Parks v. Dittmar (In re Dittmar)

In Parks v. Dittmar (In re Dittmar), 618 F.3d 1199 (10th Cir. 2010), bankruptcy trustees argued that stock appreciation rights (SARs) – similar to stock options – were property of bankruptcy estates under section 541 of the Bankruptcy Code, and belonged to the trustees versus the debtors. The debtors in the case were employees subject to a collective bargaining agreement (CBA). The employer, Spirit AeroSystems, offered to create an equity participation program and contribute SARs, but not until "payment events" (e.g., an IPO) occurred. The SARs, would later be worth approximately $60,000 per employee after the debtors' petitions were filed. The SARs were subject to contingencies, including an agreement that was not finalized until after the debtors' petitions were filed. The lower courts decided the debtors' interests in the SARs were contingent so could not be property of the estates. The Circuit Court overturned the lower courts, ruling that even contingent agreements could be property of the bankruptcy estate under section 541, and ordered the SAR distributions to be given to the trustees. For purposes of bankruptcy matters, property interests are created and defined by state law. Under Kansas law, SARs were a type of compensation, similar to stock options, that were generally property of bankruptcy estates under section 541 of the Bankruptcy Code. Pre-petition CBA was more than a mere "agreement to agree" and, although the agreement not finalized, CBAs were commonly held to be enforceable under federal labor laws. The scope of section 541 is broad, and an interest may be estate property even if it is contingent. The mere fact that the vesting events were entirely contingent and outside the control of the debtors did not take the property outside the scope of section 541. Rinne Legal helps people with bankruptcies, estate planning, and loan modifications in Contra Costa County, Sacramento County and Solano County. Rinne Legal has offices in Walnut Creek, Fairfield, Sacramento and Elk Grove. Contact Rinne Legal for a free consultation. These blog posts are for informational purposes only and not intended nor should be construed as legal advice. These blog posts may be considered attorney advertising in some states. Prior results described on blog posts do not guarantee similar outcomes in future cases. There is no intent to create an attorney-client privilege or relationship with anyone accessing information on this blog. Authors posting on this blog are not obligated to reply to any emails seeking legal advice. The information contained on this blog is not intended to be a solicitation. Rinne Legal has staff that are fluent in Russian.

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