Opinion
Case No. 99-10186, Chapter 7
February 2, 2000
ORDER ON TRUSTEE'S MOTION TO COMPEL TURNOVER
In this chapter 7 case, the case trustee, Randy L. Royal, filed a motion for turnover of property in the debtor's possession. The debtor objected that the property was not property of the estate. The court held a hearing on February 9, 2000, and is prepared to rule.
FINDINGS OF FACT
The facts are generally undisputed. The debtor is a real estate broker. On August 24, 1998, February 16, 1999, and April 16, 1999 she entered into listing contracts with three separate parties (Harshman, Lindblom, and Lee) to sell real property. Under those contracts, the debtor had the exclusive right to market and sell the property, for which she was to be paid an agreed commission based on the sale price of the real property and the percentage fee set forth in the contract. The commission rate was 6%, 6% and 5%, respectively.
From the closing funds, the debtor realized a net commission of $2,625; $2,088; and $2,970, respectively. From the Harshman commission, the debtor paid repair expenses of $271.22. The expenses were paid postpetition.
On May 26, 1999, the debtor filed her voluntary chapter 7 petition in bankruptcy. All three sales closed on May 27, 1999.
By the time of the bankruptcy filing, all financing for the three sales was in place, the title insurance was ordered, and all documents had been sent to the closing agent. After the bankruptcy, the debtor transmitted a check from her trust account and attended the closings.
CONCLUSIONS
The issue in this dispute is whether the commissions received on contracts earned prepetition and paid postpetition are property of the chapter 7 estate. The filing of a bankruptcy petition creates an estate comprised of "all legal and equitable interests of the debtor in property." 11 U.S.C. § 541(a)(1).
The trustee alleges the debtor had a right to the commissions when she filed her petition and as such, those commissions are an interest in property which became property of the estate. The debtor argues the sales are contingent and frequently do not close. Under her analysis, the right to a commission does not exist until a sale closes. Thus, the commissions in this case are postpetition earnings.
Without apparent exception, commissions earned but unpaid prior to a bankruptcy petition filing are held to be property of the estate. In re Jess, 215 B.R. 618, 621 (9th Cir. BAP 1997), aff'd, 169 F.3d 1204 (9th Cir. 1999); In re Tully, 202 B.R. 481, 484 (9th Cir. BAP 1996). The amount of the estate's interest is determined on a prorated basis, and the debtor has the burden of proof.
The debtor's arguments have been specifically rejected by other courts. In re Jess, 169 F.3d at 1207; In re Bob Hamilton Real Estate, Inc., 138 B.R. 301, 302 (Bankr.M.D.Fla. 1992), aff'd, 187 B.R. 743 (M.D.Fla. 1995) (commission earned when buyer procured). In the case of In re Bagen, 201 B.R. 642, 644 (S.D.N.Y. 1996), the district court ruled that attorney fees under a contingent fee agreement were estate property even though paid postpetition. The court stated that, in fact, the debtor did complete the work and payment was made, regardless of the inherent possibility otherwise.
In this case, the trustee failed to provide the court with any legal authority. Nevertheless, the cases cited by the debtor fail to support her argument. In In re Amodio, 155 B.R. 622, 625 (Bankr.N.D.N.Y. 1993), the court held that the debtor's right to a commission was a property interest that could be encumbered or levied upon. The court in In re Oxford Management, Inc., 4 F.3d 1329 (5th Cir. 1993) held the debtor was not the owner of the commissions, but rather a conduit. Thus, that case is not factually controlling here.
The evidence of the pre and post petition value of the services is sketchy. The majority of the work was done prior to the bankruptcy. Less than 24 hours passed between the filing of the bankruptcy petition and the closing of the three sales. The court concludes the postpetition services represent 5% of the commissions earned.
The trustee also seeks turnover of the expenses paid by the debtor in the amount of $271.22. The court concludes the expenses were a prerequisite to closing the Lee contract and are not property of the estate.
In conclusion, it is ORDERED that the 95% of the real estate commissions earned by the debtor under listing contracts are property of the estate; and further
ORDERED that the debtor shall turn over the commissions to the chapter 7 trustee, subject to any valid exemption claimed therein.