Joseph K. Miller

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
In re: ) Case No. 10-15891
)
JOSEPH K. MILLER, ) Chapter 7
)
Debtor. ) Judge Pat E. Morgenstern-Clarren
)
) MEMORANDUM OF OPINION
) AND ORDER1
The chapter 7 trustee moves for an order directing the debtor Joseph Miller to turn over to
the bankruptcy estate the prepetition pro rata share of his 2010 Lincoln Electric Company bonus.2
The debtor argues that the funds are not property of the estate or, alternatively, that the funds are
exempt. For the reasons stated below, the trustee’s motion is denied.3
I. JURISDICTION
Jurisdiction exists under 28 U.S.C. 1334 and General Order No. 84 entered by the United
States District Court for the Northern District of Ohio on July 16, 1984. This is a core
proceeding under 28 U.S.C. § 157(b)(2)(E) and is within the court’s constitutional authority as
analyzed by the United States Supreme Court in Stern v. Marshall, 131 S. Ct. 2594 (2011).
This opinion is not intended for publication, either print or electronic.1
Docket 26, 42, 44.2
Docket 29, 43.3
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II. FACTS
The facts are not in dispute:4
The debtor Joseph Miller filed a chapter 7 petition on June 17, 2010. His schedule I
stated that he had been employed at Lincoln Electric Company as a laborer for three years. His
initial schedule B (personal property) listed a total of $175.00 in cash and bank funds and he
claimed an exemption in those funds under Ohio Revised Code §§ 2329.66(A)(3) and (A)(18) in
his schedule C (property claimed as exempt). He did not list his 2010 Lincoln profit sharing
bonus. At the debtor’s meeting of creditors, he testified that he had received a Lincoln bonus in
2009; the trustee kept her case file open to see if the debtor would receive a bonus in 2010.
In December 2010, the debtor received a bonus totaling $18,101.98. The trustee then
filed a motion seeking turnover of $6,956.12. She calculated this amount based on the
assumption that $8,331.12 was the value of the pro-rated portion of the bonus attributable to the
prepetition period, added $175.00 for cash and bank funds which the debtor had scheduled, and
then subtracted exemptions of $1,550.00 under Ohio Revised Code §§ 2329.66(A)(3) and
(A)(18).
The debtor objected to the trustee’s motion, and filed amended schedules B and C. In B,
he listed the bonus with a value of $4,621.68; in C, he claimed that entire amount as exempt
under Ohio Revised Code §§ 2329.66(A)(3), (A)(13), and(A)(18).5
These undisputed facts are drawn from the debtor’s schedules, the parties’ stipulations,4
and the briefs. See docket 1, 28, 34, 41. While the debtor also cites to testimony quoted in a
different case, that information is hearsay in this case and not admissible to prove any fact. See
FED. R. EVID. 801 and 802.
The debtor filed duplicate amendments on February 9, 2011 and February 14, 2011.5
Docket 28, 34.
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The trustee now agrees that the amount of the pro-rated bonus is $4,621.68. She seeks
turnover of that amount plus the $175.00 in cash and bank funds (subtotal $4,796.68), less
$1,550.00 in available exemptions under Ohio Revised Code §§ 2329.66(A)(3) and (A)(18), for a
total of $3,246.68 to be turned over.6
Both parties cite the Lincoln Employees’ Handbook to support their position:7
Profit Sharing Bonus
Every year since 1934, eligible employees have received a profit
sharing bonus in December. The bonus is not guaranteed and it
does not happen automatically. The bonus is paid at the discretion
of the Board of Directors of the Company and only if the Company
is able to earn a profit. The size of the overall bonus is based on
the profits of the Company, while your share is based on your
individual pay and performance during the year. When the
company is successful in generating a profit, a portion is shared
with employees as a reward for their part in earning the profit . . . .
Bonus Eligibility
Generally, to be eligible for bonus payment, you must be a Regular
Employee and you must have been on the payroll prior to
November 1 of the year in which the bonus is paid. Employees
who leave the Company prior to August 1 will not be eligible to
receive a bonus unless they leave due to retirement, military leave
of absence, maternity leave of absence or permanent and total
disability . . . .
Bonus-eligible employees with one year of service or more who
leave the Company between August 1 and the bonus payment date
are eligible to receive a bonus only if approved by the Chairman
and Chief Executive Officer. If approved the bonus amount will be
reduced by the number of days not worked during the calender year
. . . .
Trustee’s brief at 1, docket 42.6
See trustee’s brief (docket 42); and debtor’s brief (docket 43).7
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Bonus eligibility does not guarantee a bonus. It merely establishes
an individual’s ability to share in any bonus that may be declared in
a particular year. Our Company Chairman and Chief Executive
Officer is the final authority on bonus eligibility.
III. DISCUSSION
A. Property of the Estate
A debtor’s bankruptcy estate consists of all legal and equitable interests in property a
debtor has when the case is filed. 11 U.S.C. § 541(a)(1); In re Gaydos, 441 B.R. 102, 103
(Bankr. N.D. Ohio 2010). “This definition is unquestionably broad, its main purpose being to
‘bring anything of value that the debtors have into the [bankruptcy] estate.’” Lyon v. Eiseman (In
re Forbes), 372 B.R. 321, 330-31 (B.A.P. 6th Cir. 2007) (quoting Booth v. Vaughan (In re
Booth), 260 B.R. 281, 284-85 (B.A.P. 6th Cir. 2001)); see also Johnston v. Hazlett (In re
Johnston), 209 F.3d 611, 613 (6th Cir. 2000) (acknowledging that section 541 is intended to be
given a broad definition). Section 541(a)(1), however, does not expand a debtor’s property
rights. Demczyk v. Mut. Life Ins. Co. Of New York (In re Graham Square, Inc.), 126 F.3d 823,
831 (6th Cir. 1997). Bankruptcy Code § 542(a) requires a debtor to turn estate property over to
the trustee, unless it is of “inconsequential value or benefit to the estate.” 11 U.S.C. § 542(a).
The trustee has the burden of proof in a turnover action. Kentucky Co. v. Hayes (In re Hayes),
407 F.2d 1031, 1033 (6th Cir. 1969).
Federal law determines what property is included in the estate, while state law controls
whether the debtor has a legal or equitable interest in the property at the time the bankruptcy case
is filed. Butner v. United States, 440 U.S. 48, 55 (1979); Nuvell Credit Corp. v. Westfall (In re
Westfall), 599 F.3d 498, 502 (6th Cir. 2010). Under the former Bankruptcy Act, the United
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States Supreme Court stated that “the term ‘property’ has been construed most generously and an
interest is not outside its reach because it is novel or contingent or because enjoyment must be
postponed.” Segal v. Rochelle, 382 U.S. 375, 379 (1966). Although Segal was decided under
the former Act, its holding is still relevant because the current Bankruptcy Code definition of
estate property was intended to preserve and even broaden the definition of property. See In re
Johnston, 209 F.3d at 613. “In fact, every conceivable interest of the debtor, future,
nonpossessory, contingent, speculative, and derivative, is within the reach of § 541.” In re
Yonikus, 996 F.2d 866, 869 (7th Cir. 1993).
1. Under Ohio Law, Did the Debtor Have a
Property Interest in the Bonus on the Filing
Date?
As noted, Ohio law determines whether the debtor had a property interest in the bonus on
the filing date. Although the debtor did not have a right to payment of the bonus on the day he
filed, the employee handbook in effect on that date specified the circumstances under which his
right to the bonus would arise. “Under Ohio law, ‘[a] contingent interest is one in which there is
no present fixed right of either present or future enjoyment; but in which a fixed right will arise
in the future under certain specified circumstances.’” Booth v. Vaughan (In re Booth), 260 B.R.
281, 285 (B.A.P. 6th Cir. 2001) (quoting Cleveland Trust Co. v. McQuade, 142 N.E.2d 249, 257
(Ohio Ct. App. 1957)). Applying this definition, the debtor had a contingent property interest in
the bonus at filing. This conclusion is supported by the fact that the debtor could alienate that
interest under Ohio law, id. (citing Moore v. Foresman, 179 N.E.2d 349, 353 (Ohio 1962)), and
could assign it, see Gen. Excavator Co. v. Judkins, 190 N.E. 389, 391 (Ohio 1934) (holding that
money due and to become due under an existing contract may be assigned); Pub. Fin. Co. v.
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Rowe, 174 N.E. 738 at syllabus (Ohio 1931) (“An assignment of wages to be earned in the future
under an existing employment is valid.”); see also RESTATEMENT (SECOND) OF CONTRACTS
§ 321(1) (“Except as otherwise provided by statute, an assignment of a right to payment expected
to arise out of an existing employment or other continuing business relationship is effective in
the same way as an assignment of an existing right.”).8
2. Is the Debtor’s Contingent Property Interest in
the Bonus at Filing Property of the Bankruptcy
Estate under § 541?
In the case of contingent employee benefits such as the Lincoln bonus, it is often difficult
to draw a line between contingent prepetition interests and postpetition interests. To do so,
courts focus on § 541's temporal requirement and whether the debtor’s interest is rooted in the
pre-bankruptcy period. See Segal, 382 U.S. at 380 (stating that the loss-carry back refund claim
at issue was “sufficiently rooted in the pre-bankruptcy past”); Parks v. Dittmar (In re Dittmar,
618 F.3d 1199, 1210 (10th Cir. 2010) (concluding that debtors’ interest in stock appreciation
rights “are sufficiently rooted in the pre-bankruptcy past”); In re Booth, 260 B.R. at 290 (same);
In re Edmonds, 263 B.R. 828, 831 (E.D. Mich. 2001) (same).
The debtor argues that his interest in the bonus is not a part of the estate because he was
not entitled to the bonus when he filed and because the employer did not guarantee that any
Although certain provisions of the Ohio Code limit assignment of personal earnings,8
see OHIO REV. CODE §§ 1321.31-33, Ohio courts have determined (in a different context) that a
Lincoln Electric bonus is not personal earnings, see Kalasunas v. Brydle, No. 52379, 1987 WL
13028 (Ohio Ct. App. June 18, 1987); and Bank One, Cleveland, N.A. v. Lincoln Elec. Co., 563
N.E.2d 381 (1990). However, even if the bonus is properly characterized as wages or salary for
purposes of those provisions, Bankruptcy Code § 541(c)(1) provides that the restriction on
transfer which they impose would not serve to exclude the debtor’s interest in the bonus from the
estate. See 11 U.S.C. § 541(c)(1).
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employee would receive a bonus. He relies largely on Vogel v. Palmer (In re Palmer), 57 B.R.
332 (Bankr. W.D. Va. 1986), which held that a Lincoln Electric bonus was not estate property.
Like the debtor here, that debtor’s entitlement to a bonus was conditioned on his continued
postpetition employment and the discretion of his employer. Based on those facts, the court
concluded that the debtor “did not have any right to the bonus when his case commenced . . .
[and found] that the bonus payment is sufficiently rooted in postpetition events so as to constitute
after-acquired property which would not pass to the Trustee as property of the estate.” 57 B.R. at
337 (internal quotation marks and citation deleted).
The trustee, on the other hand, relies on the Booth decision in which the Sixth Circuit
Bankruptcy Appellate Panel concluded that a debtor’s prepetition interest in a prospective bonus
was property of the estate. The employer, Daimler-Chrysler Corp., had a profit sharing program
under a collective bargaining agreement, which program required (1) the employee to be
employed through the end of the year to receive a bonus; and (2) the company to show a profit at
that time. The debtor filed his bankruptcy case in September. The BAP extensively reviewed the
case law in which a debtor’s contingent interest in property has been held to be property of the
estate, concluded that contingencies in the debtor’s plan were indistinguishable from those
interests, and ruled that the prepetition interest was estate property. 260 B.R. at 285-87.
The Booth facts are different from the facts in this case and in the Palmer case because
the Booth employer did not reserve any discretion to pay the bonus. In the course of its
discussion, however, the Booth court did consider whether the debtor had to have an enforceable
right to the bonus at filing for the bonus to be estate property. The BAP did so in the context of
analyzing Sharp v. Dery, 253 B.R. 204 (E.D. Mich. 2000), a decision which relied on Palmer.
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The Booth opinion states that –
There is a fundamental problem with Sharp. Focusing on whether
the debtor had an “enforceable” contract right when the petition
was filed would exclude all contingent interests from the
bankruptcy estate, because by definition, a contingent interest is
not “enforceable’ until the contingency is met. The approach in
Sharp is thus inconsistent with the broad concept of property of the
estate in § 541(a)(1) and with the extensive case law . . . holding
that a contingent interest can be property of the estate. Section 541
neither states nor implies any requirement that the debtor must
have an enforceable interest in property for that interest to become
property of the bankruptcy estate.
260 B.R. at 290. This court agrees with the BAP’s reasoning and conclusion as to the scope of
§ 541(a)(1). Although the debtor’s right to receive a bonus in this case was conditioned on his
continued employment at Lincoln and on its decision to declare a bonus, he had an interest in the
bonus at the time he filed his case based on his prepetition employment, and that interest is an
asset of his bankruptcy estate. See In re Edwards, No. 08-18675 (Bankr. N.D. Ohio Aug. 17,
2009).
B. Exemptions
The parties agree that the debtor is entitled to exempt certain amounts under Ohio law.
See 11 U.S.C. § 522(b)(2); OHIO REV. CODE § 2329.662 (in which Ohio opts out of the federal
exemptions stated in § 522 and chooses to use Ohio exemptions instead). The trustee seeks
turnover of $3,246.68 calculated in this fashion: she values the bonus interest at $4,621.68, adds
$175.00 in cash and bank funds (subtotal $4,796.68), and then subtracts exemptions of
$1,550.00, which the debtor initially scheduled. This analysis, however, does not account for the
debtor’s amended schedule C in which he claims the entire $4,621.68 value of the bonus interest
as exempt. Based on the debtor’s initial and amended exemption claims, all of the monies which
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the trustee is seeking in this matter have been exempted by the debtor without objection.9
Consequently, the debtor is not required to turn over the funds.
IV. CONCLUSION
For the reasons stated, the trustee’s motion is denied.
IT IS SO ORDERED.
________________________________
Pat E. Morgenstern-Clarren
United States Bankruptcy Judge
See FED. R. BANKR. P. 4003(b) providing that a party in interest may object to a9
debtor’s claim of exemptions “within 30 days after the meeting of creditors . . . is concluded or
within 30 days after any amendment to the list or supplemental schedules is filed, whichever is
later”).
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