Court Opinion

ID: 4162282
Source: CourtListenerOpinion
Date Created: 2017-04-21 17:03:58.389449+00
Date Added: 2024-06-11T14:23:29.367949
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

TIMOTHY L. BLIXSETH,                    No. 12-35986
                 Appellant,
                                       D.C. No.
            v.                      11-CV-73-SEH

YELLOWSTONE MOUNTAIN
CLUB, LLC; AD HOC GROUP                   ORDER
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.

                 Filed April 18, 2017

       Before: Alex Kozinski, Richard A. Paez,
        and Marsha S. Berzon, Circuit Judges.

                        Order
2       BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB

                            SUMMARY*

                     Bankruptcy / Sanctions

    The panel filed an order: (1) denying appellant’s
counsel’s motion and amended motion for reconsideration of
the Appellate Commissioner’s orders awarding attorneys’
fees and non-taxable costs under Federal Rule of Appellate
Procedure 38 and 28 U.S.C. § 1927 in a bankruptcy case;
(2) denying requests for recusal, appointment of a new panel,
conversion of the matter to a criminal proceeding, transfer of
the matter to the United States Attorney, and holding of the
awards in abeyance; and (3) denying, on behalf of the court,
counsel’s suggestion for reconsideration en banc.

    The panel had ordered appellant and his counsel to pay
appellees’ attorneys’ fees and costs in defending against the
appeal under Rule 38; ordered counsel to pay appellees’
attorneys’ fees and costs in defending against the appeal
under § 1927; and referred to the Appellate Commissioner the
determination of an appropriate amount of attorneys’ fees and
costs. The Appellate Commissioner entered orders awarding
fees and costs.

    Denying counsel’s motion and amended motion for
reconsideration of the Appellate Commissioner’s orders, the
panel held that the Commissioner correctly declined to award
fees-on-fees under Rule 38 for the preparation of appellees’
statements regarding appellant’s pro se response and
counsel’s response to the court’s order to show cause against

    *
      This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
       BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB                 3

them, and correctly awarded fees and costs under § 1927
against counsel for preparing the statements regarding
counsel’s response. The panel held that because Rule 38 is a
damage provision authorizing an award of “just damages,” an
award of fees and costs under Rule 38 must be limited to
appellees’ direct fees and costs for defending against the
frivolous appeal, and may not include the fees and costs
incurred regarding the imposition of sanctions. Agreeing
with the Eleventh Circuit, the panel held that, unlike Rule 38,
§ 1927 is a fee-shifting provision allowing an award of
fees-on-fees.

                         COUNSEL

Michael J. Flynn, Boston, Massachusetts, pro se.

Paul D. Moore, Duane Morris LLP, Boston, Massachusetts;
Michael R. Lastowski, Duane Morris LLP, Wilmington,
Delaware; Benjamin P. Hursh, Crowley Fleck PLLP,
Missoula, Montana; for Appellees CrossHarbor Capital
Partners, LLC, and CIP Sunrise Ridge Owner LLC.

James A. Patten, Patten Peterman Bekkedahl & Green PLLC,
Billings, Montana, for Appellee Yellowstone Mountain Club,
LLC.

Robert R. Bell, Mullin Hoard & Brown LLP, Amarillo,
Texas, for Appellees Brian A. Glasser as Trustee, and
Yellowstone Club Liquidating Trust.
4       BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB

                               ORDER

                                    I

                             Background

    We ordered Timothy L. Blixseth and his attorney Michael
J. Flynn to pay appellees’ attorneys’ fees and costs in
defending against this appeal under Federal Rule of Appellate
Procedure 38, ordered Flynn to pay appellees’ attorneys’ fees
and costs in defending against this appeal under 28 U.S.C.
§ 1927, and referred to the Appellate Commissioner pursuant
to Ninth Circuit Rule 39-1.9 the determination of an
appropriate amount of attorneys’ fees and costs. See Blixseth
v. Yellowstone Mountain Club, LLC, 796 F.3d 1004, 1007–09
(9th Cir. 2015).1 We also ordered Blixseth and Flynn each to
pay $500 in damages to the Clerk of Court as reimbursement
for the costs incurred during this frivolous and bad-faith
appeal. Id. at 1009. Blixseth and Flynn each have paid $500
to the Clerk, as required.

    1
      Rule 38 provides: “If a court of appeals determines that an appeal is
frivolous, it may, after a separately filed motion or notice from the court
and reasonable opportunity to respond, award just damages and single or
double costs to the appellee.”

     Section 1927 provides: “Any attorney or other person admitted to
conduct cases in any court of the United States or any Territory thereof
who so multiplies the proceedings in any case unreasonably and
vexatiously may be required by the court to satisfy personally the excess
costs, expenses, and attorneys’ fees reasonably incurred because of such
conduct.”
      BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB               5

   The Appellate Commissioner entered a second amended
order and amended orders (Docket Entry Nos. 148, 149, 150)
awarding attorneys’ fees and non-taxable costs as follows:

   (1) $105,881.26 in favor of CrossHarbor Capital Partners,
LLC and CIP Sunrise Ridge Owner LLC and jointly and
severally against Blixseth and Flynn;

  (2) $24,796.41 in favor of CrossHarbor Capital Partners,
LLC and CIP Sunrise Ridge Owner LLC and against Flynn;

   (3) $42,031.81 in favor of Brian A. Glasser, Trustee, and
Yellowstone Club Liquidating Trust and jointly and severally
against Blixseth and Flynn;

   (4) $9,065.50 in favor of Brian A. Glasser, Trustee, and
Yellowstone Club Liquidating Trust and against Flynn;

   (5) $9,505.08 in favor of Yellowstone Mountain Club,
LLC and CIP Yellowstone Lending LLC and jointly and
severally against Blixseth and Flynn; and

   (6) $712.50 in favor of Yellowstone Mountain Club, LLC
and CIP Yellowstone Lending LLC and against Flynn.

    Flynn filed a motion and an amended motion for
reconsideration of the Appellate Commissioner’s second
amended order and amended orders. We deny Flynn’s
motion and amended motion for reconsideration (Docket
Entry Nos. 151, 152). The Appellate Commissioner’s second
amended order and amended orders awarding attorneys’ fees
and non-taxable costs remain in effect.
6      BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB

    The Appellate Commissioner correctly declined to award
attorneys’ fees and non-taxable costs under Rule 38 against
Blixseth and Flynn for preparing appellees’ statements
regarding Blixseth’s pro se response and Flynn’s response to
the court’s order to show cause against Blixseth and Flynn
(“fees-on-fees”), and correctly awarded fees and costs under
§ 1927 against Flynn for preparing the statements regarding
Flynn’s response. We publish this order to address the
availability of fees and costs for litigating sanctions under
Rule 38 and § 1927.

                               II

                          Discussion

    Flynn objected to appellees’ requests for attorneys’ fees
for preparing joint statements regarding Blixseth’s pro se
response and Flynn’s response to the court’s order to show
cause. Flynn argued that the court may not include the
expense of litigating the order to show cause in the attorney’s
fees and non-taxable costs that the court ordered Blixseth and
Flynn to pay as a sanction, citing Haeger v. Goodyear Tire &
Rubber Co., 813 F.3d 1233, 1254 (9th Cir. 2016), cert.
granted, 2016 WL 2927901, 137 S. Ct. 30 (U.S. Sept. 29,
2016) (No. 15-1406), and In re S. Cal. Sunbelt Developers,
Inc., 608 F.3d 456, 466 (9th Cir. 2010).

A. Sunbelt Distinguishes Fee-Shifting Provisions From
   Damages Provisions

    In Sunbelt, thirteen creditors filed involuntary bankruptcy
petitions against two alleged debtors. See Sunbelt, 608 F.3d
at 460. After the petitions were dismissed, the alleged
debtors filed motions against the creditors for attorneys’ fees,
        BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB                              7

costs, and damages under 11 U.S.C. § 303(i) and against two
individuals who exercised control over the creditors for
sanctions under the court’s inherent power. Id.2 The
bankruptcy court awarded fees and costs against the creditors
under § 303(i), including the fees and costs incurred by the
alleged debtors in litigating the post-dismissal motions. Id.
at 461. Relying on its inherent power, the bankruptcy court
also awarded sanctions against the controlling individuals,
and held them jointly and severally liable for the alleged
debtors’ attorneys’ fees and costs, including the fees and costs
incurred in litigating the motions. Id. The creditors and the
controlling individuals appealed. Id.

     This court affirmed the judgments against the creditors,
holding that the bankruptcy court properly awarded fees-on-
fees because § 303(i) is a fee-shifting provision rather than a
sanctions statute such as Rule 11. Id. at 460, 462. The court
relied on Business Guides, Inc. v. Chromatic Communications
Enterprises, Inc., 498 U.S. 533, 553 (1991), and Cooter &
Gell v. Hartmarx Corp., 496 U.S. 384, 409 (1990), in which
the Supreme Court distinguished fee-shifting provisions,
where eligibility turns on the merits or outcome of the
litigation and costs are shifted for the litigation as a whole,
from sanctions statutes like the former version of Rule 11,
where eligibility for fees turned on whether a specific
pleading was well-founded and costs are shifted only for a

    2
       Section 303(i) provides: “If the court dismisses a petition under this
section other than on consent of all petitioners and the debtor, and if the
debtor does not waive the right to judgment under this subsection, the
court may grant judgment– (1) against the petitioners and in favor of the
debtor for– (A) costs; or (B) a reasonable attorney’s fee; or (2) against any
petitioner that filed the petition in bad faith, for– (A) any damages
proximately caused by such filing; or (B) punitive damages.”
8       BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB

discrete portion of the litigation. See Sunbelt, 608 F.3d at
462.

    In Sunbelt, the court noted that courts have uniformly held
that time spent establishing the entitlement to and amount of
the fee is compensable under federal fee-shifting provisions,
and that it would be inconsistent with the policy of § 303(i)
to dilute the fee award by refusing to compensate time spent
establishing the rightful claim to a fee. Id. at 463. The court
also observed that, with respect to fee-shifting statutes, a
court should make only one determination of fee eligibility
and the fee award should encompass all aspects of the civil
action. Id. (citing Comm’r, INS v. Jean, 496 U.S. 154,
161–62 (1990) (fee-shifting statutes favor treating a case as
an inclusive whole, rather than as atomized line items;
approving award of fees-on-fees under federal fee-shifting
statute for preparing the fee application and for the ensuing
efforts to support the application)).3

    3
       The Sunbelt court stated that its conclusion was consistent with
Sternberg v. Johnston, 595 F.3d 937, 946, 948 (9th Cir. 2010), where the
court held that a debtor was not entitled to attorneys’ fees incurred in
pursuing a claim for damages for violation of the automatic stay under
11 U.S.C. § 362(k), because that provision permitted recovery of
attorneys’ fees as damages. Sunbelt stated that § 303(i), in contrast, is a
fee-shifting provision that permits the recovery of attorneys’ fees as
attorneys’ fees, not as damages. Although an en banc panel of this court
later overruled Sternberg in In re Schwartz-Tallard, 803 F.3d 1095,
1097–1101 (9th Cir. 2015), reading § 362(k) as a fee-shifting provision
rather than as a damages provision, that change in the law since Sunbelt
has no significance here.
       BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB                9

B. Only Direct Costs May Be Awarded Pursuant To Certain
   Sanctions Provisions

    Sunbelt held otherwise, however, with respect to
sanctions under the court’s inherent power against the
controlling individuals. As to those sanctions, Sunbelt
determined that the bankruptcy court erred in holding the
individuals liable for the debtors’ fees and costs incurred on
the § 303(i) motions. See Sunbelt, 608 F.3d at 466. Only the
direct costs of opposing an offending pleading or motion, and
not fees-on-fees, may be included in an award under the
court’s inherent power, we concluded, stating:

       In Cooter & Gell . . . the Supreme Court held
       that Federal Rule of Civil Procedure 11 did
       not authorize recovery of attorney’s fees
       incurred to defend an award of Rule 11
       sanctions on appeal. Relying on language in
       the version of Rule 11 in effect at that time,
       the Court reasoned that Rule 11 sanctions
       were limited to “those expenses directly
       caused” by the improper filing, which did not
       include costs of appeal. Id. We extended that
       principle in Lockary v. Kayfetz, 974 F.2d 1166
       (9th Cir. 1992). In Lockary, the district court
       imposed sanctions under its inherent power
       rather than Rule 11. Id. at 1170. The
       sanctions included not only the costs incurred
       by the defendants to oppose the plaintiffs’
       improper filings, but also the “defendants’
       cost of preparing and supporting their motion
       for sanctions.” Id. at 1177. The law firm
       appealed and, relying on Cooter & Gell, we
       reversed:
10      BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB

                   Cooter & Gell suggests that
                   the trial court should limit
                   sanctions to the opposing
                   party’s more “direct” costs,
                   that is, the costs of opposing
                   the offending pleading or
                   motion. We thus find that the
                   district court erred in
                   including the defendants’
                   attorneys’ fees for preparing
                   the motion for sanctions in the
                   sanctions it imposed.

         Id. at 1178.

Sunbelt, 608 F.3d at 466–67.4

C. Rule 38 Is A Damage Provision Authorizing Award of
   “Just Damages”

    Blixseth and Flynn were not sanctioned under the court’s
inherent power, so Sunbelt is not directly applicable. Instead,
we sanctioned Blixseth and Flynn under Rule 38 and
sanctioned Flynn under § 1927. See Blixseth, 796 F.3d at
1007–09.

     4
       The former version of Rule 11 discussed in Cooter & Gell provides
that, if a pleading is signed in violation of the Rule, the court shall impose
upon the attorney or client “an appropriate sanction, which may include
an order to pay to the other party or parties the amount of the reasonable
expenses incurred because of the filing of the pleading . . . including a
reasonable attorney’s fee.” Cooter & Gell, 496 U.S. at 392. The
December 1, 1993, post-Cooter & Gell amendment to Rule 11 specifically
allows a district court to include the expenses associated with sanctions
proceedings. See Margolis v. Ryan, 140 F.3d 850, 854–55 (9th Cir. 1998).
       BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB                11

    Under Rule 38, appellees’ fees and non-taxable costs for
preparing the statements regarding Blixseth’s pro se response
and Flynn’s response to the court’s order to show cause may
not be awarded. See Lyddon v. Geothermal Props., Inc.,
996 F.2d 212, 214 (9th Cir. 1993) (based on an analogy to the
former, pre-amendment version of Rule 11, declining to
award under Rule 38 fees associated with computation of
sanctions or cross-appeal of denial of sanctions). The
language of Rule 38 authorizes an award of “just damages”
if a court determines that an appeal is frivolous. “Just
damages” under Rule 38 may include attorneys’ fees incurred
in defending against the frivolous issues or frivolous portions
of an appeal. See Gaskell v. Weir, 10 F.3d 626, 629 (9th Cir.
1993); McConnell v. Critchlow, 661 F.2d 116, 118 (9th Cir.
1981); see also Sun-Tek Indus. v. Kennedy Sky-Lites, Inc.,
865 F.2d 1254, 1255 (Fed. Cir. 1989) (unlike the award of
attorneys’ fees under fee-shifting statutes, under Rule 38 “the
only inquiry in determining the propriety of the amount of
attorney fees to be paid as damages by an appellant who has
filed a frivolous appeal is whether the appellee actually
incurred the fees sought in defending against the appeal.”).
But, absent specific language or indication to the contrary,
see Schwartz-Tallard, 803 F.3d at 1099, a statute permitting
an award of “damages” is not a fee-shifting statute, and does
not permit an award of fees for obtaining the “damages.”

    The award of fees and costs under Rule 38 thus must be
limited to appellees’ direct fees and costs for defending
against the frivolous appeal, and may not include the fees and
costs incurred regarding the imposition of sanctions. See
Cooter & Gell, 496 U.S. at 406–07; Sunbelt, 608 F.3d at
466–67 & n.4; Lyddon, 996 F.2d at 214; Lockary, 974 F.2d at
1178; see also Haeger, 813 F.3d at 1242, 1254 (affirming
award of attorneys’ fees and costs incurred after a misleading
12     BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB

discovery response as a sanction under court’s inherent power
to compensate party for losses sustained as a result of
misconduct).

D. Section 1927 Is A Fee-Shifting Provision Allowing
   Award Of Fees-On-Fees

    We conclude otherwise concerning fees-on-fees for
sanctions imposed under § 1927. That section does not refer
to “damages” as Rule 38 does. Instead, it provides that a
court may include the excess “costs, expenses, and attorneys’
fees” that the party victimized by the sanctionable conduct
“incurred because of such conduct.” A different analysis
therefore applies to the award under § 1927, against Flynn
alone, of the fees incurred in preparing appellees’ statements
regarding Flynn’s response to the order to show cause.

    With regard to § 1927, we agree with the analysis set
forth persuasively in Norelus v. Denny’s, Inc., 628 F.3d 1270,
1297–1302 (11th Cir. 2010). Like Norelus, we conclude that
the costs of obtaining sanctions may be included in a
sanctions award under § 1927.

     Norelus emphasized that the plain language of § 1927
permits recovery of fees “incurred because of [the
sanctionable] conduct,” and that were there no sanctionable
conduct, there would have been no proceeding to impose
sanctions, and no fees incurred in that proceeding. Id. at
1298. So the fees expended to obtain the sanctions award are,
in the statute’s terms, “incurred because of [the sanctionable]
conduct.” Id. The Norelus court further noted that excluding
the costs of obtaining the sanctions award would not fully
compensate the harmed party for the wrongful conduct it had
suffered. Id.; see also Haynes v. City & Cnty. of San
       BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB                 13

Francisco, 688 F.3d 984, 987–88 (9th Cir. 2012) (the purpose
of § 1927 is to compensate victims of attorney’s
malfeasance).

    The holding of Norelus is consistent with the analysis
ordinarily applied in other cost- and fee-shifting situations to
allow parties to recover the cost of establishing their right to
and the amount of attorneys’ fees, or fees-on-fees. See
Norelus, 628 F.3d at 1301; see also Jean, 496 U.S. at 161–62;
Sunbelt, 608 F.3d at 462–64 & n.4. In allowing awards of
fees-on-fees, courts have relied on the language and purpose
of the fee-shifting provision at issue, reasoning that not
allowing fees-on-fees would undermine congressional
policies governing attorneys’ fees awards. See Norelus,
628 F.3d at 1301.

    Likewise, § 1927 may be characterized as a fee-shifting
provision, despite its sanctions trigger. Id. (“[I]n other cost-
and fee-shifting situations . . . we have allowed parties to
recover the cost of establishing their right to, and the amount
of attorney’s fees. . . . The same reasoning supports the same
rule in the present circumstances [in awarding fees under
§ 1927].”). Thus, § 1927 differs from the former version of
Rule 11 discussed in Cooter & Gell, which authorized the
award only of expenses incurred with regard to a discrete
improper pleading, and therefore did not permit recovery of
attorneys’ fees incurred to defend an award of Rule 11
sanctions on appeal. See Cooter & Gell, 496 U.S. at 406–07;
see also Sunbelt, 608 F.3d at 464 n.4 (rejecting contention
that award of fees pursuant to a fee-shifting provision is
controlled by Cooter & Gell). Section 1927 instead
authorizes the award of excess costs, expenses, and attorneys’
fees for the litigation as a whole, reasonably incurred because
of an attorney’s unreasonable and vexatious multiplication of
14     BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB

the entire proceedings, including fees-on-fees. See Norelus,
628 F.3d at 1298. Like other fee-shifting provisions, and in
contrast to the former version of Rule 11 discussed in Cooter
& Gell, § 1927 may shift the entire financial burden of an
action’s defense, including attorneys’ fees, if the entire course
of proceedings was unwarranted and should not have been
commenced or pursued. See Lewis v. Brown & Root, Inc.,
711 F.2d 1287, 1291–92 (5th Cir. 1983), clarified on
reconsideration, 722 F.2d 209, 210 (5th Cir. 1984); see also
Jean, 496 U.S. at 161–62; Sunbelt, 608 F.3d at 462–64 & n.4.

    The reasoning of Norelus is consistent with Sunbelt and
this court’s fees-on-fees case law. Accordingly, we follow
Norelus in holding that § 1927 allows an award of attorneys’
fees incurred in obtaining a sanctions award. See Norelus,
628 F.3d at 1297–1302. Appellees’ attorneys’ fees and non-
taxable costs incurred in preparing appellees’ statements
regarding Flynn’s responses to the order to show cause are
awardable against Flynn under § 1927. Id.

                               III

                          Conclusion

    We deny Flynn’s motion and amended motion for
reconsideration (Docket Entry Nos. 151, 152) of the
Appellate Commissioner’s second amended order and
amended orders (Docket Entry Nos. 148, 149, 150). The
Appellate Commissioner’s second amended order and
amended orders awarding attorneys’ fees and non-taxable
costs remain in effect. Flynn’s requests in the motion and
amended motion for reconsideration for recusal of this panel,
appointment of a new panel, conversion of this matter to a
criminal proceeding, transfer of the matter to the United
       BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB                15

States Attorney, and holding of the awards in abeyance are
denied. Flynn’s suggestion for reconsideration en banc is
rejected on behalf of the Court. See 9th Cir. Gen. Order 6.11.

    No further filings by Blixseth or Flynn will be entertained
in this closed appeal unless specifically requested by further
order of the court.