Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-12-35986/USCOURTS-ca9-12-35986-1/pdf.json

Parties Involved:
Ad Hoc Group of Class B Unit Holders
Appellee
Timothy L. Blixseth
Appellant
CIP Sunrise Ridge Owner LLC
Appellee
CIP Yellowstone Lending LLC
Appellee
Credit Suisse AG, Cayman Islands Branch
Appellee
Crossharbor Capital Partners, LLC
Appellee
Marc S. Kirschner
Appellee
Yellowstone Club Liquidating Trust
Appellee
Yellowstone Mountain Club, LLC
Appellee

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

TIMOTHY L. BLIXSETH,

Appellant,

v.

YELLOWSTONE MOUNTAIN CLUB,

LLC; AD HOC GROUP OF CLASS B

UNIT HOLDERS; CIP SUNRISE RIDGE

OWNER LLC; CIP YELLOWSTONE

LENDING LLC; CROSSHARBOR

CAPITAL PARTNERS, LLC; MARC S.

KIRSCHNER; CREDIT SUISSE AG,

CAYMAN ISLANDS BRANCH;

YELLOWSTONE CLUB LIQUIDATING

TRUST,

Appellees.

No. 12-35986

D.C. No.

2:11-cv-00073-

SEH

ORDER

Filed August 4, 2015

Before: Alex Kozinski, Richard A. Paez,

and Marsha S. Berzon, Circuit Judges.

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2 BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB

SUMMARY*

Bankruptcy / Sanctions

The panel imposed sanctions on a party and one of his

attorneys under Fed. R. App. P. 38 and 28 U.S.C. § 1927 for

bringing a frivolous appeal in a bankruptcy case.

The panel held that the Rule 38 sanctions were warranted

because the appeal from a motion for disqualify the

bankruptcy judge was wholly without merit. The panel also

sanctioned the attorney under section 1927 for multiplying

the proceedings unreasonablyand vexatiously in breach of his

professional duty of good faith and candor in dealing with the

judiciary. The panel concluded in its discretion that sanctions

against the party’s other attorneys were not warranted.

ORDER

In a recusal motion, Timothy Blixseth and his attorneys

hurled nineteen accusations of misconduct at a bankruptcy

judge who had ruled against Blixseth. In a forty-seven page

opinion, the judge found the accusations to be meritless. In

re Yellowstone Mountain Club, LLC, No. 08-61570-11, 2011

WL 766979 (Bankr. D. Mont. Feb. 25, 2011). The district

court affirmed, as did we, concluding that Blixseth’s

accusations were “a transparent attempt to wriggle out of an

unfavorable decision by smearing the reputation of the judge

who made it.” Blixseth v. Yellowstone Mountain Club, LLC,

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB 3

742 F.3d 1215, 1218, 1222 (9th Cir. 2014). We subsequently

issued an order to show cause why Blixseth and his attorneys

should not be sanctioned for pressing the appeal. Having

heard from all interested parties, we now rule on the order to

show cause.

1. Blixseth and Flynn

i. We “have discretion to award damages, attorney’s fees,

and single or double costs as a sanction for bringing a

frivolous appeal.” Glanzman v. Uniroyal, Inc., 892 F.2d 58,

61 (9th Cir. 1989) (citing Fed. R. App. P. 38). An appeal is

frivolous “when the result is obvious or the appellant’s

arguments are wholly without merit.” Id. (internal quotation

marks omitted).

We noted the utter frivolousness of Blixseth’s claims in

our opinion, Blixseth, 742 F.3d at 1221–22, but gave him and

his attorneys an opportunity to explain why their claims

nevertheless had arguable merit. Blixseth and attorney

Michael Flynn fail, once again, to back up their accusations

“with even a shred of credible evidence.” Id. at 1222.

Blixseth’s personal “response” is almost entirely

nonresponsive. Mostly he reasserts the conspiracy theory he

advanced throughout Yellowstone’s bankruptcyproceedings. 

Blixseth criticizes the bankruptcy judge’s rulings, but, as we

explain in our opinion, adverse rulings are almost never a

valid basis for a recusal motion. Blixseth, 742 F.3d at 1220. 

Blixseth also hurls baseless accusations against one of the

judges on this panel. Nothing in Blixseth’s personal response

comes close to persuading us that his recusal motion or the

resulting appeals weren’t a meritless “effort . . . to rid himself

of a judge who had ruled against him.”

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4 BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB

Blixseth and Flynn spend significant time discussing facts

outside the record, but fail to defend many of the nineteen

frivolous accusations they raised. For example, we explained

in our opinion that Blixseth’s accusation that the bankruptcy

judge “‘sua sponte requested’ that counsel in his ex-wife’s

bankruptcy proceeding ‘opine on the reputation of Mr.

Blixseth’s lead litigation counsel, Michael Flynn’” was “at

best, a distortion of the record.” Blixseth, 742 F.3d at 1221. 

Blixseth and Flynn ignore this, along with many other

accusations we rejected in our opinion. Still, Blixseth claims

to “stand behind” the disqualification motion and appeal

“more so today than ever.”

Blixseth’s and Flynn’s responses do nothing to change

our conclusion that the appeal was “wholly without merit.” 

Glanzman, 892 F.2d at 61 (internal quotation marks omitted).

ii. We may also order an attorney “who so multiplies the

proceedings in any case unreasonably and vexatiously . . . to

satisfy personally the excess costs, expenses, and attorneys’

fees reasonably incurred because of such conduct.” 

28 U.S.C. § 1927. “Sanctions pursuant to section 1927 must

be supported by a finding of subjective bad faith.” New

Alaska Dev. Corp. v. Guetschow, 869 F.2d 1298, 1306 (9th

Cir. 1989). We have held that “[b]ad faith is present when an

attorney knowingly or recklessly raises a frivolous argument

or argues a meritorious claim for the purpose of harassing an

opponent.” Id. (internal quotation marks omitted).

Flynn has not retracted his “demonstrably inaccurate”

statements to the court at oral argument regarding the

involvement of a senior bankruptcy judge in a mediation. See

Blixseth, 742 F.3d at 1220 n.2. At oral argument before us,

Flynn also accused the bankruptcy judge of “concealing his

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BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB 5

involvement in . . . settlement negotiations,” but he has

offered no evidence that the judge concealed anything. Flynn

continues to accuse the bankruptcy judge of engaging in “ex

parte communications” and attending a “clandestine

meeting.” But Flynn fails to acknowledge that Blixseth, who

was not a bidder, had no right to attend this meeting, and thus

the meeting “wasn’t ex parte as to him.” Blixseth, 742 F.3d

at 1220.

Flynn’s propensity for distortion doesn’t end with the

record developed in the bankruptcy court. For example,

when discussing a telephone call from the bankruptcy judge’s

law clerk at oral argument before us, a judge posed the

following question to Flynn: “I thought the [bankruptcy]

judge made findings that it didn’t happen?” Flynn replied

that the bankruptcy judge found that he didn’t know that the

call had happened, not that it hadn’t happened. Despite this

interaction, Flynn’s response to the order to show cause

accuses the judge of concluding during oral argument that the

call “never occurred.” At argument, we also warned Flynn

about his improper reliance on facts outside the record;

nonetheless, Flynn continues to rely on such facts.

Flynn’s conduct has been unprofessional throughout the

proceedings. He proffered two emails allegedly obtained

from Blixseth’s ex-wife’s account—unsurprisingly,

documents outside the record—without even alluding to the

fact that in another action, “[Blixseth’s ex-wife] and her

counsel filed affidavits and supporting documents that

conclusively demonstrate that the ‘evidence’ is forged.” This

omission is an unreasonable and irresponsible breach of

Flynn’s “duty of good faith and candor in dealing with the

judiciary.” United States v. Associated Convalescent Enters.,

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6 BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB

Inc., 766 F.2d 1342, 1346 (9th Cir. 1985). Such a breach

supports sanctions under section 1927. See id. at 1346–47.

2. Fox, Conant, Ferrigno and Stillman

Patrick T. Fox, Christopher J. Conant, Michael J. Ferrigno

and Philip H. Stillman were involved to varying degrees in

bringing the appeal. Like Flynn, they all argue that the

appeal was not frivolous because one could have inferred that

the bankruptcy judge was biased against Blixseth from the

nineteen accusations that they raised. As explained in our

opinion and order to show cause, we find this argument

risible. Nevertheless, these other attorneys limit their

responses to address (1) how some of the accusations

supported the theory of the appeal, (2) how they acted in good

faith in appealing and (3) their limited roles in the appeal. 

They don’t attack the bankruptcy judge or this panel, nor do

they regurgitate Flynn and Blixseth’s conspiracy theories.

Tellingly, these four attorneys distance themselves from

Blixseth and Flynn; some even criticize Flynn’s handling of

the argument. Stillman writes: “[I] certainly appreciate[ ] the

Court’s concerns about what it termed the ‘blunderbuss’

approach to the appeal, and [I] cannot honestly say that [I]

would have emphasized the same arguments . . . .” Ferrigno,

Fox and Conant are withdrawing from their representation of

Blixseth, and Stillman claims to have had “almost no

involvement” in the appeal.

The fact remains, however, that these lawyers allowed

their names to be placed on briefs that presented frivolous and

inflammatory arguments. But a finding of frivolousness does

not automatically result in sanctions. See Glanzman,

892 F.2d at 61 (sanctioning a frivolous appeal is a

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BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB 7

discretionary matter). And although “a finding of bad faith

is not necessary to impose sanctions under” Rule 38, In re

Becraft, 885 F.2d 547, 549 (9th Cir. 1989), lack of bad faith

cuts against sanctioning these four attorneys. Id. (“Bad faith

may aggravate the circumstances justifying sanctions [under

Rule 38] . . . .” (quoting Coghlan v. Starkey, 852 F.2d 806,

814 (5th Cir. 1988))). We believe that their response to the

order to show cause and our comments today will serve as a

sufficient warning to them to act more responsibly in the

future.

* * *

Accordingly, we order Blixseth and Flynn to pay

appellees’ attorneys’ fees and costs in defending against this

appeal. See Fed. R. App. P. 38; 28 U.S.C. § 1927. In

addition, they shall each pay $500 in damages to the Clerk of

Court as reimbursement for the costs incurred during this

frivolous and bad-faith appeal. See Chambers v. NASCO,

Inc., 501 U.S. 32, 43–45 (1991) (discussing the inherent

power of federal courts “to fashion an appropriate sanction

for conduct which abuses the judicial process”); see also

Lasar v. Ford Motor Co., 399 F.3d 1101, 1118 (9th Cir.

2005). We refer the determination of an appropriate amount

of attorneys’ fees and costs to the Appellate Commissioner,

who shall have authority to enter an order awarding fees to

appellees. See 9th Cir. R. 39-1.9. The order to show cause is

discharged as to the other respondents.

Because we do not rely on Federal Rule of Appellate

Procedure 46 to sanction Flynn, his request for a Rule 46

hearing is denied. Flynn’s request for an evidentiary hearing

is denied because the authenticity of the emails allegedly

authored by Blixseth’s ex-wife is irrelevant. Whether or not

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8 BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB

the emails turn out to be genuine, Blixseth and Flynn were

required to disclose that their authenticity is in dispute.

Fox’s, Conant’s, Ferrigno’s and Stillman’s requests for

Rule 46 hearings; Ferrigno’s and Conant’s motions to

withdraw as counsel; and Stillman’s motion to strike Cross

Harbor’s supplemental excerpts of the record are all denied

as moot.

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