Lines v. Frederick
Headline: Court affirms that accrued but unpaid vacation pay of bankrupt wage earners is not bankruptcy “property,” protecting small vacation wages from seizure and leaving them available for debtors’ basic needs.
Holding: The Court affirmed that accrued but unpaid vacation pay belonging to wage earners at the time of filing bankruptcy is not "property" under §70a(5) and therefore does not pass to the bankruptcy trustee.
- Prevents trustees from seizing small accrued vacation pay of wage earners.
- Leaves funds available for debtors’ short vacations or layoffs.
- Resolves a split in appeals courts about wage-related bankruptcy claims.
Summary
Background
Two wage earners working for manufacturing employers had small amounts of unpaid, accrued vacation pay when they filed for bankruptcy: Mr. Frederick had $137.28 and Mr. Harris had $144.14. A bankruptcy referee ordered each man to turn those sums over to the bankruptcy trustee on receipt, minus one-half of what had accrued in the 30 days before filing (that half was exempt under California law). The District Court affirmed the turnover orders, but the Ninth Circuit reversed, holding the accrued vacation pay was not "property" under the Bankruptcy Act.
Reasoning
The central question was whether accrued but unpaid vacation pay counts as property that the trustee can take. The Court looked to the Bankruptcy Act’s purpose of giving debtors a fresh start and relied on prior decisions distinguishing business claims from personal wage protections. The Court stressed that vacation pay is part of wages and serves to support basic needs during vacations or layoffs. Because taking those small vacation funds would undermine a wage earner’s ability to achieve a fresh start, the Court concluded the principles compel a decision for the bankrupts and affirmed the judgment protecting the accrued vacation pay.
Real world impact
The decision means small amounts of accrued vacation pay like those here are not treated as trustee-claimable property under §70a(5), leaving them with the wage earner. The Court granted Harris leave to proceed without fees and let Frederick avoid printing his opposing brief. The ruling resolves a split among courts of appeals in favor of protecting these wage-related sums.
Dissents or concurrances
Justice Harlan dissented, arguing the issue was close, the record and California law were unclear, and the case deserved full argument rather than summary disposition. The Chief Justice would have denied review.
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