Randall L. Seaver v. Michelle Klein-Swanson ( 2013 )


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  •         United States Bankruptcy Appellate Panel
    For the Eighth Circuit
    ___________________________
    No. 12-6054
    ___________________________
    In re: Michelle Ann Klein-Swanson, As surety for Yarn Café Inc.; Scott Lawrence
    Swanson, As surety for Yarn Café Inc.
    lllllllllllllllllllllDebtors
    ------------------------------
    Randall L. Seaver, Trustee
    lllllllllllllllllllll Plaintiff - Appellee
    v.
    Michelle Ann Klein-Swanson
    lllllllllllllllllllll Defendant - Appellant
    ____________
    Appeal from United States Bankruptcy Court
    for the District of Minnesota - Minneapolis
    ____________
    Submitted: February 21, 2013
    Filed: March 22, 2013
    ____________
    Before FEDERMAN, Chief Judge, SCHERMER and NAIL, Bankruptcy Judges.
    ____________
    SCHERMER, Bankruptcy Judge
    Michelle Ann Klein-Swanson (the “Debtor”) appeals from a judgment1 of the
    bankruptcy court: (a) revoking the Debtor’s discharge pursuant to 
    11 U.S.C. § 727
    (d)(2);2 (b) avoiding the transfer under 
    11 U.S.C. § 549
     of bonus funds she
    received postpetition from her employer and entering judgment for recovery of those
    funds by the Chapter 7 trustee, Randall L. Seaver (the “Trustee”), pursuant to 
    11 U.S.C. § 550
    ; and (c) granting a motion for costs filed by the Trustee pursuant to
    Federal Rule of Bankruptcy Procedure 7054(b). We have jurisdiction over this appeal
    from the final judgment of the bankruptcy court. See 
    28 U.S.C. § 158
    (b). For the
    reasons set forth below, we reverse.
    ISSUE
    The central issue in this appeal is whether bonus payments received
    postpetition by the Debtor from her employer were property of the Debtor’s
    bankruptcy estate pursuant to 
    11 U.S.C. § 541
    . Because we hold that the bonus
    payments were not property of the Debtor’s bankruptcy estate, we must reverse the
    bankruptcy court’s: (a) revocation of the Debtor’s discharge under 
    11 U.S.C. § 727
    (d)(2);3 (b) avoidance of the transfer of the bonus funds under 
    11 U.S.C. § 549
    1
    In her Notice of Appeal, the Debtor states that she also appeals from a
    July 2011 order granting summary judgment. The summary judgment order was not
    a final order. Rather, the decision reached in that order was incorporated into the
    bankruptcy court’s judgment of September 20, 2012.
    2
    The bankruptcy court’s judgment erroneously cites 
    11 U.S.C. § 707
    (d)(2), rather than 
    11 U.S.C. § 727
    (d)(2), with respect to revocation of the
    Debtor’s discharge, which we consider to be a typographical error.
    3
    The bankruptcy court discussed various omissions and misstatements
    that it believed the Debtor made on her Schedules and Statement of Financial Affairs
    other than the Debtor's failure to disclose the bonuses from her employer. However,
    the Trustee’s Complaint speaks only of the bonuses and the Trustee conceded as
    much at trial when his counsel said “[n]ow, we’re only seeking and I think we made
    this clear to revoke based upon her concealment of the two bonuses and failure to
    -2-
    and recovery of those funds under 
    11 U.S.C. § 550
    ; and (c) granting the Trustee’s
    motion for costs under Federal Rule of Bankruptcy Procedure 7054(b).
    BACKGROUND
    On January 19, 2009, the Debtor (together with her husband) filed a voluntary
    petition for relief under Chapter 7 of Title 11 of the United States Code (the
    “Bankruptcy Code”). In April 2009, an order was entered granting the Debtor and
    her husband a Chapter 7 discharge.
    The Debtor has been employed by International Business Machines (“IBM”)
    since 1996, and she continued to be employed by IBM on the petition date. In
    October 2007 the Debtor changed her position at IBM to become the Client Executive
    for Oracle Alliance.
    On the petition date, the Debtor was eligible to receive bonuses under two IBM
    programs: (a) the Excellence Award; and (b) the Growth Driven Profit (“GDP”)
    program. IBM determined bonuses using a calendar year. The bankruptcy court
    made extensive findings of fact, many of which are not relevant in light of our
    decision that the IBM bonuses were not property of the Debtor’s estate. We set forth
    only those facts that are relevant to our decision.
    The Excellence Award was a quarterly bonus program whereby, each quarter,
    IBM was permitted to allocate funds for Excellence Awards to work teams. The team
    supervisor was then charged with deciding, based on each member’s performance
    during the quarter, how much, if any, of the Excellence Award funds for her team
    disclose and failure to pay them over. The other things that we talked about, the eight
    or nine or ten things, were all introduced to establish the requisite fraudulent intent.”
    The bankruptcy court discussed the Debtor’s other omissions and misstatements to
    demonstrate the Debtor’s fraudulent intent regarding the bonuses, and it revoked the
    Debtor’s discharge solely based on the Debtor’s conduct with respect to the bonuses.
    -3-
    would go to each member. The decision to make an award was entirely within IBM’s
    discretion. No member of the team was guaranteed an Excellence Award. The
    supervisor announced the awards after the close of the calendar quarter and, through
    the regular payroll process, IBM paid the bonuses about sixty days after the close of
    the quarter. In February 2009 (postpetition), the Debtor received an Excellence
    Award in the amount of $8,000 for work she had performed during the fourth
    calendar quarter of 2008.
    In addition to the Excellence Award, the Debtor also received a GDP bonus.
    In March 2009, the Debtor received the GDP program payment of $16,072 for the
    year 2008. IBM based GDP bonus payments on the “personal business commitment”
    of an employee (an employee performance metric used by IBM) and IBM’s year-
    over-year profit and growth. IBM usually paid these bonuses about sixty days after
    the January announcement of its operating results from the year. Like the Excellence
    Award, the decision whether to make a GDP program payment was in the complete
    discretion of IBM: the GDP program documents state that “[n]o employee earns or
    otherwise becomes entitled to payment, or any portion of a payment, under the GDP
    program prior to payment by IBM.”
    Prior to filing her bankruptcy petition, the Debtor had completed all tasks
    within her control toward obtaining an award under either of the bonus programs.
    However, the awards to the Debtor of the Excellence Award and the GDP bonus were
    within the complete discretion of IBM; IBM had the right to decide it would not make
    any award to the Debtor under either program. No evidence indicated that IBM
    decided to make the awards to the Debtor prior to the petition date. And the Debtor
    was not notified that she would receive a payment under either program until after she
    filed her bankruptcy petition.
    The Debtor did not disclose her eligibility for or any interest in the Excellence
    Award or a GDP bonus in her bankruptcy Schedules or Statement of Financial
    -4-
    Affairs. Although the Debtor was notified that she would receive, and she had
    already been paid, the $8,000 Excellence Award by the time of her § 341 meeting of
    creditors, she did not bring this to the attention of the Trustee. After the § 341
    meeting, the Debtor received the GDP bonus. After her § 341 meeting, the Debtor
    engaged in communications with the Trustee regarding her receipt of the Excellence
    Award for the fourth quarter of 2008, but she did not mention the GDP bonus to the
    Trustee.
    The Trustee brought an adversary proceeding against the Debtor, asserting five
    counts in his Complaint: Count I was a state law claim for conversion of the two
    bonus payments; Count II was a state law civil theft claim; Count III was withdrawn
    before trial; Count IV was a claim for avoidance and recovery under Bankruptcy
    Code §§ 549 and 550 based on the Debtor’s alleged postpetition transfer of the IBM
    bonuses to herself; and Count V sought revocation of the Debtor’s discharge under
    Bankruptcy Code § 727(d)(2).
    Through a July 2011 order, the bankruptcy court granted partial summary
    judgment. As stated by the bankruptcy court in its “Findings of Fact, Conclusions
    of Law, and Order for Judgment on Counts Four and Five and Report and
    Recommendation on Counts One and Two” (the “Findings and Order”) issued after
    trial, the court’s grant of summary judgment “held that the bonuses were contingent
    interests, received for work completed prepetition, and were thus property of the
    bankruptcy estate under 
    11 U.S.C. § 541
    (a)(1).”4 In its Findings and Order, the
    bankruptcy court ordered that: (a) pursuant to § 727(d)(2), the Debtor’s discharge
    would be revoked (Count V); and (b) pursuant to §§ 549 and 550 (Count IV), the
    Trustee could recover from the Debtor the value of the two bonuses. The bankruptcy
    4
    Sections 541(a)(6) and(7) were also discussed in the summary judgment
    pleadings.
    -5-
    court issued a report and recommendation to the District Court on Count I (state law
    conversion) and Count II (state law civil theft).
    Upon the motion of the Trustee, the District Court dismissed Counts I and II
    of the Complaint, quoting the bankruptcy court and stating that such dismissal had
    no effect on the determination that “the bonuses in the amount of $24,072 received
    postpetition by Defendant Michelle Ann Klein-Swanson are property of the
    bankruptcy estate,” and it remanded the action to the bankruptcy court for entry of
    judgment on Counts IV and V. Thereafter, the bankruptcy court issued a single
    document entering judgment against the Debtor under Counts IV and V, and granting
    a motion by the Trustee for costs under Federal Rule of Bankruptcy Procedure
    7054(b).
    STANDARD OF REVIEW
    A bankruptcy court’s findings of fact are reviewed for clear error and its
    conclusions of law are reviewed de novo. Drewes v. Vote (In re Vote), 
    276 F.3d 1024
    , 1026 (8th Cir. 2002) (citations omitted). “Whether property is included in the
    bankruptcy estate is a question of law.” 
    Id.
     (citing Ramsay v. Dowden (In re Cent.
    Ark. Broad. Co.), 
    68 F.3d 213
    , 214 (8th Cir. 1995) (citation omitted)); Law v. Stover
    (In re Law), 
    336 B.R. 780
    , 781 (B.A.P. 8th Cir. 2006). The bankruptcy court’s grant
    of summary judgment is reviewed de novo. Paul v. Allred (In re Paul), ___ B.R. ___,
    2013 WL709562, at *2 (B.A.P. 8th Cir. Feb. 28, 2013) (citing Peter v. Wedl, 
    155 F.3d 992
    , 996 (8th Cir. 1998)).
    DISCUSSION
    I.     
    11 U.S.C. § 541
    (a)
    Section 541 of the Bankruptcy Code defines property of a debtor’s bankruptcy
    estate broadly to include generally “all legal or equitable interests of the debtor in
    property as of the commencement of the case.” 
    11 U.S.C. § 541
    (a)(1). Also included
    -6-
    in the definition of “property of the estate” are: “(6) [p]roceeds, product, offspring,
    rents, or profits of or from property of the estate, except such as are earnings from
    services performed by an individual debtor after the commencement of the case” and
    “(7) [a]ny interest in property that the estate acquires after the commencement of the
    case.” 
    11 U.S.C. §§ 541
    (a)(6) and (7). The party seeking to include property in the
    estate bears the burden of showing that the item is property of the estate. DeBold v.
    Case (In re Tri-River Trading, LLC), 
    329 B.R. 252
    , 263-64 (B.A.P. 8th Cir. 2005),
    aff’d 
    452 F.3d 756
     (8th Cir. 2006).
    “The legislative history of the 1978 Bankruptcy Code makes clear that despite
    the broad scope of § 541, it ‘is not intended to expend [sic] the debtor’s rights against
    others more than they exist at the commencement of the case.’ ” Vote, 
    276 F.3d at 1026
     (quoting S. Rep. No. 95-989, at 82, reprinted in 1978 U.S.C.C.A.N. 5787,
    5868.).
    “Property interests are created and defined by state law. Unless some federal
    interest requires a different result, there is no reason why such interests should be
    analyzed differently simply because an interested party is involved in a bankruptcy
    proceeding.” Butner v. United States, 
    440 U.S. 48
    , 55 (1979); Reagan v. Regions
    Bank (In re Wetzel), 
    649 F.3d 831
    , 834-35 (8th Cir. 2011) (“While federal law
    controls whether the interest is property of [the debtor’s] bankruptcy estate, [state]
    law defines the nature and extent of that interest.”) (citations omitted).
    A.     
    11 U.S.C. § 541
    (a)(1)
    The Trustee claims that (as the bankruptcy court determined), at the
    commencement of the Debtor’s bankruptcy case, the Debtor had a contingent interest
    in the IBM Excellence Award and GDP bonus, rendering such payments property of
    the Debtor’s estate. We disagree. As of the petition date, the Debtor had no interest
    (contingent or otherwise) in the payments from IBM because IBM had the absolute
    discretion to decide that it would not make an award to the Debtor under either of its
    programs. The Trustee asserts that the estate had a contingent interest in the bonuses
    -7-
    because the Debtor’s receipt of such bonuses came from the Debtor’s prepetition
    services and IBM bonus programs that were in place prepetition. The Trustee also
    notes that the Debtor was eligible for the bonuses on the petition date. But IBM did
    not exercise its discretion to award the bonuses until postpetition and, as of the
    petition date, the Debtor had nothing more than a hope or expectation that she would
    receive the payments. The awards were made postpetition and they rightfully belong
    to the Debtor.
    According to the Trustee, the contingency that existed on the petition date was
    IBM’s exercise of its discretion to make awards to the Debtor. But before IBM
    actually exercised its discretion postpetition, the Debtor had no interest in either
    bonus pool. Therefore, according to the Trustee’s logic, on the petition date the
    Debtor would have had a contingent interest in nothing.
    Under Minnesota law, no offer has been made by an employer and an employee
    has no contract for funds under an employer’s award program, when the employer
    maintains the right to decide in its sole discretion whether it will award such funds
    to the employee. See Chambers v. The Travelers Cos., Inc., 
    764 F. Supp. 2d 1071
    ,
    1087 (D. Minn. 2011); aff’d 
    668 F.3d 559
    , 565-66 (8th Cir. 2012); Grenier v. Air
    Express Int’l Corp., 132 F.Supp 2d 1198 (D. Minn. 2001). The Trustee has shown
    no basis for the proposition that the Debtor had a legal or equitable interest in the
    bonuses as of the petition date. He cites Blacque v. Kalman, 
    30 N.W.2d 599
     (Minn.
    1948), as support for his belief that the Debtor had a contingent interest in the award
    payments from IBM as of the petition date. The Blacque court decided whether the
    purpose of creating a testamentary trust had been fully accomplished in light of the
    interests of contingent beneficiaries. We do not interpret that case to define whether
    the Debtor had an interest, contingent or otherwise, for the purposes of this appeal.
    The facts that: (a) the payments from IBM to the Debtor were based on her
    prepetition employment; (b) the bonus programs existed on the petition date; and (c)
    -8-
    the Debtor was eligible for the bonuses on the petition date, do not render the bonus
    payments property of the Debtor’s bankruptcy estate. In Drewes v. Vote (In re Vote),
    
    276 F.3d 1024
     (8th Cir. 2002), Mr. Vote (a farmer) had “no interest of any kind” in
    government compensation for crop loss as of the petition date. 
    Id. at 1027
    . Rather,
    after Mr. Vote filed his bankruptcy petition, Congress passed a law that provided
    assistance to farmers and Mr. Vote received payments from this program that were
    for his prepetition crop losses. Id at 1026. The court held that the payments received
    by Mr. Vote were not property of his bankruptcy estate.5 
    Id. at 1026-27
    .
    The trustee in Vote argued that the crop loss payments were property of the
    estate under Segal v. Rochelle, 
    382 U.S. 375
     (1966). Id. at 1026. The bankruptcy
    court and the Trustee in this case also rely on Segal. In Segal, the Supreme Court
    held that a tax refund loss-carryback claim was included in property of the debtors’
    estates where the losses occurred prepetition and the taxes for the carry back years
    had been paid, but the refund could not be claimed until postpetition under the
    applicable tax laws. Segal, 
    382 U.S. 375
    . The Court in Segal stated “[t]urning to the
    loss-carryback refund claim in this case, we believe it is sufficiently rooted in the pre-
    bankruptcy past and so little entangled with the bankrupts’ ability to make an
    unencumbered fresh start that it should be regarded as ‘property’ . . . .” 
    Id. at 380
    . As
    stated by the Vote court “[i]n Segal, the Court held that the debtor had an existing
    interest in a tax refund and found that the debtor’s interest in a loss carryback under
    the tax code was ‘sufficiently rooted in the pre-bankruptcy past’ to be included as
    property of the estate.” Vote, 
    276 F.3d at 1026
     (quoting Segal, 
    382 U.S. at 380
    ).
    The Vote court distinguished the facts in that case from the facts in Segal. It
    noted that the applicable law in Segal was in place on the petition date and, therefore,
    the Segal debtors had an “existing interest” in a tax refund on the petition date. Vote,
    5
    The Vote court also rejected an argument by the Trustee made under §
    541(a)(7). We discuss § 541(a)(7) in more detail below.
    -9-
    
    276 F.3d at 1026
    . In Vote, the relevant law had not been enacted as of the petition
    date and Mr. Vote had “a mere hope that his losses might generate revenue in the
    future.” 
    Id.
     The Vote court found it important that the estate not obtain rights greater
    than what Mr. Vote held on the petition date. 
    Id.
     (“To find for the trustee on the
    basis that the payments were ‘sufficiently rooted’ would allow the trustee to assert
    more rights than [Mr.] Vote had at the commencement of his case.”).
    The facts of this case are also distinguishable from those in Segal, and reliance
    by the bankruptcy court on Segal ‘s “sufficiently rooted” test was improper. Even
    though the Segal debtors could not formally make the loss-carryback refund claim
    under the applicable statutes until a date postpetition, the losses had already occurred
    and the debtors had an interest in the refund as of the petition date. The tax laws were
    set and all that was left for the debtors to do was to make the claim. In contrast, the
    decision whether to make the award payments was completely within IBM’s control.
    Like Mr. Vote, as of the petition date the Debtor had nothing more than a hope that
    she would receive the award payments from IBM. To consider the payment to be
    property of her estate simply because it related to her prepetition employment would
    be to give the bankruptcy estate more than the Debtor had on the petition date.
    The bankruptcy court and the Trustee maintain that Stoebner v. Wick (In re
    Wick), 
    276 F.3d 412
     (8th Cir. 2002), aff’g 
    249 B.R. 900
     (Bankr. D. Minn. 2000),
    supports the proposition that the Debtor’s IBM bonuses were property of the estate.
    As part of the sale of Ms. Wick’s company, Ms. Wick had the option to require the
    company to issue to her shares of the company’s stock after she remained an
    employee of the company for one year post-sale. Id at 414. Ms. Wick filed her
    Chapter 7 bankruptcy petition four months into the one-year period. Id at 413. The
    Eighth Circuit noted that “[t]he parties agree that upon filing Ms. Wick’s options
    became property of her bankruptcy estate.” Id. at 415. And the court stated that
    “[t]he fact that the options were unvested and contingent on Ms. Wick’s continued
    -10-
    employment does not alter the fact that they were property of the estate.” Id. (citing
    Allen v. Levey (In re Allen), 
    226 B.R. 857
    , 865-66 (Bankr. N.D. Ill. 1998).6
    On the petition date Ms. Wick had an interest in property, as stated by the
    bankruptcy court, Ms. Wick had “a contract right to receive stock in [the company],
    contingent upon [Ms.] Wick completing one year of employment.” Stoebner v. Wick
    (In re Wick), 
    249 B.R. 900
    , 909 (Bankr. D. Minn. 2000), aff’d 
    276 F.3d 412
    . It did
    not matter that Ms. Wick was required to perform postpetition services. 
    Id.
     In
    contrast, the Debtor here had nothing more than a hope that she would receive the
    bonus payments from IBM. IBM had the complete discretion to decide that the
    Debtor would receive nothing. Wick does not stand for the proposition that the
    Debtor held an interest that was property of her estate.
    Contrary to the belief of the bankruptcy court and the Trustee, Booth v.
    Vaughan (In re Booth), 
    260 B.R. 281
     (B.A.P. 6th Cir. 2001), is not on point, and it
    fails to provide support for the proposition that the Debtor held an interest in the IBM
    award payments that would make such payments property of her bankruptcy estate.
    Under a profit sharing program, Mr. Booth was entitled to a pay out from his
    employer as long as, by the end of the calendar year, the employer made a profit and
    Mr. Booth was still employed. 
    Id. at 284
    . Mr. Booth filed his bankruptcy petition
    before the end of the calendar year and, postpetition he received a profit sharing
    payment for the year during which he filed his bankruptcy petition. 
    Id.
     The court
    ruled that the portion of the profit sharing payment attributable to Mr. Booth’s
    prepetition earnings was property of his bankruptcy estate. 
    Id. at 290
    .
    6
    The Eighth Circuit’s opinion in Wick primarily addresses other issues.
    Under Bankruptcy Code § 541(a)(6), the proceeds of the stock options attributable
    to Ms. Wick’s prepetition services were property of the estate and Ms. Wick was
    entitled to the proceeds attributable to her postpetition labor. Wick, 
    276 F.3d at
    416-
    17. We discuss § 541(a)(6) in more detail below. Wick also addressed an exemption
    issue.
    -11-
    On the petition date, Mr. Booth held the right to payment provided that the
    employer made a profit and Mr. Booth was still employed, and the court stated that
    Mr. Booth’s interest was a contingent interest under applicable state law. Id. at 284-
    85. Mr. Booth’s employer did not reserve the discretion to decide whether it would
    make the payment. In contrast, as of the petition date, the Debtor here had no
    cognizable interest in the payments from IBM; she had only a hope that IBM would
    exercise its discretion to award the payments.7
    The Debtor cites to cases where bonuses were not property of the estate when
    employers maintained postpetition discretion regarding whether to make such awards.
    See, e.g., Lewis v. Chappo (In re Chappo), 
    257 B.R. 852
     (E.D. Mich. 2001); Sharp
    v. Dery, 
    253 B.R. 204
     (E.D. Mich. 2000); Vogel v. Palmer, 
    57 B.R. 332
     (Bankr. W.D.
    Va. 1986).8 Based on the Booth court’s criticism of a statement by the Sharp court
    that “[t]he determinative issue in this case, therefore, is whether Debtor had an
    enforceable right to receive the bonus check when he filed his petition. . . .” the
    Trustee claims that cases cited by the Debtor from the Sixth Circuit are “irrelevant”
    because “the enforceability of a bonus right between an individual and her employer
    is irrelevant in determining whether a potential bonus is property of the estate.”
    Booth, 
    260 B.R. at 289-90
    ; Sharp, 
    253 B.R. at 207
    . Notwithstanding the enforceable
    right issue, the cases cited by the Debtor share the common fact that the employer
    maintained discretion to decide whether it would make an award to the employee.
    And for the purposes of this appeal, it is not important whether a debtor’s interest
    must be enforceable on the petition date to be property of the estate. The Debtor had
    7
    None of the additional cases cited by the Trustee, or by the bankruptcy
    court in its Findings and Order, convince us that the IBM bonuses were property of
    the Debtor’s estate.
    8
    We express no opinion regarding the reasoning and decisions made by
    these courts with respect to other details of the relevant bonuses or employer plans.
    -12-
    no right to or interest in the IBM bonuses (enforceable or unenforceable, contingent
    or otherwise) on the petition date.
    9 B. 11
     U.S.C. §§ 541(a)(6) and (7)
    The Trustee argues further that the “entire value” of the award payments is
    property of the Debtor’s estate pursuant to Bankruptcy Code §§ 541(a)(6) and (7).
    Because we rule that the award payments were never property of the estate in the first
    instance, it follows that the §§ 541(a)(6) and (7) are inapplicable.
    Section 541(a)(6) includes in property of the estate “(6) [p]roceeds, product,
    offspring, rents, or profits of or from property of the estate, except such as are
    earnings from services performed by an individual debtor after the commencement
    of the case.” See Wick, 
    276 F.3d at 416-17
     (estate’s interest in proceeds of stock
    option limited to those proceeds attributable to prepetition services of debtor). The
    Trustee posits that the bonuses are compensation for prepetition services that were
    paid postpetition and, therefore, they are included in the estate under § 541(a)(6) in
    their entirety, and cannot be excluded from the estate as earnings for postpetition
    services of the Debtor. However, for § 541(a)(6) to apply, there must exist property
    of the estate in the first instance (i.e., the bonus payments must have been proceeds
    of something that was property of the estate). Because the Debtor had no interest in
    the Excellence Award and the GDP program payment on the petition date, the money
    she received from IBM postpetition under these programs would not come into the
    estate under § 541(a)(6), and it is of no consequence whether they would be excluded
    as earnings from services performed by the Debtor postpetition under that section.
    9
    We are not bound by the Booth decision and, because that case is
    factually distinguishable, we do not opine regarding its holding. However, to the
    extent Booth could be construed to treat the IBM bonuses as property of the Debtor’s
    estate, we disagree with it.
    -13-
    Under § 541(a)(7), property of the estate includes “(7) [a]ny interest in property
    that the estate acquires after the commencement of the case.” Whether the estate
    acquired an interest in the award payments begs the question in this appeal; whether
    the award payments were property of the estate. And the Trustee has not shown how
    the estate acquired an interest in such funds. See Vote, 
    276 F.3d 1027
     (trustee could
    not show how estate acquired an interest in prepetition crop losses for which the
    debtor was compensated under legislation enacted postpetition).
    II.   The bankruptcy court erred by entering judgment against the Debtor.
    In light of our determination that the Excellence Award and GDP program
    payments were not property of the Debtor’s bankruptcy estate, the Trustee is no
    longer the prevailing party and we reverse the bankruptcy court’s decisions under
    Bankruptcy Code §§ 727(d)(2), 549 and 550 and Federal Rule of Bankruptcy
    Procedure 7054(b).
    Section 727(d)(2) provides, in pertinent part, that a discharge shall be revoked
    if “the debtor acquired property that is property of the estate, or became entitled to
    acquire property that would be property of the estate, and knowingly and fraudulently
    failed to report the acquisition of or entitlement to such property, or to deliver or
    surrender such property to the trustee.”10 
    11 U.S.C. § 727
    (d)(2) (emphasis added).
    Section 549(a) (the subsection upon which the bankruptcy court relied in its Findings
    and Order) pertains to the trustee’s avoidance of, “a transfer of property of the estate
    . . . .” 
    11 U.S.C. § 549
    (a) (emphasis added). Sections 727(d)(2) and 549(a) do not
    apply because the IBM payments were not property of the Debtor’s bankruptcy estate.
    Likewise, § 550 allows recovery for the estate’s benefit of property transferred or its
    value “to the extent that a transfer is avoided under section . . . 549. . .” There was
    no transfer under § 549, so § 550 does not apply.
    10
    It is noteworthy that the Debtor could have avoided the § 727(d)(2)
    lawsuit simply by disclosing on her bankruptcy filings the possibility that she might
    receive payments from IBM.
    -14-
    Federal Rule of Bankruptcy Procedure 7054(b) states that in certain instances
    “[t]he court may allow costs to the prevailing party. . . .” Fed. R. Bankr. P. 7054(b)
    (emphasis added). The Trustee is no longer the prevailing party and, therefore, the
    award of costs under Rule 7054(b) is not appropriate.
    CONCLUSION
    The decision of the bankruptcy court is REVERSED.
    -15-