Timothy Blixseth v. Yellowstone Mountain Club, LLC , 796 F.3d 1004 ( 2015 )


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  •                FOR PUBLICATION
    UNITED STATES COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    TIMOTHY L. BLIXSETH,                   No. 12-35986
    Appellant,
    D.C. No.
    v.                      2:11-cv-00073-
    SEH
    YELLOWSTONE MOUNTAIN CLUB,
    LLC; AD HOC GROUP OF CLASS B
    UNIT HOLDERS; CIP SUNRISE RIDGE           ORDER
    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 August 4, 2015
    Before: Alex Kozinski, Richard A. Paez,
    and Marsha S. Berzon, Circuit Judges.
    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 unreasonably and 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.
    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 bankruptcy proceedings.
    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.”
    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
    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.,
    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
    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
    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.