Church Joint Venture, a limited partnership v. Blasingame et al

Filing 228

ORDER granting in part and denying in part 226 Defendants' Motion for Clarification. Signed by Judge Samuel H. Mays, Jr on 08/08/2017. (Mays, Samuel)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TENNESSEE
WESTERN DIVISION

CHURCH
JOINT
VENTURE,
LIMITED PARTNERSHIP,

A

Plaintiff,
v.
EARL
BENARD
BLASINGAME;
MARGARET GOOCH BLASINGAME;
BLASINGAME FAMILY BUSINESS
INVESTMENT
TRUST;
and
BLASINGAME FAMILY RESIDENCE
GENERATION SKIPPING TRUST;
Defendants.

)
)
)
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)
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No. 2:12-cv-02999

ORDER

Before the Court is Defendants’ Motion for Clarification
Regarding Remaining Issues for Trial, filed on July 6, 2017.
(ECF No. 226 (“Clarification Mot.”).)

On July 27, 2017, Plain-

tiff Church Joint Venture, a Limited Partnership (“Church JV”)
filed a response to the Motion for Clarification.

(Pl.’s Resp.

to Defs.’ Mot. for Clarification Regarding Remaining Issues for
Trial, ECF No. 227 (“Clarification Resp.”).)
For

the

following

reasons,

the

GRANTED in part and DENIED in part.

Clarification

Motion

is

To the extent Church JV

asks this Court to reconsider its Order dated March 9, 2017,
that request is DENIED.

I.

BACKGROUND
The history of this matter is recounted in Section I of the

Court’s Order dated November 17, 2016, and Section I of the
Court’s Order dated March 9, 2017.

See Church Joint Venture, a

Ltd. P’Ship v. Blasingame, No. 2:12-CV-02999, 2016 WL 6810873,
at *2–5 (W.D. Tenn. Nov. 17, 2016); Church Joint Venture, a Ltd.
P’Ship v. Blasingame, No. 2:12-CV-02999, 2017 WL 943961, at *1–3
(W.D. Tenn. Mar. 9, 2017) (“March 2017 Order”).

This section

addresses only the March 2017 Order and subsequent proceedings.
The March 2017 Order limited the trial to two issues.
e.g., March 2017 Order, 2017 WL 943961, at *1.

See,

The first is

whether and to what extent deposits of annuity and paycheck payments by Margaret Gooch Blasingame (“MGB”) between January 1,
2007, and July 31, 2008, into a bank account in the name of the
Blasingame Family Residence Generation Skipping Trust (“BFRGST”)
are fraudulent transfers.
and

to

what

extent

Id. at *1, *8.

the

transfer

by

The second is whether
MGB

and

Earl

Benard

Blasingame (“EBB”) of certain real property (specifically, property listed in a quitclaim deed dated January 14, 2005) to the
Blasingame

Family

Business

fraudulent transfer.

Investment

Id. at *1, *9.

Trust

(“BFBIT”)

is

a

After entry of the March

2017 Order, trial in this matter was scheduled for March 20,
2017.

(See, e.g., Minutes, ECF No. 216.)

2

On March 15, 2017, Church JV filed an Agreed Emergency Motion for Continuance of Trial Setting.

(ECF No. 219.)

The

Court granted the motion and scheduled a telephone conference on
April 4, 2017.

(Order Granting Emergency Mot. for Continuance

of Trial Setting, ECF No. 220; Notice of Setting, ECF No. 222.)
After the telephone conference, the Court scheduled the trial
for June 19, 2017, with a pretrial conference on June 7, 2017.
(Notice of Re-Setting, ECF No. 224.)
The parties submitted a proposed Joint Pretrial Order on
June 2, 2017.

The Joint Pretrial Order suggested that, notwith-

standing the Court’s prior orders, the parties disagreed about
the scope of the issues remaining for trial.

At the pretrial

conference, Defendants addressed certain legal issues that, they
contended, needed to be resolved before trial.

The Court or-

dered Defendants to file a motion addressing any outstanding legal

issues,

and

ordered

Church

JV

to

file

a

response.

Defendants filed the Clarification Motion on July 7, 2017, and
Church JV filed the Clarification Response on July 27, 2017.
II.

ANALYSIS
A.

Argument Based on Section 26-2-106(a)

The Clarification Motion asks the Court to “clarify and/or
modify [the March 2017 Order] regarding the scope of issues remaining for trial” in two ways.

The first clarification sought

is how section 26-2-106(a) of the Tennessee Code affects the

3

claim that MGB’s transfers of annuity and paycheck payments into
a BFRGST account were fraudulent transfers.
Under section 66-3-302(12) of the Tennessee Code, “transfer” means “every mode . . . of disposing of or parting with an
asset or an interest in an asset . . . .”

(Emphasis added.)

“Asset” means “property of the debtor,” but does not include
“[p]roperty to the extent it is generally exempt under nonbankruptcy law.” Tenn. Code Ann. § 66-3-302(2).

Defendants argue

that, under section 26-2-106(a) of the Tennessee Code, “the maximum amount of disposable earnings which a creditor of MGB could
have garnished from her paycheck is 25% of her disposable earnings.”

(Clarification Mot. 2.)

As a result, Defendants argue

that only 25 percent of MGB’s paycheck transfers are “assets”
that can be fraudulently transferred.

(Id.)

The Clarification Response argues that section 26-2-106(a)
“deals with exemption as to earnings but only in the context of
garnishment,” and that it “specifically does not address or apply to the question of whether the transfer of earnings to a
third-party [sic], in an attempt to hinder, delay or defraud a
creditor of the wage earner, can be defeated or not.”
cation Resp. 2–3.)

(Clarifi-

Church JV cites Lawrence v. Jahn (In re Law-

rence), 219 B.R. 786, 793 (E.D. Tenn. 1998), for the proposition
that, notwithstanding section 26-2-106(a), “[o]nce earnings come
into the debtor’s possession, creditors have the right under

4

Tennessee law to attach and execute on the earnings to collect
debts . . . .”

(Clarification Resp. 3.)

Lawrence addressed a solo-practitioner podiatrist undergoing a Chapter 7 bankruptcy.

219 B.R. at 789.

He had $140,000

in uncollected bills to patients, and he claimed that, because
of section 26-2-106(a), 75 percent of that sum was exempt from
bankruptcy.

Id.

The bankruptcy trustee responded, inter alia,

that section 26-2-106(a) “merely limits the amount of earnings
which may be garnished outside of bankruptcy and does not purport to create an exemption of earnings from bankruptcy . . . .”
Id.

The district court affirmed a bankruptcy-court decision

that agreed with the trustee.

See, e.g., id. at 790, 792–800.

Defendants’ argument, however, is not that section 26-2106(a) establishes an exemption from bankruptcy that applies to
MGB’s

paycheck

Defendants’

payments.

argument

is

(See
that

generally

section

Clarification

26-2-106(a)

Mot.)

establishes

that 75 percent of MGB’s paycheck payments are not “assets” under Tennessee’s fraudulent-transfer law, and that any transfer
above 25 percent of those payments cannot be a fraudulent transfer.
Defendants’

argument

fails.

Under

section

66-3-302(12),

“asset” does not include “[p]roperty to the extent it is generally exempt under nonbankruptcy law.”

A premise of Defendants’

argument is that section 26-2-106(a) makes 75 percent of a debt-

5

or’s
law.”

paycheck

payments

“generally

exempt

under

nonbankruptcy

Lawrence explains that some Tennessee statutes make prop-

erty generally exempt under nonbankruptcy law, but that section
26-2-106(a) does not:
Various Tennessee statutes provide for
particular items of a debtor’s property to
be completely exempt from all judicial process initiated by creditors to collect
debts.
These statutes create exemptions
cognizable in bankruptcy under 11 U.S.C.
§ 522(b).
Whenever the Tennessee Legislature has sought to create a bankruptcy exemption, it has inserted key language into
the Tennessee statutes stating that the
property shall either be “exempt from execution, seizure or attachment” or, if the
property may be in the possession of a third
person, “exempt from execution, attachment
or garnishment.”
This broad language expressly prohibits creditors from ever subjecting the debtor’s exempted property to
any judicial process for the collection of
debts. . . .
The Tennessee garnishment statute at
issue here, Tenn. Code Ann. § 26-2-106, is
fundamentally different from these other
Tennessee exemption statutes. Section 26–2–
106 does not contain similar broad language
that completely and permanently exempts a
debtor’s earnings from the reach of creditors through judicial process. . . .
. . . .
Section 26-2-106(a) merely limits to
25% the amount of disposable earnings that
may be subjected to garnishment while the
earnings are in the possession of a third
person. Section 26-2-106 does not expressly
prohibit creditors from the attachment, seizure and execution on earnings which are in
the debtor’s possession. The statute is silent about whether the remaining 75% of the
6

earnings are exempt from creditors once the
earnings are paid over and distributed to
the debtor. There are no reported decisions
by the state courts of Tennessee which discuss this specific question of law and interpret § 26–2–106 as either allowing or not
allowing creditors to attach and execute on
earnings in the debtor’s possession.
Lawrence, 219 B.R. at 792–93 (citations omitted).
Lawrence does not bind this Court, but its reasoning persuades the Court that section 26-2-106(a) does not make portions
of a debtor’s paycheck payments “generally exempt under nonbankruptcy law.”

Lawrence was decided in 1998, but the statutory

language on which it relies, including the language in section
26-2-106(a), has not changed.

Since Lawrence was decided, no

reported Tennessee decisions have considered whether § 26-2-106
permits creditors to attach and execute on earnings in the debtor’s possession.

For the reasons stated in Lawrence, section

26-2-106(a) does not make 75 percent of a debtor’s paycheck payments “generally exempt under nonbankruptcy law.”

Defendants’

argument that 75 percent of MGB’s paycheck payments are not an
“asset,” and so cannot be transferred fraudulently, fails. 1

1

Alternatively, Defendants argue that “MGB could have exempted
up to $4,000.00 worth of such paychecks or annuity payments pursuant to her general exemption under T.C.A. § 26-2-103.” (Id.)
Defendants argue that, whatever the amount of MGB’s paycheck and
annuity deposits transferred to BFRGST, the most that could have
been an “asset,” for fraudulent-transfer purposes, is that
amount minus the $4,000 general exemption.
(Id.)
Defendants’
argument is not well taken. Under section 26-2-103(a), one “may
select for exemption” certain property. (Emphasis added.) De7

The Clarification Motion is DENIED as to Defendants’ arguments based on section 26-2-106(a) of the Tennessee Code.
B.

Pleading Argument

The second clarification that Defendants seek is itself unclear.

Defendants focus on the allegations in the First Amended

Original Complaint (the presently operative complaint).

(Clari-

fication Mot. 3–4; see also First Am. Original Compl., ECF No.
83-1.)

They argue that, “[w]ith respect to the two remaining

transfers at issue, there are no allegations that transfers were
made under any legal theory other than actual intent to hinder,
delay or defraud creditors.”

(Id. at 3.)

Defendants assert

that, “[b]ecause Plaintiff had a duty to plead fraud with specificity and Plaintiff’s allegations are limited to the claim that
the remaining transfers at issue were made with actual intent to
hinder, delay and defraud, it would be improper to permit Plaintiff to proceed on alternative theories which have not been pled
where

the

time

for

amending

the

complaint

has

long

passed.”

(Id.)

Defendants argue “the Court should limit the issues to be

tried to whether the transfers at issue were made with actual[]
intent to hinder, delay and defraud creditors and should pre-

fendants do not represent that MGB selected $4,000 of paycheck
or annuity payments to be assets exempt from execution.
(See
generally Consolidation Mot.) They argue that she “could have”
made that selection.
The general exemption does not protect
MGB.

8

clude Plaintiff from attempting to assert claims based on constructive fraud.”

(Id. at 3–4.)

Defendants’ argument can be construed in two ways.

The

first is that, as to the remaining transfers at issue, Church JV
should be barred from offering circumstantial evidence of Defendants’ intent.
section

That construction cannot be sustained.

66-3-305(a)(1),

“[a]

transfer

made

or

Under

obligation

in-

curred by a debtor is fraudulent as to a creditor . . . if the
debtor made the transfer or incurred the obligation . . . with
actual intent to hinder, delay, or defraud any creditor of the
debtor.”
actual

Section 66-3-305(b) provides that, “[i]n determining

intent

under

subdivision

(a)(1),

consideration

given” to a nonexclusive list of eleven factors.
rectly

asserts

that

“[t]hese

factors,

often

may

be

Church JV correferred

to

as

‘badges of fraud’ are, in essence, circumstantial evidence of
actual fraud.”
the point.

(Clarification Resp. 5.)

Numerous cases make

See, e.g., Teague v. Kidd, No. E2016-01995-COA-R3-

CV, 2017 WL 2299059, at *8 (Tenn. Ct. App. May 25, 2017); Macon
Bank & Tr. Co. v. Holland, 715 S.W.2d 347, 349 (Tenn. Ct. App.
1986).

The statute makes these factors relevant in determining

actual intent.

A plaintiff such as Church JV pursuing fraudu-

lent-transfer claims based on actual intent must be able to present evidence addressing the statutory factors.

9

Church JV may

offer circumstantial evidence bearing on Defendants’ actual intent while engaging in the transfers at issue in this case.
The

second

construction

of

Defendants’

argument

is

that

Church JV should be barred from contending that the remaining
transfers

are

fraudulent

on

a

theory

other

intent theory of section 66-3-305(a)(1).

than

the

actual-

Section 66-3-305(a)(2)

specifies two other categories of fraudulent transfers.

Under

section 66-3-305(a)(2)(A), a transfer is fraudulent if the debtor did not “receiv[e] a reasonably equivalent value in exchange
for the transfer” and the debtor “[w]as engaged or was about to
engage in a business or a transaction for which the remaining
assets of the debtor were unreasonably small in relation to the
business or transaction.”

Under section 66-3-305(a)(2)(B), a

transfer is fraudulent if the debtor did not “receiv[e] a reasonably equivalent value in exchange for the transfer” and the
debtor “[i]ntended to incur, or believed or reasonably should
have

believed

that

the

debtor

would

incur,

debtor’s ability to pay as they became due.”

debts

beyond

the

Defendants appear

to argue that Church JV should be able to bring their remaining
fraudulent-transfer

claims

and

allowed

should

not

be

only
to

under
argue

section
that

any

66-3-305(a)(1),
transfers

were

fraudulent under either prong of section 66-3-305(a)(2).
The issue is whether Church JV has pled the section 66-3305(a)(2) theories sufficiently in the operative complaint.

10

De-

fendants argue that “[t]he Complaint does not contain any allegations that the remaining transfers to be tried were not made
for a fair consideration.”

(Consolidation Mot. 3.)

Defendants’ argument is well taken.

First, the fraudulent-

transfer count in the First Amended Original Complaint relies on
an actual-intent theory, not a section 66-3-305(a)(2) theory.
The substantive paragraphs allege:
100.

This Court may set aside and avoid any
transfer of an interest of the Debtors
in property or any obligation incurred
by the Debtors that is voidable under
applicable law by a creditor holding
an unsecured claim.

101.

More specifically, Church JV asserts
that the Debtors’ transfers of assets
and property by and between Debtor,
the Trusts and Corporations noted
herein, as recited above, as well as
any other transfers which may be
demonstrated, were with the specific
intent, direct or indirect, of delaying, hindering, or defrauding Church
JV and other creditors and, therefore,
were fraudulent conveyances and devices within the meaning of applicable
Tennessee avoidance law, see T.C.A.
66-3-101 et seq., and subject to being
avoided for the benefit of Church JV
within the meaning of T.C.A. 29-12-101
et seq. and should be set aside and
avoided by the Court.

(First Am. Original Compl. ¶¶ 100–01.)
agraphs

sound

in

the

actual-intent

The claims in these partheory

of

section

305(a)(1), not the theories in sections 66-3-305(a)(2).

11

66-3-

Second, the Clarification Response does not cite any paragraphs of the First Amended Original Complaint that contain the
factual

and

legal

allegations

necessary

to

plead

fraudulent

transfers under either section 66-3-305(a)(2) theory, generically or with specific reference to the transfers that remain at
issue.

(See generally Clarification Resp. 3–5.)

Church JV must prove the transfers that remain at issue under the actual-intent theory of fraudulent transfers in section
66-3-305(a)(1). 2
As to Defendants’ pleading argument, the Clarification Motion is GRANTED in part and DENIED in part.

The Clarification

Motion is DENIED to the extent Defendants argue that Church JV
should not be allowed to introduce circumstantial evidence bearing on Defendants’ actual intent when making the transfers remaining at issue.

The Clarification Motion is GRANTED to the

extent Defendants argue that Church JV must prove that the remaining transfers at issue were fraudulent based on the actualintent fraudulent-transfer theory in section 66-3-305(a)(1).

2

Evidence that would directly prove an element of a fraudulent
transfer under a section 66-3-305(a)(2) theory may be relevant
circumstantial evidence to prove a fraudulent transfer under the
actual-intent theory of section 66-3-305(a)(1).
The jury, however, will only be instructed on the section 66-3-305(a)(1) theory.

12

C.

Church JV Request for Reconsideration

In the Clarification Response, Church JV suggests that, at
the

June

7

conference,

the

parties

were

asked

to

brief

“what . . . the parties believe are the remaining issues for
trial.”

(Clarification Resp. 1.)

At the June 7 conference, the

Court instructed the parties to brief any remaining legal issues
that must be resolved before trial can proceed on the transfers
identified in its March 2017 Order.

Defendants noted two such

issues and briefed them in the Clarification Motion.

Church JV

suggested at the June 7 conference that it was unaware of any
additional legal issues.
Church JV cites two prior filings: its Memorandum Addressing Issues Remaining for Trial (ECF No. 198) and its Response to
Defendants’ Memorandum Concerning Remaining Claims to be Tried
(ECF No. 200).

Church JV says it “believes that the issues

identified in [those filings] are the issues/claims which remain
for trial in this action.”

(Clarification Resp. 2.)

That argument is not well taken.

The March 2017 Order con-

sidered Church JV’s filings (and Defendants’ parallel filings)
and ruled on the issues presented.

Church JV effectively asks

the Court to reconsider its March 2017 Order.
unsupported.

That request is

Under Local Rule 7.3, a motion for reconsideration

requires the movant to specifically show “(1) a material difference in fact or law from that which was presented to the Court

13

before entry of the interlocutory order for which revision is
sought, and that in the exercise of reasonable diligence the
party applying for revision did not know such fact or law at the
time of the interlocutory order; or (2) the occurrence of new
material facts or a change of law occurring after the time of
such order; or (3) a manifest failure by the Court to consider
material facts or dispositive legal arguments that were presented to the Court before such interlocutory order.”

Church JV

makes no showing on any of these grounds.
Church JV’s request for reconsideration is DENIED.
III. CONCLUSION
For

the

foregoing

reasons,

the

GRANTED in part and DENIED in part.

Clarification

Motion

is

Church JV’s motion for re-

consideration of the March 2017 Order is DENIED.

The issues re-

maining for trial are: (1) whether and to what extent deposits
of annuity and paycheck payments by MGB between January 1, 2007,
and July 31, 2008, into a bank account in the name of the BFRGST
are

fraudulent

transfers

under

section

66-3-305(a)(1);

and

(2) whether and to what extent the transfer by MGB and EBB of
property listed in a quitclaim deed dated January 14, 2005, to
the BFBIT is a fraudulent transfer under section 66-3-305(a)(1).
So ordered this 8th day of August, 2017.

14

/s/ Samuel H. Mays, Jr.
SAMUEL H. MAYS, JR.
UNITED STATES DISTRICT JUDGE

15