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

Case Type:
Case Status:
Nos. 18-8010/8013/8018 (6th Circuit, Apr 15,2019) Published
The Sixth Circuit Bankruptcy Appellate Panel held that (i) an action to determine that personal property is property of the bankruptcy estate need not be pleaded with particularity, (ii) there is no statute of limitations for such an action, (iii) the action itself is property of the estate even if brought by a creditor with derivative standing, and (iv) abandonment of the action by the Chapter 7 trustee was appropriate where the action would likely not provide a benefit to unsecured creditors.
Procedural context:
Church Joint Venture (CJV) obtained an order permitting it to bring a derivative action against the debtors alleging that certain personal property in the debtors possession constituted property of the bankruptcy estate. The debtors filed a motions to dismiss asserting that the complaint failed to state a claim and was time-barred. After discovery was completed in the adversary proceeding, the Chapter 7 trustee moved to abandon the action after determining that the value of the personal property was approximately $200,000 rather than the one million dollars alleged by CJV. The trustee argued that the $200,000 potential recovery was less than an IRS lien on the property and that the further administrative costs of litigating the action and, if successful, liquidating the property, would not provide a benefit to unsecured creditors. CJV contested the motion to abandon, arguing that it was premature to abandon the property before a determination of whether the property belonged to the estate and that there was no real to know whether it would be beneficial to the estate until the property was brought into the estate. CJV further argued that the action itself was no longer property of the estate because CJV had been granted derivative standing to bring the litigation. The bankruptcy court denied the debtors' motions to dismiss, finding that the complaint's factual allegations were adequate and that particularized pleading was not required, and that no statute of limitations applies to an action to determine that property belongs to the Chapter 7 estate. The bankruptcy court subsequently granted the trustee's motion to abandon the action. CJV appealed the order authorizing abandonment, and the debtors cross-appealed denial of their motions to dismiss. The Sixth Circuit Appellate Panel upheld the bankruptcy court's decision on all matters appealed. CJV also appealed evidentiary rulings permitting the introduction of various exhibits relating to the IRS's claim against the debtors and the valuation of the personal property. The Bankruptcy Appellate Panel found that each exhibit was relevant to the hearing, that other objections had not been developed on the appellate record and were thus waived, and upheld the bankruptcy court's rulings.
The debtors filed a chapter 7 petition in 2008. In 2015, The debtors had in their possession and use personal property at, in, and around the home in which they reside. The debtors did not list the personal property as property of the Chapter 7 estate in their schedules because, they asserted, the property was held in trust or belongs to other people. Either the property was subject to a tax lien in the amount of $293,570.42, or would be subject to the tax lien if it became property of the debtors' Chapter 7 bankruptcy estate. CJV asserted that the property was worth one million dollars and obtained an order permitting it to bring a derivative action for a determination that the property belonged to the estate. After discovery, the Chapter 7 trustee determined that the property was worth only $200,000, less than the tax lien, and that, after the costs of litigation and liquidation, the property would not provide any benefit to unsecured creditors even if the litigation were successful.
Opperman, Price Smith, and Wise

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