3235

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I n re: RICKY A. MURPHY; DENISE L. MURPHY, Debtors. --------------------------L I N D A S. PARKS, Trustee, 09-3238 Appellant, v. R I C K Y A. MURPHY; DENISE L. MURPHY, Appellees. _______________________________ I n re: CYNTHIA MY NGUYEN, Debtor. --------------------------L I N D A S. PARKS, Trustee, Appellant, v. C Y N T H I A MY NGUYEN, Appellee. _______________________________ 09-3236

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I n re: LARRY E. LETOURNEAU; D O N N A M. LETOURNEAU, Debtors. -------------------------L I N D A S. PARKS, Trustee, Appellant, v. L A R R Y E. LETOURNEAU; DONNA M . LETOURNEAU, Appellee. _______________________________ I n re: MICHAEL E. LOWE; J A C Q U E L I N E E. FLOWERS-LOWE, Debtors. -------------------C A R L B. DAVIS, Trustee, Appellant, v. M I C H A E L E. LOWE; JACQUELINE E . FLOWERS-LOWE, Appellee. 09-3237 09-3239

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A P P E A L S FROM THE UNITED STATES BANKRUPTCY APPELLATE PANEL ( B . A . P . Nos. 08-002-KS, 08-003-KS, 08-004-KS, 08-005-KS, 0 8 - 0 0 6 - K S , 08-007-KS, 08-008-KS, 08-009-KS) G a y e B. Tibbets (Carl B. Davis, Davis & Jack, LLC, Wichita, Kansas, with her on t h e briefs) Hite, Fanning & Honeyman, L.L.P., Wichita, Kansas, for Appellants. M i c h a e l J. Studtmann, (Don W. Riley, Law Office of Don W. Riley, Wichita, K a n s a s , Elaine Fleetwood, Ray Hodge & Associates, L.L.C., Wichita, Kansas, a n d David Lund, Wichita, Kansas, with him on the brief) Law Offices of Michael J . Studtmann, P.A., Wichita, Kansas, for Appellees.

B e f o r e KELLY, HOLLOWAY, and LUCERO, Circuit Judges.

K E L L Y , Circuit Judge.

T h e Appellants, bankruptcy trustees ("Trustees"), appeal from the judgment o f the bankruptcy appellate panel ("BAP"). The BAP determined that Appellees a n d debtors' ("Debtors") stock appreciation rights were not part of Debtors' b a n k r u p t c y estates under 11 U.S.C. § 541. A divided BAP panel affirmed the b a n k r u p t c y court's grant of summary judgment to Debtors, applying different r e a s o n i n g . Our jurisdiction arises under 28 U.S.C. § 158(d)(1), and we reverse.
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Background D e b t o r s are former employees of the Boeing Company who became e mp l o y e e s of Spirit AeroSystems, Inc. on June 17, 2005, when Spirit acquired B o e i n g ' 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 b a r g a i n i n g agreements ("the CBA") with Spirit. In re Dittmar, 410 B.R. 71, 74 n . 7 (B.A.P. 10th Cir. 2009). During negotiations, Spirit proposed a 10% wage cut f o r union-represented employees. Lowe, 380 B.R. at 254. As an inducement, S p i r i t also offered to establish an equity participation program ("EPP") for unionr e p r e s e n t e d employees and to contribute stock appreciation rights ("SARs") to the p r o g r a m if certain "payment events" occurred. Id. These SARs would expire in f i f t e e n years if no payment event occurred. 1 Aplt. App. 159. The final CBA c o n t a i n e d language that "[t]he parties agree to establish an [EPP]" for " p a r t i c i p a t i n g employees." Lowe, 380 B.R. at 254. (emphasis added). The CBA d i d not provide a detailed description of the EPP and did not define the term " p a r t i c i p a t i n g employees." Id. at 257. Prior to voting on the CBA, the union me mb e r s attended a slide presentation discussing the EPP. Id. at 254. The slides i n d i c a t e d that participants would be awarded options (approximately 1,000 o p t i o n s per employee); an option was a right to share in Payment Event profits on o n e share of stock. 1 Aplt. App. 140, 147. The value of the option would be d e t e r mi n e d upon a Payment Event with a participant ultimately receiving
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p r o c e e d s less the exercise price of the option. 1 Aplt. App. 142, 145 ("Following a Payment Event, cash or stock will be distributed automatically. The amount y o u receive will be net of the exercise price of the Option."). The slides further n o t e d that "[w]e do not know when a Payment Event will take place, but [the c o mp a n y ] is using a five-year period in their planning. The company . . . will w a n t a Payment Event as soon as . . . the conditions are right for an optimal v a l u a t i o n . " 1 Aplt. App. 152. The unions ratified the CBA on June 17, 2005. Lowe, 380 B.R. at 254. S h o r t l y after ratification of the CBA, Debtors filed their respective b a n k r u p t c y petitions over roughly a two-month period between August and O c t o b e r 2005. Dittmar, 410 B.R. at 80. On October 27, 2006, over one year after t h e 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 p a r t i c i p a t e in the EPP, as well as the SARs each eligible employee would receive u n d e r the EPP. Id. One month later, on November 27, 2006, a payment event (an I P O ) 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 , 0 3 4 shares of Spirit Class A common stock around March 15, 2007. Id. at 25556.

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T r u s t e e s then filed motions to compel turnover of the distributions received f r o m the SARs as property of the bankruptcy estate pursuant to 11 U.S.C. § 541. After a hearing, the bankruptcy court entered an interim order denying turnover. Dittmar, 410 B.R. at 80. After discovery, various trustees and debtors moved for s u mma r y judgment on the turnover motions. The bankruptcy court granted D e b t o r s ' motion for summary judgment and denied Trustees' motion, finding the d i s t r i b u t i o n s were not property of the bankruptcy estate. Lowe, 380 B.R. at 2575 8 . The bankruptcy court, relying on Kansas law, held that the CBA did not grant D e b t o r s an enforceable right in the distributions because it did not clearly define w h i c h employees would have rights under the EPP. Id. at 257. The court noted t h a t "participating employees" was not defined until the post-petition creation of t h e EPP. Id. The bankruptcy court concluded the right to the distributions was n o t part of the estate because Debtors did not have a contingent future interest u n t i l the EPP was created. Id. at 257-58. A split panel of the BAP affirmed the bankruptcy court's judgment but u t i l i z e d different reasoning. The panel majority determined that the bankruptcy c o u r t erred in "(1) relying upon Kansas contract law to interpret the CBA, (2) f i n d i n g the CBA unambiguous, and (3) limiting its analysis to the plain language o f the CBA." Dittmar, 410 B.R. at 79. However, the majority held that the D e b t o r s did not have an interest in the distributions until the payment event o c c u r r e d . Id. Until this time, Debtors had only a "hope, anticipation, or
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e x p e c t a t i o n " in the SARs because those distributions "were entirely dependent u p o n the economic decisions of Spirit." Id. at 77. According to the majority, b e c a u s e Spirit had "discretion" over whether the payment event would occur, D e b t o r s had no pre-petition interest in the distributions. Id. at 78. The dissenting me mb e r of the panel would have denied summary judgment and remanded for an e v i d e n t i a r y hearing on various issues. Id. at 95.

Discussion O n appeal from a BAP decision, we review matters of law de novo and the b a n k r u p t c y court's factual findings for clear error. Melnor, Inc. v. Corey, 583 F . 3 d 1249, 1251 (10th Cir. 2009). "[W]e treat the BAP as a subordinate appellate t r i b u n a l whose rulings are not entitled to any deference (although they certainly ma y be persuasive)." Mathai v. Warren, 512 F.3d 1241, 1248 (10th Cir. 2008). "For purposes of most bankruptcy proceedings, property interests are c r e a t e d and defined by state law. Once that state law determination is made, h o w e v e r , we must still look to federal bankruptcy law to resolve the extent to w h i c h that interest is property of the estate" under § 541. Parks v. FIA Card S e r v s . , N.A., 550 F.3d 1251, 1255 (10th Cir. 2008) (citations and quotations o mi t t e d ) ; 11 U.S.C. § 541(a)(1).

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W e first consider whether and to what extent Debtors have an interest in t h e SARs under Kansas law. Butner v. United States, 440 U.S. 48, 55 (1979); s e e , e.g., Williamson v. Hall, No. KS-08-088, 2009 WL 4456542, at *8 (B.A.P. 1 0 t h Cir. Dec. 4, 2009) (holding that "pay on death" accounts were not part of the b a n k r u p t c y estate under § 541 because, under Kansas law, debtor had no property i n t e r e s t in the accounts until the death of the owner). We then consider whether t h a t interest existed before Debtors filed their bankruptcy petitions. Finally, we t u r n to whether the SARs are property of the bankruptcy estate under § 541. A. N a t u r e of Debtors' Interest T h e parties do not address whether the distribution rights at issue would be c o n s i d e r e d a property interest under Kansas law, although Trustees generally note t h a t Kansas law recognizes that contingent interests are property interests. Aplt. B r . 25; see also In re Allen Bros. Truck Lines, Inc., 329 F.2d 735, 737 (10th Cir. 1 9 6 4 ) . Our research has not uncovered any Kansas cases with similar facts. As a r e s u l t , we must predict how the Kansas Supreme Court would rule. See, e.g., B o e h me v. U.S. Postal Serv., 343 F.3d 1260, 1264 (10th Cir. 2003). To this end, " w e are free to consider all resources available, including decisions of [Kansas] c o u r t s , other state courts and federal courts, in addition to the general weight and t r e n d of authority." Id. (internal quotation marks and citation omitted).

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S t o c k appreciation rights are a type of compensation that "give the holder t h e right to a cash payment or stock in an amount representing the difference b e t w e e n the market price and the fixed or strike price specified on the face of the S A R . " Scholastic, Inc. v. Harris, 259 F.3d 73, 78 (2d Cir. 2001) (citing Searls v. G l a s s e r , 64 F.3d 1061, 1064-65 (7th Cir. 1995)); see also FASB Accounting S t a n d a r d s Codification, Glossary, "Stock Appreciation Right" (2010). The SARs a t issue in this case vested upon an IPO (or other payment event), and the d i s t r i b u t i o n was the difference between the net offering price per share of the IPO a n d $10 (plus an incremental amount for each year). 1 Aplt. App. 159; see also S p i r i t Aerosystems Annual Report 2006 at 105 ("Upon the closing date of the I P O , all rights to receive stock were considered vested."). Debtors' interest in the SARs is similar to an employee's interest in a stock o p t i o n plan. See, e.g., In re Carlton, 309 B.R. 67, 69-71 (Bankr. S.D. Fla. 2004). Employees with stock options own contractual rights to purchase stock in the f u t u r e that are subject to certain limitations of use and to the possibility of d e f e a s a n c e by later events. Id. at 72. Such postponed enjoyment does not d i s q u a l i f y these interests as property. Id. The Carlton court held that "[t]he fact t h a t some of the Options had not accrued and were not exercisable as of the [ b a n k r u p t c y ] petition date, but whose exercise was contingent on the Debtor's c o n t i n u e d post-petition employment, is of no consequence to the issue of o w n e r s h i p of the Options on the petition date." Id. That the EPP required a
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p a y me n t event as condition precedent does not alter this analysis. See, e.g., C a p i t a l Health Management Group v. Hartley, 689 S.E.2d 107, 109 (Ga. Ct. App. 2 0 0 9 ) (describing a SARs agreement where payment was contingent on the sale of c o mp a n y stock). Once Debtors satisfied the condition for being participating employees ( c o mp l e t i n g ninety days of employment for the new company), they were eligible t o participate in the EPP. These employees held contingent property rights. While the value of the SARs before any payment event occurred may have been d e minimis, that does not mean that Debtors did not have a property interest in the S A R s . The nature of that interest and whether it is legally recognizable is a d i f f e r e n t question than its valuation. B. C r e a t i o n of the Property Right T r u s t e e s argue that the CBA, which was approved before Debtors filed for b a n k r u p t c y , created the SARs rights. Aplt. Br. 19-24. Debtors counter that, if t h e i r interest is a property interest, it was not created until the EPP was me mo r i a l i z e d -- w h i c h did not occur until after the bankruptcy filings. Aplee. Br. 7 - 8 . The EPP provisions in the CBA indicate that the program applies to " p a r t i c i p a t i n g employees," but "participating employees" was not defined within t h e CBA document. 1 Aplt. App. 161. The bankruptcy court concluded that D e b t o r s did not have an enforceable right until the EPP document defined which

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e mp l o y e e s were "participating employees." Lowe, 380 B.R. at 257-58. Taking a d i f f e r e n t view, the BAP majority concluded that Debtors had a mere expectancy u n t i l the payment event occurred. Dittmar, 410 B.R. at 79. We believe the key q u e s t i o n is whether the EPP provisions in the CBA were merely "an agreement to a g r e e " or whether they evidenced a binding agreement that would be formalized a t a later date. If the latter is the case, Debtors' property rights were created at t h e time the CBA was ratified. W h i l e the bankruptcy court construed the CBA relying only on its plain l a n g u a g e , interpretation of a CBA is governed by federal law. See Allis-Chalmers C o r p . v. Lueck, 471 U.S. 202, 210 (1985). In the labor context, parties frequently r e a c h informal or oral collective bargaining agreements that they later intend to f o r ma l i z e . See, e.g., United Steelworkers of Am. v. CCI Corp., 395 F.2d 529, 5 3 1 - 3 2 (10th Cir. 1968) ("[T]he trial court was not clearly erroneous in holding t h a t a binding verbal contract was intended by the parties pending a written f o r ma l i z a t i o n of their agreement."). These agreements are enforceable under f e d e r a l law, even when they are not reduced to writing. See, e.g., Int'l Union, U n i t e d Mine Workers v. Big Horn Coal Co., 916 F.2d 1499, 1502 (10th Cir.1990) ( " T h e contract between the parties . . . need not be a written, signed collective b a r g a i n i n g agreement, but may exist as any informal agreement between the p a r t i e s significant to the maintenance of labor peace between them."); Mack T r u c k s , Inc. v. Int'l Union, UAW, 856 F.2d 579, 592 (3rd Cir. 1988) ("Adoption
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o f an enforceable labor contract does not depend on the reduction to writing of t h e parties' intention to be bound."); Bobbie Brooks, Inc. v. Int'l Ladies' Garment W o r k e r s Union, 835 F.2d 1164, 1168 (6th Cir. 1987) ("The existence of a c o l l e c t i v e bargaining agreement does not depend on its reduction in writing; it c a n be shown by conduct manifesting an intention to abide by agreed-upon t e r ms . " ) . To determine the objective intent of the parties, courts may "look to the s u r r o u n d i n g circumstances, and the parties' conduct manifesting an intention to a b i d e by agreed-upon terms." Mack Trucks, 856 F.2d at 592 (internal citations a n d quotation marks omitted). W e disagree with the bankruptcy court's conclusion that the CBA is u n a mb i g u o u s . Lowe, 380 B.R. at 257-58. While many of the EPP provisions are e s t a b l i s h e d in the CBA document, there are at least two ambiguities. 1 First, the " a g r e e to establish [an EPP]" language in the CBA is susceptible to two possible me a n i n g s : (1) it could indicate a present agreement with the understanding that f o r ma l i z a t i o n of the EPP will occur in the future; or (2) it could reflect an

Because written CBAs are often skeletal in nature--and informal, u n w r i t t e n labor agreements constitute enforceable CBAs--we are quicker to find a mb i g u i t y in a written CBA than we would with a traditional contract. See Big H o r n Coal, 916 F.2d at 1502; Stead Motors of Walnut Creek v. Auto. Machinists L o d g e No. 1173, 886 F.2d 1200, 1205 (9th Cir. 1989) (en banc) ("Unlike the c o mme r c i a l contract, which is designed to be a comprehensive distillation of the p a r t i e s ' bargain, the collective bargaining agreement is a skeletal, interstitial d o c u me n t . " ) .
1

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a g r e e me n t not to be bound until the plan has been executed. In addition, the CBA d o e s not define the term "participating employees." The summary judgment record contains extrinsic evidence regarding the p a r t i e s ' intent: (1) the slides describing the EPP presented to the employees prior t o the CBA vote, 1 Aplt. App. 137-156 ; (2) the deposition testimony of Jeff C l a r k , the former Director of Union Relations for Boeing and then Spirit, who t e s t i f i e d about negotiating the CBA, 1 Aplt. App. 28-136; and (3) the SEC S-1 R e g i s t r a t i o n Statements filed before the payment event, 1 Aplt. App. 159. This e v i d e n c e is uncontroverted; both parties represented to this court at oral argument t h a t there are no disputed material facts. A s noted, after the bargaining units and Spirit negotiated the CBA and the E P P , Spirit employees assisted in the preparation of a slide presentation that was u s e d to educate union members about the EPP prior to the CBA vote. Aplt. Br. 6; A p l e e . Br. 3. The slides indicated that the unions had "negotiated an [EPP] for e l i g i b l e employees." 1 Aplt. App. 138. The slides described the nature of the S A R s rights, how the rights would be allocated, and which employees would be e l i g i b l e for the rights. 1 Aplt. App. 137-56. Mr. Clark testified that, "at the time o f the bargaining agreement, . . . [t]here was a description about who would be e l i g i b l e [to participate in the EPP]" and "an agreement . . . about what would c o n s t i t u t e [SARs]." 1 Aplt. App. 191. Before the IPO payment event, Spirit filed

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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 EPP: "As part of the c o l l e c t i v e bargaining agreements, [Spirit] has agreed to establish a union [EPP] p u r s u a n t to which it will grant [SARs] . . . to each eligible employee . . . ." 1 A p l t . App. 159. Spirit then memorialized the EPP on October 27, 2006. Aplt. Br. 1 3 ; Aplee. Br. 5. The written EPP document contained identical terms to those d e s c r i b e d in the pre-vote slide presentation. Compare 1 Aplt. App. 143, 147-49, 1 5 3 with 4 Aplt. App. 916. Prior to the memorialization of the EPP, when e mp l o y e e s had questions about the EPP, they were referred to the pre-vote p r e s e n t a t i o n slides, which were posted online. Aplt. Br. 11; Aplee. Br. 5. This e x t r i n s i c evidence supports Trustees' position that the EPP terms were part of the C B A negotiations. Debtors have not offered evidence to the contrary. Accordingly, the evidence fully supports the contention that the CBA included a b i n d i n g agreement about the EPP rather than "an agreement to agree" on the p a r a me t e r s of the EPP at some later point. W e agree with the BAP dissent that summary judgment is usually not an a p p r o p r i a t e vehicle for determining the parties' intent about contract formation. Dittmar, 410 B.R. at 93-94. However, Debtors must raise more than some me t a p h y s i c a l doubt about whether the EPP terms were agreed on during the CBA n e g o t i a t i o n s given Trustees' proof on the issue. See Anderson v. Liberty Lobby, I n c . , 477 U.S. 242, 251-52 (1986). While intent is usually a question of fact, the
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e v i d e n c e supporting contract formation is uncontroverted, and the parties agree t h a t there are no disputed material facts. Under such circumstances, remand for a n evidentiary hearing is not warranted, and Trustees are entitled to judgment on t h i s point. C. P r o p e r t y of the Bankruptcy Estate Under § 541 U n d e r federal law, the bankruptcy estate includes, with enumerated e x c e p t i o n s , "all legal or equitable interests of the debtor in property as of the c o mme n c e me n t of the case." 11 U.S.C. § 541(a)(1). We have pointed out that t h e scope of § 541 is broad and should be generously construed, and that an i n t e r e s t may be property of the estate even if it is "novel or contingent." Parks, 5 5 0 F.3d at 1255 (internal quotation marks omitted); United States v. Rauer, 963 F . 2 d 1332, 1337 (10th Cir. 1992) (quoting United States v. Cardall, 855 F.2d 656, 6 7 8 (10th Cir. 1989), for the proposition that § 541 is broadly construed "to i n c l u d e all property interests, whether reachable by state-law creditors or not, and w h e t h e r vested or contingent"); see also In re Barowsky, 946 F.2d 1516, 1518 ( 1 0 t h Cir. 1991) (discussing Congress's affirmative adoption of Segal v. Rochelle, 3 8 2 U.S. 375 (1966), in adopting § 541). Another circuit has likewise noted, " W h e n a bankruptcy petition is filed, virtually all property of the debtor at that t i me becomes property of estate. . . . [E]very conceivable interest of the debtor, f u t u r e , nonpossessory, contingent, speculative, and derivative, is within reach of

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1 1 U.S.C. § 541." In re Yonikus, 996 F.2d 866, 869 (7th Cir. 1993) (citations and q u o t a t i o n marks omitted). Even contingent interests that may or may not vest for y e a r s at the time of their creation are not necessarily excluded. In re Yeary, 55 F . 3 d 504, 505, 508-09 (10th Cir. 1995) (bankruptcy estate includes property s u b j e c t to a creditor's security interest created years before the bankruptcy p e t i t i o n was filed). A d o p t i n g the BAP majority's reasoning, Debtors argue that their interests w e r e merely "the hope, anticipation, or expectation that in the event of a [ p a y me n t ] event, they would receive a share of the profits" because their interests w e r e entirely dependent upon the economic decisions of Spirit. Aplee. Br. 12-13. This suggests that a contingent interest cannot become property of the bankruptcy e s t a t e unless the contingency is entirely in the control of the interest holder. Such a rule amounts to nothing more than a statement that virtually no contingent i n t e r e s t can be property of the bankruptcy estate--a position that clearly conflicts w i t h our precedent. As discussed above, Debtors' interest in the SARs is similar t o an employee's interest in stock options. As long as the employee had a legal i n t e r e s t in the options prior to filing for bankruptcy, the options are sufficiently r o o t e d in the pre-bankruptcy past to become part of the bankruptcy estate. In re A l l e n , 226 B.R. 857, 865 (Bankr. N.D. Ill. 1998). That vesting of the options is c o n t i n g e n t on a term of employment--a condition that is not exclusively within t h e employees' control--does not remove this pre-petition interest from the
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b a n k r u p t c y estate. See, e.g., In re Wick, 276 F.3d 412, 415 (8th Cir. 2002) ( n o t i n g that unvested options contingent on continued employment are property of t h e estate because contingencies--even those that require additional post-petition s e r v i c e s or those that may defeat the right to enjoyment of the property--do not b a r a property interest from becoming part of the estate.). Like stock options, the f a c t that the SARs are contingent on post-petition events does not mean that D e b t o r s ' interest in them is not rooted in the pre-bankruptcy past. N e i t h e r the parties nor the courts below found any cases with similar facts. Instead they rely on contingent employee benefits cases where a program entitling t h e debtor to payment is in existence before the debtor files for bankruptcy and t h e eventual payment to the debtor is contingent on several factors, e.g., e mp l o y me n t for a certain amount of time or profitability of the company. These c a s e s help illustrate when a contingent interest is rooted in the pre-bankruptcy past a n d when the interest is so speculative that it was a mere expectancy at the time t h e bankruptcy petition was filed. O n e line of cases concludes that contingent interests are property of the b a n k r u p t c y estate even if the rights do not accrue or are uncertain until a date after t h e bankruptcy filing. See Booth v. Vaughn, 260 B.R. 281 (B.A.P. 6th Cir. 2001); I n re Edmonds, 273 B.R. 527 (Bankr. E.D. Mich. 2000), aff'd, 263 B.R. 828 (E.D. M i c h . 2001). The Booth court applied a broad reading of § 541. There, the CBA

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p r o v i d e d that hourly workers would receive a profit-sharing payout at the end of t h e year if (1) the employer made a profit and (2) the employee was employed t h r o u g h year end. 260 B.R. at 284. Mr. Booth filed for bankruptcy before a profit w a s realized and before the end of the year. Id. at 290. The court determined that t h e 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 p r o f i t - s h a r i n g payout at the end of the year if (1) Ford made a profit and (2) the e mp l o y e e was employed at the end of the year. 263 B.R. at 829. Mr. Edmonds f i l e d for bankruptcy on December 15. Id. Noting that "plaintiff had worked all b u t a few of the days necessary to become entitled to his profit sharing," the court h e l d that "the profit sharing payment is sufficiently rooted in the pre-bankruptcy p a s t [to be] property of the estate under § 541(a)." Id. at 831. Thus, contingencies l i k e continued employment and company profit do not transform the employee's i n t e r e s t into a mere expectancy that is excluded from the bankruptcy estate when t h e interest is rooted in the pre-bankruptcy past. T h e BAP majority cited a second line of cases where employee bonuses w e r e excluded from the bankruptcy estate. See In re Chappo, 257 B.R. 852 (E.D. M i c h . 2001); Sharp v. Dery, 253 B.R. 204 (E.D. Mich. 2000); Vogel v. Palmer, 57 B . R . 332 (Bankr. W.D. Va. 1986). In Vogel, Mr. Palmer was entitled to receive a b o n u s if (1) he was employed on a date almost six months after the filing of his b a n k r u p t c y petition, (2) he performed his job satisfactorily, and most importantly,
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( 3 ) the company's chief executive officer determined Mr. Palmer was entitled to a b o n u s . 57 B.R. at 333. Because the award of the bonus was purely discretionary, t h e court held that Mr. Palmer's interest was "nothing more than a potential . . . of r e c e i v i n g an award." Id. at 335-36. In Sharp, Mr. Sharp was eligible for a bonus i f he was employed in good standing when the company issued the bonus checks. 253 B.R. at 206. The timing of any bonus checks was at the employer's sole d i s c r e t i o n , and the employer had the right to amend, suspend, or terminate the b o n u s plan at any time. Id. Mr. Sharp filed for bankruptcy on December 21 and r e c e i v e d his bonus in February. Id. The court noted that under Michigan law, a w o r k e r does not have an enforceable right in bonus dividends before payment. Id. a t 208. The court concluded that on the date he filed for bankruptcy, Mr. Sharp h a d no legal interest in the bonus check he later received on February 22 because h i s employer "could have decided not to pay any bonus at all under the terms of t h e bonus plan itself." Id. at 207-08. Finally, Chappo presents similar facts and a n identical outcome. 257 B.R. at 852-55. Citing Sharp and Vogel, the court n o t e d that the bonus plan contained "dispositive characteristic[s]": (1) the plan p r o v i d e d that the "Board of Directors at any time may terminate . . . or modify the P l a n or suspend any of its provisions . . ." and (2) the bonus plan committee could " d e t e r mi n e in its sole discretion not to make an Award to a particular Participant o r group of Participants or to all Participants for any Plan Year." Id. at 854. At b o t t o m, this line of cases suggests that an employer's promise to pay a bonus is
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n o t enforceable where the employer reserves the right to withhold payment at its d i s c r e t i o n . Thus, the employee had no right to the bonus at the time the b a n k r u p t c y petition was filed. Accordingly, the employee's interest in the bonus w a s a mere expectancy and should not be part of the bankruptcy estate. W e believe the SARs created by the CBA are more akin to the contingent p r e - p e t i t i o n property rights described in the former line of cases than the mere e x p e c t a n c i e s based on discretionary bonuses described in the latter. Spirit had a c o n t r a c t u a l obligation to make payments if the IPO occurred. This obligation e x i s t e d before Debtors filed for bankruptcy. 2 Debtors' interest in the SARs are s u f f i c i e n t l y rooted in the pre-bankruptcy past. The SARs are properly part of the b a n k r u p t c y estate under § 541. REVERSED. The record suggests that some of the debtors filed for bankruptcy before t h e y had completed the ninety days of employment required to become p a r t i c i p a t i n g employees. See, e.g., 4 Aplt. App. 887. Trustees correctly note that t h i s does not prevent these debtors' interest in the SARs from becoming property o f the bankruptcy estate, 4 Aplt. App. 967. See, e.g., DeNadai v. Preferred C a p i t a l Markets, Inc., 272 B.R. 21, 30-31 (D. Mass. 2001) (holding that unvested s t o c k options, subject to the contingency of debtor's future employment, are p r o p e r t y of the bankruptcy estate). However, absent these debtors' continued e mp l o y me n t after they filed for bankruptcy, they would not have become p a r t i c i p a t i n g employees. Accordingly, the bankruptcy court may need to a p p o r t i o n the SARs between such debtors and their bankruptcy estates. See, e.g., i d . at 33-35 ("[R]ecognizing that the contingency upon which the exercisability of t h e options depends is continued employment of the debtor, courts have . . . c o n s i s t e n t l y distributed the options on a pro rata basis so that only that percentage o f the options that were earned pre-petition are brought within the bankruptcy estate.").
2

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P a r k s v. Dittmar, 09-3230 et al. H O L L O W A Y , 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 t o be included within their bankruptcy estates. Background. A l mo s t all the relevant facts are noted in the majority opinion, and I will o n l y mention facts that seem most critical to me. As noted in the majority o p i n i o n , the SARs at issue here were given for a fifteen year term (Maj. op. at 6), w h i l e Spirit told the eligible employees, including Debtors, that it was "using a f i v e - y e a r period" in planning, which implied that Spirit believed it likely that a " p a y me n t event" would probably occur within five years, if it were to occur. The bankruptcy judge found that Spirit had absolute discretion whether to " s e l l , merge, or publicly offer stock," which were the three ways that a "payment e v e n t " could occur. Parks v. Dittmar (In re Dittmar), 410 B.R. 71, 77-78 (B.A.P. 1 0 t h Cir. 2009) (quoting Bankruptcy Court's interim order). And there was a f u r t h e r contingency that applied to any of these three possible routes to issuance of t h e SARs: the "payment event" would first have to result in at least a fifteen per c e n t "annual profit" to "the initial equity investors." 1

I t is unclear whether these terms were defined, but Debtors have not c o n t e n d e d that these terms are ambiguous.
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T h e framework for the analysis. T h e majority opinion outlines three-steps for the analysis: first, whether the D e b t o r s have a property interest in the SARs under Kansas law; second, whether t h e interest existed at the time the Debtors filed their petitions; and third, whether t h e property interests are property of the bankruptcy estate under 11 U.S.C. § 541. Maj. op. at 10. This seems to be correct, but applying the approach in this context p r e s e n t s a real challenge. W e r e the interests recognized as property under state law? O n the first question ­ whether the benefits are an "interest in property" u n d e r Kansas law ­ we have previously held that as a general rule contingent i n t e r e s t s are property in Kansas. Kirby v. United States (In re Allen Bros. Truck L i n e s , Inc.), 329 F.2d 735, 737 (10th Cir. 1964). The property in that case was a c o n t r a c t u a l right. The bankrupt, a trucking company, had agreed to sell its c e r t i f i c a t e of convenience and necessity to another, with part of the consideration h a v i n g been paid at the time of the agreement and the remainder to be paid upon a p p r o v a l of the transfer by the state agency with authority over the matter. Bankruptcy was declared before the sale had been completed. And before the b a n k r u p t c y petition was filed, the IRS had notified the buyer of the certificate that i t claimed a tax lien on the payment contingently owed to the trucking company.

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T h e bankruptcy trustee challenged the tax lien, arguing that there was no " p r o p e r t y " to which the lien could attach. O n appeal, we held in favor of the IRS. The parties did not dispute that the c e r t i f i c a t e itself was property under Kansas law. The bankruptcy trustee, h o w e v e r , argued that because the contested balance of the payment for the c e r t i f i c a t e was not due until approval by the state agency had been obtained, there w a s no present property right in that balance. That contention was rejected. The c o u r t found no authority on the nature of the rights between the parties to this t r a n s a c t i o n , but held that "whatever the exact nature of those rights, they at least c o n s t i t u t e a contingent liability, and under the law of Kansas, unmatured and c o n t i n g e n t liabilities are subject to garnishment." 329 F.2d at 737. Accordingly, I agree with the majority that the SARs at issue here are p r o p e r t y rights under state law. D i d the Debtors have rights when they filed their petitions? I agree with the majority that the evidence showed that the property i n t e r e s t s came into existence with the execution of the collective bargaining a g r e e me n t s and thus were in existence when the Debtors filed their petitions. W e r e the Debtors' interests property of their bankruptcy estates? T h e third and pivotal issue is whether the Debtors' property interests in the S A R s became property of the bankruptcy estates. Analysis here must begin with
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t h e extremely broad language used by the Supreme Court and Congress to describe p r o p e r t y of the estate. In a case under the Bankruptcy Act, the Court said that the b a n k r u p t c y estate includes "everything of value the bankrupt may possess . . . w h e n he files his petition" and that an interest is not excluded "because it is novel o r 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 t h e Bankruptcy Code, specifically endorsed this language, so it remains valid. See B a r o w s k y v. Serelson (In re Barowsky), 946 F.2d 1516, 1518 (10th Cir. 1991). As the majority opinion discusses, courts nevertheless have found that some p r o p e r t y interests are too remote and speculative to be included in the bankruptcy e s t a t e . Significantly, the SARs in this case were subject to multiple contingencies a n d potentially to a very long period of uncertainty. A s the majority opinion notes, no cases have been cited or found that deal w i t h facts closely analogous to those we deal with here. We are further hindered b y the lack of analytical guidance offered by the cases. There does not appear to b e even a framework to guide us as we contemplate the inherently inexact process o f trying to determine what level of uncertainty must be present for a property i n t e r e s t to be outside the scope of section 541(a)(1), a scope that all agree is quite b r o a d indeed. A s the dissenting judge on the BAP noted, while the

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g e n e r a l principles governing property of the estate under § 541 g e n e r a t e little controversy, their application varies widely, especially r e g a r d i n g contingent property interests. . . . . [T]he varying analyses ma k e it difficult to cull any settled, functional rule for determining w h e n a contingent interest is property of the estate. At best, the case l a w can be said to exist on a continuum. At one end are contingent p r o p e r t y interests that were clearly created and rooted in a debtor's p r e - b a n k r u p t c y past, such as a prepetition contract that will result in t h e debtor receiving payments postpetition. At the other end of the s p e c t r u m are interests so amorphous, so speculative, or subject to so ma n y contingencies, that courts deem them to be "mere e x p e c t a n c i e s , " rather than existing property interests. Most interests f a l l in between these two extremes, and often have a mix of c h a r a c t e r i s t i c s that make it very difficult to ascertain whether the i n t e r e s t has crossed the line from "mere expectancy" to contingent p r o p e r t y interest within the scope of § 541. P a r k s v. Dittmar (In re Dittmar), 410 B.R. 71, 84-85 (B.A.P. 10th Cir. 2009) ( B r o w n , J. dissenting) (footnotes omitted). O n e clear principle that should undergird our analysis is that the facts must b e considered as of the date that the Debtors filed their petitions. The bankruptcy e s t a t e comprises "all legal or equitable interests of the debtor in property as of the c o mme n c e me n t of the case." 11 U.S.C. § 541(a)(1). The trustee "succeeds only to t h e title and rights in property that the debtor had at the time she filed the b a n k r u p t c y petition." Weinman v. Graves (In re Graves), 609 F.3d 1153, *2 (10th C i r . 2010) (quoting In re Sanders, 969 F.2d 591, 593 (7th Cir. 1992)). A second o v e r r i d i n g policy is "that bankruptcy cases be handled in a speedy and expeditious ma n n e r . " Turney v. FDIC, 18 F.3d 865, 869 (10th Cir. 1994) (quoting 2 Collier on B a n k r u p t c y , ¶ 102.02 (15th ed. 1993)).
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T h e majority finds that cases involving annual employee bonuses have the mo s t similar context and therefore provide some guidance for our task. Maj. op. at 1 9 - 2 2 . 2 As discussed in the majority opinion, a single factor appears to d i s t i n g u i s h at least some of the cases holding that an employee bonus is property o f the employee's bankruptcy estate from those holding the bonus is not property o f the estate. That factor is whether the employer had discretion to withhold a b o n u s , even when all conditions attached to the bonus by that particular employer w e r e satisfied. T h e majority apparently accepts the reasoning of the courts which hold that e mp l o y e r discretion whether to grant an annual bonus or not may be decisive. The ma j o r i t y apparently concludes, however, that although discretion whether to award a benefit results in the benefit being outside the bankruptcy estate, discretion to c o n t r o l the conditions that activate the awarding of the benefit does not. I find the d i s t i n c t i o n unconvincing. I f employer discretion is to be the controlling factor, then I see no reason w h y the discretion vested in the employer here ­ which was absolute discretion to c r e a t e or eschew creating the conditions that would lead to Debtors eventually r e c e i v i n g tangible benefits ­ should be an exception to such a rule. Moreover, this M o r e specifically, all the cases cited and discussed in this part of the ma j o r i t y opinion involve bonuses that had not been paid at the time bankruptcy p r o c e e d i n g s were commenced but which had, at least arguably and at least p a r t i a l l y , been earned at that time.
2

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c a s e can and should be decided without adopting the rule that employer discretion i s controlling, as was done in the employee bonus cases cited by the BAP such as V o g e l v. Palmer (In re Palmer), 57 B.R. 332 (Bankr. W.D. Va. 1986). I n this case, the employer not only had discretion whether to initiate any " p a y me n t event" and thus activate its obligation to create the SARs, but its o b l i g a t i o n was further conditioned on an arbitrary factor that the event first had to c r e a t e at least fifteen percent annual profit for the initial investors. Further, and q u i t e significant in my view, the employer here, unlike in the cases discussed by t h e majority and cited by the parties, retained the power to postpone its decision f o r up to fifteen years. Given the majority's apparent agreement with cases that h o l d that employer discretion either to pay or to withhold an annual bonus results i n the benefit being outside the bankruptcy estate, one would expect that the b e n e f i t in this case, with its multiple contingencies and prolonged period of l a t e n c y , would be an a fortiori case in which the SARs are outside the bankruptcy estates. I t is not necessary for this panel to endorse the holdings of those courts that h a v e held that employer discretion to pay or withhold an annual bonus to an e mp l o y e e results in the bonus being outside the bankruptcy estate. Here we have n o t just that one factor, but the additional contingency that the event over which t h e employer had control must have occurred with certain results (realization by

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t h e "investor group" of at least a fifteen per cent annual profit). Further, unlike t h e facts in the employee bonus cases discussed in the majority opinion, we also d e a l with a context in which the potential benefit was not certain to become p a y a b l e , if at all, within a few months of the bankruptcy filing but potentially a n y t i me within the following fifteen years. Viewing these Debtors' property rights in the SARs at the time of the c o mme n c e me n t of their cases, and mindful of the policy mandating expeditious h a n d l i n g of the estates, I conclude that the SARs were properly held by both c o u r t s below to be outside the bankruptcy estates and so not subject to turnover to t h e Trustees. Conclusion. I t is challenging to find the demarcation between contingent property i n t e r e s t s that are properly included in the estate of a bankrupt and those that are so e x t r e me l y novel or contingent that they are not so included. I conclude and would h o l d that the SARs at issue here were not part of the Debtors' estates because at t h e critical time that the petitions were filed by the Debtors, the interests were s u b j e c t to multiple contingencies, including the likelihood that they would remain o n l y contingent interests for some years post-petition. I therefore respectfully dissent.

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