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

• Decision Date: 06 June 2018
• Docket Number: No. 17–8029,17–8029
• Citation: 585 B.R. 850
• Parties: IN RE: Earl Benard BLASINGAME; Margaret Gooch Blasingame, Debtors. Church Joint Venture, L.P., Plaintiff–Appellant, v. Earl Benard Blasingame; Margaret Gooch Blasingame; The Blasingame Family Business Investment Trust, Defendants–Appellees.
• Court: U.S. Bankruptcy Appellate Panel, Sixth Circuit

585 B.R. 850

IN RE: Earl Benard BLASINGAME; Margaret Gooch Blasingame, Debtors.

Church Joint Venture, L.P., Plaintiff–Appellant,

v.Earl Benard Blasingame; Margaret Gooch Blasingame; The Blasingame Family Business Investment Trust, Defendants–Appellees.

No. 17–8029

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued: May 8, 2018

Decided and Filed: June 6, 2018

COUNSEL ARGUED: Bruce W. Akerly, MALONE AKERLY MARTIN PLLC, Dallas, Texas, for Appellant. Michael P. Coury, GLANKLER BROWN, PLLC, Memphis, Tennessee, for Appellees. ON BRIEF: Bruce W. Akerly, MALONE AKERLY MARTIN PLLC, Dallas, Texas, for Appellant. Michael P. Coury, GLANKLER BROWN, PLLC, Memphis, Tennessee, for Appellees.

Before: HUMPHREY, OPPERMAN, and WISE, Bankruptcy Appellate Panel Judges.

OPINION

TRACEY N. WISE, Bankruptcy Appellate Panel Judge.

Creditor/Appellant Church Joint Venture, L.P. ("Creditor") filed a complaint in which it asserted derivative standing to pursue claims on behalf of the Chapter 7 Trustee, Edward L. Montedonico, against Earl Benard Blasingame and Margaret Gooch Blasingame ("Debtors") and The Blasingame Family Business Investment Trust ("BIT") (together with Debtors, the "Defendants"). Defendants moved to dismiss the complaint for lack of subject matter jurisdiction asserting Creditor lacked standing. The bankruptcy court granted Defendants' motion, finding that, because Trustee previously had sold the claims to Creditor, Creditor could not thereafter pursue the claims derivatively on Trustee's behalf. Creditor appeals from the order dismissing the complaint. For the reasons stated, we affirm.

ISSUES ON APPEAL

Creditor identifies one issue on appeal: whether the bankruptcy court erred in dismissing Creditor's complaint for lack of subject matter jurisdiction premised on lack of standing. The briefing on this appeal, however, revealed that a second issue also must be decided: the appropriate standard of review to apply to a bankruptcy court's interpretation of its own order approving a sale under § 363 of the Bankruptcy Code.¹

JURISDICTION

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Western District of Tennessee has authorized appeals to the Panel, and no party timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6) and (c)(1). A bankruptcy court's final order may be appealed as of right. 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States , 489 U.S. 794, 798, 109 S.Ct. 1494, 103 L.Ed.2d 879 (1989) (citations omitted). An order granting a motion to dismiss for lack of standing is a final order. Schwab v. Oscar (In re SII Liquidation Co. ), 517 B.R. 72, 76 (6th Cir. BAP 2014) (citation omitted).

FACTS

Debtors filed their bankruptcy petition in 2008. In 2009, Trustee and Creditor together filed an adversary complaint (the "2009 Complaint") against Debtors and several others ("Non–Debtor Defendants"), including the BIT, generally seeking two types of relief: (1) a declaration that Debtors were not entitled to a discharge, and (2) to augment the bankruptcy estate by recovering assets from the Non–Debtor Defendants. [AP No. 09–00482 ("2009 Action"), ECF No. 1.] About two years later, Creditor and Trustee entered into an agreement whereby Creditor purchased the bankruptcy estate's claims and causes of action in the 2009 Complaint, save for Trustee's claims objecting to Debtors' discharge, in exchange for $100,000 and a 25% reduction to Creditor's proof of claim. Trustee moved the bankruptcy court in Debtors' main case to authorize the sale of a

claim[ ] and cause of action ... for declaratory judgment that each of the three (3) trust and five (5) corporate defendants [including the BIT] have been used for an improper purpose and are, in fact, the alter egos or reverse alter egos of the Debtor Defendants, are shams to thwart, deceive, hinder and delay their creditors and to conceal assets from the claims of their creditors and/or have been so misused and their assets so repeatedly commingled that the assets of each of them should be considered one and the same and made available to their creditors.

[Case No. 08–28289, ECF No. 331 ("Sale Motion") ¶ 5.b.] No party objected, and the bankruptcy court entered Trustee's tendered order approving the sale from Trustee to Creditor. [Case No. 08–28289, ECF No. 356 (the "Sale Order").] The Sale Order provided that, upon the aforementioned payment "as consideration for the transfer, conveyance and assignment of the claims and cause[s] of action of the Trustee which have been asserted in" the 2009 Action, then

all claims and/or causes of action asserted by Trustee in the [2009 Action], except those relating to Debtors' discharge, shall be and are hereby transferred, conveyed, and assigned to [Creditor], including but not limited to the following:

A. Claims that [the BIT and other Non–Debtor Defendants] have all been used for an improper purpose and are, in fact, the alter egos or reverse alter egos of the Debtors, are shams to thwart, deceive, hinder and delay their creditors and to conceal assets from the claims of their creditors and/or have been so used in their assets repeatedly co-mingled with the assets of each of them should be one of the same [sic] and made available to their creditors[.]

[Id. , ¶¶ 2, 4.]

The purchased causes of action and claims then were dismissed from the 2009 Action for lack of subject matter jurisdiction based on the premise that, following the Sale Order, Trustee no longer owned and, thus, lacked standing to assert them. [AP No. 09–00482, ECF No. 285.] The bankruptcy court explained:

[T]he sale by the Trustee of the causes of action raised in the 2009 Complaint against the Non–Debtor Defendants, including the [BIT], left the bankruptcy court without jurisdiction over those causes of action because the outcome of those disputes could have no economic effect upon the bankruptcy estate. [ ] The court nevertheless did not dismiss the 2009 Complaint because [Creditor] was an original plaintiff in its own right. With respect to the Trustee's causes of actions that had been sold to [Creditor], the court reserved decision or recommendation because although federal bankruptcy jurisdiction was no longer present as the result of the sale, federal jurisdiction might be retained in the event that substantial prejudice would result from dismissal. The parties were directed to file briefs and/or affidavits concerning the issue of prejudice. They subsequently agreed that the Non–Discharge Causes of Action might be dismissed without prejudice for lack of subject matter jurisdiction, which resulted in the entry of the Consent Order of November 14, 2012, Adv. Proc. No. 09–00482, Dkt. No. 336.

Church Joint Venture, L.P. ex rel. Montedonico v. Blasingame (In re Blasingame ), AP No. 17-00049, 2017 Bankr. LEXIS 2362, at *12–13 (Bankr. W.D. Tenn. Aug. 17, 2017) (the "Opinion").

Creditor, on its own behalf, then filed the dismissed claims in the United States District Court for the Western District of Tennessee, Case No. 12–02999 ("DC Case"). Among other things, Creditor alleged in the DC Case that the BIT was an alter ego and/or reverse alter ego and instrumentality of Debtors, such that its assets should be considered Debtors' assets, and that those assets should be made available to satisfy Debtors' creditors' claims. Creditor's complaint in the DC Case also referenced the turnover and sale of pertinent assets, including those held by the BIT. The district court dismissed the alter ego related claims against the BIT on the merits, finding that Tennessee law does not recognize reverse-veil-piercing outside the context of parent-subsidiary corporate relationships. Church Joint Venture, L.P. v. Blasingame , Case No. 12-2999, 2016 WL 3248044, at *8, 2016 U.S. Dist. LEXIS 189261, at *17–22 (W.D. Tenn. Jan. 13, 2016).²

Next, Creditor filed a new complaint—at issue here—against Defendants in the bankruptcy court, invoking derivative standing. [AP No. 17–00049, ECF No. 1 (the "2017 Complaint").] The 2017 Complaint sought a declaration that the BIT is a self-settled trust and, thus, that its assets are not excluded from property of Debtors' bankruptcy estate by § 541(c)(2). The 2017 Complaint also demanded a turnover of the property held by the BIT (or its value) to Trustee.

Defendants moved to dismiss the 2017 Complaint for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), made applicable by Federal Rule of Bankruptcy Procedure 7012(b). Defendants argued that, upon the sale of the claims in the 2009 Complaint to Creditor, Trustee no longer owned the claims and Creditor could not pursue them derivatively on Trustee's behalf. Creditor responded that the 2009 Complaint did not assert a claim based on the theory that the BIT is a self-settled trust, and therefore the specific request for declaratory relief in the 2017 Complaint was not pursued in the 2009 Action. Consequently, Creditor argued, Trustee did not sell Creditor any claim based on the theory that the BIT was self-settled, and Creditor could pursue that claim derivatively on Trustee's behalf. The bankruptcy court disagreed and granted Defendants' motion, explaining:

Although the 2009 Complaint sought a declaration that the assets of the [BIT] are property of [Debtors'] bankruptcy estate, it did so on the basis of alter ego, piercing the corporate veil, or reverse piercing theories. The issue raised by the present motion is whether the request for a declaration that the assets of the [BIT] are assets of the bankruptcy estate includes every theory under which that might be true? The simple answer is yes, because assets of the [BIT] can only be recovered once. [Creditor] purchased the right to recover on its own behalf the assets of the [B

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