Church Joint Venture, L.P. v. Blasingame (In re Blasingame)

• Decision Date: 26 January 2021
• Docket Number: No. 19-5505,19-5505
• Citation: 986 F.3d 633
• Parties: IN RE: Earl Benard BLASINGAME; Margaret Gooch Blasingame, Debtors. Church Joint Venture, L.P., on Behalf of Chapter 7 Trustee, Plaintiff-Appellant, v. Earl Benard Blasingame; Margaret Gooch Blasingame; Martin A. Grusin ; MAG Management Corporation, dba JG Law Firm ; Tommy L. Fullen ; Law Office of Tommy L. Fullen, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

986 F.3d 633

IN RE: Earl Benard BLASINGAME; Margaret Gooch Blasingame, Debtors.Church Joint Venture, L.P., on Behalf of Chapter 7 Trustee, Plaintiff-Appellant,

v.Earl Benard Blasingame; Margaret Gooch Blasingame; Martin A. Grusin ; MAG Management Corporation, dba JG Law Firm ; Tommy L. Fullen ; Law Office of Tommy L. Fullen, Defendants-Appellees.

No. 19-5505

United States Court of Appeals, Sixth Circuit.

Argued: October 8, 2020

Decided and Filed: January 26, 2021

ARGUED: Carrie R. McNair, AKERLY LAW PLLC, Coppell, Texas, for Appellant. Michael P. Coury, GLANKLER BROWN, PLLC, Memphis, Tennessee, for Appellees Earl and Margaret Blasingame. ON BRIEF: Carrie R. McNair, Bruce W. Akerly, AKERLY LAW PLLC, Coppell, Texas, for Appellant. Michael P. Coury, GLANKLER BROWN, PLLC, Memphis, Tennessee, for Appellees Earl and Margaret Blasingame.

Before: SUHRHEINRICH, DONALD, and MURPHY, Circuit Judges

BERNICE BOUIE DONALD, Circuit Judge.

Church Joint Venture, L.P. ("CJV") appeals the Bankruptcy Appellate Panel's ("BAP") order affirming the bankruptcy court's grant of summary judgment to Earl Bernard Blasingame and Margaret Gooch Blasingame (collectively "the Blasingames"). The bankruptcy court determined that a malpractice claim against the attorneys assisting the Blasingames in their bankruptcy filing is property of the Blasingames, and not the bankruptcy estate. We AFFIRM.

I. BACKGROUND

In July 2008, the Blasingames met with Martin A. Grusin and Tommy L. Fullen (collectively the "filing attorneys") to discuss the mounting pressure of their financial situation. Grusin was familiar with the Blasingames’ finances prior to their bankruptcy conversations and suggested Fullen, a bankruptcy attorney, to assist in their bankruptcy filing. The Blasingames signed engagement agreements with both Grusin and Fullen.

Church Joint Venture, L.P. v. Blasingame (In re Blasingame) , 597 B.R. 614, 616-17 (6th Cir. B.A.P. 2019).

The Blasingames filed their Chapter 7 bankruptcy petition on August 15, 2008, in the United States Bankruptcy Court for the Western District of Tennessee. Fullen signed the petition as the attorney of record. In re Blasingame , 559 B.R. 692, 695 (6th Cir. B.A.P. 2016). Edward L. Montedonico ("the Trustee") was appointed as Trustee in the case. Id. at 696. Fullen constructed the bankruptcy schedules, pulling most of the Blasingames’ financial information from Grusin.

In their bankruptcy petition, [the Blasingames] claimed less than $6,000 in assets. In fact, as the bankruptcy court later found, the Blasingames failed to disclose millions of dollars in assets that they controlled through a complex web of family trusts, shell companies, and shifting "clearing accounts." They failed to disclose the life estate they held in their $1.7 million homestead, title to which was held by the Blasingame Family Residence Generation Skipping Trust. They failed to disclose approximately $1.2 million in household goods. They claimed two 1985 Mercedes-Benz vehicles worth $1,100, but failed to disclose their control of a 2008 Mercedes-Benz vehicle belonging to the G.F. Corporation, of which Margaret Blasingame is the president, and for which the sole shareholder is the Blasingame Family Business Investment Trust. They likewise failed to disclose their use of a vehicle belonging to Flozone Services, Inc., a company wholly owned by the Blasingames’ daughter, and of which Benard Blasingame is the CEO. And they managed their liquid assets in unusual ways: Margaret Blasingame, a schoolteacher, routinely deposited her paycheck into a bank account belonging to her son; the Blasingames’ bookkeeper shifted money between this and other "clearing accounts," each of which went undisclosed.

Church Joint Venture, L.P. v. Blasingame (In re Blasingame) , 651 F. App'x 386, 387 (6th Cir. 2016).

On February 22, 2011, the bankruptcy court granted the Trustee's motion for summary judgment, denying the Blasingames’ discharge. The bankruptcy court denied the Blasingames’ discharge on the basis that "[t]he petition, schedules, and statement of financial affairs, as initially filed, did not disclose Debtors’ interests in several trusts and corporations, certain household goods, multiple annuities, property held for others, several bank accounts and several liabilities, and an assignment to [ ] Grusin." In re Blasingame , 559 B.R. at 695 (abbreviations removed). On July 19, 2011, the bankruptcy court disqualified the filing attorneys from further representation of the Blasingames. Although the Blasingames’ new counsel was able to obtain relief from the summary judgment order, their discharge was once again denied on January 15, 2015, following a trial. On appeal, the BAP affirmed the denial. In re Blasingame , 559 B.R. at 701.

As a result of the filing attorneys’ mishandling of the Blasingames’ bankruptcy filing and the Trustee's belief that the estate lacked the resources to pursue a malpractice claim against them itself, creditor CJV¹ obtained derivative standing from the bankruptcy court to file a malpractice claim against the filing attorneys on behalf of the estate. In re Blasingame , 651 F. App'x at 387-88. CJV, in the bankruptcy court, and the Blasingames, in Tennessee state court, filed malpractice complaints against the filing attorneys, both alleging that the filing attorneys’ negligence resulted in the denial of the Blasingames’ discharge. During this time, the Blasingames also attempted to settle the malpractice claim with the filing attorneys for $1 million and later $1.25 million. Id. The bankruptcy court denied the Blasingames’ motion to approve the settlement because of the overwhelming likelihood that the claim would be successful on the merits. Id. at 388. The Blasingames appealed the denial, but the BAP dismissed their appeal for lack of jurisdiction, holding that the bankruptcy court's order was not a final, appealable order. Id. The Blasingames further appealed the dismissal, and a panel of this Court similarly dismissed the appeal for lack of jurisdiction. Id. at 389.

On January 2, 2018, CJV filed a motion for summary judgment, asserting that the malpractice claims against the filing attorneys are property of the bankruptcy estate, not the Blasingames. The Blasingames responded to the motion, and the bankruptcy court treated the response as a cross-motion for summary judgment, seeking a declaration that the malpractice claims were property of the Blasingames. Applying Tennessee law to determine when the legal malpractice claims accrued, the bankruptcy court denied CJV's motion for summary judgment and granted the Blasingames’ cross-motion for summary judgment. The bankruptcy court determined that the claims arose post-petition and were therefore the property of the Blasingames.

CJV appealed to the BAP. A panel of the BAP unanimously affirmed the bankruptcy court's order. CJV , 597 B.R. at 616. The panel, relying on this Court's unpublished decision in Underhill v. Huntington National Bank (In re Underhill) , 579 F. App'x 480 (6th Cir. 2014),² held that the malpractice claims arose post-petition and were thus property of the Blasingames because the only injury—denial of the Blasingames’ discharges—occurred post-petition. CJV , 597 B.R. at 619. CJV now appeals the BAP's decision affirming the bankruptcy court's order.

II. ANALYSIS

Although this Court has frequently encountered the general question posed here—whether contested claims are property of the debtor or the bankruptcy estate—the context of a legal malpractice claim against the debtors’ filing attorneys seems to be an issue of first impression for this Court. The bankruptcy court applied the "accrual theory," determining that, because the malpractice claims did not accrue until the Blasingames suffered an injury, they arose post-petition, and are therefore property of the Blasingames. As explained by the bankruptcy court:

The [Blasingames] are correct. There can be no more personal damage in connection with a bankruptcy case than the loss of a debtor's discharge. [CJV] has alleged no other damage that accrued to the bankruptcy estate, and has alleged no damage that accrued to the [Blasingames] prior to the filing of their bankruptcy petition. Neither of the complaints describes a cause of action that could have been pursued by the [Blasingames] prior to the filing of their bankruptcy petition.

Church Joint Venture v. Blasingame (In re Blasingame) , No. 08-28289-L, 2018 WL 10323377 at *6, 2018 Bankr. LEXIS 1781 at *17 (W.D. Tenn. May 9, 2018).

We review a bankruptcy court's grant of summary judgment de novo . Trost v. Trost , 735 F. App'x 875, 877 (6th Cir. 2018). "Granting summary judgment is appropriate ‘[w]here the moving party has carried its burden of showing that the pleadings, depositions, answers to interrogatories, admissions and affidavits in the record, construed favorably to the nonmoving party, do not raise a genuine issue of material fact for trial.’ " Meade v. Pension Appeals & Review Comm. , 966 F.2d 190, 192-93 (6th Cir. 1992) (alteration in original) (quoting Gutierrez v. Lynch , 826 F.2d 1534, 1536 (6th Cir. 1987) ); Fed. R. Civ. P. 56(a).

All parties agree that summary judgment was proper to determine this issue because there are no genuine issues of material fact. CJV , 597 B.R. at 617. Their disagreement lies exclusively in the legal determination of the ownership of the malpractice claims. We review the bankruptcy court's conclusions of law de novo . Zingale v. Rabin (In re Zingale) , 693 F.3d 704, 707 (6th Cir. 2012). "The BAP's decision is not binding on this [C]ourt." Id.

Section 541(a) of the Bankruptcy Code provides that, barring a few exceptions not relevant here, "all legal or equitable interests of the debtor in property as of the commencement of the case" are property of the bankruptcy estate. 11 U.S.C. § 541 (a)(1). "[E]very conceivable interest of the debtor, future, nonpossessory, contingent, speculative, and derivative, is within the reach of § 541." Tyler v....