Church Joint Venture, L.P. v. Blasingame

• Decision Date: 21 January 2020
• Docket Number: No. 18-6142,18-6142
• Citation: 947 F.3d 925
• Parties: CHURCH JOINT VENTURE, L.P., Plaintiff-Appellant, v. Earl Benard BLASINGAME; Margaret Gooch Blasingame; Katherine Blasingame Church; Earl Benard Blasingame, Jr.; Blasingame Family Business Investment Trust; Blasingame Family Residence Generation Skipping Trust; The Blasingame Trust ; Flozone Services Inc. ; Fiberzone Technologies Inc.; GF Corporation; Blasingame Farms, Inc.; Aqua Dynamics Group Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

947 F.3d 925

CHURCH JOINT VENTURE, L.P., Plaintiff-Appellant,

v.Earl Benard BLASINGAME; Margaret Gooch Blasingame; Katherine Blasingame Church; Earl Benard Blasingame, Jr.; Blasingame Family Business Investment Trust; Blasingame Family Residence Generation Skipping Trust; The Blasingame Trust ; Flozone Services Inc. ; Fiberzone Technologies Inc.; GF Corporation; Blasingame Farms, Inc.; Aqua Dynamics Group Corporation, Defendants-Appellees.

No. 18-6142

United States Court of Appeals, Sixth Circuit.

Argued: June 28, 2019

Decided and Filed: January 21, 2020

ALAN E. NORRIS, Circuit Judge.

Church Joint Venture, L.P. ("CJV") purchased two judgments from the trustee of the 2009 bankruptcy case of Earl Benard Blasingame ("EBB") and his wife, Margaret Gooch Blasingame ("MGB" and, together, "the Blasingames"). CJV has pursued recovery against the Blasingames ever since—at issue here is a 2012 suit in which CJV seeks to reach the assets of certain trusts and corporations related to the Blasingames to satisfy those judgments.

I.

A. The Bankruptcy

The Blasingames filed for Chapter 7 bankruptcy over a decade ago. CJV purchased the debt owed by the Blasingames to two commercial banks, each debt arising from personal guarantees made by the Blasingames to secure loans to businesses that ultimately failed.

As part of their bankruptcy, the Blasingames were required to file Statements of Financial Affairs; they claimed that they owned no real property, owned personal property worth a total of $5,700, and had a total monthly income of $888. The bankruptcy trustee and CJV successfully argued against the discharge of the Blasingames’ debts, with the bankruptcy court noting that, "The record in this case is replete with instances in which the Debtors concealed assets from their creditors both before and after the filing of their bankruptcy petition." One of the ways the Blasingames concealed their assets and income was through the use of several closely held and interconnected corporations and trusts. CJV asserts that the defendant business entities and trusts are the alter egos of the Blasingames, and so the entities’ assets should be available to satisfy the Blasingames debts.

B. The Corporations and Trusts

In the early 1980s, EBB was the majority stockholder in a highly successful company called Aqua Glass Corporation. In 1983, he formed the Blasingame Trust ("BT") to hold 60,000 shares of the company for the benefit of his then-minor children Earl Benard Blasingame, Jr. ("Ben") and Katherine Blasingame Church ("Katherine"). Aqua Glass was later acquired by a publicly traded company and the trust assets were eventually converted into other investments.

In the early 1990s, EBB and MGB defaulted on loans owed to Third National Bank that were secured by their personal residence and an approximately 205-acre tract of land adjacent to the residence, along with other real and personal property. In 1993, EBB’s mother Mavoureen Blasingame ("Mrs. Blasingame") stepped in to help EBB and MGB avoid foreclosure. This assistance took the form of two trusts formed by Mrs. Blasingame: the Blasingame Family Residence Generation Skipping Trust ("Residence Trust") and the Blasingame Family Development Generation Skipping Trust ("Development Trust"). EBB and MGB serve as trustees for those trusts, while EBB, MGB, Ben, and Katherine are the trust’s beneficiaries. Mrs. Blasingame loaned the Residence Trust $460,000 and the Development Trust $40,000, and with that money the trusts purchased EBB’s and MGB’s residence and the adjacent tract, respectively, paying off Third National and removing its liens. The Residential Trust includes a life estate in the residence for the Blasingames, and this court recently affirmed that CJV could not reach that life estate. In re Blasingame , 920 F.3d 384, 395 (6th Cir. 2019) ("[T]he Blasingames’ limited equitable interest in [their] residence is not available to creditors.").

In 1994, Mrs. Blasingame formed two more trusts, one for the benefit of Ben and one for the benefit of Katherine. She purchased from EBB and MGB a tract of approximately 1,500 acres of farmland and transferred it to the trust for Ben, and another tract of approximately 1,300 acres and transferred it to the trust for Katherine. The trust for Katherine also purchased the 205 acres owned by the Development Trust.

In 1995, Mrs. Blasingame formed yet another trust, the Blasingame Family Business Investment Trust ("BIT"), again with EBB and MGB as trustees, and EBB, MGB, Ben, and Katherine as beneficiaries. The BIT invested directly in some real estate, and also formed GF Corporation for the purpose of additional real estate investing. In 2006, the trusts for Ben and Katherine were merged into the BIT, and so those trusts are not parties to this litigation. The Development Trust is also not a party.

Turning to the corporations, EBB formed Blasingame Farms, Inc. ("BFI") in 1994 to provide property maintenance services to the various real estate holdings. EBB remains its president. In 2005, EBB transferred the BFI shares to the trusts for Ben and Katherine; after the merger of those trusts into the BIT, BFI is wholly owned by the BIT.

Flozone Services, Inc. was formed in 2002 by Katherine, who was initially the sole shareholder. Katherine currently owns 97.1% of the common stock, with the remaining common stock owned by two unrelated parties. Flozone also has preferred stock that is 100% owned by Aqua Dynamics Systems, Inc. ("ADSI"). ADSI, in turn, was formed in 1998 and primarily owns intellectual property rights that are licensed to Flozone. ADSI is owned by BT, BIT, and twenty-one other investors. The ownership of ADSI is not broken down by percentages in the record, but the Blasingames do not own any shares.

Finally, Fiberzone Technologies, Inc. was formed in 2004 by Katherine, who remains its sole shareholder. It has had minimal business operations for several years.

At the time of the suit, the relevant trust and corporate entities were structured as follows:

C. Proceedings Below

In 2012, CJV filed a federal diversity suit against the Blasingames, their children, and the entities and trusts mentioned above, alleging among other things that the three trusts and five corporations have each been used as instrumentalities of debtors to the extent that they should be ignored, and the entities’ assets should be treated as the Blasingames’ assets (thereby reachable by creditors such as CJV).

The district court analyzed CJV’s claims of reverse alter ego and reverse veil piercing, and several alleged fraudulent conveyances, all under Tennessee law. Several claims were dismissed, but two fraudulent transfer claims were allowed to go to trial: one for a transfer of money to a trust account and one for the transfer of real property to a trust. CJV prevailed on both issues. CJV appeals three orders by the district court¹ that together (1) dismissed all claims that were based on reverse alter ego or reverse veil piercing, (2) denied CJV’s motion to certify to the Tennessee Supreme Court the question of whether Tennessee would recognize such theories, (3) dismissed one specific fraudulent transfer claim related to Flozone Services, Inc., and (4) denied CJV’s motion for leave to amend its complaint to add to its legal theories that the trusts were "self-settled."

II.

We review de novo the district court’s dismissal of CJV’s claims for failure to state a claim. Majestic Bldg. Maint., Inc. v. Huntington Bancshares Inc. , 864 F.3d 455, 458 (6th Cir. 2017). The standard is the same when reviewing the claims for which the district court granted summary judgment. Brumley v. United Parcel Serv., Inc. , 909 F.3d 834, 839 (6th Cir. 2018).

The district court’s denial of CJV’s motion to certify a question to the Tennessee Supreme Court is reviewed for an abuse of discretion. See Kentucky Emps. Ret. Sys. v. Seven Ctys. Servs., Inc. , 901 F.3d 718, 731-32 (6th Cir. 2018). Likewise, we review for abuse of discretion the denial of CJV’s motion to amend its complaint. Kinzel v. Bank of Am. , 850 F.3d 275, 281 (6th Cir. 2017).

A. Reverse Alter Ego and Reverse Veil Piercing in Tennessee

As an initial matter, claims of "alter ego" and "veil piercing" are not exactly the same. See Int’l Union, United Auto., Aerospace & Agr. Implement Workers of Am. v. Aguirre , 410 F.3d 297, 302 (6th Cir. 2005). A veil piercing claim seeks to hold a second party liable for another’s debt, while an alter ego claim asserts that the two parties should be treated as the same party, so the liability is direct, not vicarious. Id. The analysis and effects are similar, and the parties and district court treat them as essentially interchangeable.

In a traditional alter ego or veil piercing claim, the corporate or other entity form is ignored, and the entity’s owners are held accountable for the debts or other obligations of the entities. This traditional type of claim is well settled in Tennessee:

The separate identity of a corporation may be disregarded upon a showing that it is a sham or a dummy or where necessary to accomplish justice. Oak Ridge Auto Repair Service v. City Finance Co. , 57 Tenn. App. 707, 425 S.W.2d 620 [ (1967) ].

In an appropriate case and in furtherance of the ends of justice, a corporation and the individual or individuals owning all its stock and assets will be treated as identical. E.O. Bailey & Co. v. Union Planters Title Guaranty Co. , 33 Tenn. App. 439, 232 S.W.2d 309 [ (1949) ].

The principle of piercing the fiction of the corporate veil is to be applied with great caution and not precipitately, since there is a presumption of corporate regularity. 18 Am. Jur. 2d Corporations, § 43, p. 842, notes 79, 80, 81.

Each case involving disregard of the corporate entity must rest upon its special facts. Generally, no one factor is conclusive in determining whether or not to disregard a corporate entity; usually a combination of factors is present in a particular case and is relied upon to resolve the

...