Court Opinion

ID: 4542849
Source: CourtListenerOpinion
Date Created: 2020-06-19 17:00:30.764925+00
Date Added: 2024-06-11T12:48:05.514519
License: Public Domain

By order of the Bankruptcy Appellate Panel, the precedential effect
                         of this decision is limited to the case and parties pursuant to
                     6th Cir. BAP LBR 8024-1(b). See also 6th Cir. BAP LBR 8014-1(c).

                                          File Name: 20b0004n.06

                      BANKRUPTCY APPELLATE PANEL
                                      OF THE SIXTH CIRCUIT

 IN RE: ERICK ETIENNE LAGROUX,                                 ┐
                                                   Debtor.     │
                                                               │
 ___________________________________________                   │
 ALLCARE MEDICAL SERVICES, LLC,                                 >        No. 19-8024
                                                               │
                                Plaintiff-Appellee,            │
                                                               │
        v.                                                     │
                                                               │
                                                               │
 MICHAEL D. BUZULENCIA, Trustee,
                                                               │
                              Defendant-Appellant.             │
                                                               ┘

                         Appeal from the United States Bankruptcy Court
                         for the Northern District of Ohio at Youngstown.
             No. 4:17-bk-40198; Adv. No. 4:17-ap-17-04045—Arthur I. Harris, Judge.

                                  Decided and Filed: June 19, 2020

        Before: BUCHANAN, DALES, and WISE, Bankruptcy Appellate Panel Judges.

                                         _________________

                                               COUNSEL

ON BRIEF: Matthew G. Vansuch, Timothy M. Reardon, BROUSE MCDOWELL LPA,
Canfield, Ohio, for Appellant. Mary K. Whitmer, James W. Ehrman, WHITMER & EHRMAN
LLC, Cleveland, Ohio, for Appellee.
                                         _________________

                                               OPINION
                                         _________________

       BETH A. BUCHANAN, Bankruptcy Appellate Panel Judge. This appeal stems from a
bankruptcy court’s determination in a declaratory judgment action that a chapter 7 trustee must
 No. 19-8024                               In re LaGroux                                   Page 2

comply with state law and the terms of a limited liability company’s operating agreement when
seeking to value and sell a debtor’s economic interest in the limited liability company. The
chapter 7 trustee appears to be concerned on appeal that the bankruptcy court may have held that
federal law plays no role in the valuation and sale of the debtor’s economic interest in the limited
liability company because there is no discussion of the applicability of federal law in the
bankruptcy court’s decision.

       Because the bankruptcy court expressly deferred specific determinations relating to
valuation to a later date, there is no justiciable issue before the Panel. As such, this appeal is
dismissed for lack of jurisdiction.

                                        BACKGROUND

       Prior to filing his chapter 7 bankruptcy petition, Debtor Erick Etienne LaGroux
(“LaGroux”) had been a member of an Ohio limited liability company, AllCare Medical
Services, LLC (“AllCare”). After the bankruptcy filing, Plaintiff-Appellee AllCare filed an
adversary complaint requesting declaratory and injunctive relief against various defendants,
including the chapter 7 trustee appointed in LaGroux’s underlying bankruptcy case, Appellant
Michael D. Buzulencia (“Trustee”). AllCare dismissed its claims against all other defendants
except the Trustee prior to the trial held on March 29, 2019 and June 19, 2019.

       In its complaint, AllCare sought a declaratory judgment that (1) LaGroux withdrew from
AllCare prior to filing for bankruptcy, (2) Ohio law and AllCare’s operating agreement control
LaGroux’s estate’s interest in AllCare, and the Trustee must comply with the buyout and first-
refusal provisions of the operating agreement, and (3) AllCare owns the eight domain names
LaGroux purchased on behalf of AllCare. (Memorandum of Opinion (“Mem. of Op.”) at 1–2,
AllCare Medical Servs., LLC v. LaGroux, Adv. No. 17-4045 (Bankr. N.D. Ohio) ECF No. 160).

       Following the trial, the bankruptcy court entered its Memorandum of Opinion and
Judgment determining that:

       (1) LaGroux’s bankruptcy estate only has an economic interest in AllCare
       because LaGroux withdrew from AllCare prior to filing for bankruptcy, (2) Ohio
       law and the operating agreement control LaGroux’s estate’s interest in AllCare,
       and the [T]rustee must comply with the terms of Ohio law and the operating
 No. 19-8024                              In re LaGroux                                   Page 3

       agreement regarding valuation and sale, and (3) LaGroux’s estate has only a bare
       legal interest in the eight domain names.

(Mem. of Op. at 2; Judgment at 1–2, AllCare Medical Servs., LLC v. LaGroux, Adv. No.
17-4045 (Bankr. N.D. Ohio) ECF No. 161).

                                  STATEMENT OF ISSUE

       The Trustee identifies one issue on appeal: “Does federal law apply to the determination
of the value of a Bankruptcy Estate’s economic interest in an Ohio limited-liability company in
addition to the limited-liability company’s operating agreement and Ohio [law]?” (Brief of
Appellant-Trustee (“Appellant’s Br.”) at 3, BAP No. 19-8024, ECF No. 14).

                                         DISCUSSION

       On appeal, the Trustee “is not challenging any of the bankruptcy court’s findings of fact.”
(Appellant’s Br. at 3). The Trustee also does not challenge the bankruptcy court’s determination
that the bankruptcy estate includes only LaGroux’s economic interest in AllCare (Appellant’s Br.
at 13) or the bankruptcy court’s conclusion regarding the domain names (Appellant’s Br. at 4).
And the Trustee does not completely disagree with the bankruptcy court’s conclusion regarding
the applicability of Ohio law and the terms of AllCare’s operating agreement on the issues of
valuation and sale of LaGroux’s estate’s interest in AllCare. Rather, he asks this Panel to opine
on an issue that the bankruptcy court expressly deferred for a later determination—namely,
matters pertaining to the valuation of the estate’s economic interest in AllCare. That we cannot
do.

       The Trustee summarizes his argument on appeal as follows: “To the extent that the
bankruptcy court has held that federal law does not apply, and should not apply, to questions
surrounding the valuation of the Estate’s economic interest and the Trustee’s efforts to maximize
the benefit for the Estate, the bankruptcy court erred.” (Appellant’s Br. at 12). The Trustee
presumes that the bankruptcy court rejected his argument that federal law—in addition to the
operating agreement and state law—is applicable to the determination of the value of the estate’s
economic interest in AllCare because the bankruptcy court did not discuss how federal law may
apply to valuation. (Appellant’s Br. at 11). He fears that the bankruptcy court’s failure to
 No. 19-8024                                       In re LaGroux                                             Page 4

address how federal law may impact valuation of the estate’s interest in AllCare may give
AllCare and the remaining member “free reign to ignore federal law.” (Appellant’s Br. at
16-17). As a result, the Trustee worries that if he seeks to sell the estate’s economic interest in
AllCare, AllCare or the remaining members “could contend that the Trustee may not avail
himself of the Bankruptcy Code’s benefits,” such as “the appreciation in value of the Estate’s
economic interest and the ability to recover fair-market value for the Estate, even if that means
selling the interest to someone other than an existing member.” (Appellant’s Br. at 17).

         As the Trustee himself acknowledges, however, “the bankruptcy court specifically
deferred any such questions to a later date.” (Appellant’s Br. at 17).                         In its opinion, the
bankruptcy court notes that AllCare did not ask the bankruptcy court to determine the value of
the bankruptcy estate’s interest in AllCare, nor did the Trustee seek any affirmative relief in the
adversary proceeding on the issue of valuation. (Mem. of Op. at 19). As such, the bankruptcy
court limited its judgment to the requests for declaratory relief that were before the court.

         The bankruptcy court did not determine the applicability or inapplicability of federal law
on valuation. Rather, the only determination that the bankruptcy court made was that Ohio law
and the operating agreement control the extent of the estate’s interest in AllCare. 1 Any deeper
analysis of the estate’s rights beyond this general proposition were expressly deferred to a later
date when valuation will be directly at issue.

         A federal court, including an appellate court, “may only address a litigant’s claim when
there is an actual case or controversy in existence.” George Fischer Foundry Sys., Inc. v.
Hottinger, 55 F.3d 1206, 1210 (6th Cir. 1995).

         This jurisdictional prerequisite is firmly rooted in the United States Constitution
         which provides, in pertinent part, that “[t]he judicial power shall extend to all
         Cases, in Law and Equity, arising under this Constitution, the Laws of the United

         1The  bankruptcy court’s determination follows the basic tenet that state law defines a debtor’s interest in
property. Town Center Flats, LLC. v. ECP Commercial II LLC (In re Town Center Flats, LLC), 855 F.3d 721, 724
(6th Cir. 2017) (citing Butner v. United States, 440 U.S. 48, 55, 99 S. Ct. 914, 918 (1979), and noting that the use of
state law to define property rights promotes the “‘uniform treatment of property interests by both state and federal
courts’” and 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’”). Once property rights are determined under state
law, federal bankruptcy law dictates the extent to which the debtor’s interest becomes property of the estate. Id.
 No. 19-8024                                In re LaGroux                                      Page 5

       States, and Treaties . . . [and] to Controversies . . . .” U.S. Const., Art. III, sec. 2,
       cl. 1. This case or controversy requirement prevents federal courts from rendering
       advisory opinions or considering hypothetical or abstract questions. Hall v. Beals,
       396 U.S. 45, 48, 90 S. Ct. 200, 24 L.Ed.2d 214 (1969); see also U.S. Nat. Bank of
       Oregon v. Independent Ins. Agents of America, Inc., 508 U.S. 439, 446, 113 S. Ct.
       2173, 124 L.Ed.2d 402 (1993); McCurry ex rel. Turner v. Adventist Health
       System/Sunbelt, Inc., 298 F.3d 586, 597 (6th Cir. 2002); Strand, 252 F.3d at 812–
       13.

Sankyo Corp. v. Nakamura Trading Corp., 139 F. App’x 648, 650 (6th Cir. 2005).

       If the Panel were to address the allegation of error raised by the Trustee on appeal, “we
would surely be rendering an advisory opinion, which federal courts are not empowered to
issue.” McKinney v. Gannett Co., Inc., 694 F.2d 1240, 1247 (10th Cir. 1982); see also In re
Post-Newsweek Stations, Michigan, Inc., 722 F.2d 325, 328 (6th Cir. 1983) (“It is settled
doctrine that we do not render advisory opinions.”).          The questions raised by the Trustee
regarding the application of federal law to the determination of value can be addressed when and
if the Trustee seeks to sell the estate’s economic interest in AllCare. Until such time, there is no
ruling for this Panel to review. Winget v. JP Morgan Chase Bank, N.A., 537 F.3d 565, 582 (6th
Cir. 2008) (“As a rule, we do not allow litigation on premature claims to ensure that courts
litigate ‘only existing, substantial controversies, not hypothetical questions or possibilities.’”
(quoting City Commc’ns, Inc. v. City of Detroit, 888 F.2d 1081, 1089 (6th Cir. 1989)).

                                          CONCLUSION

       “It is fundamental that federal courts do not render advisory opinions and that they are
limited to deciding issues in actual cases and controversies. . . . A justiciable controversy is
distinguished from a difference or dispute of a hypothetical character or from one that is
academic.” Norvell v. Sangre de Cristo Dev. Co., Inc., 519 F.2d 370, 375 (10th Cir. 1975). The
issue presented on appeal by the Trustee is hypothetical and premature given that the bankruptcy
court has yet to address the applicability of federal law to the valuation of the estate’s economic
interest in AllCare. Accordingly, this appeal is dismissed for lack of jurisdiction.