In re: Earl Benard Blasingame; Margaret Gooch Blasingame, Debtors
Earl Benard Blasingame and Margaret Gooch Blasingame (18-5549/5623); Blasingame Family Residence Generation Skipping Trust (18-5549); Blasingame Family Business Investment Trust (18-5623), Defendants-Appellees. Church Joint Venture, L.P., on behalf of Chapter 7 Trustee, Plaintiff-Appellant,
from the Bankruptcy Appellate Panel of the Sixth Circuit;
Nos. 17-8009/8011/8029-Guy R. Humphrey, Daniel S. Opperman,
and Tracey N. Wise, Bankruptcy Appellate Panel Judges.
States Bankruptcy Court for the Western District of Tennessee
at Memphis; Nos. 2:08-bk-28289; 2:15-ap-00339;
17-ap-00049-Jennie D. Latta, Judge.
W. Akerly, MALONE AKERLY MARTIN PLLC, Dallas, Texas, for
Michael P. Coury, GLANKLER BROWN, PLLC, Memphis, Tennessee,
Before: GRIFFIN, KETHLEDGE, and THAPAR, Circuit Judges.
THAPAR, CIRCUIT JUDGE.
and Margaret Blasingame (the "Blasingames") filed
for bankruptcy, claiming they did not have much money to
their name. One of their creditors, Church Joint Venture
("Church"), said otherwise. In fact, Church alleged
that the Blasingames engaged in a decades-long scheme of
fraud to hide their assets. So Church filed multiple actions
to recover those assets. Two of Church's actions are now
before us, and we affirm the bankruptcy court's dismissal
decade ago, the Blasingames filed for bankruptcy. They sought
to discharge $7.7 million in debt, claiming they made under
$900 per month and owned less than $6, 000 worth of assets.
Their creditors, including Church, were skeptical. Church
investigated and allegedly discovered fraud on a massive
scale. Specifically, Church said that the Blasingames made
over $300, 000 per year and had at least $18 million in
assets, including "a 28-acre, gated residence
compound" complete with a heated swimming pool and
lighted tennis courts, 1, 700 acres of "prime
farmland," and hundreds of thousands of dollars in cash
and financial assets. 09-00482 Adversary Proceeding Record
("A.P.R.") 1 ¶¶ 2-23. These assets all
belonged to a handful of trusts and corporations under the
Blasingames' control. Church contended that these trusts
and corporations were mere shams to defraud creditors and
were in reality "one and the same" with the
Blasingames. Id. ¶ 3. Thus, Church claimed that
these assets should be available to the Blasingames'
creditors to satisfy their debt. The question was how Church
could reach these assets.
understand Church's options, we need to take a step back
for some context on how bankruptcy proceedings work. When
debtors, like the Blasingames, file for bankruptcy, their
property generally becomes property of the (newly-created)
bankruptcy estate. The government can then appoint a
bankruptcy trustee to administer that estate. 11 U.S.C.
§§ 323, 541(a), 701. The bankruptcy trustee's
goal is to maximize the value of the estate and, in turn, to
maximize the amount the creditors will get paid. See
Commodity Futures Trading Comm'n v. Weintraub, 471
U.S. 343, 352 (1985); 11 U.S.C. § 704(a)(1). Along with
ordinary types of property (cash, real estate, etc.), the
bankruptcy estate's property also includes causes of
action that the debtors "could have . . . brought"
before they filed for bankruptcy. Tyler v. DH Capital
Mgmt., Inc., 736 F.3d 455, 462 (6th Cir. 2013). Thus, if
the debtors could have sued somebody or some entity for
damages or property before they filed for bankruptcy, then
the trustee may also bring that suit. Relatedly, the
bankruptcy trustee may also sue to invalidate property
transfers that the debtors made before they filed for
bankruptcy. In this way, the trustee brings that property
back where it belongs: in the bankruptcy estate. See
11 U.S.C. §§ 544, 548; see, e.g., In
re Moore, 608 F.3d 253, 257-62 (5th Cir. 2010) (noting
that causes of action for fraudulent-transfer and alter-ego
were property of the bankruptcy estate under state law).
the bankruptcy trustee does not want to do the dirty work,
and sometimes the trustee simply cannot-like when it
has run out of money to pay for lawyers. See, e.g.,
In re Trailer Source Inc., 555 F.3d 231, 241, 244
(6th Cir. 2009). The trustee has several options in these
situations, two of which are relevant here. First, the
bankruptcy trustee can allow a creditor to sue on the
trustee's behalf, giving the creditor "derivative
standing." Id. at 241 (describing derivative
standing as a "well-established practice"). The
creditor becomes an additional named party, but the suit
continues in the bankruptcy court and any recovery goes to
the bankruptcy estate, not the creditor. See id.
Second, like any other asset of the bankruptcy estate, the
trustee can decide to sell the cause of action. See In re
Moore, 608 F.3d at 257-58. The proceeds of that sale
increase the bankruptcy estate, but the sale also means that
the bankruptcy trustee gives up its right to sue based on
that cause of action. Thus, that cause of action can no
longer affect the value of the bankruptcy estate, which means
the bankruptcy court no longer has jurisdiction over it.
See In re Wolverine Radio Co., 930 F.2d 1132,
1140-42 (6th Cir. 1991) (citing 28 U.S.C. § 1334). So
the purchaser of the cause of action generally must sue in a
back to the Blasingames' bankruptcy, the Bankruptcy
Trustee initially tried to recover the assets Church found.
Specifically, the Bankruptcy Trustee authorized Church to sue
derivatively on its behalf in bankruptcy court. But a few
years into that proceeding, the Bankruptcy Trustee changed
course and decided to sell the cause of action instead.
Church bought the cause of action for a lump sum payment and
a reduction in Church's claim against the bankruptcy
estate. R. 356, ¶ 2-4 (the "Sale Order").
the sold cause of action could no longer affect the value of
the bankruptcy estate, the bankruptcy court dismissed
Church's case for lack of jurisdiction. So Church filed a
new lawsuit against the Blasingames and their trusts in
district court and claimed that the Blasingames' trusts
were their "alter-egos." But the district court
dismissed this lawsuit, concluding that Tennessee would not
recognize Church's alter-ego theory outside of the
corporate context. Church Joint Venture v.