IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
PHILIP and ANGELINA LEDERER, No. 92-10962
JEFFRY LOCKE, Trustee,
v. A.P. No. 93-1297
Memorandum of Decision
Chapter 7 debtor and defendant Philip Lederer was an insurance agent until February, 1992,
when he became disabled. Since he was unable to continue servicing his clients, he agreed to
refer them to another salesman who would service them for no compensation provided that he
would be entitled to 65% and Lederer 35% of any commissions on new policies he sold to
Lederer's clients. Shortly thereafter, Lederer filed his bankruptcy petition.
In this adversary proceeding, the Chapter 7 trustee claims that the estate is entitled to the
$24,850.00 in "renewal commissions" due to Lederer on account of policies sold by Lederer
before bankruptcy and renewed after the bankruptcy. He also claims a right to all of Lederer's
35% on policies sold by the other salesman after bankruptcy.
Section 541(a)(6) of the Bankruptcy Code excludes from the bankruptcy estate earning from
services performed by the debtor after the bankruptcy. The issues raised here have been
troublesome to many bankruptcy courts because of the difficulty in determining whether
postpetition renewal commissions required postpetition work. Some policies are renewed only
because the salesman was constantly available to answer a policy holder's questions and deal
with any problems. Other policies are renewed with no effort whatsoever. Not surprisingly,
the courts have pretty much split over the issue, with the debtor prevailing when the court found
significant postpetition servicing by the debtor (In re Hodgson
, 54 B.R. 688
(Bkrtcy.W.D.Wis.1985); In re Kervin
, 19 B.R. 190 (Bkrtcy. S.D.Ala.1982)) and losing when
the court found no postpetition servicing (In re Bluman
, 125 B.R, 359 (Bkrtcy.E.D.N.Y.1991);
In re Froid
, 109 B.R. 481 (Bkrtcy.M.D.Fla.1989)).
Although it may not be fair, it appears that the debtor's disability precludes the debtor from
claiming the renewal commissions. If he had remained an active salesman after bankruptcy,
the court would have probably followed Hodgson
. However, the language of
section 541(a)(6) excludes from the estate only earnings resulting from the postpetition services
of the debtor
. Here, the postpetition services were provided by another salesman as the result
of a prepetition contract. Since the court can find no flaw in the reasoning of the courts in
, it will follow them even though the result seems harsh.
However, the court will not go so far as to require the debtor to turn over his 35% share of
commissions on postpetition policies sold by the second salesman to his former clients. Such
earnings, unlike renewal commissions, are not sufficiently "rooted in the prebankruptcy past"
to justify the estate's claim to them, as no right to a commission (or even a potential
commission, as with a renewal commission) existed when Lederer filed his bankruptcy petition
and the second salesman needed Lederer's continuing good will and cooperation to generate
the income. See In re Zahneis
, 78 B.R. 504 (Bkrtcy.S.D.Ohio 1987).
In addition, Lederer's disability insurance policy was issued by one of his employers and
provided that any income he derived from commissions could be deducted from his disability
benefits. It accordingly reduced his postpetition disability benefits by $4,897.00. Since it is
only a matter of semantics whether the disability benefits or the commission was reduced, and
since the debtor's disability benefits are exempt, the amount due to the estate must be reduced
by this amount.
For the foregoing reasons, the trustee shall have judgment against Lederer in the amount of
$19,971.00 plus costs of suit.
This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a)
and FRBP 7052. Counsel for plaintiff shall submit an appropriate form of judgment forthwith.
Dated: June 6, 1994 _______________________