Court Opinion

ID: 3199635
Source: CourtListenerOpinion
Date Created: 2016-05-02 20:01:09.152894+00
Date Added: 2024-06-11T07:39:13.331731
License: Public Domain

NOT FOR PUBLICATION                             FILED
                    UNITED STATES COURT OF APPEALS                         MAY 02 2016

                                                                        MOLLY C. DWYER, CLERK
                            FOR THE NINTH CIRCUIT                        U.S. COURT OF APPEALS

BRIAN A. GLASSER, Esquire, as                    No. 14-56184
successor to Marc S. Kirschner as trustee
of the Yellowstone Club Liquidating Trust,       D.C. No. 2:11-cv-08283-GAF-SP

              Plaintiff - Appellee,
                                                 MEMORANDUM*
 v.

TIMOTHY L. BLIXSETH,

              Defendant - Appellee,

CHRISTOPHER CONANT, former
counsel for the Defendant,

              Third party - Appellant.

                    Appeal from the United States District Court
                       for the Central District of California
                     Gary A. Feess, District Judge, Presiding

                     Argued and Submitted February 25, 2016
                              Pasadena, California

Before: KOZINSKI, PAEZ, and BERZON, Circuit Judges.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
      Christopher Conant (“Conant”) appeals the district court’s order granting

sanctions against him for filing a frivolous counterclaim on behalf of his client,

Timothy Blixseth (“Blixseth”). We reverse.

1.    The district court abused its discretion by ordering sanctions against Conant

under 28 U.S.C. § 1927 because that section does not allow for the imposition of

sanctions based on initial pleadings, such as a counterclaim. De Dios v. Int’l

Realty & Invs., 641 F.3d 1071, 1076 (9th Cir. 2011); In re Keegan Mgmt. Co., 78

F.3d 431, 435 (9th Cir. 1996).

2.    The district court also erred in granting sanctions under its inherent powers.

Before awarding sanctions under its inherent powers, a court “must make an

explicit finding that counsel’s conduct constituted or was tantamount to bad faith.”

Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 648-49 (9th Cir. 1997)

(internal quotation marks omitted). Such a finding “is warranted where an attorney

knowingly or recklessly raises a frivolous argument.” Id. at 649 (internal quotation

marks omitted).

      The district court concluded that Blixseth’s counterclaim was frivolous for

two reasons: 1) “it [was] asserted against Kirschner in his individual capacity, in

violation of Federal Rule of Civil Procedure 13,” and 2) “Blixseth [did] not [seek]

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leave from the Bankruptcy Court to file the counterclaims against Kirschner in his

official capacity, in contravention of Barton [v. Barbour, 104 U.S. 126 (1881)].”

      As to the first reason, although Blixseth did improperly name Kirschner in

his personal capacity, Blixseth promptly sought leave to amend his counterclaim to

name Kirschner in his official capacity as trustee once the defect was brought to his

attention. This quick response militates against a finding of bad faith.

      As to the second reason, it is true that the Barton doctrine prohibits a

claimant from suing a bankruptcy trustee without first receiving approval from the

bankruptcy court. In re Crown Vantage, Inc., 421 F.3d 963, 970-71 (9th Cir.

2005). Blixseth failed to obtain prior approval for his counterclaims against

Kirschner. Nonetheless, this case involved the unusual situation where the

bankruptcy trustee voluntarily and affirmatively filed suit in the Central District of

California. In light of Conant’s belief that Blixseth’s counterclaims were

compulsory, it was reasonable for Conant to include Blixseth’s counterclaims in

his responsive pleading without seeking leave of the bankruptcy court.

      The district court also cited “the ‘scorched earth’ approach demonstrated by

Blixseth in the bankruptcy and other proceedings” to support its finding of bad

faith. But Blixseth’s approach in other proceedings does not show that Conant

acted in bad faith here. Although the counterclaims may ultimately have been

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improper, Conant did not file them in bad faith and the district court should not

have imposed sanctions against him.

      REVERSED.

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