Church Joint Venture, L.P. v. Blasingame (In Re Blasingame)
920 F.3d 384
6th Cir.2019Background
- Earl and Margaret Blasingame filed bankruptcy claiming minimal income and assets; creditor Church Joint Venture alleged extensive hidden assets (trusts, real estate, cash) and sued to recover them.
- Bankruptcy trustee initially authorized Church to sue derivatively, then sold the trustee’s causes of action (Sale Order) to Church for payment and claim reduction.
- After the sale, Church filed new suits: (1) in district court asserting alter-ego claims (dismissed as Tennessee law issue), (2) in bankruptcy court asserting a self-settled trust theory against the Investment Trust, and (3) in bankruptcy court asserting that the Residential Trust granted the Blasingames a legal life estate reachable by creditors.
- Bankruptcy and BAP dismissed the self-settled action for lack of standing (trustee had sold the underlying cause of action) and dismissed the life-estate claim because the Blasingames held only an equitable interest in the Residence; appeals followed to this Court.
- The Sixth Circuit affirmed: the Sale Order conveyed the causes of action based on the underlying facts (so the trustee no longer owned the self-settled theory), and the Residential Trust granted only an equitable life interest, protected from creditors.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the trustee sold the self-settled trust cause of action such that Church lacked derivative standing to pursue it | Church: the self-settled theory is a distinct legal theory not included in the Sale Order | Blasingames/Trustee: "cause of action" covers the underlying facts, so sale included any theory based on those facts | The sale conveyed the cause(s) of action defined by the underlying facts; the self-settled suit relied on the same facts and was barred (dismissed for lack of standing) |
| Proper definition of “cause of action” for the Sale Order | Church: cause of action should be read narrowly to mean specific legal theories | Trustee: cause of action is fact-based — a group of operative facts giving rise to legal relief | Court: adopts fact-based definition; different theories based on same facts do not create new causes of action |
| Whether the Blasingames hold a legal life estate in the Residence under the Residential Trust | Church: grant that they “shall be permitted to reside in the Residence for life” creates a legal life estate reachable by creditors | Blasingames: trust creates separation of legal title to trustees and equitable interest to beneficiaries; spendthrift and trustee powers show only an equitable residence interest | Court: the trust grants only an equitable life interest (not a legal life estate); creditors cannot reach it |
| Whether the Residential Trust is a “dry” trust (invalidating separation of legal/title) because trustees have no duties | Church: trust imposes no duties, so legal title should vest in beneficiaries | Blasingames: trust imposes sufficient (minimal) duties — management, investment, distribution — so it is active | Court: trustees have minimal duties; trust is active, not dry; separation of title stands |
Key Cases Cited
- Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343 (legal principle that bankruptcy estate includes causes of action debtors could have brought)
- Tyler v. DH Capital Mgmt., Inc., 736 F.3d 455 (cause-of-action-as-estate-property principle under Sixth Circuit precedent)
- In re Moore, 608 F.3d 253 (sale of estate causes of action and related jurisdictional effects)
- In re Wolverine Radio Co., 930 F.2d 1132 (sale of causes of action removes them from bankruptcy-court jurisdiction)
- Creech v. Addington, 281 S.W.3d 363 (Tenn. Supreme Court adopting fact-based approach to defining a cause of action)
- Caterpillar Inc. v. Williams, 482 U.S. 386 (plaintiff is master of its complaint; court accepts complaint’s labels when appropriate)