Hoffman v. Gant

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
1
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
STEVEN W. GANT, No. 04-12466
Debtor(s).
______________________________________/
TIMOTHY HOFFMAN, Trustee,
Plaintiff(s),
v. A.P. No. 05-1049
STEVEN W. GANT,
Defendant(s).
_______________________________________/
Memorandum on Cross-Motions for Summary Judgment
_________________
The facts in this adversary proceeding are not contested. Debtor Steven Gant is one of two
former partners of Consumer Direct Solutions, a wine shipping business. On September 1, 2003, the
partnership sold it business. As part of the sale, Gant received 217,500 options to purchase shares of the
buyer. He also received an additional 4,000 options some time in October, 2004. He filed his Chapter
7 petition on October 18, 2004.
The sale agreement provided that Gant would become an employee of the purchaser. Under the
Entered on Docket
August 26, 2005
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 05-01049 Doc# 17 Filed: 08/26/05 Entered: 08/26/05 14:33:41 Page 1 of 3

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
1Gant’s declaration is vague as to the nature of this notice, and he does not state whether he knew
about the merger prior to his bankruptcy. These facts are not important as to the Trustee’s motion, but
might preclude granting of Gant’s motion.
2
terms of the option agreement, the options would not vest until a future date and then only if Gant were
still an employee and certain volumes of business were achieved. However, the agreement also
provided for immediate exercise, regardless of vesting, if the purchaser entered into a merger agreement.
Gant continued on as an employee of the purchaser. On November 6, 2004 (just 19 days after
Gant filed his petition), the purchaser informed Gant of its agreement to merger.1 The options were
automatically exercise and Gant received $94,122,74 on their account. The dispute now before the court
is whether these funds belong to Gant or the bankruptcy estate.
Gant’s legal argument, that the funds are his because the options were not vested on the date of
his filing, is based on a small minority and is not the law in this circuit. Ownership of the option
proceeds does not turn on vesting, but rather whether the options were sufficiently rooted in the pre-
bankruptcy past. In re Ryerson, 739 F.2d 1423 1426 (9th Cir. 1984). Even unvested stock options are
considered a present contingent interest and are property of the bankruptcy estate even if subject to a
contingency such as continued employment. In re Dibiase, 270 B.R. 673, 681 (Bkrtcy.W.D.Tex. 2001).
See also In re Marriage of Brown (1976) 15 Cal.3d 838, 126 Cal.Rptr. 633, 544 P.2d 561 [unvested
pension right constitutes community asset although contingent]; In re Marriage of Harrison (1986) 179
Cal.App.3d 1216, 1226, 225 Cal.Rptr. 234 [stock options are community asset although exercisable in
the future]. When continuing employment is a condition of vesting, a pro rata allocation must be made
between value which existed on the petition date and value created by postpetition work; the latter
belongs to the debtor, but the former is property of the bankruptcy estate. In re Wick, 276 F.3d 412, 416
(8th Cir. 2002); In re Allen, 226 B.R. 857, 867 (Bkrtcy.N.D.Ill.1998).
Since the options suddenly had value just 19 days after Gant filed his bankruptcy petition, it is
unlikely that very much of anything is attributable to Gant’s postpetition employment. Moreover, if the
Case: 05-01049 Doc# 17 Filed: 08/26/05 Entered: 08/26/05 14:33:41 Page 2 of 3

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
2Gant’s rate of compensation is an important factor. If his pay was $1 a week, then he has a
pretty good case for arguing that he is entitled to 19 days’ worth of reasonable compensation from the
option proceeds. On the other hand, if his pay was comparable to normal wages for a person in his
position, his right to any of the option proceeds is scant.
3
evidence shows that Gant knew of the merger when he filed his petition then all of the proceeds might be
property of the estate. These issues will need to be resolved at trial.
For the foregoing reasons, Gant’s motion for summary judgment will be denied and the Trustee’s
motion will be partially granted, in that it will be deemed without substantial controversy that all of the
options proceeds are property of the estate except those which the court determines after trial are
attributable to Gant’s postpetition employment.2 Counsel for the Trustee shall submit an appropriate
form of order.
Dated: August 26, 2005
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 05-01049 Doc# 17 Filed: 08/26/05 Entered: 08/26/05 14:33:41 Page 3 of 3