William Francis Gunn

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 08-43172
Chapter 7
WILLIAM FRANCIS GUNN 	R.S. No. CSR-200
Debtor.
___________________________/
MEMORANDUM OF DECISION
PG Partners, Inc. (“Movant”) filed a motion for relief from the
automatic 	stay 	so 	that 	it 	might 	exercise 	its 	state 	law 	right 	to
offset 	commissions 	owed 	to 	Debtor 	William 	Francis 	Gunn 	(“Debtor”)
against its prepetition claim. 	A hearing on the motion was held on
July 25, 2008 at 11:00 a.m. 	After the hearing, the Court issued an
order denying the motion for relief. 	An explanation of the reasons
for its decision is set forth below.
SUMMARY OF FACTS
Movant, a real estate broker, employed Debtor as a real estate
agent. 	Debtor 	and 	Movant 	executed 	a 	Broker-Associate 	Licensee
Contract 	(the 	“Contract”), 	under 	which 	Debtor 	was 	to 	receive 	a
marketing 	advance 	of 	up 	to 	$3,000 	per 	month 	from 	Movant 	to 	cover
costs 	incurred 	by 	Debtor 	for 	marketing 	properties 	for 	sale. 	The
Signed: August 11, 2008
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
August 13, 2008
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 08-43172 Doc# 41 Filed: 08/11/08 Entered: 08/13/08 11:10:32 Page 1 of 5

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Contract allowed Movant to retain up to 25% of Debtor’s commissions
as repayment for marketing advances.
The Contract provides that Debtor “shall receive a share of
commissions which are actually collected by the Broker, on listings
and contracts for services requiring a real estate license which are
solicited and obtained by Associate Licensee, and on transactions of
which 	Associate 	Licensee’s 	activities 	are 	the 	procuring 	cause, 	as
follows: a. 	When Associate Licensees shall have performed any work
hereunder 	whereby 	any 	commission 	shall 	be 	earned 	and 	when 	such
commission shall have been collected, Associate License [sic] shall
be entitled to the agreed commission split...”.
Debtor 	filed 	the 	above-captioned 	Chapter 	7 	case 	on 	June 	20,
2008. 	Debtor owed Movant approximately $22,000 in marketing advances
at the time of filing. 	After his petition was filed, escrow closed
on two properties that Debtor had marketed. 	A third sale is pending
but has not closed.
DISCUSSION
Section 553(a) provides that ”this title does not affect any
right of a creditor to offset a mutual debt owing by such creditor
to the debtor that arose before the commencement of the case under
this title against a claim of such creditor against the debtor that
arose before the commencement of the case...” 	11 U.S.C. § 553(a).
Creditors may not offset debts while the automatic stay remains in
effect. 	11 U.S.C. § 362(a)(7). 	The right to offset only applies
when both the creditor’s debt to the debtor and the debtor’s debt
Case: 08-43172 Doc# 41 Filed: 08/11/08 Entered: 08/13/08 11:10:32 Page 2 of 5

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to the creditor arose prepetition. 	See In re TLC Hospitals, Inc.,
224 F.3d 1008 (9th Cir. 2000).
Debtor objected to the motion for relief from stay on the
grounds that Movant’s right to offset arose postpetition. 	At the
hearing, Movant relied on a Ninth Circuit case, In re Munple, Ltd.,
to support its position that its right to offset arose prepetition.
868 F.2d 1129 (9th Cir. 1989). 	The court in Munple held that a
commission agreement under which a seller owed a commission to a
broker was not an executory contract under 11 U.S.C. § 365 because
the broker had fully performed its contractual obligations when it
procured a buyer, which it did prior to the bankruptcy filing.
Munple, 868 F.2d at 1131.
The holding in Munple is not applicable to this case because
the language of the Contract executed by Debtor and Movant
specifies when Debtor’s right to receive a commission payment
arises. 	The Contract provides that “when such commission shall
have been collected, [Debtor] shall be entitled to the agreed
commission split.” 	Because none of the three sales on which Debtor
was entitled to receive commissions had closed escrow at the time
of Debtor’s bankruptcy filing, Movant had not collected any of the
commissions prepetition. 	Thus, Debtor’s entitlement to his share
of the commissions did not arise until after the filing.
In Braniff Airways, Inc. v. Exxon Co., the Fifth Circuit held
that setoff was allowed when the debt owed to the debtor was
incurred and absolutely owed prepetition, even though the precise
amount of the debt could not be calculated until after the petition
Case: 08-43172 Doc# 41 Filed: 08/11/08 Entered: 08/13/08 11:10:32 Page 3 of 5

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date. 	814 F.2d 1030, 1036 (5th Cir. 1987). 	This case also differs
from Braniff Airways because, under the language of the Contract,
Debtor was not absolutely owed any commission until the commission
had been collected by Movant, which occurred postpetition. 	The
delay in payment was not necessitated by the need to calculate the
amount owed to Debtor.
CONCLUSION
Movant’s obligation to pay Debtor was not a prepetition debt
subject to offset against Debtor’s prepetition obligation to Movant
under 11 U.S.C. § 553. 	As a result, cause does not exist to lift
the automatic stay.
END OF DOCUMENT
Case: 08-43172 Doc# 41 Filed: 08/11/08 Entered: 08/13/08 11:10:32 Page 4 of 5

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COURT SERVICE LIST
Barbara A. Smart
Smart Legal Services
22693 Hesperian Blvd. #210
Hayward, CA 94541
Catherine S. Robertson
Pahl & McCay
225 W. Santa Clara St., Ste. 1500
San Jose, CA 95113-1752
Case: 08-43172 Doc# 41 Filed: 08/11/08 Entered: 08/13/08 11:10:32 Page 5 of 5