Burgess v. Sikes

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT January 27, 2006

)))))))))))))))))))))))))) Charles R. Fulbruge III
Clerk
No. 04-30189

))))))))))))))))))))))))))

In the Matter of:

EDWARD KEITH BURGESS,

Debtor.

________________________

EDWARD KEITH BURGESS,

Appellant,

v.

LUCY G. SIKES,

Appellee.

Appeal from the United States District Court
for the Western District of Louisiana

Before JONES, Chief Judge, REAVLEY, JOLLY, HIGGINBOTHAM, DAVIS,
SMITH, WIENER, BARKSDALE, EMILIO M. GARZA, DeMOSS, BENAVIDES,
STEWART, DENNIS, CLEMENT, PRADO, and OWEN, Circuit Judges.*

EDWARD C. PRADO, Circuit Judge:

This is a bankruptcy case. The issue is whether a crop-

disaster-relief payment authorized by legislation enacted after

the debtor filed for bankruptcy is property of the bankruptcy

estate. A panel of this court held that it is not, following

*
Judge King did not participate in the decision.
which the court voted to consider the case en banc. After

hearing argument and considering supplemental briefing by the

parties as well as law professors serving as amici curiae,1 a

majority of the court agrees with the panel decision.

Accordingly, we reverse the judgment of the district court.

I.

The facts are short and undisputed. Farmer Edward Keith

Burgess filed a Chapter 7 bankruptcy petition in August 2002. He

was discharged from bankruptcy in December 2002. In February

2003, the Agricultural Assistance Act of 2003 (“the 2003 Act”)

was enacted. That legislation provided for crop-disaster-relief

payments to qualifying farmers for 2001 or 2002 crop losses.

Qualifying farmers could begin applying for disaster

payments in June 2003. Burgess did so, and in August 2003, after

Burgess’s bankruptcy case was closed, the Farm Service Agency of

the Department of Agriculture mailed a check for $24,829 to the

trustee of Burgess’s bankruptcy estate. The purpose of this

payment was to compensate Burgess for crop losses sustained in

2001.

The bankruptcy case was reopened to determine what to do

1
The amici are professors Susan Block-Lieb; Ralph Brubaker;
S. Elizabeth Gibson; Jonathan C. Lipson; Charles W. Mooney, Jr.;
Theresa J. Pulley Radwan; Nancy B. Rapoport; Robert K. Rasmussen;
and Robert M. Zinman. The amici’s brief was prepared as a class
project in the Bankruptcy LL.M. Program at St. John’s University
School of Law.

2
with the check. Burgess filed a Motion for Turnover, which was

denied by the bankruptcy court. The district court affirmed,

both courts concluding that the payment was property of the

bankruptcy estate and belonged to Burgess’s creditors.

A panel of this court reversed. Burgess v. Sykes (In re

Burgess), 392 F.3d 782, 786 (5th Cir. 2004). The panel reasoned

that the disaster payment was not “property” under 11 U.S.C. §

541(a)(1) because the legislation providing for the payment was

not enacted until after Burgess filed for bankruptcy. Id. at

786. According to the panel, since Burgess “had no legal or

equitable right to [the] payment absent such legislation,” “[he]

had no legal or equitable right to [the payment] at the

commencement of [his] bankruptcy case.” Id. at 786–87.

The panel also held that the payment was not “proceeds” of

property under § 541(a)(6). Id. at 787. Proceeds must derive

from property of the estate, and here Burgess had none. Id.

Without property, there could not be proceeds. Id. Accordingly,

the panel reversed the judgment of the district court. Id.

The court ordered rehearing en banc to determine whether the

disaster payment at issue in this case constitutes property

within the meaning of § 541(a)(1) or proceeds within the meaning

of § 541(a)(6). Holding it is neither, we again reverse the

judgment of the district court.

3
 II.

Whether money is property of the debtor or the bankruptcy

estate is a question of law reviewed de novo. See State Farm

Life Ins. Co. v. Swift (In re Swift), 129 F.3d 792, 795 (5th Cir.

1997) (deciding de novo whether legal causes of action belonged

to the debtor or to the estate). In this case, two subsections

of § 541 potentially bring Burgess’s disaster-relief payment into

his bankruptcy estate. Section 541 of the Bankruptcy Code

broadly defines “property of the estate” as “all . . . property,

wherever located and by whomever held.” 11 U.S.C. § 541(a)

(2004). Subsection (1) specifies that property of the estate

includes “[a]ll legal or equitable interests of the debtor in

property as of the commencement of the case.” § 541(a)(1)

(emphasis added). Subsection (6) further provides that “proceeds

. . . of or from property of the estate” also come into the

bankruptcy estate. § 541(a)(6).

Thus, the scope of § 541 is broad: that section brings into

the estate all of the debtor’s legal and equitable interests

“wherever located and by whomever held.” § 541(a)(1). However,

the Code also provides a temporal limitation: property of the

estate is determined at “[t]he commencement of the case.” Id.2

2
See also Ohio v. Kuvacs, 469 U.S. 274, 285 n.12 (1985)
(“The commencement of a case under the Bankruptcy Code creates an
estate . . . .”); La. World Exposition v. Fed. Ins. Co., 858 F.2d
233, 243 (5th Cir. 1988) (“The filing of a petition for
reorganization under Chapter 11 of the Code creates an estate.”).

4
The case is commenced, and the estate created, when the

bankruptcy petition is filed. See In re Swift, 129 F.3d 792, 795

(5th Cir. 1997); 5 COLLIER ON BANKRUPTCY ¶ 541.02 (15th ed. rev.

2005). Section 541’s temporal limitation is the key to deciding

this case.

III.

The trustee and the amici (collectively, “the Appellees”)

argue that Burgess’s disaster-relief payment comes into the

bankruptcy estate through a combination of § 541(a)(1) (property)

and § 541(a)(6) (proceeds). Specifically, they advance the

following arguments to support the inclusion of the disaster-

relief payment in Burgess’s bankruptcy estate. First, they argue

that Burgess’s crop loss gave him a contingent interest in the

postpetition disaster-relief payment. As such, they claim that

the contingent interest constitutes property of the estate,

making the disaster-relief payment proceeds of that property.

Second, the Appellees argue that Burgess’s crop loss, itself, is

property of the estate supporting the inclusion of the payment as

proceeds under a straightforward application of § 541(a)(1) and

(a)(6).

Because the Bankruptcy Code defines property of the estate

in terms of “legal or equitable interests of the debtor” that

exist “as of the commencement of the case,” id. § 541(a)(1), the

question we must decide is temporal: when did Burgess acquire a

5
legal interest in the disaster-relief payment? In other words,

did the crop loss itself entitle Burgess to the money? Or was it

the combination of Burgess’s crop loss and the enactment of the

2003 Act that gave him that interest? If it was the former, then

Burgess acquired the interest before bankruptcy, and the payment

is part of his estate. But if it was the latter combination of

events that gave Burgess an interest in the payment, he did not

acquire that interest until after bankruptcy; and the disaster-

relief payment belongs to Burgess. For the reasons that follow,

we hold it was the latter.

A.

The Appellees first argue that Burgess had a contingent

interest in the payment at the time of bankruptcy pursuant to

Segal v. Rochelle, 382 U.S. 375 (1966). They claim that this

interest is property of the estate, bringing the postpetition

payment into the estate as proceeds.

In Segal, the debtors filed for bankruptcy in September

1961. Id. at 376. “After the close of that calendar year, loss-

carryback tax refunds were sought and obtained from the United

States on behalf of [the debtors] under Internal Revenue Code §

172.” Id. The losses had been suffered prior to the debtors

filing for bankruptcy in September 1961; they were carried back

to the years 1959 and 1960 to offset net income earned in those

years. Id. The question before the Supreme Court was whether

6
this refund was property of the bankruptcy estate under § 70a(5)

of the Bankruptcy Act,3 the predecessor to § 541(a)(1) of the

Bankruptcy Code. Id.

“Property,” as used in § 70a(5), was not defined in the

Bankruptcy Act;4 therefore, according to Segal, the dual purposes

of the Bankruptcy Act governed the definition of property under

pre-Code law. See id. at 379. The first goal of the Bankruptcy

Act was “to secure for creditors everything the bankrupt may

possess . . . when he files his petition.” Id. To achieve that

goal, property was construed to include interests that are novel,

contingent, or the enjoyment of which must be postponed. Id.

The second goal of the Act was to “leave the bankrupt free after

the date of his petition to accumulate new wealth in the future.”

Id. The inquiry under this prong was whether the interest was

3
Section 70a(5) of the Bankruptcy Act read in pertinent
part,
(a) The trustee of the estate of a bankrupt . . . shall
. . . be vested by operation of law with the title of the
bankrupt as of the date of the filing of the petition
initiating a proceeding under this title, except insofar
as it is property which is held to be exempt, to all of
the following kinds of property wherever located . . .
(5) property, including rights of action, which prior to
the filing of the petition he could by any means have
transferred or which might have been levied upon or sold
under judicial process against him, or otherwise seized,
impounded, or sequestered . . . .
11 U.S.C. § 110(a)(5) (1964), quoted in Segal, 382 U.S. at 377
n.1.
4
See Segal, 382 U.S. at 379 (“[I]t is impossible to give
any categorical definition to the word ‘property.’” (quoting
Fisher v. Cushman, 103 F. 860, 864 (1st Cir. 1900))).

7
“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’ under §

70a(5).” Id. at 379–80.

The Court held that in light of these considerations, the

debtors’ refund was property of the bankruptcy estate. Id. at

381. According to the Court, the first question was whether “on

the date the bankruptcy petitions were filed, the potential

claims for loss-carryback refunds constituted ‘property.’” Id. at

379. The Court answered this question in the affirmative by

examining the circumstances that existed “at the time [the]

bankruptcy petitions were filed.” Id. at 380. Two circumstances

that “point[ed] towards realization of a refund” were that “taxes

had been paid on net income within the past three years[] and the

year of bankruptcy at that point exhibited a net operating loss.”

Id. In addition, the tax law that provided for the refund was

enacted before the debtor filed for bankruptcy.5 Thus, at the

time of filing, the debtors had a claim for a refund——a legal

interest——regardless of when the money was actually paid. See

5
See Drewes v. Vote (In re Vote), 276 F.3d 1024, 1026 (8th
Cir. 2002) (“[T]he law authorizing the tax refund [in Segal]
predated the bankruptcy fling.”); Bracewell v. Kelley (In re
Bracewell), 322 B.R. 698, 704 (M.D. Ga. 2005) (“While Segal does
not specifically address the issue, it seems as though the tax
laws providing for the loss-carryback tax refunds had been
enacted prior to the Segal debtor filing his bankruptcy
petition.”).

8
id. at 380. Next, turning to the second prong of the property

inquiry, the Court concluded that the debtors’ claim for a refund

was indeed rooted in the prebankruptcy past and not entangled

with their ability to make a fresh start. Id. Accordingly, the

Court held that the claim for a refund was property of the

bankruptcy estate within the meaning of § 70a(5) of the

Bankruptcy Act. Id. at 381.

Because Burgess’s crop loss occurred before bankruptcy, the

Appellees argue that the Supreme Court’s “sufficiently rooted”

test supports classification of the payment as property of the

estate. In other words, they claim that Burgess’s interest in

the disaster payment is “sufficiently rooted in [Burgess’s] pre-

bankruptcy past and so little entangled with [his] ability to

make an unencumbered fresh start that it should be regarded as

‘property’ under [§ 541],” id. at 380. We reject this argument

for two reasons.

First, although Congress has specifically approved of

Segal’s result,6 Segal’s “sufficiently rooted” test did not

survive the enactment of the Bankruptcy Code. As this court

previously explained in Goff v. Taylor,

The Bankruptcy Code was intended to create a more uniform
and comprehensive scope to “property of the estate” which

6
See 11 U.S.C. § 541 (West 2004) (Historical and Statutory
Notes) (Revision Notes and Legislative Reports 1978 Acts) (“The
result of [Segal v. Rochelle], is followed, and the right to a
refund is property of the estate.”).

9
 is subject to the reach of debtors’ creditors than had
previously existed under the old Bankruptcy Act. Under
Section 70(a) of the earlier Act, the inclusion of an
asset within the estate varied in accordance with (1) an
individual examination of the legal nature of the asset
(2) in light of the purposes of the Bankruptcy Act. This
two part test reflected the dual and often conflicting
policies woven into the Act. These policies were to
secure for the benefit of creditors everything of value
the bankrupt might possess in alienable or leviable form,
but to permit a bankrupt to accumulate new wealth after
the date of his petition and to allow him an unencumbered
fresh start. Relying upon these competing
considerations, the Supreme Court developed a rule that
where property “is sufficiently rooted in the pre-
bankruptcy past and so little entangled with the
bankrupts’ ability to make an unencumbered fresh start .
. . it should be regarded as ‘property’ [of the estate].”
The enactment of the Bankruptcy Code undertook to
obviate this analytical conundrum. Under Section 541 of
the Code, all property in which the debtor has a “legal
or equitable interest” at the time of bankruptcy comes
into the estate.

706 F.2d 574, 578 (5th Cir. 1983) (internal citations and

footnotes omitted) (emphasis added), overruled on other grounds

by Patterson v. Shumante, 504 U.S. 753 (1992). Section 541 now

governs what is considered property of the bankruptcy estate, and

unlike former § 70a(5) of the Bankruptcy Act, § 541 expressly

defines property: “All legal or equitable interests of the debtor

in property as of the commencement of the case.” 11 U.S.C. §

541. Thus, under current law, a debtor’s interest in property

may be contingent——or enjoyment of the interest may be

postponed——until after bankruptcy, but the debtor must have had a

prepetition legal interest nonetheless.

Second, Segal is distinguishable because the debtor did have

10
a prepetition legal interest in that case. At the time of

bankruptcy, § 172 of the Internal Revenue Code gave the debtor a

claim for a tax refund if certain conditions were met. It was

the combination of the law and the conditions made legally

relevant by the law that conferred on the debtor a prepetition

legal interest: the claim for a refund. In that way, the Segal

debtors’ claim for a refund is similar to the prepetition accrual

of a cause of action that results in a postpetition judgment in

the debtor’s favor. In such cases, the debtor’s cause of action

is a prepetition legal interest——§ 541(a)(1) property——that

brings the postpetition judgment into the estate as proceeds

under § 541(a)(6). See, e.g., Wieburg v. GTE Southwest Inc., 272

F.3d 302, 306 (5th Cir. 2001) (holding that causes of action for

age and sex discrimination that arose prepetition were property

of the bankruptcy estate).

Here, by contrast, Burgess suffered the crop loss before

filing for bankruptcy, but he did not have a prepetition claim

to, or interest in, the disaster-relief payment because the

legislation authorizing the payment had not yet been enacted. If

Burgess had no right or interest that constituted property within

the meaning of § 541(a)(1) at the commencement of the case, then

the payment he later received cannot be proceeds of property of

the estate under § 541(a)(6). Two other courts have recently

reached the same conclusion in the context of federal disaster-

11
relief payments to farmers.

In In re Vote, the Eighth Circuit distinguished Segal in

holding that similar disaster-relief payments were not property

of the estate under § 541(a)(1). Drewes v. Vote (In re Vote),

276 F.3d 1024, 1026–27 (8th Cir. 2002).7 The facts of Vote are

indistinguishable from this case.

Vote could not plant a crop in 1999 because the soil was

saturated. Id. at 1026. In September 1999, Vote filed a Chapter

7 bankruptcy petition. Id. In October 1999, Congress passed

legislation compensating qualifying farmers for 1999 crop losses.

Id. The next month, Vote began receiving disaster-relief

payments pursuant to this legislation. Id.

The Eighth Circuit rejected the trustee’s argument that the

payments were property of the bankruptcy estate under Segal,

stating,

Segal is distinguishable. . . . [U]nlike the
Appropriations Act in the present case, the law
authorizing the tax refund predated the bankruptcy
filing. Thus, the Segal debtor possessed an existing
interest at the time of filing, whereas Vote had a mere
hope that his losses might generate future revenue.
. . .
The trustee cites a number of cases that follow the
rule in Segal. In each of those cases, however, there

7
The trustee in Vote did not raise its § 541(a)(6) argument
in the district court, and thus the court of appeals refused to
consider it. Vote, 276 F.3d at 1027. Although Appellees here do
make their Segal argument under § 541(a)(6) (operating in
conjunction with § 541(a)(1)), this distinction does not change
our analysis of the issue.

12
 existed a readily discernible legal interest at the time
of filing. Some arose from statutes, some from
contracts, and some from lawsuits, but all conferred upon
the debtors interests with some potential value, even
though those interests may have been only contingent. In
contrast, before Congress passed the Appropriations Act,
Vote had no interest of any kind.

Id. at 1026–27.

One district court recently followed Vote in a similar case,

In re Bracewell,8 reaching the same result. Bracewell considered

whether a disaster payment created by the 2003 Act was property

of the estate where the debtor converted his Chapter 12 case to a

Chapter 7 case before the legislation was enacted. Id. at 701.9

The Bracewell court explained that “once crop disaster

legislation is enacted, legally significant facts exist upon

which a farmer could base a contingent right, which is the same

type of contingent right contemplated under Segal.” Id. at

706–07. However, the mere hope that the legislation will be

enacted does not create a contingent interest in the debtor. Id.

at 707. The court explained,

8
Bracewell v. Kelly (In re Bracewell), 322 B.R. 698 (M.D.
Ga. 2005).
9
The timing of the conversion from Chapter 12 to Chapter 7
was significant in Bracewell because in a Chapter 12 case, § 1207
expands the definition of property of the estate to include §
541-type property that the debtor acquires after the commencement
of the case but before the case is closed or converted to a
Chapter 7 case. 11 U.S.C. § 1207(a)(1). In this case, Burgess
filed his petition under Chapter 7. Chapter 7 contains no
comparable provision to § 1207. See 11 U.S.C. §§ 701–900. Thus,
here, the critical time remains the date of filing.

13
 Without the crop disaster legislation, growing crops and
suffering crop loss . . . are of no legal significance
and create no right. . . . Indeed it is the crop
disaster legislation that makes growing and suffering
certain crop losses relevant by attaching new legal
consequences to events completed before the legislation’s
enactment. Consequently, this is not the type of
contingency contemplated by Segal . . . .

Id.

The necessity of a prepetition legal interest has also been

reaffirmed in post-Segal cases decided in other, comparable

contexts. Schmitz v. Battley (In re Schmitz), 270 F.3d 1254 (9th

Cir. 2001), and Hoseman v. Weinschneider, 277 B.R. 894 (N.D. Ill.

2002), aff’d on other grounds, 322 F.3d 468 (7th Cir. 2003), are

two such examples.

The debtor in Schmitz was an Alaskan fisherman of halibut

and sablefish. Schmitz, 270 F.3d at 1255. He filed for

bankruptcy in April 1992. Id. Seven years prior to Schmitz’s

bankruptcy, “the North Pacific Fisheries Management Council, an

agency of the Department of Commerce, had been considering the

implementation of a quota-based fisheries management plan for

halibut and sablefish caught off the Alaskan coast.” Id.

Proposed regulations had been promulgated by the time Schmitz

filed for bankruptcy, but the final regulations implementing the

plan were not published by the Secretary of Commerce until

November 1993, nineteen months after Schmitz filed. Id. The

regulations became effective in January 1994. Id.

14
 Pursuant to the final regulations, “the plan called for

qualified fisherman to apply for and be awarded Quota Shares

(‘QS’) and Individual Fishing Quotas (‘IFQ’), an annual catch

limit applicable to [future] fishing, based on the total weight

of a fishermen’s legal landing of sablefish and halibut during

the so-called ‘qualifying years’ of 1988–1990.” Id. (citing 50

C.F.R. § 676.20(b) (1994)). Schmitz filed his QS/IFQ application

in 1994, but his QS/IFQ allotment did not become final until

1996. Id. at 1255–56. “At last, in December 1996, over four and

one-half years after Schmitz filed his bankruptcy petition, he

was issued two QS/IFQ certificates for 41,478 units and 1,815

units of halibut, respectively.” Id. at 1256.

In January 1997, Schmitz “conveyed the larger QS/IFQ to

Appellant William Sliney in exchange for some crab pots.” Id.

Sliney then resold the allotment to a third party for

approximately $44,000. Id. Schmitz also sold the smaller

allotment to another party for approximately $2,000. Id.

In June 1997, the trustee sought to reopen Schmitz’s

bankruptcy proceeding, claiming that the QS/IFQ allotments were

property of the estate and seeking to recover the $2,000 from

Schmitz and $44,000 from Sliney. Id. The bankruptcy court

agreed that the allotments were property of the estate and

awarded the money to the trustee:

The bankruptcy judge ruled that in light of the “ongoing
federal activity to implement” a sablefish management

15
 plan “and the advanced stage in bringing that to
fruition” at the time Schmitz filed his bankruptcy
petition——even though the plan had not yet been
adopted——“the IFQ/QSs were tied to Schmitz’s prepetition
qualifying rights from the 1988–1990 fishing seasons.
The IFQ/QS rights were ‘rooted’ in Schmitz’s
prebankruptcy past.”

Id. The Bankruptcy Appellate Panel affirmed the bankruptcy

court’s grant of partial summary judgment in favor of the

trustee. Id.

The Ninth Circuit reversed, holding that the QS/IFQ

allotments “were not property of the bankruptcy estate because

the regulations creating them were not adopted until after the

bankruptcy petition was filed.” Id. The Schmitz court began its

analysis as we did in this case, by looking to the Bankruptcy

Code’s definition of property of the estate: “all legal or

equitable interests of the debtor in property as of the

commencement of the case.” Id. at 1256–57 (quoting 11 U.S.C. §

541) (emphasis in original). The court determined that Schmitz

did not have a property interest in the QS/IFQs on the date of

bankruptcy, explaining,

On the date that Schmitz filed his petition, he might
have had a hope, a wish and a prayer that the Secretary
would eventually implement the plan then under
consideration. However, the fact remains that as of the
date of the petition, Schmitz’s 1988–1990 catch history
had no value. At most, there existed the possibility
that his prior catch record might be relevant if a
fishing quota program were ever adopted in a form
favorable to him, if his application for such rights were
granted, and if he could successfully defend against any
competing challenge to his application. This sort of
nebulous possibility is not property.

16
Id. The Schmitz court then discussed and approved of the Eighth

Circuit’s decision in Vote, observing, “Schmitz, the fisherman,

is in the same boat [as the debtor in Vote]. . . . [Neither’s]

expectation [rises] to the level of property.” Id.

The district court in Hoseman v. Weinschneider also

confirmed the necessity of a prepetition legal interest.

Weinschneider, 277 B.R. at 900–01. In that case, during

September and October of 1989, the debtor, Henry Weinschneider,

negotiated an arrangement with two other parties whereby the

parties would form a business entity called Burton to operate

nursing homes. Id. at 897. According to the agreement, the

debtor would own 23% of Burton and would receive a share of any

profits made by the nursing homes. Id. In exchange, the debtor

would continue his efforts to obtain business for Burton and

teach the other parties how to operate nursing homes. Id.

Weinschneider filed for bankruptcy on October 10, 1989. Id.

Burton was incorporated on October 19, 1989. Id.

Weinschneider was never compensated by Burton, and in

February 1996, he filed a state-court breach-of-contract action

against the other parties to the agreement. Id. at 898. The

trustee brought an action in bankruptcy court, seeking to have

the breach-of-contract action declared property of the bankruptcy

estate. Id. The bankruptcy court agreed. Id.

17
 The bankruptcy court “reasoned that the deal with Burton was

a continuation of [the debtor’s] pre-bankruptcy business, and so

the state court suit [was] significantly related to [the

debtor’s] pre-bankruptcy activities, i.e., the matters giving

rise to the state court suit [were] rooted in [his] pre-

bankruptcy past.” Id. at 899 (internal quotation marks omitted).

The bankruptcy court “did not hold that the contract was formed

before the petition was filed, . . . only that [the debtor]

participated in negotiations leading to its formation before

filing.” Id.

The district court reversed. Id. at 902. The court first

found that for summary judgment purposes, the contract was formed

after Weinschneider filed for bankruptcy. Id. at 900. Moreover,

the bankruptcy court had erred in “applying the Segal ‘rooted in

the pre-bankruptcy past’ doctrine directly without consideration

of whether there was a contract.” Id. Furthermore, neither

“mere negotiations” nor “merely carrying on one’s normal business

activities as if one were not going to declare bankruptcy or had

not declared bankruptcy create a pre-petition right to any

property.” Id. at 901. The district court further explained the

role of the contract this way:

Without a contract, there would be no prospect of any
interest in a breach of contract case that had to be
disclosed, and without the claim that there was a
contract to breach, there would be no state court action
to roll into the bankruptcy estate. Without the
contract, whether it was pre-petition or post-petition,

18
 the negotiations on which the bankruptcy court bases its
conclusions would by themselves have no legal effect or
relevance. The pre-petition existence of the contract
was crucial.

Id. Because Weinschneider filed for bankruptcy before the

contract was formed, then, he had no prepetition cause of action

that could be part of the bankruptcy estate. Id. Consequently,

the judgment of the bankruptcy court was reversed. Id. at 902.

We agree with the analyses of the Vote, Bracewell, Schmitz,

and Weinschneider courts. In this case, at the time of filing,

Burgess had only a mere hope that crop-disaster-relief

legislation would be enacted. “This sort of nebulous possibility

is not property.” Schmitz, 270 F.3d at 1257. Were the law

otherwise, any postpetition legislation or contract could

retroactively create property of the estate. That cannot be the

law; § 541 clearly states that a bankruptcy estate is established

at “[t]he commencement of [the] case.” Thus, Burgess had no

interest, contingent or otherwise, in the disaster-relief payment

when he filed his bankruptcy petition.

B.

The Appellees also argue that Burgess’s crop loss, itself,

is § 541(a)(1) property supporting the inclusion of the disaster-

relief payment in the estate as proceeds under § 541(a)(6). We

reject this argument.

Section 541(a)(1) defines property in terms of a legal or

equitable interest in property that exists at the commencement of

19
the case. § 541(a)(1). For the temporal limitation to have any

meaning at all, Burgess must have had a prepetition interest in

the disaster-relief payment, not the crop loss. Were Burgess’s

crop loss itself enough to bring the payment into the

estate——notwithstanding the postpetition enactment of the 2003

Act, creating Burgess’s right to the payment——the “as of the

commencement of the case” language would have no force or effect.

“[A] statute must, if possible, be construed in such fashion that

every word has some operative effect.” United States v. Nordic

Village Inc., 503 U.S. 30, 36 (1992) (quoting Hoffman v. Conn.

Dep’t of Income Maint., 492 U.S. 96, 103 (1989)).

Furthermore, as the Eighth Circuit said in Vote, “[w]e have

found no case in which a pure loss with no attendant potential

benefit was included as property of the estate.” Vote, 276 F.3d

at 1027. The cases cited by the Appellees do not hold otherwise.

The Appellees cite Milnor v. Metz, 41 U.S. 221 (1842), and

Williams v. Heard, 140 U.S. 529 (1891), for the proposition that

a pure loss is property of the estate. Those cases fail to

support the Appellees’ position for two reasons.

First, Milnor and Williams——decided in 1842 and 1890,

respectively——predate the enactment of the current Bankruptcy

Code by approximately 100 years.10 The language of the Code is

10
The current Bankruptcy Code was enacted by the Bankruptcy
Reform Act of 1978. Bankruptcy Reform Act of 1978, Pub. L. No.
95-598.

20
our starting point today, and we find the cases interpreting §

541 more persuasive than those predating its enactment.

Second, Milnor and Williams stand for the proposition that a

prepetition loss is property of the estate if it gives rise to a

prepetition legal claim or interest. In this case, Burgess’s

crop loss, in and of itself, did not give him a legal claim to,

or interest in, the disaster-relief payment.

Milnor v. Metz involved a debtor who was an employee of the

U.S. government and whose compensation was fixed by statute.

Milnor, 41 U.S. at 221. Between 1836 and 1837, Milnor worked

overtime or performed services that went beyond those in his job

description. Id. Milnor filed for bankruptcy in 1838; he was

discharged the following year. Id. at 221–22. In 1840, Congress

enacted a law compensating Milnor for the extra work he had

performed between 1836 and 1837. Id. at 221.

The Supreme Court contrasted Milnor’s situation with that in

Emerson v. Hall, 38 U.S. 409 (1839). Milnor, 41 U.S. at 225–26.

Emerson, the surveyor of the Port of New Orleans, sued a slave

ship, claiming half of its proceeds and cargo. Id. at 225.

Although a lower court found in favor of Emerson, its judgment

was reversed by the Supreme Court, which held that Emerson “had

no right as [a] captor[]; and that [he] stood on the footing of

an officer who made a military seizure.” Id. After Emerson’s

death, Congress “passed an act bestowing on his legal

21
representatives[] . . . the one-half of the condemnation money.”

Id.

Hall, a creditor of Emerson, sued the heirs’ guardian for

repayment of the debt out of the money awarded by Congress. Id.

The Supreme Court ruled in favor of the heirs, holding that the

“act of congress gave the money to Emerson’s heirs[] as a

gratuity[] because of the meritorious conduct of their father.”

Id. at 226. The Court explained that Emerson had “acted under no

law, nor by virtue of any authority; his acts imposed no

obligation, either in law or in equity, on the government.” Id.

(internal quotation marks omitted).

By contrast, the Milnor Court stated, “[t]he services

performed by Milnor were at the instance of the government . . .

.” Id. The government was therefore Milnor’s debtor. Id.

Although the repayment of the debt was within Congress’s

discretion, the debt existed nonetheless. See id. at 226–27.

The Court explained that “[h]ad a similar claim on the part of

Milnor existed against an individual, instead of the government,

then there can be no doubt, he could have recovered by suit.”

Id. at 227. “As the government was equally bound to do its

debtor justice, in a different mode, with an individual, we think

no sound distinction exists in the two cases.” Id. In other

words, even though Milnor could not sue the government for the

amount of the debt, the debt still existed.

22
 Because Milnor was a creditor of the government, his case is

distinguishable from Burgess’s. In Milnor, the government was

legally obligated to repay its debt to the bankrupt, even if

actual payment was ultimately within Congress’s discretion

because the government could not be sued. In other words,

sovereign immunity is not a bar to the existence of a prepetition

cause of action for bankruptcy purposes. But unlike Milnor,

whose claim for services was against the government, Burgess did

not have a prepetition claim against the government for his crop

loss. Burgess was not a creditor of the government, and Congress

had no obligation to pass crop-disaster-relief legislation.

Rather, the disaster-relief payments were gratuitous; thus, this

case is like Emerson, not Milnor.

The other Supreme Court case discussed by the Appellees,

Williams v. Heard, 140 U.S. 529 (1891), is similarly

distinguishable. There, the debtors insured ships that were

damaged in the Revolutionary War. See id. at 529–30. They

became bankrupt in 1875; they were discharged from bankruptcy in

1877. Id. at 530.

In 1871, an arbitration tribunal in Geneva awarded the

United States $15,500,000 as indemnity for property damage

sustained by U.S. citizens during the war. Id. at 536–37. In

1882, a congressional act created the Court of Commissioners of

Alabama Claims to adjudicate claims and distribute the money.

23
Id. at 531. The issue before the Supreme Court was whether the

claim for reimbursement preceded the debtors’ bankruptcy or was

not cognizable until the passage of the Act of 1882, which

created the court that distributed the money. Id. at 540.

The Court held that the claim existed before bankruptcy and

was therefore property of the estate, noting,

[T]hese war premiums of insurance were recognized by the
government of the United States as valid claims for which
satisfaction should be guarantied [sic]. There were thus
at all times a possibility that the government would see
that they were paid. There was a possibility of their
being at some time valuable. They were rights growing
out of property; rights, it is true, that were not
enforceable until after the passage of the act of
congress for the distribution of the fund. But the act
of congress did not create the rights. They had existed
at all times since the losses occurred. They were
created by reason of losses having been suffered. All
that the act of congress did was to provide a remedy for
the enforcement of the right.

Id. at 541 (emphasis added). The Appellees claim this passage

stands for the proposition that a pure loss constitutes property

of the estate. Yet that interpretation cannot be reconciled with

the facts. In Williams, the debtors were entitled to

compensation because they insured property that was damaged by

Great Britain; that is, the debtors had a legal claim against

someone. If Burgess’s crops had been damaged by an individual,

he would have had a legal claim against that person, which would

have been considered property of the estate. But they were not.

To the contrary, Burgess’s crops were damaged by an act of

nature, and thus he had no claim against anyone.

24
 This interpretation is buttressed by the Williams Court’s

reliance on Comegys v. Vasse, 26 U.S. 193 (1828). In that case,

Vasse was an insurer of ships owned by U.S. citizens that were

captured by Spain. Williams, 140 U.S. at 542. Vasse paid the

losses arising prior to 1802; in 1802 he became bankrupt. Id.

In 1819, the United States and Spain entered into a treaty,

pursuant to which Spain paid the United States $5,000,000 “in

full discharge of the unlawful seizures which she had made.” Id.

at 542. Vasse was awarded $8,000 from the fund for payments he

had made to the insureds. Id. The Supreme Court held that the

money belonged to the estate because Vasse’s claim had existed

before bankruptcy. Id. at 542–43. According to the Court,

It is not universally, though it may ordinarily be, one
test of a right, that it may be enforced in a court of
justice. Claims and debts due from a sovereign are not
ordinarily capable of being so enforced. Neither the
king of Grant [sic] Britain nor the government of the
United States is suable in the ordinary courts of justice
for debts due by either; yet who will doubt that such
debts are rights?

Williams, 140 U.S. at 543 (quoting Vasse, 26 U.S. at 216).

Milnor, Williams, and Vasse, then, all involved debtors who

were creditors of the government or who suffered property loss

that gave rise to a legal claim. Their claims were contingent in

the sense that they depended on the goodwill of the governments

involved for satisfaction, but they were cognizable legal claims

nonetheless. By contrast, Burgess had no legal claim arising

25
from his damaged crops when he filed his petition. Unlike the

debtors in Milnor and Vasse, he was not a creditor of the

government. And unlike the debtor in Williams, his property was

not damaged at the hands of an individual or entity giving rise

to a legal claim for reimbursement. His crops were damaged by

nature; thus, the 2003 Act conferred on Burgess both the right

and the remedy. Cf. Williams, 140 U.S. at 541 (“All that the act

of congress did was to provide a remedy for the enforcement of

the right.”) Because the Act was passed postpetition, it does

not give rise to a claim that constitutes property of the estate,

and the payment made pursuant to it is therefore not proceeds.

IV.

We are likewise unpersuaded by those bankruptcy and

district-court cases cited by the Appellees holding that crop-

disaster-relief payments are property of the bankruptcy estate.

The Appellees principally rely on four such cases: Kelley v. Ring

(In re Ring), 169 B.R. 73 (M.D. Ga. 1993); Boyett v. Moore (In re

Boyett), 250 B.R. 817 (Bankr. S.D. Ga. 2000); Lemos v. Rakozy (In

re Lemos), 243 B.R. 96 (Bankr. D. Idaho 1999); and FarmPro

Services, Inc. v. Brown (In re FarmPro Services, Inc.), 276 B.R.

620 (D.N.D. 2002). Each of these cases is distinguishable or

analytically flawed.

In both Ring and Boyett, for example, the statute

26
authorizing the disaster-relief payments was enacted before the

debtor filed for bankruptcy.11 Thus, in those cases, the debtor

obtained a prepetition right to the payments that became part of

his bankruptcy estate; the actual payments received were

therefore proceeds of that right.

Lemos is weak authority for the Appellees’ position. In

that case, the bankruptcy court held that disaster-relief

payments were property of the estate under both § 541(a)(1) and §

541(a)(6) even though the statute authorizing the payments was

not enacted until after the debtor filed for bankruptcy. Lemos,

243 B.R. at 97, 101. As the Bracewell court explained, however,

Lemos’s analysis is flawed for several reasons. See Bracewell,

322 B.R. at 706–08.

First, Lemos relied heavily on the bankruptcy court’s

decision in In re Schmitz, 224 B.R. 117 (Bankr. D. Alaska 1998),

which was later reversed by the Ninth Circuit, Schmitz v. Battley

(In re Schmitz), 270 F.3d 1254 (9th Cir. 2001). Bracewell, 322

B.R. at 706; Lemos, 243 B.R. at 99.

Second, the Lemos court’s reasoning is not persuasive. In

holding that the debtor had a contingent interest in the disaster

11
See Ring, 169 B.R. at 74 (statute authorizing payments
enacted in December 1991; debtor filed for bankruptcy in January
1992); Boyett, 250 B.R. at 818 (statute authorizing payments
enacted in October 1998; debtor filed for bankruptcy in February
1999).

27
payments, the court reasoned as follows:

[I]n this case Plaintiff became entitled to the
[disaster-relief] payments only as a result of qualifying
events (i.e., growing and suffering qualifying losses as
to certain crops) occurring before bankruptcy, rather
than any significant event taking place after filing his
bankruptcy petition. The scenario is a common one.
Congress frequently and regularly enacts a variety of
farm subsidy programs, including price supports, set-
asides, and disaster relief, which change from year to
year. The prospect of a federal program being adopted to
compensate for farm losses in any given year may
therefore be properly characterized as a contingent
interest, which, though it may never vest if the program
does not encompass a particular crop or a particular
year, is property of the bankruptcy estate when it
relates to prepetition crops.

Lemos, 243 B.R. at 99. The Bracewell court asserted, and we

agree, that the Lemos court’s contingent-interest analysis is

flawed because it conflates “the contingency of receiving crop

disaster payments once authorizing legislation is enacted[]

[with] the mere hope that such legislation will be enacted in the

first place.” Bracewell, 322 B.R. at 706. Bracewell explained

that “once crop disaster legislation is enacted, legally

significant facts exist upon which a farmer could base a

contingent right, which is the same type of contingent right

contemplated under Segal.” Id. at 706–07. However, the mere

hope that the legislation will be enacted does not create a

contingent interest in the debtor. Id. at 707. Were that the

case, any postpetition legislation or contract could

retroactively create property of the estate. To the contrary, §

541 clearly states that a bankruptcy estate is established at

28
“[t]he commencement of [the] case.”

Lemos’s contingent-interest analysis is problematic for

another reason not discussed by the Bracewell court. Lemos

discusses two contingent-interest cases before concluding that

the debtor’s right to relief payments constituted a contingent

interest: In re Ryerson, 739 F.2d 1423 (9th Cir. 1984), and In re

Shaw Construction, Inc., 92 I.B.C.R. 90 (Bankr. D. Idaho 1991).

Lemos, 243 B.R. at 98–99. Yet in both of those cases, there was

a prepetition contract giving rise to the debtor’s interest. See

id.12 Lemos’s reliance on those cases, therefore, is misplaced.

Lastly, the Appellees rely on FarmPro Services, Inc. v.

Brown (In re FarmPro Services, Inc.), 276 B.R. 620 (D.N.D. 2002)

to support their case. FarmPro relied exclusively on Lemos in

12
In Ryerson, for example, the debtor entered into an
employment contract in January 1977. Ryerson, 739 F.2d at 1424.
The contract gave his employer the option of providing the debtor
with compensation upon the termination of his employment if
certain conditions precedent were met, e.g., the debtor was an
employee in good standing with the company. Id. The debtor
filed for bankruptcy in February 1981, and his employment
terminated in November 1981, triggering the compensation clause
under the contract. Id. The Ninth Circuit held that the
prepetition contract had given the debtor a legal interest,
though contingent, which was property within the meaning of §
541(a)(1). Id. at 1425. The payments made pursuant to the
contract, therefore, were proceeds under § 541(a)(6). Id.
Similarly, in Shaw Construction, “a worker’s compensation
insurance dividend which was declared and received postpetition
was found to be a contingent interest properly characterized as
the property of the bankruptcy estate.” Lemos, 243 B.R. at 99.
The insurance contract, however, was entered into before the
debtor filed for bankruptcy. See Shaw Construction, 92 I.B.C.R.
at 90, 91.

29
holding that crop-disaster-relief payments authorized by

legislation enacted after the debtor filed for bankruptcy are

property of the bankruptcy estate under § 541(a)(6). Id. at 624.

As discussed above, however, we are not persuaded by Lemos.13

Instead, we follow the lead of the Eighth Circuit in Vote

and hold that Burgess did not obtain a legal interest in the

disaster-relief payment until the 2003 Act was passed. At the

commencement of his bankruptcy case, Burgess had only a mere hope

that the legislation would be enacted. A hope will not suffice

under § 541.

V.

Finally, the Appellees contend that using the effective date

of the 2003 Act, rather than the crop loss itself, as the source

of Burgess’s interest in the disaster-relief payment will have

disparate results because disaster-relief payments may be treated

differently depending on when the debtor files for bankruptcy.

They argue that fairness requires us to rule in favor of the

13
In addition, as the Bracewell court pointed out, FarmPro
reached the right result for the wrong reason. Bracewell, 322
B.R. at 710. The chronology of events in FarmPro is as follows:
in September 2000, the debtors filed a Chapter 13 petition; in
October 2000, Congress enacted the disaster-relief legislation;
in December 2000, the case was converted from a Chapter 13 case
to a Chapter 11 case; in June 2001, the debtors converted their
case to a Chapter 12; in July 2001, they received the disaster-
relief payments. FarmPro, 276 B.R. at 623. Thus, the payments
were received while the debtor was in Chapter 12. See id. Under
§ 1207, therefore, the payments are property of the estate. See
supra note 10.

30
trustee.

We decline the Appellees’ invitation to rewrite bankruptcy

law. It is Congress who is charged with articulating bankruptcy

policy through the Bankruptcy Code; Congress has done so, and we

are bound to follow it.14 The judgment of the district court is

therefore REVERSED.

REVERSED and REMANDED.

14
The Bracewell court responded to a similar argument,
stating,
[Any] unfairness is largely due to the nature of
federally created crop disaster payments, which are in
the form of congressionally created retrospective relief.
Since this relief——and the possibility of a concomitant
windfall to debtors——is a creation of Congress, it should
be Congress who must remedy the situation, not the courts
by judicial fiat. Congress was well aware of what it was
creating when it enacted the crop disaster relief
legislation. Congress could have crafted the crop
disaster legislation in such a way that encompassed the
rights of creditors. It did not. Congress could have
added a provision to the Code that specifically
classified retrospective government entitlements with
regard to property of the estate. It did not. Perhaps
it should.
Bracewell, 322 B.R. at 711.

31
EDITH H. JONES, Chief Judge, joined by SMITH, BARKSDALE, GARZA,

DEMOSS, CLEMENT, and OWEN, Circuit Judges, dissenting from the

majority opinion:

The issue posed in this case is whether federal agriculture

disaster payments, enacted by Congress to compensate farmers for

crops planted but destroyed by drought or flood, are included

within a farmer’s Chapter 7 bankruptcy estate when the federal

law was enacted after the bankruptcy filing. Because we disagree

with the majority’s resolution of this issue, we respectfully

dissent.

A debtor’s bankruptcy estate comprises, inter alia, “all

legal or equitable interests of the debtor in property as of the

commencement of the case,” and “proceeds, 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),(6).

We would hold that these definitions, whether interpreted in

light of venerable bankruptcy case law or state commercial law,

are sufficiently broad to encompass the disaster payments made to

Burgess. Further, excluding the payments from the bankruptcy

estate creates irreconcilable tension with other Bankruptcy Code

provisions and goals.

32
 I. Background

Edward Keith Burgess is a Louisiana farmer who filed for

Chapter 7 bankruptcy on August 2, 2002. He received a discharge

on December 5, but entered into a reaffirmation agreement

covering a debt of $59,392.32 owed to Farm Service Agency (FSA),

which held a secured mortgage on Burgess’s home.

On February 20, 2003, federal legislation known as the

Agricultural Assistance Act of 2003 (the Act) was signed into

law. The Act provided for assistance to farmers who suffered

losses due to weather-related disasters or other emergency

conditions which affected their 2001 or 2002 crops. Farmers

became eligible to apply for disaster payments on June 21, 2003.

Sometime in July, 2003, Burgess filed an application for payment

of a 2001 crop loss with the FSA, which administered the Act.

The FSA ultimately issued a check in the amount of $24,829 for

Burgess’s claimed losses, but the check was mailed to the

bankruptcy trustee who, upon receipt of such check, filed a

motion to reopen Burgess’s Chapter 7 case in order to arrange for

the administration of the proceeds of the claim check. The

bankruptcy court entered an order on July 29, 2003, reopening

Burgess’s Chapter 7 proceeding. On July 30, 2003, Burgess filed

a “Motion for Turnover of Funds” in the bankruptcy court,

asserting that the FSA payment was not property of the bankruptcy

estate and should therefore be turned over to him.

33
 The bankruptcy court denied Burgess’s motion, and the

district court, on appeal, affirmed. A panel of this Circuit

then reversed, Burgess v. Sikes, 392 F. 3d 782 (5th Cir. 2004),

holding that Burgess’s disaster relief payments constituted

postpetition property and were not part of the bankruptcy estate.

This court agreed to rehear the case en banc, 403 F. 3d 323 (5th

Cir. 2005).

II. Discussion

11 U.S.C. § 541, entitled “property of the estate,” embodies

the essence of the Bankruptcy Code. Sweeping all of the debtor’s

property into the bankruptcy estate created at filing is the

means by which the Code achieves effective and equitable

bankruptcy administration. Only through a comprehensive adminis-

tration of the debtor’s property, wherever located and by

whomever controlled, can the court shield the property from

creditors’ unauthorized grasp; prevent harassment of debtors; and

ultimately ensure equal distribution among creditors. See

generally 5 COLLIER ON BANKRUPTCY § 541.01(a)(1) (15th Ed. Rev.

2002).

Section 541 accordingly describes property of the estate in

the broadest possible terms: “all legal or equitable interests of

the debtor as of the commencement of the case.” 11 U.S.C.

§ 541.01(a)(1) “By including all legal interests, without

exception, Congress indicated its intention to include all

34
legally recognizable interests although they may be contingent

and not subject to possession until some future time.” Rau v.

Ryerson (In re Ryerson), 739 F.2d 1423, 1425 (9th Cir.

1984)(citing H.R. Rep. No. 95-595, at 175-76 (1977), as reprinted

in 1978 U.S.C.C.A.N. 5963, 6136); see also In re Kemp, 52 F.3d

546, 550 (5th Cir. 1995) (“The conditional, future, speculative,

or equitable nature of an interest does not prevent it from being

property of the bankruptcy estate”); In re Yonikus, 996 F. 2d

866, 869 (7th Cir. 1993) (“[E]very conceivable interest of the

debtor, future, nonpossessory, contingent, speculative, and

derivative, is within the reach of § 541(a).”). Similarly,

“proceeds of the estate”, § 541(a)(6), cover all conceivable

postpetition returns yielded by the debtor’s property. Finally,

§ 541 includes interests in marital property (§ 541(a)(2)), and

in property acquired or generated by the estate postpetition

pursuant to other sections of the Bankruptcy Code (§§ 541(a)(3))

and (4)); and it sweeps in property interests, acquired within

one hundred eighty days after bankruptcy, from inheritances,

divorce settlements, or life insurance policies (§ 541(a)(5)).

Taken as a whole, § 541 is far more conspicuous for

what it includes as the estate’s property than for what it

explicitly excludes. Section 541(a)(6) excludes wages earned

postpetition, and § 541(a)(7) excludes divorce settlements,

inheritances, and life insurance proceeds received more than one

hundred eighty days postpetition. Because there is no specific

35
reference to the debtor’s after–acquired payments from federal

agriculture disaster programs, and Congress has not specified in

this instance that such payments are immune from the claims of

creditors, interpretation of the Bankruptcy Code, in light of

guiding case law, is necessary.

The Supreme Court has recognized that what is included in

property of the debtor’s estate may represent federal policy

implementing the Bankruptcy Code, Segal v. Rochelle, 382 U.S.

375, 379, 86 S. Ct. 511, 515 (1966), but in the absence of such

policy, state law generally determines what interest a debtor has

in property. Butner v. United States, 440 U.S. 48, 54, 99 S. Ct.

914, 917-18 (1979). We need not definitively resolve whether

federal or state law controls the question in this case. See

Johnson, Blakely, Pope, Bokor, Ruppel, & Burns, P.A. v. Alvarez

(In re Alvarez), 224 F.3d 1273, 1276 (11th Cir. 2000). From

either perspective, the federal disaster payments for which

Burgess qualified should be included within his bankruptcy

estate.

A. The Bankruptcy Policy Approach.

The Supreme Court has routinely concluded that, to fulfill

the purposes of bankruptcy law, the definition of property of the

debtor’s estate must be broadly interpreted. See United States

v. Whiting Pools, 462 U.S. 198, 103 S. Ct. 2309 (1983). In

Whiting Pools, § 541(a)(1) was held to encompass property that

36
had been seized by a creditor (IRS) before the debtor filed

bankruptcy. Thus, as of “the commencement of the case”, the

debtor no longer possessed the property. Noting that § 541(a)(1)

defines the debtor’s estate to include property “as of the

commencement of the case,” the court observed:

although [this provision] could be read to limit the
estate to those “interests of the debtor in property”
at the time of the filing of the petition, we view [it]
as a definition of what is included in the estate,
rather than as a limitation.

Id. at 203, 103 S. Ct. at 2312. The Court found its

interpretation necessary to effectuate other provisions of the

Bankruptcy Code and consistent with longstanding practice under

the preceding bankruptcy statute. Moreover, in both text and

footnote, the Court subscribed to the “broad” definition of

property referenced in the Congressional history relating to the

Bankruptcy Code.15 Id. at 203-05, 103 S. Ct. at 2312-14. The

Court’s interpretation of property of the estate eschews a rigid

temporal limitation on § 541 (a)(1) and confirms that Congress

enacted at least as broad a definition of that seminal term as

15
Whiting Pools adopts the result and most of the reasoning
of Judge Friendly’s Second Circuit opinion in the same case.
There, Judge Friendly described as “rigid” the government’s
narrow, though literalistic, reading of § 541(a)(1). Referring
to the congressional history concerning the scope of this
provision, Judge Friendly stated: “this discussion indicates that
§ 541(a)(1) was not intended to narrow the old Act’s definition
of ‘property of the estate,’ as the Government’s reading of the
statute would require, but preserve or enlarge it.” United
States v. Whiting Pools, Inc., 674 F.2d 144, 150 n.10 (2d Cir.
1982).

37
pre-existed in the Bankruptcy Act. Congress, in turn, is

presumed to have enacted the Bankruptcy Code against a background

understanding of the Court’s prior construction of “property of

the estate.” Several earlier authorities are relevant here.

The first such case, Segal v. Rochelle, is explicitly

mentioned in the legislative history of the Bankruptcy Code. See

S.Rep. No. 95-989, at 82 (1978), as reprinted in 1978

U.S.C.C.A.N. 5787, 5868; H.R.Rep. No. 95-595, at 367 (1977), as

reprinted in 1978 U.S.C.C.A.N. 5963, 6323. Segal holds that an

income tax refund claim based on events that predated bankruptcy

but assertable only post-filing, at the end of the tax year,

constituted property of the debtor’s estate under the Bankruptcy

Act. The Supreme Court acknowledged the impossibility of cate-

gorically defining “property,” while observing that the purposes

of the Bankruptcy Act must ultimately govern. The first purpose

is to secure for creditors

everything of value the bankrupt may possess in
alienable or leviable form when he files his petition.
To this end the term ‘property’ has been construed most
generously and an interest is not outside its reach
because it is novel or contingent or because enjoyment
must be postponed.

Segal, 382 U.S. at 379, 86 S. Ct. at 515. Because another

prominent purpose of the Act is to afford a fresh start, “future

wages of the bankrupt do not constitute ‘property’ at the time of

bankruptcy, nor analogously, does an intended bequest to him or a

promised gift-even though state law might permit all of these to

38
be alienated in advance.” Id. at 379-80, 86 S. Ct. at 515. The

Court concluded, however, that the loss carry-back refund claim

in the case was “sufficiently rooted in the prebankruptcy past

and so little entangled with the bankrupts’ ability to make an

unencumbered fresh start that it should be regarded as ‘property’

under § 70a(5).” Id. at 380, 86 S. Ct. at 515.16

Segal affirms that a loss extant on the date of bankruptcy

can later yield property includable in the debtor’s estate, as it

disavowed the lower courts’ reasoning to the contrary:

[B]oth the First and Third Circuits reasoned that prior
to the year’s end a loss-carryback refund claim was too
tenuous to be classed as “property” which would pass
under § 70a(5). . . . Both circuits felt the result to
be unfortunate, not least because the very losses
generating the refunds often help to precipitate the
bankruptcy and injury to the creditors, but both
believed the statutory language left no option.

Id. at 378.

An earlier Supreme Court case presages Segal and is

factually similar to the case at bar. In Williams v. Heard,

140 U.S. 529 (1891), a debtor suffered economic injury by paying

enhanced war risk insurance premiums during the Civil War.

Although the injury was non-compensable at the time of the

16
The portion of Segal’s formulation that inquires whether
the after-acquired property is “so little entangled with the
debtor’s ability to make a fresh start” is often quoted but
hardly ever determinative. The better view of this phrase is
that it was eliminated by the Code’s express incorporation of
exempt property within the debtor’s estate. See In re Ryerson,
739 F.2d at 1426.

39
debtor’s bankruptcy in 1875, the injury thereafter became

compensable by an act of Congress in 1882. Before passage of the

legislation allowing such claims, the Court stated, “no

individual claimant had, as a matter of strict legal or equitable

right, any lien upon the fund awarded, nor was Congress under any

legal or equitable obligation to pay any claim.” Id. at 538.

Nevertheless, the Court found the claim to be property of the

bankruptcy estate, reasoning as follows:

. . . [W]hile the claimant was remediless with respect
to any proceedings by which he might be able to
retrench his losses, nevertheless there was at all
times a moral obligation on the part of the government
to do justice to those who had suffered in
property. . . . There was thus at all times a
possibility that the government would see that [the
claims] were paid. There was a possibility of their
being at some time valuable. They were rights growing
out of property; rights it is true, that were not
enforceable until after the passage of the act of
congress for the distribution of the fund. But the act
of congress did not create the rights. They had
existed at all times since the losses occurred. They
were created by reason of losses having been suffered.
All that the Act of Congress did was to provide a
remedy for the enforcement of the right.

Id. at 541.17

These cases ascribe a broad, non-conventional scope to the

17
Williams relied on Milnor v. Metz, 41 U.S. 221 (1842), in
which the Supreme Court held that wages earned by a worker
employed in federal service before he filed bankruptcy, but not
reimbursed until an Act of Congress was passed after the
bankruptcy, were included in the bankrupt estate. Absent an Act
of Congress, Milnor was barred by sovereign immunity from
enforcing his claim against the government. Thus, even though
the government was his “debtor,” he had no prebankruptcy legal
right to recover wages.

40
definition of property of the estate in order to fulfill the

goals of bankruptcy law. Thus, even a prepetition loss of the

debtor’s property may itself constitute property when subsequent

events afford a recovery for the loss. Resolution of Burgess’s

case seems straightforward under Whiting Pools, Segal and

Williams. Burgess invested in his crops, planted them and

awaited a harvest until a weather-related disaster destroyed

them. He suffered a loss. At the time of his loss there was “an

expectancy of interest,” “a possibility coupled with an

interest,” that the crop loss could be compensable in the future.

That potential, as the Supreme Court held in Williams, is a

property right, and under Segal, the right is sufficiently rooted

in the prebankruptcy past as to become property of the bankruptcy

estate.

The majority opinion disagrees with the foregoing inter-

pretation of the Bankruptcy Code by the Supreme Court cases. The

majority opinion focuses on the temporal limitation in

§ 541(a)(1), which it constructs as an iron curtain separating

prebankruptcy property from whatever accrues to the debtor post-

bankruptcy. The majority reads the cases to require that a

prebankruptcy loss must have more than a mere hope or expectancy

of recovery, and must in fact give rise to a prebankruptcy legal

claim, in order for post-bankruptcy recovery for that loss to

become part of the bankruptcy estate. This view has some force,

but we respectfully reject its rigidity.

41
 First, the majority opinion overlooks Whiting Pools, which

construed the temporal limitation in § 541(a)(1) as a statement

of inclusion, not limitation.

Second, the majority both minimizes and reinterprets Segal.

Segal expressly holds that a prebankruptcy loss can give rise to

a claim that becomes property of the debtor’s estate. The

majority opinion minimizes Segal, implying that its formulation

has been superseded by the express terms of the Bankruptcy Code.

There is little or no support for this conclusion.18 Not only

was the holding of Segal approved in the legislative history

concerning § 541, see supra, but its test to determine when

after-acquired property is included in the bankruptcy estate has

been cited repeatedly by courts construing the Bankruptcy Code.19

18
The majority opinion cites only dictum in a case from this
court that the Supreme Court overruled. In re Goff, 706 F.2d
574,578 (5th Cir. 1983), overruled by Patterson v. Shumate, 504
U.S. 753, 112 S. Ct. 2242 (1992). In re Goff actually concluded
that the Bankruptcy Code broadened any pre-existing test for
property of the debtor’s estate. (“The Bankruptcy Code was
intended to create a more uniform and comprehensive scope to
‘property of the estate’ which is subject to the reach of
debtors’ creditors than had previously existed under the old
Bankruptcy Act. . . . The sweeping scope of [the § 541(a)(1)]
automatic inclusion was intended to remedy most of the old Act’s
perceived deficiencies.”)
19
See, e.g., In re Alvarez, 224 F.3d 1273, 1278-79 (11th
Cir. 2000); United States v. Sims (In re Feiler), 218 F.3d 948,
955-56 (9th Cir. 2000); Andrews v. Riggs Nat’l Bank of Wash.,
D.C. (In re Andrews), 80 F.3d 906, 910 & n.9 (4th Cir. 1996)
(analyzing postpetition payments under a prepetition non-
competition agreement to determine whether they were, as Segal
requires, “sufficiently rooted in the pre-bankruptcy past”); In
re Yonikus, 996 F.2d 866, 869 & n.3 (7th Cir. 1993); In re

42
 The majority opinion also misperceives Segal to require that

the debtor had an enforceable legal right prebankruptcy in order

for a post-bankruptcy claim to accrue to the debtor’s estate.

Segal expresses no such requirement. The Supreme Court did,

however, emphasize the contingent nature of any repayment that

the debtor might ultimately receive and the origin of any tax

refund in prebankruptcy events. Segal, 382 U.S. at 379-81, 86 S.

Ct. at 515-16.20 Both of those conditions exist in the case

before us, and in other cases that rest on Segal.

While it is indisputable, for instance, that a cause of

action belonging to the debtor at the date of bankruptcy

constitutes property of the estate, notwithstanding that its

monetary realization may be subject to both legal and factual

contingencies, see, e.g., La. World Exposition, Inc. v. Fed. Ins.

Co. (In re La. World Exposition), 832 F.2d 1391 (5th Cir. 1987),

Ryerson, 739 F.2d 1423, 1426 (9th Cir. 1984); In re Barowsky, 946
F.2d 1516, 1518-19 (10th Cir. 1991) (Segal’s holding and analysis
of property were adopted in the Bankruptcy Code); Field v.
Transcontinental Ins. Co., 219 B.R. 115, 199 & n.7 (E.D. Va.
1998), aff’d, 173 F.3d 424 (4th Cir. 1999); Winick & Rich, P.C.
v. Strada Design Assocs. (In re Strada Design Assocs.), 326 B.R.
229, 236 (Bankr. S.D.N.Y. 2005); In re Richards, 249 B.R. 859,
861 (Bankr. E.D. Mich. 2000).
20
The majority opinion also asserts that Williams involved
compensation for a pre-bankruptcy legal right or claim “against
someone.” With due respect, the Supreme Court emphasized the
contrary, that no legal or equitable right existed against
Congress or the international fund that was earlier collected.
Williams, 140 U.S. at 538. Further, because the rights grew out
of the debtor’s property, by reason of losses having been
suffered, the later-enacted Congressional remedy became part of
the bankruptcy estate.

43
bankruptcy courts relying on Segal have gone further. Courts

have held that a cause of action not fully accrued under state

law at the date of filing could be sufficiently rooted in the

prebankruptcy past to be includable in the debtor’s estate. In

one such case, the debtor was exposed to asbestos for many years

before he filed bankruptcy but was not diagnosed with asbestosis

until seven months postpetition. See In Re Richards, 249 B.R.

859 (Bankr. E.D. Mich. 2000). Relying on Michigan law, which

does not afford an actionable claim for asbestosis until the

diagnosis is actually made, the debtor asserted that the accrual

date under state law is determinative, hence his claim should be

excluded from the bankruptcy estate. The court rejected this

contention, because, “[a]s noted, the appropriate inquiry is

whether the claim is sufficiently rooted in the pre-bankruptcy

past.” Id. at 861 (citing Segal). Richards explained that while

the disease had begun and progressed before bankruptcy, its

diagnosis afterwards was “more a result of happenstance than

medical necessity.” Id.

Another recent case ordered inclusion in the bankruptcy

estate of a claim for bad faith refusal to defend an insured,

where notice of the underlying insurance claim was given

prepetition, but the debtor did not request, nor did the insurer

refuse indemnification until more than eight months postpetition.

Field v. Transcontinental Ins. Co., 219 B.R. 115, 119 (E.D. Va.

1998), aff’d, 173 F.3d 424 (4th Cir. 1999). The district court

44
acknowledged as a “difficult question” whether the debtor had any

prepetition cause of action. The court, however, found it

unnecessary to resolve the question “because the bankrupt’s

estate includes not only claims that had accrued and were ripe at

the time the petition was filed, but also those claims that

accrued post-petition, but that ‘are sufficiently rooted in the

pre-bankruptcy past.’” Id. (quoting Segal). The postpetition

bad faith refusal claim met this test.

As a final example, claims for legal malpractice rendered in

connection with bankruptcy filings have been held includable in

the debtor’s estate based on the Segal formulation and

irrespective of whether they had technically accrued prepetition

under state law. See In re Alvarez, 224 F. 3d at 1276; Winick &

Rich, P.C. v. Strada Design Assocs. (In re Strada Design

Assocs.), 326 B.R. 229 (Bankr. S.D.N.Y. 2005); In re Tomaiolo,

205 B.R. 10 (Bankr. E.D. Mass. 1997), aff’d, 2002 U.S. Dist.

LEXIS 2038 (E.D. Mass. Feb. 6, 2002).21

In all of the foregoing cases, Segal was brought to bear

21
In re Riccitelli, 320 B.R. 483 (Bankr. E.D. Mass. 2005),
is not to the contrary. Indeed, the Riccitelli court applied
Segal and explicitly noted that the analysis of whether a
malpractice claim is prepetition property “does not turn on
whether, under state law, the claim had accrued as of the
petition date.” Riccitelli, 320 B.R. at 491 (citing Tomaiolo).
The court concluded that this particular malpractice claim was a
postpetition asset only because the prepetition roots of the
claim were “overwhelmed by significant postpetition events in the
accrual of the claim.” Id. at 492.

45
despite the absence of a mature legal claim at the date of

bankruptcy, yet each claim was so factually connected to the

prepetition period as to justify its inclusion in the debtor’s

estate.22

One court of appeals decision supports the view that federal

disaster payments authorized by legislation that post-dates a

farmer’s bankruptcy do not become property of the debtor’s

estate. Drewes v. Vote (In re Vote), 276 F.3d 1024 (8th Cir.

2002). There, the court held that the debtor’s “mere hope” of

receiving federal payments at the date of filing could not

transform his losses into a legally enforceable claim or the

subsequent disaster relief payments into property of the

bankruptcy estate. Id. at 1026-27. Vote mistakenly interpreted

Segal to depend on the debtor’s pre-existing legal right to a tax

refund rather than on the facts that rooted the debtor’s claim

sufficiently in the prebankruptcy past. Further, Vote failed to

cite Williams or Whiting Pools, and it declined to address, as

waived, whether the payments could represent proceeds of the crop

loss pursuant to § 541(a)(6).23

22
The majority opinion heavily relies on the district court
opinion in Hoseman v. Weinschneider, 277 B.R. 894 (N.D. Ill.
2002), but the circuit court, in affirming the judgment,
pointedly refused to “consider such intricate questions of
timing,” 322 F.3d 468, 473 (7th Cir. 2003). The status of the
district court discussion is thus dubious.
23
The majority opinion also relies on Sliney v. Battley (In
re Schmitz), 270 F.3d 1254 (9th Cir. 2001), but that case is

46
 Both Vote and the majority opinion share the view that where

a debtor has only a “mere hope” (prepetition) of receiving

federal payments based on statutes enacted post-bankruptcy, that

hope is too nebulous or contingent to be treated as property of

the debtor’s estate. The majority opinion states: “were the law

otherwise, any post petition legislation or contract could

retroactively create property of the estate,” thus eviscerating

the temporal limitation in § 541(a)(1). We disagree. Whiting

Pools specifically de-emphasizes the temporal limitation on

§ 541(a)(1). Further, Segal’s formulation ensures that later-

generated property will be included in the debtor’s estate only

if it is “sufficiently rooted in the pre-bankruptcy past.” The

cases described above demonstrate that Segal effects no

transformation of the Bankruptcy Code, but, like Whiting Pools,

allows a principled and pragmatic inclusion of property generated

largely by events predating bankruptcy. Segal readily applies to

disaster payments for which Burgess would have had no claim at

all but for (1) prebankruptcy investment of his money and labor

to plant and tend the crops; (2) the connection between the

disaster payments and the crop-related debts and losses that

readily distinguishable. Schmitz concerned whether fishing
rights allocated to a debtor post-petition, but calculated
according to his prepetition catch, were property of the estate.
The court sensibly held that the fishing rights were not
referable to the debtor’s prepetition status. The newly
allocated catch permit had nothing to do with the debtor’s
prepetition investment or losses.

47
played a significant role in precipitating his bankruptcy; and

(3) Congress’s correlation of disaster payments to estimated crop

proceeds that would assist farmers to repay their local

creditors. Finally, placing these payments in Burgess’s

bankruptcy estate prevents his receiving a fortuitous windfall

unavailable to other farmers who failed to file bankruptcy until

after the law was passed.24

The disaster payments may alternatively be characterized as

“proceeds” “of or from” the lost crops under § 541(a)(6). There

is no temporal limitation on proceeds that accrue to the

bankruptcy estate.25 Interpreting “proceeds” broadly follows the

Code’s legislative history, which describes this term as broader

than the U.C.C. definition. See 5 COLLIER ON BANKRUPTCY,¶ 541.17,

24
The fear has been expressed that if Burgess’s federal
disaster payments are “sufficiently rooted in the prebankruptcy
past” to require inclusion in his bankruptcy estate, then a
hypothetical post-bankruptcy gift from “Aunt Minnie” to
compensate Burgess in hard times would also accrue to the estate.
This analogy fails for three reasons. First, while Segal does
not mandate a prepetition legally enforceable right, both Segal
and its lower court progeny all exhibit an ultimate legal right
plus facts rooted in the prebankruptcy past. A gift from Aunt
Minnie, whatever its motive, does not belong to Burgess under any
claim of right. Second, § 541(a)(5) brings within the debtor’s
estate property acquired within six months postpetition by
bequest, devise or inheritance. Gifts are similar to bequests
but, because there is no mention of gifts in § 541(a)(5), must be
presumed to have been excluded from the estate. Third, there is
no theory of law under which a gift can be proceeds pursuant to
§ 541(a)(6).
25
More will be said about “proceeds” later, as some states’
laws unequivocally so classify federal disaster payments.

48
at § 541.90 (“. . . [T]he scope of 541(a)(6) is not limited to

[the U.C.C.] definition and will extend beyond it.”). The

majority opinion rejects the proposition that relief payments

could represent proceeds of the lost crops because, “for the

[§ 541(a)(1)] temporal limitation [on estate property] to have

any meaning at all, Burgess must have had a prepetition interest

in the disaster relief payment, not the crop loss.” This view is

vulnerable for several reasons. First, § 541(a)(6) requires only

that proceeds be “of or from” property of the estate. The

statutory language suggests no more than a but-for connection of

the proceeds to the prebankruptcy estate, a connection clearly

present in this case. Further, in connecting proceeds to

“property of the estate”, § 541(a)(6) sweeps in, conspicuously

without any temporal limitations, not only property included

under § 541(a)(1) but other estate property defined in all the

other pertinent subsections of § 541(a). The majority

interpretation thus unnaturally constrains § 541(a)(6). Finally,

the majority interpretation goes against common sense. A crop

loss is quantifiable. The federal disaster payments to Burgess

reimbursed him for the crop loss according to its putative market

value. Farm Service Agency, Agricultural Assistance Act of 2003

(Apr. 2003), http://www.fsa.usda.gov/pas/publications/facts/

html/disasact03a.htm. The payments are a functional substitute

for the proceeds that Burgess could have earned from selling the

crops. That there was no extant legal vehicle to recover

49
disaster payments when bankruptcy was filed does not render the

payments a gratuity, especially where, had bankruptcy been filed

post-enactment of the statute, the payments would clearly have

been proceeds.

The majority opinion relies heavily on recent decisions

that, following Vote, refused to include federal disaster

payments in the bankruptcy estate. See, e.g., Bracewell v.

Kelley (In re Bracewell), 322 B.R. 698 (M.D. Ga. 2005). Earlier

cases, however, including several overlooked by Vote and

Bracewell, tended to conclude that disaster payments are proceeds

of lost crops under § 541(a)(6) and under the U.C.C.. See, e.g.,

In re Schneider, 864 F.2d 683, 685 (10th Cir. 1988) (agricultural

entitlement payments arising from lost crops “are proceeds of

that crop” under § 541(a)(6)). Schneider discussed In re

Schmaling, 783 F. 2d 680, 682-83 (7th Cir. 1986), in which the

appeals court, ruling in a bankruptcy context, explained that

federal disaster payments, for crops that were planted but

thereafter lost, constitute proceeds under former U.C.C. § 9-

306(2) (now set forth in revised U.C.C. § 9-315). Schmaling, in

turn, relied on In re Kruse, 35 B.R. 958 (Bankr. D. Kan. 1983)

and In re Nivens, 22 B.R. 287 (Bankr. N.D. Tex. 1982), both of

which included disaster payments within the bankruptcy estate as

50
“proceeds.”26 The majority opinion dismisses two other cases

holding that crop disaster payments are proceeds under

§ 541(a)(6) on the basis that in each of them, the authorizing

legislation passed Congress before the debtor declared

bankruptcy. Kelley v. Ring (In re Ring), 169 B.R. 73 (Bankr.

M.D. Ga.), aff’d, 160 B.R. 692 (M.D. Ga. 1993); Boyett v. Moore

(In re Boyett), 250 B.R. 817, 822 (Bankr. S.D. Ga. 2000). Ring

does not turn on the enactment date of the disaster payment

program. Boyett relies on both § 541(a)(1) and (a)(6), and

mentions the statute’s date of passage as an element, but not a

prerequisite of its conclusion. Further, In re White, No. BRL88-

00971C, 1989 WL 146417 (Bankr. N.D. Iowa Oct. 27, 1989), included

in the debtor’s estate disaster payments authorized by statute

postdating the bankruptcy. See also FarmPro Servs., Inc. v.

Brown (In re FarmPro Servs.), 276 B.R. 620 (D.N.D. 2002)

(disaster payments are proceeds under § 541(a)(6)).27

Construing property of the estate and proceeds broadly under

federal law accords with Whiting Pools, Segal, and Williams and

26
Another case often cited in this connection is Matter of
Munger, 495 F.2d 511 (9th Cir. 1974), which broadly and with
common sense interpreted federal set aside payments as
“proceeds” of sugar beet crops. Id. at 513.
27
The majority asserts that the FarmPro court “reached the
right result for the wrong reasons” and relies on the case’s
posture in bankruptcy, not discussed by the court, rather than on
its own reasoning that held disaster payments includable in the
debtor’s estate as proceeds under § 541(a)(6) of lost crops by
means of post bankruptcy legislation.

51
yields the conclusions that Burgess’s lost crops were “property”;

his claim for disaster payments was rooted in the prebankruptcy

past by its tie to the lost crops; and the payments are

“proceeds” of the crops.

B. State Law Approach

Because property interests are ordinarily created and

defined by state law, the Supreme Court has declared:

Unless some federal interest requires a different
result, there is no reason why such interest should be
analyzed differently simply because an interested party
is involved in a bankruptcy proceeding. Uniform
treatment of property interests by both state and
federal courts within a State serves to reduce
uncertainty, to discourage forum shopping, and to
prevent a party from receiving “a windfall merely by
reason of the happenstance of bankruptcy.

Butner v. United States, 440 U.S. 54, 55, 99 S. Ct. 914, 918

(1979)(internal citation omitted); see also Barnhill v. Johnson,

503 U.S. 392, 398, 112 S. Ct. 1386, 1389 (1992)(in the absence of

any controlling federal law, “property” and “interests in

property” are creatures of state law (citing Butner)); Nobelman

v. Am. Sav. Bank, 508 U.S. 324, 113 S. Ct. 2106 (1993). Whiting

Pools, Williams, and Segal are not inconsistent with Butner;

rather than create property interests, those cases attributed

them to the bankruptcy estate as a matter of federal law.

Viewing this case solely through the lens of state law affords

another, narrower ground of decision, as the question under

Butner is whether Louisiana law treats federal disaster payments

52
as proceeds of lost crops. The majority opinion overlooks the

Butner approach, yet because of Butner, the interpretation of

proceeds in § 541(a)(6) cannot be narrower than that promulgated

in state law.

Although there is no case law on point in Louisiana, the

state’s version of the U.C.C. provides:

(64) “proceeds” means the following property:

(A) Whatever is acquired upon the sale,
lease, license, exchange, or other
disposition of collateral;

. . .

(D) to the extent of the value of
collateral, claims arising out of the
loss . . . or damage to, the collateral
. . . .

LA. REV. STAT. ANN. §10:9-102 (a)(64). Thus, in Louisiana,

“proceeds” include whatever is received from a sale or other

disposition of collateral, as well as claims arising out of the

loss or damage to the collateral. Moreover, in Finova Capital

Corp. v. IT Corp., 774 So. 2d 1129, 1131-32 (La. Ct. App. 2000),

a state court of appeals interpreted “proceeds” by reference to a

U.C.C. comment that under the provision’s “plain meaning,” a

security interest would also “extend . . . any rights arising out

of the collateral and any claims brought by the debtor for

damages to the collateral.”28 Id. at 1131-32.

28
Finova went on to conclude, however, that the U.C.C. does
not create an independent cause of action for a secured party
against third-party use of collateral. Finova, 774 So. 2d at

53
 An established body of case law treats the U.C.C. definition

of proceeds as including federal disaster payments for lost

crops.29 These decisions pragmatically recognize that such

payments represent “compensation for already existing plants that

had been cultivated through the recipient’s effort.” In re

Schmaling, 783 F. 2d 680, 683 (7th Cir. 1986); see also In re

Schneider, 864 F.2d 683 (10th Cir. 1988); In re Boyett, 250

B.R. 817, 822 (Bankr. S.D. Ga. 2000); In re White, No. BRL88-

00971C, 1989 WL 146417 (Bankr. N.D. Iowa Oct. 27, 1989); In re

Kruse, 35 B.R. 958 (Bankr. D. Kan. 1983); ConAgra, Inc. v.

Farmers State Bank, 602 N.W.2d 390 (Mich. App. 1999). A Texas

bankruptcy case, frequently cited in this connection, explained

that, “the disaster payments are merely the substitute proceeds

of the crop which logically would have been received had the

disaster or low yields not occurred.” In re Nivens, 22 B.R. 287,

291 (Bankr. N.D. Tex. 1982). Nivens’s reasoning was adopted by

the Texas Supreme Court in O’Brient v. Sweetwater Prod. Credit

Ass’n, 764 S.W. 2d 230 (Tex. 1988)(holding payment in kind

contracts are “proceeds”).30

1132.
29
This definition formerly appeared at § 9:316 of the U.C.C.
and was renumbered, without substantive change, when Article 9
was revised.
30
This court in Rolling Plains Prod. Credit Ass'n v. Cook
(In re Cook), 169 F.3d 271, 277 (5th Cir. 1999) acknowledged the
O’Brient holding that federal payments can be U.C.C. proceeds.

54
 The conclusion of these courts that federal disaster

payments constitute U.C.C. proceeds is not universally accepted,

but it is the dominant view. See In re Ladd, 106 B.R. 174

(Bankr. C.D. Ill. 1989) (disaster payments are not U.C.C.

proceeds of lost crops); In re Farm Pro Servs, 276 B.R. at 626.

See generally Hon. John K. Pearson & Sally Fisher, Revised

Article 9 and Government Entitlement Programs, ABI Journal, Oct.

22, 2003, at 24.31 A reasonable extrapolation based on the text

of the U.C.C., and these other courts’ views, is that Louisiana

would hold federal disaster payments to be crop proceeds. That

being the case, under Butner, they are includable in the

bankruptcy estate pursuant to § 541(a)(6).

C. Other Bankruptcy Provisions.

If disaster payments legislated after bankruptcy are neither

property of the debtor’s estate because of the “temporal”

limitation in § 541(a)(1), nor proceeds pursuant to § 541(a)(6),

but are defined in state law as proceeds, absurd consequences

could ensue for both debtors and creditors. The majority’s view

leads to the conclusion that the unsecured creditors would have

no interest in such proceeds under the Bankruptcy Code; the

trustee could not administer the recovery and division of such

31
This article comprehensively surveys state cases
respecting disaster payments as proceeds. See also Boyd J.
Peterson, Secured Transactions: Government Agricultural Payments
as “Proceeds” of Agricultural Products under U.C.C. § 9-306, 79
ALR 4th 903 (1990).

55
“proceeds;” and a secured creditor would not have to abide by the

Bankruptcy Code’s automatic stay and prohibition on interference

with the debtor’s discharge.

On the debtor’s side, the lien creditor of a farmer with an

interest in proceeds, which is enforceable in state law on

disaster payments irrespective of when the legislation was

passed, could claim that the interest is outside the bankruptcy

estate altogether and could garnish the debtor’s receipt of such

payments. The garnishment would, however, run contrary to the

intent of the Bankruptcy Code to free the debtor from such post-

filing interferences and credit-ruining activities. See 11

U.S.C. § 362 (automatic stay); § 524 (effects of discharge). On

the creditor’s side, 11 U.S.C. § 552, designed to regulate the

postpetition effect of prepetiton security interests, would be

thrown into uncertainty by a holding that federal disaster

proceeds are not within the bankruptcy estate at all. Section

552(b)(1) states that a security interest in postpetition

proceeds remains enforceable if “applicable non-bankruptcy law”

authorizes a security interest in such proceeds, and those

“proceeds” are “acquired by the estate after commencement of the

case.” The majority position would hold, to the contrary, that

disaster payments arising from postpetition legislation could not

be “acquired by the estate” because they were never related to

the debtor’s estate property. At a minimum, however, the

treatment of proceeds in § 552 must set a floor for the

56
definition of proceeds as estate property in § 541(a)(6).

In sum, federal disaster payments cannot be both fish and

fowl for bankruptcy purposes. They are either “proceeds” for all

purposes, at least in those states which have classified them as

such under the U.C.C., or they are simply covered under the

breadth of § 541(a)(6) as proceeds because Congress intended the

definition to be at least as broad as that of the U.C.C. The

majority view creates intolerable tension with other Bankruptcy

Code provisions.

For these reasons, we respectfully DISSENT from the majority

opinion reversing and remanding the judgment of the bankruptcy

and district courts holding that the federal disaster payments

designated to Burgess on account of his crop losses before

bankruptcy were includable within the bankruptcy estate pursuant

to 11 U.S.C. §§ 541(a)(1) and (6).

57