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Smith v. Hanrahan: BANKRUPTCY - no error ordering regarding commissions turned over to trustee earned pre- but paid post-petition

1The Honorable Paul J. Kilburg, Chief United States Bankruptcy Judge for
the Northern District of Iowa.
United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
No. 08-6050
In re: *
*
Matthew J. Smith, *
*
Debtor. *
*
Matthew J. Smith, * Appeal from the United States
* Bankruptcy Court for the
Debtor-Appellant, * Northern District of Iowa
*
v. **
Renee K. Hanrahan, *
*
Trustee-Appellee. *
Submitted: March 13, 2009
Filed: March 17, 2009
Before KRESSEL, Chief Judge, SCHERMER, and SALADINO, Bankruptcy
Judges
SCHERMER, Bankruptcy Judge
Matthew J. Smith (Debtor) appeals from the bankruptcy court1 order
requiring him to turn over to Renee K. Hanrahan (Trustee) commissions earned in
2
connection with two real estate sale contracts entered into pre-petition but closed postpetition.
We have jurisdiction over the appeal from the order of the bankruptcy court.
See 28 U.S.C. 158(a)(1) and (b). For the reasons set forth below, we affirm.
ISSUES
The issue on appeal is whether the bankruptcy court erred when it concluded
that a real estate agents commissions earned in connection with two sale contracts
entered into pre-petition but not closed until post-petition are property of the debtor
real estate agents bankruptcy estate subject to turnover to the trustee. We conclude
that the bankruptcy court did not err in concluding that the commissions are property
of the estate which the debtor must turn over to the trustee.
BACKGROUND
The material facts are not in dispute. The Debtor is a self-employed real estate
agent who works as an independent contractor for Frazier Realty Group. Prior to
filing his bankruptcy petition, the Debtor represented Gladdis Construction Inc.
(Buyer) in connection with the purchase of two adjacent parcels of real estate. On
May 9, 2005, the Buyer entered into a contract to purchase approximately 84 acres of
real estate (Becicka Property) from Wayne and Peggy Becicka (Becicka
Contract). The Becicka Contract was contingent on the Buyer acquiring certain
adjacent property owned by Jo Ann Shimek (Shimek Property) which was necessary
for access to the Becicka Property. On May 23, 2005, the Buyer and Jo Ann Shimek
entered into a contract for the purchase of the Shimek Property (Shimek Contract).
On October 6, 2005 (Petition Date), the Debtor filed a petition for relief under
Chapter 7 of the Bankruptcy Code. As of the Petition Date, neither the Becicka
Contract nor the Shimek Contract had closed. Each contract had several
contingencies, some of which were not satisfied until after the Petition Date. The
3
Debtor performed work post-petition in connection with each sale contract to ensure
each sale was closed, including negotiating an amendment to and an extension of the
Becicka Contract and assisting the Buyer in obtaining desired zoning of the property.
Each contract eventually closed. The Debtor received a commission in the amount of
,100 on account of the Becicka Contract on May 12, 2006, and a commission in
the amount of ,940 on account of the Shimek Contract on June 28, 2006, for his
representation of the Buyer in connection with each sale.
The Trustee sought turnover of the Becicka and Shimek commissions as
property of the Debtors estate. The bankruptcy court determined that the
commissions were property of the Debtors bankruptcy estate and ordered the Debtor
to turn over such commissions to the Trustee. The Debtor appealed the order directing
turnover of the commissions.
STANDARD OF REVIEW
We review the bankruptcy courts conclusion of law that the commissions are
included as property of the Debtors bankruptcy estate de novo. Parsons v. Union
Planters Bank (In re Parsons), 280 F.3d 1185, 1188 (8th Cir. 2002).
DISCUSSION
Pursuant to Bankruptcy Code Section 541(a)(1), property of the Debtors
bankruptcy estate includes all legal and equitable interests of the Debtor in property
as of the commencement of the case. 11 U.S.C. 541(a)(1). Commissions earned by
a real estate agent pre-petition are property of the real estate agents bankruptcy estate
regardless of when they are paid to the agent. In re Parsons, 280 F.3d at 1188.
Property interests are created and defined by state law. Parsons v. Union Planters
Bank (In re Parsons), 262 B.R. 475, 478 (B.A.P. 8th Cir. 2001), affd 280 F.3d 1185
(8th Cir. 2002). In Iowa a real estate agent earns a commission by: (1) effecting a
4
binding contract of sale under authority given to the agent to make such contract for
the principal; (2) producing a purchaser to whom a sale is in fact made; or
(3) producing a purchaser who is ready, willing, and able to purchase on the terms
specified in the agency agreement. Ducommun v. Johnson, 110 N.W.2d 271, 273
(Iowa 1961). The Debtor earned his commission with respect to the Becicka Contract
on May 9, 2005, the date the binding contract was entered into by the Buyer and the
Becickas. The Debtor earned his commission with respect to the Shimek Contract on
May 23, 2005, the date the binding contract was entered into by the Buyer and
Ms. Shimek. Accordingly, the Debtor earned the commissions pre-petition.
This result follows even where the Debtor continued to perform services postpetition.
In re Parsons, 280 F.3d at 1187-88 (commissions earned pre-petition despite
the fact that post-petition the real estate agent worked hard to ensure that all sales
closed by scheduling inspections, applying for title work, ensuring that buyers were
qualified, and negotiating contract changes between buyers and sellers.). The Debtor
presented no evidence that the contract terms were altered by post-petition events so
as to alter his interest in receiving the commissions. Id. at 1188. The only postpetition
changes were to the Becicka Contract and they include the Buyers grant to
the Becickas of an additional 60 days to remove personal property from the Becicka
Property and the parties agreement to extend the closing deadline to April 28, 2006.
Neither change altered the Debtors right to a commission which was earned prepetition.
The Debtor argues that the Becicka Contract and the Shimek Contract contained
contingencies which were unsatisfied as of the Petition Date. According to the
Debtor, he could not have earned his commissions until all contingencies were
satisfied. The Debtor fails to identify any provision in either contract which so
provides, nor does he cite to any legal authority supporting this proposition. Indeed,
the same argument was made unsuccessfully by Ms. Parsons, who worked hard to
ensure that all sales closed by scheduling inspections, applying for title work, ensuring
5
that buyers were qualified . . . all contingencies necessary for those sale contracts
to close. Parsons v. Union Planters Bank (In re Parsons), 280 F.3d 1185, 1187 (8th
Cir. 2002); see also Parsons v. Union Planters Bank (In re Parsons), 262 B.R. 475,
479 (B.A.P. 8th Cir. 2001)(Parsons argues vigorously that she . . . performed
substantial services post-petition, without which, the sales would not have closed and
there would be no commissions. . . .) The Debtor has simply not distinguished his
situation from that of the debtor in Parsons.
CONCLUSION
The bankruptcy court did not err in determining that the Debtor earned his
commissions with respect to the Becicka Contract and the Shimek Contract prepetition
and that such commissions were, therefore, property of the Debtors
bankruptcy estate. In fact, the bankruptcy court followed Eighth Circuit precedent
announced in the factually similar case of Parsons v. Union Planters Bank (In re
Parsons), 280 F.3d 1185 (8th Cir. 2002). Likewise the bankruptcy court did not err
when it ordered the Debtor to turn over such commissions to the Trustee.
Accordingly, we AFFIRM.
 

 
 
 

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