Memorandum of Decision Re: Stock Options Received Postpetition

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re LAURA E. FERRER,                                                          No. 99-51111      Debtor(s). ______________________________________/ MOHAMED POONJA, Trustee,      Plaintiff(s),    v.                                                                                      A.P. No. 99-1185 LAURA E. FERRER,      Defendant(s). _______________________________________/
Memorandum of Decision
     The facts underlying this adversary proceeding are neither complicated nor subject to substantial dispute. Debtor Laura Ferrer began full-time employment at Cisco Systems, Inc., on May 18, 1998. Under Cisco's Stock Option Plan, she became eligible for valuable stock options on her one-year anniversary. Ferrer filed a Chapter 7 bankruptcy petition on February 17, 1999. The issue is whether the bankruptcy estate has an interest in the stock options. Plaintiff Mohamad Poonja, the Chapter 7 trustee, has moved for summary judgment.      As a general rule, when the debtor obtains property after the filing which is on account of both prepetition and postpetition services, the property is divided between the debtor and the estate in the same ratio as the services. In re Jess, 215 B.R. 618 (9th Cir.BAP 1997). However, Ferrer argues that the rule is different where the debtor would have been entitled to nothing if she had quit on the day she filed bankruptcy. In such cases, she argues, all of the income is deemed to be postpetition and excluded from the estate pursuant to § 541(a)(6) of the Bankruptcy Code.      There are several reported bankruptcy cases on the issue presented here. They all hold that the right to stock option and similar benefits are allocated between the debtor and the estate, notwithstanding the fact that the debtor had no enforceable right to the benefit when he filed his bankruptcy petition. See, e.g., In re Allen, 226 B.R. 857, 865 (Bkrtcy.N.D.Ill.1998); In re Tobiason, 185 B.R. 59, 63 (Bkrtcy.D.Neb.1995); In re Taronji, 174 B.R. 964, 971 (Bkrtcy.N.D.Ill.1994); In re Larsen, 147 B.R. 39, 40 (Bkrtcy.D.N.D. 1992); In his lengthy and well-reasoned opinion in In re Allen, Judge Schmetterer explained:        Although Debtor here did not become entitled to exercise all of the        stock options until after filing his petition, he did possess at that time        a contingent right to exercise the options in the future. This interest        was sufficiently rooted in the pre-bankruptcy past to be property of        the estate. . . . A contingency is no bar to property interest becoming        property of the bankruptcy estate, even if the contingency requires        additional post-petition services, and even if the right to enjoyment of        the property may be defeated.      While there is no appellate authority dealing specifically with stock options, the court finds the above cases, and particularly the sound reasoning of Allen, to be persuasive. Accordingly, the court will follow those cases and grant the trustee's motion for summary judgment.      The only remaining issue is the mechanical calculation as to what percentage of the benefits are to be allocated to the debtor and what percentage belongs to the estate. However, the court finds the evidence submitted on this issue to be inadmissible hearsay. The court will accordingly proceed either by trial or by further motion to resolve this issue alone. Pursuant to FRCP 56(d), it shall be deemed without substantial controversy in this adversary proceeding that the portion of the stock options attributable to prepetition employment are property of the estate notwithstanding that they were not vested until after bankruptcy.      Counsel for the trustee shall submit an appropriate form or order.
Dated: September 15, 1999                                                           ____________________________                                                                                                                     Alan Jaroslovsky                                                                                                                     United States Bankruptcy