Church Joint Venture, L.P. v. Blasingame

Earl and Margaret Blasingame (debtors) filed for Chapter 7 bankruptcy in Tennessee. Attorneys Martin Grusin and Tommy Fullen filed the Blasingames’ bankruptcy petition and constructed the bankruptcy schedules, which claimed the Blasingames had less than $6,000 in assets. However, the bankruptcy court later discovered that the Blasingames had millions of dollars in undisclosed assets that were controlled or hidden through a vast web of interconnected family trusts, shell companies, and clearing accounts. Based on the nondisclosure of assets, the bankruptcy court denied the Blasingames’ bankruptcy discharge. Church Joint Venture, L.P. (CJV) (creditor), one of the Blasingames’ major unsecured creditors, received derivative standing from the bankruptcy court to file a legal-malpractice action against Grusin and Fullen on behalf of the Blasingames’ bankruptcy estate. CJV then filed a motion for summary judgment, arguing that the legal-malpractice claim was the property of the bankruptcy estate. The Blasingames countered, arguing that the legal-malpractice claim was their property, not the estate’s property. The bankruptcy court granted the Blasingames summary judgment, holding that the legal-malpractice claim was the Blasingames’ property because the Blasingames’ legal interest in the malpractice claim accrued after the filing of the bankruptcy petition. On appeal, the Bankruptcy Appellate Panel (BAP) affirmed. CJV appealed to the Sixth Circuit.