Filed: Jun. 10, 2020
Latest Update: Jun. 10, 2020
Summary: NOT RECOMMENDED FOR PUBLICATION File Name: 20a0339n.06 UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT Case Nos. 19-5592/5593/5646/5649 FILED CHURCH JOINT VENTURE, L.P., ) Jun 10, 2020 ) DEBORAH S. HUNT, Clerk Plaintiff-Appellant/Cross-Appellee, ) v. ) ) EARL BENARD BLASINGAME; MARGARET ) ON APPEAL FROM THE GOOCH BLASINGAME; BLASINGAME ) UNITED STATES FAMILY RESIDENCE GENERATION ) DISTRICT COURT FOR SKIPPING TRUST, ) THE WESTERN DISTRICT ) OF TENNESSEE Defendants-Appellees/Cross-Appellants.
Summary: NOT RECOMMENDED FOR PUBLICATION File Name: 20a0339n.06 UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT Case Nos. 19-5592/5593/5646/5649 FILED CHURCH JOINT VENTURE, L.P., ) Jun 10, 2020 ) DEBORAH S. HUNT, Clerk Plaintiff-Appellant/Cross-Appellee, ) v. ) ) EARL BENARD BLASINGAME; MARGARET ) ON APPEAL FROM THE GOOCH BLASINGAME; BLASINGAME ) UNITED STATES FAMILY RESIDENCE GENERATION ) DISTRICT COURT FOR SKIPPING TRUST, ) THE WESTERN DISTRICT ) OF TENNESSEE Defendants-Appellees/Cross-Appellants. ..
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NOT RECOMMENDED FOR PUBLICATION
File Name: 20a0339n.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
Case Nos. 19-5592/5593/5646/5649
FILED
CHURCH JOINT VENTURE, L.P., ) Jun 10, 2020
) DEBORAH S. HUNT, Clerk
Plaintiff-Appellant/Cross-Appellee,
)
v. )
)
EARL BENARD BLASINGAME; MARGARET ) ON APPEAL FROM THE
GOOCH BLASINGAME; BLASINGAME ) UNITED STATES
FAMILY RESIDENCE GENERATION ) DISTRICT COURT FOR
SKIPPING TRUST, ) THE WESTERN DISTRICT
) OF TENNESSEE
Defendants-Appellees/Cross-Appellants.
)
OPINION
BEFORE STRANCH, BUSH, and LARSEN, Circuit Judges.
JOHN K. BUSH, Circuit Judge. This appeal is the latest installment in the decade-long
saga of the Blasingame family bankruptcy, which has involved two proceedings in the bankruptcy
courts, two proceedings in the district court, an appeal to the Bankruptcy Appellate Panel, and two
appeals to the Sixth Circuit. The Blasingames filed for bankruptcy in 2008. Church Joint Venture,
a creditor in the original bankruptcy action, purchased all of the non-discharge related claims from
the Blasingames’ bankruptcy estate. Over the past decade, Church filed four lawsuits in
bankruptcy court and the district court alleging, in one way or another, that various trusts of which
the Blasingames are the beneficiaries may be reached by creditors, despite the spendthrift
provisions in those trusts. In this action, Church filed suit in the U.S. District Court for the Western
District of Tennessee, alleging that two of the trusts were self-settled, and thus reachable in
Case Nos. 19-5592/5593/5646/5649, Church Joint Venture v. Blasingame
bankruptcy. The district court dismissed Church’s complaint on res judicata grounds, or
alternatively, because Church engaged in impermissible claim splitting. The Blasingames moved
for Rule 11 sanctions to be imposed on Church for its barrage of lawsuits. The district court denied
that motion. For the reasons stated below, we AFFIRM the district court in full.
I.
This appeal arises from the fourth installment of Church Joint Venture’s attempt to reach
the Blasingames’ assets in bankruptcy. Earl Benard Blasingame and Margaret Gooch Blasingame
struck it big in the 1980s. They lived in a 5,700 square-foot mansion on a sprawling 28-acre estate
with an in-ground pool, tennis courts, storage facilities, and barns. Times got hard for the
Blasingames in the early 1990s, and they defaulted on loans secured by their personal residence
and an approximately 205-acre tract of land adjacent to their residence, along with other real and
personal property. With foreclosure looming, Earl’s mother, Mavoureen Blasingame, stepped in
to help avoid foreclosure when she established one of the trusts at issue in this litigation: the
Blasingame Family Residence Generation Skipping Trust (“BRT”), with Earl and Margaret
serving as trustees and Earl, Margaret, and their children serving as beneficiaries. Later,
Mavoureen formed the other trust at issue here, the Blasingame Family Business Investment Trust
(“BIT”), again with Earl and Margaret as trustees and their children as beneficiaries.1
In 2008, Earl and Margaret filed for Chapter 7 Bankruptcy in the U.S. Bankruptcy Court
for the Western District of Tennessee. Because of the length and complexity of this dispute, some
background of the prior four proceedings is helpful to understand the present appeal.
1
Although the facts suggesting that Mavoureen Blasingame settled the BIT and BRT are not in the record below, we
may take judicial notice of factual circumstances from a previous case involving the same parties. See Shuttlesworth
v. City of Birmingham, 394 U.S. 147, 157 (1969) (taking judicial notice of the record in prior, related litigation between
the same parties for the purposes of identifying relevant circumstances). These background facts were stated in
Church Joint Venture, L.P. v. Blasingame,
947 F.3d 925 (6th Cir. 2020).
2
Case Nos. 19-5592/5593/5646/5649, Church Joint Venture v. Blasingame
The 2009 Bankruptcy Proceeding (“BIT/BRT I”)
In 2009, the Bankruptcy Trustee and Church filed an adversary proceeding in the U.S.
Bankruptcy Court for the Western District of Tennessee, which sought declaratory and injunctive
relief against the BIT, the BRT, and the Blasingames. The complaint sought to deny the
Blasingames their discharge in bankruptcy, to declare that certain entities, including the BRT, were
the alter egos or reverse alter egos of the Blasingames, and that the Blasingames were the de facto
owners of those entities, and to set aside and void fraudulent transfers by the Blasingames. In
2011, the Chapter 7 Trustee filed a motion to approve the sale of all the bankruptcy estate’s claims
and causes of action to Church. The bankruptcy court entered a Sale Order which gave Church
the right to pursue claims on the trustee’s behalf.
The 2012 District Court Proceeding (“BIT/BRT II”)
In 2012, following the Sale Order, Church filed a complaint in the U.S. District Court for
the Western District of Tennessee, alleging among other things, that the trusts had been used as
instrumentalities of the Blasingames and as such the trusts’ assets should be treated as the
Blasingames’ assets (thereby reachable by creditors). Church’s first amended complaint alleged
that “the Debtors . . . 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 in part for the specific
purpose of evading creditors.” R. 15-6 (Case No. 12-CV-02999, R. 81 at PageID 1675). The
district court dismissed the declaratory judgment claims but allowed two fraudulent transfer claims
to go to trial. Church Joint Venture v. Blasingame, No. 12-2999, 2016 WL 3248044 (W.D. Tenn.,
Jan. 13, 2016).
In 2017, five years after filing its initial complaint in BIT/BRT II, and after the bankruptcy
court dismissed the complaint for declaratory judgment in BIT/BRT III, see infra, Church filed a
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Case Nos. 19-5592/5593/5646/5649, Church Joint Venture v. Blasingame
motion for leave to amend its complaint in BIT/BRT II to add a claim that the trusts were self-
settled and were thus reachable by creditors in bankruptcy. The district court denied Church’s
motion for leave to file a second amended complaint, holding that Church’s argument “that it
recently recognized its right to bring the self-settled trust claim is an inadequate reason for delay.”
R. 15-10 (No. 12-02999, R. 244 at PageID 6768). The district court further noted that Church’s
original complaint in BIT/BRT II alleged that the trusts were self-settled, and the proposed second
amended complaint alleged the same, which established that Church believed that the Blasingames
were using self-settled trusts to shield their assets from creditors. Id. The district court found that
Mavoureen was the settlor of those trusts.
Church then appealed the dismissal and the denial of its motion for leave to amend. Church
Joint Venture, L.P. v. Blasingame, 947 F.3d 925 (6th Cir. 2020) (“Blasingame II”). In that appeal
we affirmed the dismissal of Church’s claims of reverse alter ego and reverse veil piercing as
unavailable under Tennessee trust law.
Id. at 932. We further held that the district court did not
abuse its discretion in denying Church leave to amend its complaint.
Id. at 934.
The 2017 Bankruptcy Court Proceeding (“BIT/BRT III”)
In 2017, Church filed an adversary proceeding in bankruptcy court seeking a declaratory
judgment that the assets of the trusts were property of the bankruptcy estate. The bankruptcy court
dismissed Church’s complaint, and the Bankruptcy Appellate Panel affirmed. We then, in turn,
affirmed the BAP. In re Blasingame, 920 F.3d 384 (6th Cir. 2019) (“Blasingame I”). We held
that the Sale Order from BIT/BRT I included the “right to sue under any legal theory based on the
same factual allegations in the first complaint—namely, factual allegations that the Blasingames
and their trusts were one and the same.”
Id. at 393. Therefore, because Church tried to bring those
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Case Nos. 19-5592/5593/5646/5649, Church Joint Venture v. Blasingame
same factual allegations again, dressed up in a different legal theory, it lacked derivative standing
to bring a claim for declaratory relief in the bankruptcy court. Id. at 395.
The Current Proceeding (“BIT/BRT IV”)
After the district court denied Church’s motion for leave to amend its complaint in
BIT/BRT II, and while BIT/BRT II and BIT/BRT III were pending appeal in this court, Church
filed the present case seeking a declaratory judgment that the BIT and the BRT were self-settled
and thus reachable by creditors in bankruptcy. The district court dismissed Church’s complaint as
precluded by res judicata. The district court noted that Church’s assertion—that the BIT/BRT IV
complaint was the first time that it had raised affirmative claims for relief that the trusts were self-
settled—“is not supported by the decisions of [the district court in BIT/BRT II or the Bankruptcy
Court, B.A.P., and the Sixth Circuit in BIT/BRT III].” R. 25 at PageID 1970. The court concluded:
“Because judgment has been entered in the 2012 Lawsuit [BIT/BRT II], any new claim predicated
on legal theories which could have been used to support the 2012 complaint’s claim for declaratory
judgment are precluded by both the prohibition against claim splitting and the doctrine of res
judicata.” Id. at PageID 1971. The district court also denied the Blasingames’ motion for sanctions
under Rule 11, or in the alternative, 28 U.S.C. § 1927. It reasoned that, “due to the complexity of
the issues and length of the prior litigation, [Church] could reasonably have believed that the
present lawsuit was warranted.
Id. at PageID 1972. Church and the Blasingames filed timely
cross-appeals.
II.
Where a district court dismisses a subsequent suit as duplicative, or barred by claim
splitting, we review the district court’s inherent discretionary authority to manage its own docket
for an abuse of discretion. Smith v. S.E.C., 129 F.3d 356, 361 (6th Cir. 1997). We review a district
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Case Nos. 19-5592/5593/5646/5649, Church Joint Venture v. Blasingame
court’s decision whether to sanction a party for abuse of discretion also. Williamson v. Recovery
Ltd. P’ship, 826 F.3d 297, 301 (6th Cir. 2016).
A.
Plaintiffs “must join all claims arising from the same set of facts in a single proceeding and
cannot split them across multiple fora.” Ellis v. Gallatin Steel Co., 390 F.3d 461, 479 (6th Cir.
2004); see Waad v. Farmers Ins. Exch., 762 F. App’x 256, 263 (6th Cir. 2019) (Moore, J.,
concurring)) (“The rule against claim-splitting requires a plaintiff to assert all of its causes of action
arising from a common set of facts in one lawsuit.” (quoting Katz v. Gerardi,
655 F.3d 1212, 1217
(10th Cir. 2011))). “Essentially, claim splitting is the same as res judicata, but with a presumption
of a final judgment instead of an actual final judgment.”
Id. at 260. The prohibition against claim
splitting requires the plaintiff to present all material relevant to a claim in the first action and
permits the district court to dismiss a second action grounded in that same set of facts. See
Restatement (Second) of Judgments § 25 (1982). “[P]laintiffs engage in claim-splitting at the peril
of having one case barred by the decision in the other.” Twaddle v. Diem, 200 F. App’x 435, 439
(6th Cir. 2006).
Church’s claim for declaratory relief here is barred under the prohibition against claim
splitting. When this complaint for declaratory judgment was filed, Church had two other lawsuits
pending that sought declaratory relief that the Blasingames’ trusts were reachable by their creditors
in bankruptcy. Those lawsuits were both based in the same facts at issue here. Both lawsuits
claimed, in one way or another, that the BIT and the BRT were self-settled trusts. They alleged
that the Blasingames used the trust to shield their own assets from bankruptcy. That Church has
dressed up those facts under what is ostensibly a different legal theory is of no consequence. See
Blasingame I, 920 F.3d at 391;
Ellis, 390 F.3d at 479 (noting that plaintiffs must join all claims
6
Case Nos. 19-5592/5593/5646/5649, Church Joint Venture v. Blasingame
arising from the same set of facts in a single proceeding). Therefore, the district court was within
its discretion to dismiss the action because Church engaged in impermissible claim splitting. See
Wilkins v. Jakeway, 183 F.3d 528, 535 (6th Cir. 1999) (“[B]y bringing two different suits which
present two different theories of the case arising from the same factual situation, counsel engaged
in the precise behavior that res judicata [in the form defined here as claim splitting] seeks to
discourage.”). And, as we put it in Blasingame I, “Permitting [Church] to re-assert factual
allegations . . . would lead to the exact problems res judicata prevents: ‘the expense and vexation’
of multiple lawsuits, wasted ‘judicial resources,’ and the ‘possibility of inconsistent
decisions.’”
920 F.3d at 391–92 (quoting Taylor v. Sturgell,
553 U.S. 880, 892 (2008)).
Therefore, because Church brought multiple suits based on the same set of facts across
several fora, it engaged in impermissible claim splitting. The district court was within its discretion
to dismiss this case.
B.
The Blasingames maintain that the district court erred in denying their motion for sanctions
under Rule 11 or 28 U.S.C. § 1927. They claim that, in light of the prior rulings in BIT/BRT II
and BIT/BRT III, it was not reasonable for Church to file this lawsuit asserting the same claims.
The district court held that, given the complexity of the issues and the length of the prior litigation,
Church could have reasonably believed that this lawsuit was warranted. We find no abuse of
discretion in the district court’s ruling.
Under Rule 11, a court may sanction a party that makes court filings for an improper
purpose or based on frivolous arguments. Fed. R. Civ. P. 11. The test for imposition of Rule 11
sanctions is “whether the individual’s conduct was reasonable under the circumstances.” Union
Planters Bank v. L & J Dev. Co., 115 F.3d 378, 384 (6th Cir. 1997) (quoting Lemaster v. United
7
Case Nos. 19-5592/5593/5646/5649, Church Joint Venture v. Blasingame
States, 891 F.2d 115, 118 (6th Cir. 1989)). Sanctions under § 1927 are warranted when “[a]ny
attorney . . . so multiplies the proceedings in any case unreasonably and vexatiously,” 28 U.S.C.
§ 1927, and objectively “falls short of the obligations owed by a member of the bar to the court
and which, as a result, causes additional expense to the opposing party.” Red Carpet Studios Div.
of Source Advantage, Ltd. v. Sater,
465 F.3d 642, 646 (6th Cir. 2006) (quotation omitted). “The
lawyer need not have subjective bad faith but must act with something more than negligence or
incompetence.” Carter v. Hickory Healthcare Inc.,
905 F.3d 963, 968 (6th Cir. 2018) (internal
quotation marks omitted).
The Blasingames maintain that it was improper for the district court to deny their motion
for sanctions based on the “complexity of issues and length of the prior litigation.” Second Br. at
31. Although it is true that Church filed strikingly similar complaints in the district court in
BIT/BRT II and the bankruptcy court in BIT/BRT III, there is nothing in the record to indicate that
the district court abused its discretion in declining to impose sanctions on Church. Given that res
judicata rules surrounding declaratory judgments are complex, that there is no law in this circuit
regarding whether denial of a motion for leave to amend a complaint constitutes a final judgment
on the merits, and that Blasingame I noted that “[that ruling] d[id] not preclude Church from
continuing to pursue [the BIT] outside of bankruptcy court,” 920 F.3d at 395, it can hardly be said
that the district court abused its discretion in not sanctioning Church.
III.
For the reasons stated above, we AFFIRM the district court’s decisions to dismiss this
lawsuit and to deny the motion to impose sanctions on Church.
8
