Tully v. Taxel (In Re Tully)

202 B.R. 481, 37 Collier Bankr. Cas. 2d 158, 97 Cal. Daily Op. Serv. 79, 96 Daily Journal DAR 14449, 1996 Bankr. LEXIS 1479, 1996 WL 683793
CourtUnited States Bankruptcy Appellate Panel for the Ninth Circuit
DecidedOctober 17, 1996
DocketBAP No. SC-95-2303-JOAs, Bankruptcy No. 93-04790-H7
StatusPublished
Cited by22 cases

This text of 202 B.R. 481 (Tully v. Taxel (In Re Tully)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Appellate Panel for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Tully v. Taxel (In Re Tully), 202 B.R. 481, 37 Collier Bankr. Cas. 2d 158, 97 Cal. Daily Op. Serv. 79, 96 Daily Journal DAR 14449, 1996 Bankr. LEXIS 1479, 1996 WL 683793 (bap9 1996).

Opinion

OPINION

JONES, Bankruptcy Judge:

The debtor, Regan Tully (“Tully”), a real estate broker, appeals from an order of the bankruptcy court holding certain real estate commissions earned by Tully to be property of the estate. Tully was the broker for a sale of real estate which commenced approximately five years before Tully filed for chapter 7 relief. 1 The sale was pending in escrow at the time the petition was filed. A commission authorization agreement provided that Tuny’s commission would be paid at the close of escrow. Escrow closed three weeks post-petition. The trustee filed a motion for turnover of property which the bankruptcy court granted, finding that the commission was earned pre-petition and as such, constituted property of the estate. Tully appeals that order. WE AFFIRM.

I. FACTS

Tully was a real estate broker employed by Business Real Estate Properties (“BRE”) until March 1989. Tully subsequently became employed as a real estate broker for International Real Estate (“IRE”). At the time Tully terminated his employment with BRE, there were several sales transactions pending in escrow for which Tully served as the broker. One transaction pending in escrow was a sale of 13 acres in Chula Vista, California (the “property”). On November 23, 1987, the seller of the property (“Iwashi-ta”) signed a sales contract with the buyer (“Pacific Scenes”). The sales contract provided for payment of a 5% commission to be split equally, 2%% to Iwashita’s broker, Toki Yano Realty, and 2)4% to BRE’s agents Tully and Charles Eckstrom (“Eekstrom”). A commission authorization agreement was also signed the same day providing that commissions would be paid only if escrow was consummated.

Sixteen amendments to the sales contract were negotiated involving Pacific Scenes’ ability to obtain certain permits, zoning and other entitlements necessary to develop the property. Pacific Scenes was unable to obtain the entitlements that it needed and in May 1992, assigned its interest to a new buyer, Cypress Creek. The assignment provided that Pacific Scenes would not be released from the sales contract until Cypress Creek obtained the necessary entitlements which it needed. Cypress Creek obtained *483 the necessary entitlements in April 1993, and Pacific Scenes was released from its contract with Iwashita. On May 4, 1993, Tully filed for chapter 7 relief. At the time the petition was filed, the sale remained in escrow. On May 28, 1993, escrow closed. Between the time the petition was filed and when escrow closed, Tully states that he worked to close escrow and sought to arrange financing for the buyer.

Disputes arose over payment of the $97,-193.25 in commissions among Tully, Appellee Harold S. Taxel (the “trustee”), BRE, IRE and Eckstrom. In July 1994, a court approved settlement was reached whereby J4 of the commission ($24,298.31) would be paid to Tully and the trustee jointly, pending a future judicial determination as to whether the commission was property of the estate. On September 28, 1995, the trustee filed a motion for an order determining the commission to be property of the estate and for its turnover. The bankruptcy court granted the trustee’s motion at a hearing held October 27, 1995. In its order entered December 4, 1995, the bankruptcy court found that Tally’s right to the commission arose at the time of the execution of the original sales contract and the 1987 commission authorization agreement, and that the commission was based upon services performed pre-petition. The court further found that Tuny’s right to the commission was not dependent on any services performed post-petition and thus the commission was property of the estate subject to turnover by the debtor to the trustee. Tully appeals this order.

II.ISSUE

Did the bankruptcy court err in finding that a real estate commission pending in escrow at the time the debtor filed his bankruptcy petition, and payable at the close of escrow three weeks post-petition, was property of the estate subject to turnover to the trustee?

III.STANDARD OF REVIEW

We review a bankruptcy court’s findings of fact under the clearly erroneous standard. In re Pizante, 186 B.R. 484, 488 (9th Cir. BAP 1995). Clear error exists when, after examining the evidence, the reviewing court is left with a definite and firm conviction that a mistake has been committed. Id. (citing United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 541-42, 92 L.Ed. 746 (1948)). A bankruptcy court’s conclusions of law are reviewed de novo. In re United States Trustee, 32 F.3d 1370, 1372 (9th Cir.1994).

IV.DISCUSSION

Tully argues that the commission constituted post-petition earnings because the commission authorization agreement provided for payment upon the consummation of escrow, which happened post-petition. We disagree. Although the commission was not paid until three weeks post-petition, when escrow closed, it was earned by approximately five years of pre-petition services. As such, pre-petition earnings are property of the estate and we AFFIRM.

Section 541(a)(6) excludes from the bankruptcy estate earnings from services performed by a debtor after the commencement of the case. “Where a debtor derives post-petition commissions under a pre-petition contract, and such commissions are dependent upon the continued services of the debtor, they do not constitute property of the estate.” In re Sloan, 32 B.R. 607, 611 (Bankr.E.D.N.Y.1983). However, where the debtor receives a commission post-petition but essentially fulfilled all of his obligations for that commission pre-petition, the commission will be deemed property of the estate. Id. The debtor’s commission is property of the estate “if all the acts of the debtor necessary to earn it are rooted in the pre-bank-ruptcy past.” Id. (citing Segal v. Rochelle, 382 U.S. 375, 380, 86 S.Ct. 511, 515, 15 L.Ed.2d 428 (1966)).

The bankruptcy court found that Tally’s right to the commission arose at the time the original sales contract and commission authorization agreement were signed in 1987. Tully argues that pursuant to California law a real estate broker is entitled to a commission when he finds a ready, willing, and able buyer. See Collins v. Vickter Manor, Inc., 47 Cal.2d 875, 306 P.2d 783, 786 *484 (1957) (en banc). Tully argues that his right to a commission could not have arisen out of the original sales contract because there was a change in the buyer. Tully further argues that Cypress Creek had to finalize all entitlement issues and close escrow before it would be considered a ready, willing, and able buyer. A broker is entitled to a commission, even if escrow does not close, when the seller arbitrarily refuses to proceed with the transaction. Id. at 787.

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202 B.R. 481, 37 Collier Bankr. Cas. 2d 158, 97 Cal. Daily Op. Serv. 79, 96 Daily Journal DAR 14449, 1996 Bankr. LEXIS 1479, 1996 WL 683793, Counsel Stack Legal Research, https://law.counselstack.com/opinion/tully-v-taxel-in-re-tully-bap9-1996.