UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
|DO NOT PUBLISH
This case disposition has no value as precedent and is not intended for publication. Any publication, either in print or electronically, is contrary to the intent and wishes of the court.
LAURA E. FERRER, No. 99-51111
MOHAMED POONJA, Trustee,
v. A.P. No. 99-1185
LAURA E. FERRER,
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
185 B.R. 59, 63 (Bkrtcy.D.Neb.1995); In re Taronji
, 174 B.R. 964, 971 (Bkrtcy.N.D.Ill.1994); In re
, 147 B.R. 39, 40 (Bkrtcy.D.N.D. 1992); In his lengthy and well-reasoned opinion in In re
, 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 ____________________________
United States Bankruptcy