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Church Joint Venture v. Blasingame

United States District Court, W.D. Tennessee

May 14, 2019

CHURCH JOINT VENTURE, A LIMITED PARTNERSHIP, Plaintiff,
v.
EARL BENARD BLASINGAME, MARGARET GOOCH BLASINGAME, AND BLASINGAME FAMILY BUSINESS INVESTMENT TRUST, Defendants.

          ORDER GRANTING DEFENDANTS' MOTION TO DISMISS AND DENYING DEFENDANTS' MOTION FOR SANCTIONS

          S. THOMAS ANDERSON CHIEF UNITED STATES DISTRICT JUDGE

         Plaintiff Church Joint Venture has filed this action seeking a declaratory judgment that the assets of the Blasingame Family Business Investment Trust (“BIT”) are, in actuality, assets of Earl Benard Blasingame and Margaret Gooch Blasingame, i.e., that the BIT is a “self-settled trust” and, as such, any spendthrift clauses in the BIT instrument are invalid and the trust assets are subject to the claims of Church Joint Venture against the Blasingames. Plaintiff has sued Earl Benard Blasingame, Margaret Gooch Blasingame, and the BIT.[1] Defendants have filed a motion to dismiss (ECF No. 10), and a motion for sanctions. (ECF No. 13.)[2] Plaintiff has filed responses to the motions (ECF Nos. 14, 15), and Defendants have filed a reply to the responses. (ECF No. 16.)

         On April 4, 2019, Defendants filed a notice of the decision of the Sixth Circuit Court of Appeals in a related case, In re Blasingame, 920 F.3d 384 (6th Cir. 2019). (ECF No. 18.) Plaintiff was ordered to show cause why the motion to dismiss should not be granted in light of that decision. (ECF No. 19.) Plaintiff has responded to the order to show cause (ECF No. 20), and Defendants have filed a reply to Plaintiff's response. (ECF No. 23.)

         For the reasons set forth below, the motion to dismiss is GRANTED, and the motion for sanctions is DENIED.

         Motion to Dismiss

         A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of the complaint. RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134 (6th Cir. 1996). A complaint need not contain “detailed factual allegations, ” but it must contain more than “labels and conclusions” or “a formulaic recitation of the elements of a cause of action....” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint does not “suffice if it tenders ‘naked assertions' devoid of ‘further factual enhancement.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 557). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Id. (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). The plausibility standard “does not impose a probability requirement at the pleading stage; it simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of illegal [conduct].” Twombly, 550 U.S. at 556.

         Defendants contend that the complaint in this matter should be dismissed on the grounds that (a) it is duplicative of previous litigation and violates the doctrine against claim-splitting; (b) there are prior pending lawsuits in which the same issues have been raised; and (c) the complaint is barred under the doctrine of res judicata. Plaintiff has responded that the claims asserted in the complaint in the present lawsuit have not been adjudicated in any other forum to a final decision on the merits.

         The history of the prior litigation between the parties is not disputed unless otherwise noted. The 2009 Bankruptcy Proceeding

         Earl Benard Blasingame and Margaret Gooch Blasingame filed a Chapter 7 bankruptcy petition on August 15, 2008. In Re Earl Benard Blasingame and Margaret Gooch Blasingame, Ch. 7 No. 08-28289-L (W.D. Tenn.). Church Joint Venture was an unsecured creditor in the bankruptcy case. Its claims were not objected to by the Blasingames.

         On September 29, 2009, the Chapter 7 Trustee and Church Joint Venture filed Adversary Proceeding No. 09-00482 (“2009 Proceeding”) which, inter alia, sought declaratory and injunctive relief against the BIT and the Blasingame Debtors. Specifically, the Trustee and Church Joint Venture sought a declaratory judgment that the assets of the BIT (as well as other trusts not named in this complaint) were property of the bankruptcy estate. The complaint alleged that:

It would appear that the Debtors have attempted to transfer certain inherited assets beyond the reach of creditors into the trust without consideration, rendering each trust “self-settled” in whole or part.”
The Debtors willfully and knowingly utilize the Trusts and Corporations to conceal and shelter personal assets beyond the reach of creditors. . . It likewise appears that inheritances received by the Debtors, obviously personal assets, have been sheltered in the trust, rendering them “self-settled.”
It is now impossible to account whether the present Trust assets came from a third party settlor or from the Debtors who deposited their salaries, their substantial inheritances and personal assets into the shelter of the Trusts so as to render them “self-settled” in whole or part for the specific purpose of evading creditors.
The three (3) Trusts [including the BIT] ... effectively have, over the years, lost their independent status as may have been originally designed and are now used exclusively to hinder, delay and defraud Debtors' creditors as clearly indicated by the transfer of Debtors' property into the trust secure from creditors and rendering the Trusts self-settled in whole or part.
The three (3) trusts [which included the BIT] have been used for an improper purpose and are but the alter egos of the Debtors, shams to thwart, deceive and conceal assets from the claims of creditors and have been so misused and repeatedly comingled that the assets of the same should be considered the assets of the Debtors and made available to satisfy the claims of Debtors' creditors. The three (3) Trusts. . .are, in fact, alter egos and instrumentalities of the Debtors who have and exert unrestricted control and access and engage in a consistent pattern of transfer between and comingling of each entity's assets in a manner such that their assets are the comingled assets of the Debtors and property of the estate.

(Exhibit, 2009 Adversary Compl. ¶¶ 33, 47, 49, 51, 53, ECF No. 10-2.)[3]

         In addition to seeking declaratory relief, the complaint sought: (a) to avoid any transfers of property by the Blasingame Debtors to the BIT pursuant to 11 U.S.C. § 544(b); (b) injunctive relief against the BIT to restrict it from making any further transfers of assets; (c) and an accounting by the BIT of “all assets held on the date of filing and all subsequent transfers of property, real or personal by it since the filing of the case. (Id. at ¶¶ 56, 73-74, 78, 80-84.) In its prayer for relief, the complaint sought, inter alia, a declaration that the assets of the BIT were “property of the estate and subject to the claims of creditors.” (Id. at ¶ 3.)

         Subsequently, the Chapter 7 Trustee filed a motion to approve the sale of all the bankruptcy estate's claims and causes of action that were set forth in the complaint to Church Joint Venture, except for the Trustee's claims objecting to the Blasingame Debtors' discharge, for $100, 000 and a reduction in the amount of Church Joint Venture's unsecured claim against the estate. The Trustee's motion requested that the Bankruptcy Court approve the sale of the “Non-Discharge Actions” and that, upon sale, “All right, title and interest in and to the Non-Discharge Actions, as well as any recovery with respect to the Non-Discharge Actions, shall inure to the sole and exclusive benefit of Church JV.” (Exhibit, Sale Motion ¶ 6, ECF No. 10-3.) The Bankruptcy Court granted the Sale Motion. (Exhibit, Sale Order, ECF No. 10-4.) After the sale of the non-discharge related claims and causes of action, the Bankruptcy Court dismissed the sold causes of action for lack of subject matter jurisdiction.

         The Bankruptcy Court then denied the Blasingames' discharge on the ground that the Blasingames had intentionally lied under oath, having made false statements as to their assets in their Schedules and Statement of Financial Affairs. At the time of the filing of Church Joint Venture's response to Defendants' motion to dismiss in this case, the bankruptcy case was still open and being administered by a Chapter 7 Trustee.

         2012 Lawsuit in the United States District Court

         On November 16, 2012, Church Joint Venture, which was now the owner of the claims asserted by the Trustee in the complaint in the 2009 Proceeding, filed a lawsuit in the United States District Court for the Western District of Tennessee (“2012 Lawsuit”) before Judge Samuel H. Mays, asserting the purchased claims. Church Joint Venture v. Blasingame, 2:12-cv-02999-SHM-tmp (W.D. Tenn. Nov. 16, 2012). As had the complaint in the 2009 Proceeding in Bankruptcy Court, the 2012 complaint alleged, inter alia, that the BIT was self-settled by Earl and Margaret Blasingame and that it was a sham, alter ego, or reverse alter ego of the Blasingames and that its assets should be considered to be property of the Blasingames. (2012 Lawsuit, Compl. ¶¶ 77, 74, ECF No. 1.)[4] An amended complaint was filed on June 14, 2013. (Id., Amd. Compl., ECF No. 81.) The amended complaint also contained language to the effect that the BIT (and other family trusts which are not involved in the present lawsuit) was self-settled.[5] (Id. at ¶ 92.)

         The 2017 Bankruptcy Proceeding

         Following Judge Mays' dismissal of portions of Church Joint Venture's declaratory judgment (id., Order, ECF No. 146) (and while the 2012 Lawsuit was still pending), Church Joint Venture returned to Bankruptcy Court and obtained derivative standing to file a new Adversary Proceeding on behalf of the Chapter 7 Trustee.[6] Under the theory that it had not acquired the self-settled trust claims in the Sale Order, Church Joint Venture sought a declaratory judgment that the assets of ...


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