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Fwd: ILC E-Bulletin: Ninth Circuit BAP holds post-petition real estate commissions attributable to pre-petition efforts
FYI ...
Law Office of Eric Alan Mitnick
21515 Hawthorne Boulevard, Ste. 1080
Torrance, CA 90503
(310) 792-5864 (tel)
(310) 347-4353 (fax)
MitnickLaw@aol.com
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> Date: November 3, 2017 at 2:20:19 PM PDT
> To: mitnicklaw@aol.com
> Subject: ILC E-Bulletin: Ninth Circuit BAP holds post-petition real estate commissions attributable to pre-petition efforts are estate property
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> November 3, 2017
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> Ninth Circuit BAP holds post-petition real estate commissions attributable to pre-petition efforts are estate property
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> The following is a case update analyzing a recent case of interest:
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> SUMMARY
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> In Stephen J. Anderson and Melanie Anderson, v. Gary L. Rainsdon, Chapter 7 Trustee (In re Anderson), 572 B.R. 743 (9th Cir. BAP 2017) the U.S. Bankruptcy Appellate Panel of the Ninth Circuit held that that a debtorf the debtors estate, even though pertinent state law may provide that the commission is not earned until the related sale transaction closes. The BAP resolved an apparent split between the two divisions of the Idaho bankruptcy court on the basis that 11 U.S.C. 541 provides that a contingent right to a commission is property of the estate and trumps any conflicting state law on the issue.
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> FACTS
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> Both debtors were real estate agents working for a broker in Idaho. Debtors had an agreement in place with the broker to pay their share of commissions to Bastille Enterprises, Inc. (Bastille), a corporation wholly owned by debtors. Bastille then paid debtors expenses and salaries.
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> As of the petition date, debtors and broker were involved in 13 pending real estate transactions in which the sales contracts were fully executed but the sales had not yet closed. Each of transactions closed post-petition, and the broker paid Bastille a total of $52,485 in commissions. The chapter 7 trustee then demanded turnover of the commissions asserting that they were assets of the debtors estate pursuant to 11 U.S.C. 541 because debtors had completed all work necessary to earn the post-petition commissions prior to their bankruptcy. The debtors opposed the trusteete because they were paid to Bastille, or alternatively, that a portion of the work to earn the commissions was performed post-petition such that the court should apportion the commissions between the pre- and post-petition periods, and only require turnover of the portion earned prepetition.
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> The bankruptcy court determined that the commissions were property of the estate, finding that all necessary work was performed pre-petition and was rooted in the pre-bankruptcy past. Moreover, and because under Idaho state law a commission may only be paid to a broker or licensed agent, the bankruptcy court held that the commissions belonged to the debtors rather than Bastille. The bankruptcy court also noted that debtors produced no evidence which would allow it to apportion any of the commissions to post-petition activities.
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> REASONING
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> The BAP decided that the outcome of this case was controlled by the Ninth Circuits holding in Jess v. Carey (In re Jess), 169 F.3d 1204 (9th Cir. 1999), which involved the apportionment of post-petition contingency fee earned by a debtor/attorney. In Jess, the Ninth Circuit held that the debtor/attorneys estate was entitled to a portion of the post-petition contingency fee attributable to the debtor/attorneys pre-petition services. Following that reasoning, the BAP held that property of a bankruptcy estate includes contingent interests in future payments as long as the interest is sufficiently rooted in the pre-petition past, even if the interest was dependent upon the occurrence of a future event. The BAP further noted that while post-petition earnings are not property of an estate pursuant to 11 U.S.C. 541(a)(6), the analysis of whether any particular commission is property of an estate must focus on the extent of post-petition services necessary to earn the payment. (See e.g., Tully v. Taxel (In re Tully), 202 B.R. 481, 483 (9th Cir. BAP 1996)). With that framework in mind, the BAP affirmed the bankruptcy courts decision that the commissions were property of the debtors estate in their entirety.
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> Moreover, even though Idaho state law provided that commissions were not earned until closing of the sales, the BAP concluded that state law could not trump the considerations of 11 U.S.C. 541, but must instead be analyzed in collaboration with the bankruptcy code. While debtors did not would not be entitled to sue for the commissions until then, the limitation did not prevent some or all of the commissions from being estate property. As of the petition date, debtors held a contingent interest in the commissions attributable to their pre-petition efforts and that interest was property of their bankruptcy estate. The BAP also followed the bankruptcy courts reasoning regarding the debtors use of a corporation (Bastille) for receiving the commissions, ruling that the legal or equitable interests in the commissions belonged to the debtors and not the corporation.
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> AUTHORS COMMENTARY
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> This case is consistent with the practice of most chapter 7 trustees. When a debtor is a realtor representing a buyer or seller as of the time of filing bankruptcy, the attorney must determine the status of any listings or contracts. Where appropriate, the attorney should also counsel a client to track closely post-petition efforts on a transaction so the trustee and the debtor can fairly apportion any commissions that are paid after the bankruptcy filing.
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> These materials were written by Stephen D. Finestone, of Finestone Hayes LLP in San Francisco, California (sfinestone@fhlawllp.com). Editorial contributions were provided by Thomas B. Rupp, of McNutt Law Group LLP in San Francisco, California (trupp@ml-sf.com).
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> Thank you for your continued support of the Committee.
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> Best regards,
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> Insolvency Law Committee
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> Co-Chair
> Radmila A. Fulton
> Law Offices of Radmila A. Fulton
> Radmila@RFultonLaw.com
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> Co-Chair
> John N. Tedford, IV
> Danning, Gill, Diamond & Kollitz, LLP
> JTedford@dgdk.com
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> Marcus O. Colabianchi
> Duane Morris LLP
> MColabianchi@duanemorris.com
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> Co-Vice Chair
> Rebecca J. Winthrop
> Norton Rose Fulbright US LLP
> rebecca.winthrop@nortonrosefulbright.com
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Law Office of Eric Alan Mitnick21515 Hawthorne Boulevard, Ste. 1080Torrance, CA 90503(310) 792-5864 (tel)(310) 347-4353 (fax)MitnickLaw@aol.comSent from my iPhoneBegin forwarded message:From: The State Bar of California - Business Law Section <
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