WOLLMAN, Circuit Judge.
David Longaker appeals the district court's
In October 2009, Longaker entered into a three-year Employment Agreement (Agreement) with Boston Scientific to work as a sales representative. Pursuant to the Agreement, Boston Scientific paid Longaker an annual base salary and an annual base commission, an amount below which Longaker's commissions would not drop. The Agreement guaranteed Longaker these payments unless he quit or was terminated for certain reasons. The Agreement provided that Minnesota law governed any disputes relating to the contract and identified Minnesota as the forum for the resolution of such disputes. While employed by Boston Scientific, Longaker lived and worked exclusively in California.
On September 30, 2010, Longaker filed for Chapter 7 bankruptcy. On October 1, 2010, Boston Scientific terminated Longaker's
In January 2012, Longaker filed suit in the United States District Court for the District of Minnesota, reasserting his breach of contract claim and adding a claim for retaliation in violation of the Minnesota Human Rights Act (MHRA). Boston Scientific moved to dismiss Longaker's complaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), arguing that Longaker lacked standing to bring either claim, that judicial estoppel barred the breach of contract claim, and that the statute of limitations barred the MHRA retaliation claim.
Near the beginning of the hearing on the motion to dismiss, the district court asked whether Longaker's MHRA retaliation claim remained viable and whether Longaker continued to assert it. Longaker's attorney replied:
The district court explained that it was unlikely that Boston Scientific would consent to Longaker amending his complaint at that juncture of the case.
Longaker's attorney and the district court resumed this discussion near the end of the hearing:
The district court responded that if Longaker's attorney was to seek leave to amend, the local rules required that he submit an amended complaint and show how the amended complaint cured the initial complaint's defects. Longaker did not file a motion to amend.
Thereafter, the district court found that Longaker lacked standing to assert his breach of contract claim because his interest in the guaranteed payments, although contingent at the time he filed for bankruptcy, was part of the bankruptcy estate. The district court also dismissed Longaker's MHRA retaliation claim, finding that he lacked standing to assert a claim under the MHRA and that the statute of limitations barred the claim. On appeal, Longaker argues that the district court erred in holding that he lacked standing to assert his breach of contract claim and that it abused its discretion in denying him leave to amend his complaint.
Longaker argues that the district court erred in holding that he lacked standing to assert his breach of contract
Title 11 U.S.C. § 541 sets forth the property that comprises the bankruptcy estate. Section 541(a) provides in relevant part that the bankruptcy estate includes, with exceptions not applicable here: "(1)... all legal or equitable interests of the debtor in property as of the commencement of the case ... [and] (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." 11 U.S.C. § 541(a)(1) and (a)(6). Section 541's scope is broad, and it encompasses a debtor's contingent interests under a pre-petition contract. See Stoebner v. Wick (In re Wick), 276 F.3d 412, 415 (8th Cir.2002) (debtor's interest in stock options under pre-petition contract were part of bankruptcy estate even though the options were unvested and contingent on debtor's continued employment); Rau v. Ryerson (In re Ryerson), 739 F.2d 1423, 1425 (9th Cir.1984) (debtor's interest in "contract value" payment was part of bankruptcy estate even though the payment was "contingent at the time of filing and not payable" until the debtor was terminated). Under the Agreement, Longaker held a contingent contractual interest in the guaranteed payments. This interest would vest if Boston Scientific terminated him for a reason other than those provided in the Agreement. Relying on Ryerson and other cases, the district court held that this contingent interest became part of the bankruptcy estate at the time Longaker filed his bankruptcy petition.
Longaker does not raise a serious objection to the district court's analysis on this issue. Instead, he argues that the guaranteed payments constitute post-petition earnings for services, which are excluded from the bankruptcy estate under § 541(a)(6).
A post-petition payment on a pre-petition contractual interest belongs to the bankruptcy estate if the payment is neither attributable to nor conditioned upon the debtor's post-petition services. See Parsons v. Union Planters Bank (In re Parsons), 280 F.3d 1185, 1188 (8th Cir. 2002) (rejecting debtor's argument that § 541(a)(6) excluded debtor's interest in real estate commissions received post-petition when debtor's right to commissions was attributable to debtor's pre-petition services); In re LaSpina, 304 B.R. 814, 820 (Bankr.S.D.Ohio 2004) (severance pay that debtor negotiated one week prior to filing for bankruptcy was not compensation for services performed post-petition and therefore was property of the bankruptcy estate). Relatedly, if the post-petition payment is attributable to the debtor's pre- and post-petition services, the payment is divided, pro rata. That is, the portion of the payment attributable to the debtor's pre-petition services remains property of the bankruptcy estate while the portion attributable to post-petition services is excluded from the estate under § 541(a)(6). See Wick, 276 F.3d at 416-17
The exception set forth in § 541(a)(6) does not apply to Longaker's claim for the guaranteed payments because he did not perform any post-petition services. Even assuming that Boston Scientific must pay the guaranteed payments, those amounts are neither attributable to nor conditioned on Longaker's post-petition services. We find the guaranteed payments analogous to the severance payment in LaSpina, where the court held that the payments, having no relation to the debtors' post-petition services, were sufficiently rooted in the debtors' pre-petition past and were therefore part of the debtor's bankruptcy estate. LaSpina, 304 B.R. at 820. Because the guaranteed payments, if due at all, are property of the bankruptcy estate, Longaker lacked standing to assert his breach of contract claim.
Longaker's argument that had Boston Scientific not terminated him, the payments he received under the Agreement would have been future earnings falling within § 541(a)(6) does not require a different result. Courts construe § 541(a)(6)'s earning exception narrowly and apply it only to payments a debtor receives post-petition if the money is attributable to post-petition services actually rendered by the debtor. See Stinnett v. Laplante (In re Stinnett), 465 F.3d 309, 313 (7th Cir.2006) ("[C]ase law provides that the [earnings exception] should be interpreted `extremely narrowly' and `excepts only earnings from services actually performed by an individual debtor.'" (quoting In re Prince, 85 F.3d 314, 323 (7th Cir.1996))); In re A'Hearn, No. 11-00615, 2011 WL 4704235, at *6 (Bankr. N.D.Iowa Oct. 4, 2011) ("Funds are not subject to the [earnings exception] unless
Longaker admits that he never filed a written request to amend his complaint. Instead, he argues that he requested leave to amend his complaint during the motion to dismiss hearing and that the district court abused its discretion by not allowing him to do so. A review of the hearing transcript belies this argument. Although Longaker's attorney discussed the possibility of amending his complaint, he indicated at the end of the hearing that he would seek leave to do so only if the district court dismissed the MHRA claim. The district court then explained that if "it's part of your request to seek leave to amend," the local rules required Longaker to submit an amended complaint and show how the amended complaint would cure the initial complaint's defects. Longaker's attorney's response was that this was "probably a bridge that is not to be crossed today." Because Longaker never requested leave to amend his complaint, the district court cannot be faulted for failing to allow him to do so. See Steele v. City of Bemidji, 257 F.3d 902, 905 (8th Cir.2001) (explaining that a party "cannot fault the District Court for failing to grant him leave to amend when he did not seek permission to do so").
The judgment is affirmed.
BYE, Circuit Judge, concurring in part and dissenting in part.
I readily agree with the majority the district court properly denied David Longaker leave to amend his complaint. But I cannot join the majority's conclusion the remaining two years of salary and commissions in Longaker's employment contract belong to the bankruptcy estate, not Longaker. The majority, like the district court, has confused the issue of Longaker's standing to bring his breach of contract claim with the validity of the claim itself. I believe Longaker has standing to bring his claim. Furthermore, because I believe the salary and commissions are earnings from post-petition services and the majority's opinion fails to properly balance the dual purposes of 11 U.S.C. § 541, I must respectfully dissent.
The district court dismissed David Longaker's complaint for lack of standing. Fed.R.Civ.P. 12(b)(1); see Faibisch v. Univ. of Minn., 304 F.3d 797, 801 (8th Cir.2002) ("[I]f a plaintiff lacks standing, the district court has no subject matter jurisdiction."). "[T]he doctrine of standing serves to identify those disputes which are appropriately resolved through the judicial process." Whitmore v. Arkansas, 495 U.S. 149, 155, 110 S.Ct. 1717, 109 L.Ed.2d 135 (1990). A plaintiff must present a "case or controversy" within the meaning of Article III of the United States Constitution to have standing. Id. This "irreducible constitutional minimum" requires a plaintiff to show an "injury in fact" that is "fairly . . . trace[able] to the challenged action of the defendant" and likely to be "redressed by a favorable decision." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (quotations and citations omitted).
Whether a plaintiff has suffered an injury "often turns on the nature and source of the claim asserted." Warth v. Seldin, 422 U.S. 490, 500, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975); see Int'l Primate Prot. League v. Adm'rs of Tulane Educ. Fund, 500 U.S. 72, 77, 111 S.Ct. 1700, 114 L.Ed.2d 134
The majority, like the district court, erroneously conflates standing with the validity of Longaker's cause of action. Longaker's standing turns on the injury he alleges. See Braden, 588 F.3d at 592. The validity of his claim — in other words, whether he will ultimately succeed in obtaining relief — turns on the cause of action he brings. See id. Longaker has stated a personal injury because Boston Scientific allegedly breached his employment contract and denied Longaker salary and commissions that are rightly his. That injury is traceable to Boston Scientific's conduct because Boston Scientific breached the contract. And the court can redress Longaker's injury by issuing a favorable judgment. See Lujan, 504 U.S. at 560, 112 S.Ct. 2130. Longaker has thus presented a "case or controversy." The majority opinion concluding otherwise is incorrect.
Having established Longaker has standing, I now endeavor to demonstrate Longaker presents a valid cause of action and is entitled to relief. As usual, the task of determining the meaning of a statute begins with the text of the statute itself. United States v. Ron Pair Enters., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989); Landreth Timber Co. v. Landreth, 471 U.S. 681, 685, 105 S.Ct. 2297, 85 L.Ed.2d 692 (1985). The commencement of a bankruptcy case creates an estate. 11 U.S.C. § 541(a). The estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." Id. § 541(a)(1). The scope of the estate is broad. See Owen v. Owen, 500 U.S. 305, 308, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991). It includes "even future, non-possessory, contingent, speculative, and derivative interests." In re Carlton, 309 B.R. 67, 71 (Bankr.S.D.Fla.2004). Broad as it may be, the estate does not include "earnings from services performed by an individual debtor after the commencement of the case." 11 U.S.C. § 541(a)(6).
Section 541(a)(1) and § 541(a)(6) illustrate the dual purposes of § 541. First, it gives creditors full availment of the debtor's non-exempt assets to pay off the creditors' claims against the debtor to the maximum extent possible. Segal v. Rochelle, 382 U.S. 375, 379, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966). It accomplishes this purpose by defining the estate broadly and designating that proceeds from or profits of
The characterization of activities as "pre-petition" or "post-petition" is often complicated. Many pre-petition interests are contingent on the debtor's performance of post-petition services. In such a case, the extent of the estate's interest in an asset cannot be greater than the interest the debtor holds in the asset at the petition date. Drews v. Vote (In re Vote), 276 F.3d 1024, 1026 (8th Cir.2002) (opinion of Wollman, J.) ("[D]espite 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.'" (quoting S. Rep. 95-989, at 82 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5868)). Therefore, the estate's share of an asset contingent on post-petition services cannot exceed the extent of the asset attributable to the pre-petition services of the debtor. See Prochnow v. Apex Props., Inc. (In re Prochnow), 467 B.R. 656, 663-64 (C.D.Ill.2012) (holding commissions from pre-petition services are part of the bankruptcy estate, but commissions from post-petition services are not); Larson v. Cameron (In re Larson), 147 B.R. 39, 44 (Bankr.D.N.D.1992) (holding portion of stock options which depends on performance of post-petition services are not estate property).
In the instant matter, the majority concludes Longaker's right to future salary and commissions is a contingent interest that became part of the bankruptcy estate when Longaker filed his petition. Ante at 661; see Stoebner v. Wick (In re Wick), 276 F.3d 412, 415 (8th Cir.2002); Rau v. Ryerson (In re Ryerson), 739 F.2d 1423, 1425 (9th Cir.1984). Upon close reading, Wick and Ryerson do not support the majority's classification of Longaker's interest. In Wick, a Chapter 7 debtor had stock options which entitled her to a 24.5% ownership stake in a company. The interest was contingent on her continued employment for one year following the signing of the stock option. At the time she filed for Chapter 7, Wick had been employed by the company for four months. We recognized the value of the stock options was due in part to the post-petition work Wick performed to complete the vesting period, and Wick should "receive[] the benefit of her post-petition labor, as mandated by 11 U.S.C. § 541(a)(6)." Wick, 276 F.3d at 417. The same is true in Longaker's case. The second and third years of his employment agreement compensate him for labor performed post-petition. He should get the benefit of that labor.
In Ryerson, a manager at an insurance company signed a contract which entitled him to termination payments of a certain figure, multiplied by his number of years of service as a manager. One year of service was a condition precedent to eligibility. When he filed his Chapter 7 petition,
The majority nevertheless concludes that even if § 541(a)(6)'s reservation of earnings from post-petition services theoretically applied to the instant matter, Longaker still would not be entitled to his salary and commissions because he did not actually perform any post-petition services. Ante at 661-62; see In re A'Hearn, No. 11-00615, 2011 WL 4704235, at *6 (Bankr. N.D.Iowa Oct. 4, 2011). This cannot be correct. The doctrine of prevention provides "where a party to a contract is the cause of the failure of performance of the obligation due him or her, that party cannot in any way take advantage of that failure." 13 Richard A. Lord, Williston on Contracts § 39:3 (4th ed. 2000); see La Societe Generate Immobiliere v. Minneapolis Cmty. Dev. Agency, 44 F.3d 629, 638 (8th Cir.1994) (quoting Zobel & Dahl Constr. v. Crotty, 356 N.W.2d 42, 45 (Minn. 1984)). We have recognized without ambiguity the prevention doctrine applies in bankruptcy cases. Stevenson v. Stevenson Assocs. (In re Stevenson Assocs.), 777 F.2d 415, 419-20 (8th Cir.1985). The rationale behind the doctrine is two-fold. The first rationale is equitable. It is unfair for one who prevents the fulfillment of a condition precedent to rely on the non-occurrence of that condition to defeat his or her liability. Omaha Pub. Power Dist. v. Emp'rs' Fire Ins. Co., 327 F.2d 912, 916 (8th Cir.1964); Nodland v. Chirpich, 307 Minn. 360, 240 N.W.2d 513, 516-17 (1976) (quotation and citation omitted); Lord, supra, § 39:4. Second, it emanates from the promise of good-faith performance, which Minnesota law implies in every contract. Crotty, 356 N.W.2d at 45 ("[E]very contract contains an implied condition that each party will not unjustifiably hinder the other party from performing.").
Consider an example. A company tells its remotely-located salesperson he must call by Friday at noon and report his sales figures to receive a bonus. The company then disconnects its phone lines, effectively preventing the salesperson from calling. In such a case, the prevention doctrine would forbid the company from raising the failure of the condition precedent — reporting
Just so here. Boston Scientific prevented Longaker from actually providing post-petition services by firing him. Boston Scientific has, in other words, prevented Longaker from fulfilling the condition precedent. It should not be allowed to rely on the non-occurrence of that condition to avoid paying the salary and commissions to Longaker. Yet the majority allows Boston Scientific to do exactly that, and in doing so, sanctions a result that is inequitable and inconsistent with Minnesota contract principles.
I would hold Longaker has standing, and if the district court concluded on remand that Boston Scientific breached the employment contract, Longaker would be entitled to the portion of his salary and commissions attributable to his post-petition services. Holding as such hews more closely to our prior construction of the statute and the balance § 541 strikes between creditors' right to repayment and the debtor's right to a "fresh start." It also possesses the benefit of fidelity to long-settled principles of equity and contract interpretation. Because I cannot join the majority's opinion to the contrary, I respectfully dissent.
The majority, without so much as a breath of analysis from the district court on the matter, takes it upon itself to conclude firing Longaker for a reason not enumerated in the employment contract does not amount to culpable misconduct. "[W]e do not normally consider issues which the district court did not rule upon...." First Union Nat'l Bank ex rel. Se. Timber Leasing Statutory Trust v. Pictet Overseas Trust Corp., 351 F.3d 810, 816 (8th Cir.2003) (opinion of Wollman, J.). Unlike the majority, I am not keen to dispense with this rather fundamental principle. I believe Stevenson, the very case the majority cites, shows the way, and would remand for the district court to consider whether Longaker's termination was culpable misconduct. Stevenson, 777 F.2d at 420-21 (acknowledging the factual record is unresolved and remanding to the bankruptcy court to consider the issue of culpable misconduct).