Thursday, November 29, 2012

Sharp v. Dery case brief (employee bonus in bankruptcy)

Sharp v. Dery (ED MICH. 2000)

Subject:  How to deal with a post-petition employee bonus in bankruptcy.

Facts: Debtor filed on Dec. 21, 1998. At that time, through Feb. 1999, he was employed. On Feb 22. Debtor received an employee bonus of $11k. The bonus was for FY Jan. 1 to Dec. 31. To receive the bonus he had to be employed and in good standing when they were issued. The employer had the right to terminate the bonus plan at any time. The timing was also under their discretion. 
Issue: Was the post-petition bonus property of the state? Bankruptcy court said yes. Trustee is holding the funds in escrow pending the outcome on appeal.

Holding: Did the debtor have an enforceable right to receive the bonus check when he filed on December 21, 1998? Whether a bonus plan under which Debtor had no contractual right to payment as of Dec. 21 gave debtor an enforceable right to the bonus check he would eventually receive in Feb. 1998?The bonus check was “dependent upon the continued services o the debtor subsequent to the petition, and does not constitute property of the estate.”

Analysis: §541(a) creates the estate. It includes “all legal or equitable interests of the Debtor in property as of the commencement of the case,” subject to limited exceptions. Court must look to state law to decide when the debtor had a legal right or equitable interest in the property when he filed for bankruptcy. Michigan law embraces that an employee who ends his employment before the closing date of a bonus period, thereby failing to establish a contractually mandated condition for receipt of the bonus, forfeits eligibility for the bonus dividend. As of December 21, the debtor had no legally enforceable interest in the check he later received on Feb. 22. 
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