In re Renegar Golf, LLC ( 2019 )

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: 19b0005n.06
BANKRUPTCY APPELLATE PANEL
OF THE SIXTH CIRCUIT
In re: RENEGAR GOLF, LLC, aka R Golf, LLC, ┐
Debtor. │
> No. 18-8047
│
┘
Appeal from the United States Bankruptcy Court
for the Middle District of Tennessee at Nashville.
No. 3:16-bk-03262—Randal S. Mashburn, Judge.
Decided and Filed: July 24, 2019
Before: BUCHANAN, PRICE SMITH, and WISE, Bankruptcy Appellate Panel Judges.
_________________
COUNSEL
ON BRIEF: Justin T. Campbell, THOMPSON BURTON PLLC, Franklin, Tennessee, for
Trustee. Robert M. Renegar, Murfreesboro, Tennessee, pro se.
_________________
OPINION
_________________
JESSICA E. PRICE SMITH, Bankruptcy Appellate Panel Judge. The issue on appeal is
whether the bankruptcy court erred by declining to use its equitable powers under 11 U.S.C.
§ 105 to fashion a remedy for a creditor. After reviewing the record, the parties’ briefs, and
applicable law, the Panel concludes that the bankruptcy court did not err. Accordingly, we
affirm.
No. 18-8047 In re Renegar Golf, LLC Page 2
ISSUE ON APPEAL
The appellant presents the following issue: “Did the Court err when it constrained itself
to the black letter of the law and failed to exercise its judicial discretion as a court of equity
under 11 U.S.C. § 105(a), thereby applying principles of equity to correct the obvious injustice in
this matter?” (Statement of Issues, In re Renegar Golf, LLC, Case No. 16-03262 ECF No. 95
(Bankr. M.D. Tenn.).)1
JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel has jurisdiction to decide this appeal, as authorized by
the United States District Court for the Middle District of Tennessee. 28 U.S.C. §§ 158(b)(6),
(c)(1). A final order of the bankruptcy court may be appealed as of right. 28 U.S.C. § 158(a)(1).
For an appeal, a final order is one that “ends the litigation on the merits and leaves nothing for
the court to do but execute the judgment.” Midland Asphalt Corp. v. U.S., 489 U.S. 794, 798,
109 S. Ct. 1494, 1497 (1989) (internal quotation & citation omitted). The order overruling the
objection to the trustee’s final report and authorizing the trustee to distribute the estate assets
effectively ended this case on the merits. There is nothing further for the court to do. The case
only remains open due to the appeal.
A bankruptcy court’s use of its equitable powers under 11 U.S.C. § 105 is reviewed for
an abuse of discretion. See Nicholson v. Isaacman (In re Isaacman), 26 F.3d 629, 633 (6th Cir.
1994); In re New Ctr. Hosp., 187 B.R. 560, 572 (E.D. Mich. 1995) (“Equitable discretionary
powers of the Bankruptcy Court are reviewed using an ‘abuse of discretion’ standard.”).
“An abuse of discretion occurs where the reviewing court has ‘a definite and firm
conviction that the [bankruptcy court] committed a clear error of judgment.’”
B-Line, LLC v. Wingerter (In re Wingerter), 594 F.3d 931, 936 (6th Cir. 2010)
(citation omitted). Under the abuse of discretion standard, the bankruptcy court’s
decision will only be disturbed if it “relied upon clearly erroneous findings of fact,
improperly applied the governing law, or used an erroneous legal standard.” Elec.
Workers Pension Trust Fund of Local Union # 58, IBEW v. Gary’s Elec. Serv.
Co., 340 F.3d 373, 378 (6th Cir. 2003).
In re Burer, 467 B.R. 109, 111 (B.A.P. 6th Cir. 2012).
1All ECF citations contained herein refer to the docket in In re Renegar Golf, LLC, Case No. 16-03262
(Bankr. M.D. Tenn.), unless otherwise indicated.
No. 18-8047 In re Renegar Golf, LLC Page 3
FACTS
Renegar Golf, LLC filed a voluntary chapter 7 bankruptcy petition on May 5, 2016. On
that same date, the court appointed T. Larry Edmondson as trustee (the “Trustee”). On
September 28, 2016, the Trustee filed a Motion and Notice to Sell Property Free and Clear of
Liens. On November 8, 2016, the bankruptcy court approved the sale. No one appealed the
order allowing the sale.
Over the course of the case, the Trustee filed adversary proceedings to recover possible
preferential transfers. Through settlements, the Trustee brought funds into the bankruptcy estate.
No one appealed the orders approving the settlements.
Throughout the proceedings, the Trustee submitted interim reports. On September 27,
2018, the Trustee submitted his Final Report and Application for Compensation (“Final
Report”). On October 28, 2018, appellant Robert M. Renegar, a creditor, objected to the Final
Report. In his objection, Renegar states that he “makes no objection to the Trustee’s claim for
compensation due from his services as requested of the Court.” (Creditor Robert M. Renegar’s
Objection to the Trustee’s Final Report and Motion for Proposed Disposition of Assets in the
Above Case at 2, ECF No. 81.) Renegar did, however, object “to the Trustee’s recommended
Pro-Rata distribution of estate assets among all creditors[.]” (Id.) Renegar argues that a pro-rata
distribution is unfair because it awards the perpetrators of an abuse of the bankruptcy process
more than 70% of the estate proceeds. (Id. at 12.)
Renegar asserts that Crom Carmichael (“Carmichael”), one of Renegar Golf’s three board
members, forced Renegar out of the company through an acrimonious buy-out, then quickly
defaulted on the buy-out agreement and filed a no-asset bankruptcy case. Renegar alleges that
the company had been solvent prior to the bankruptcy filing, and the principals of the company
fraudulently misrepresented the company’s financial condition at the time of the filing.
Carmichael was the successful bidder for the estate assets, including patents for golf equipment
developed by Renegar.
The bankruptcy court held a hearing on Renegar’s objection on November 6, 2018. On
November 9, 2018, the bankruptcy court entered its order overruling the objection and approving
the distribution of estate assets. On November 25, 2018, Renegar timely filed a notice of appeal.
No. 18-8047 In re Renegar Golf, LLC Page 4
DISCUSSION
1. The bankruptcy court did not err by declining to use its equitable powers under
11 U.S.C. § 105 to fashion a remedy for Renegar.
Renegar argues that the bankruptcy court should have exercised its discretionary
power under 11 U.S.C. § 105 to reject the pro-rata distribution proposed by the Trustee
and instead require a distribution which favors him. He asserts that a distribution which
favors him would be more equitable due to the other creditors’ alleged malfeasance.
Section 105 provides, in part:
The court may issue any order, process, or judgment that is necessary or
appropriate to carry out the provisions of this title. No provision of this title
providing for the raising of an issue by a party in interest shall be construed to
preclude the court from, sua sponte, taking any action or making any
determination necessary or appropriate to enforce or implement court orders or
rules, or to prevent an abuse of process.
11 U.S.C. § 105(a).
It is hornbook law that § 105(a) “does not allow the bankruptcy court to override
explicit mandates of other sections of the Bankruptcy Code.” 2 Collier on
Bankruptcy ¶ 105.01[2], p. 105–6 (16th ed. 2013). Section 105(a) confers
authority to “carry out” the provisions of the Code, but it is quite impossible to do
that by taking action that the Code prohibits. That is simply an application of the
axiom that a statute’s general permission to take actions of a certain type must
yield to a specific prohibition found elsewhere. See Morton v. Mancari, 417 U.S.
535, 550–551, 94 S. Ct. 2474, 41 L. Ed. 2d 290 (1974); D. Ginsberg & Sons, Inc.
v. Popkin, 285 U.S. 204, 206–208, 52 S. Ct. 322, 76 L. Ed. 704 (1932).
Law v. Siegel, 571 U.S 415, 421, 134 S. Ct. 1188, 1194 (2014). “We have long held that
‘whatever equitable powers remain in the bankruptcy courts must and can only be exercised
within the confines of the Bankruptcy Code.” Id. (further citation omitted).
At the November 6 hearing, the bankruptcy court articulated the reasons that it could not
sustain Renegar’s objection. The bankruptcy court explained:
[T]here’s a category of assertions you’ve made that I would say falls more in the
realm of claims against the other creditors, or at least a few of the other insider-
type creditors. . . . And in that regard, there are several ways that that could
theoretically come up. One is there could be an objection to their claims, but
you’ve not filed an objection to their claims. Another way is you could sue them
No. 18-8047 In re Renegar Golf, LLC Page 5
in state court and that would have nothing to do with this court. And then one
final way that at least theoretically, could— it could rise would be in the context
of a concept called equitable subordination, which basically means that you push
certain claims down to the bottom of the list until everyone else is paid.
A lot of your allegations about improper and inequitable conduct arguably would
fit into that category. The problem is for you to assert that would require a
separate lawsuit to be filed in this court. It requires what’s called an adversary
proceeding. That’s not been done.
(Transcript of Hr’g held November 6, 2018 at 3:12-4:1, ECF No. 101.) The bankruptcy court
offered to consider a short continuance if Renegar wanted the opportunity to file an adversary
proceeding to pursue equitable subordination. Section 510(c) allows the court to equitably
subordinate a claim “after notice and a hearing.” To accomplish this, Federal Rule of
Bankruptcy Procedure 7001(8) requires an adversary proceeding to help to ensure due process of
law. Renegar declined the opportunity to file an adversary proceeding to prosecute equitable
subordination claims.
The bankruptcy court may not use its equitable powers pursuant to § 105 to deprive due
process of law to the creditors whose claims Renegar seeks to subordinate by giving him a
remedy that he did not pursue appropriately. As the Supreme Court stated, the bankruptcy
courts’ equitable powers “must and can only be exercised within the confines of the Bankruptcy
Code.” Law, 571 U.S. at 421, 134 S. Ct. at 1194. The Bankruptcy Code requires Renegar to
prosecute his equitable subordination claims in an adversary proceeding. By choosing not to file
an adversary proceeding, Renegar failed to properly place those issues before the bankruptcy
court for consideration. The bankruptcy court found that: “although some of Mr. Renegar’s
allegations, when viewed in the most favorable light, could theoretically lead to potential claims
against various parties in other forums, no such issues were properly before this Court that could
serve as a basis to sustain the objections to the final report and compensation request.” (Order
Overruling Objection to Trustee’s Final Report and Application for Compensation, ECF No. 84.)
That finding is correct. Accordingly, the bankruptcy court did not err in denying Renegar’s
request for equitable subordination.
No. 18-8047 In re Renegar Golf, LLC Page 6
2. The other requests in Renegar’s appellate brief are not appropriately before this Panel.
In addition to asserting that the bankruptcy court erred by not exercising its judicial
discretion as a court of equity, Renegar asks this Panel to evaluate his claims on the merits and
find in his favor. Specifically, Renegar requests the Panel determine that the matter is an
intentional abuse of the bankruptcy system and to “vacate entirely the findings, rulings and
orders of the lower bankruptcy court, including the Trustee’s pro-rata distribution of the estate
assets.” (Appellant’s Br. at 27, BAP Case No. 18-8047 ECF No. 11.) Renegar also asks the
Panel to re-examine the “preferential” nature of all of the company’s expenditures after it
defaulted on the buy-out agreement with him. (Id.) Renegar further requests that the Panel
avoid the asserted “priority” of another creditor entirely. (Id.) Finally, Renegar requests that his
claim be prioritized ahead of all other estate obligations, and that the Panel sua sponte award him
compensatory and punitive damages based on alleged malfeasance by other creditors. (Id. at 28.)
None of Renegar’s demands for relief are appropriate for this Panel. His requests require
the Panel to make findings of fact, which is not appropriate for this body. In re Brice Rd.
Developments, L.L.C., 392 B.R. 274, 280 (B.A.P. 6th Cir. 2008) (“This Panel is not a fact
finder.”). Further, to the extent that these requests were made to the bankruptcy court, they were
not presented to that court in a timely or procedurally correct manner. In addition, several of
Renegar’s requests would have required an adversary proceeding, which he did not prosecute.2
Accordingly, a remand is not appropriate.
CONCLUSION
The order overruling Renegar’s objection to the Final Report is AFFIRMED.
2See Fed. R. Bankr. P. 7001(1) (proceeding to recover money or property); 7001(2) (proceeding to
determine validity, priority or extent of lien); 7001(7) (proceeding to obtain injunction or equitable relief); 7001(8)
(proceeding to subordinate claim); 7001(9) (proceeding to obtain declaratory judgment).