Blixseth v. Brown, No. 14-35363 (9th Cir. 2016)
Annotate this CaseTimothy Blixseth and his wife, Edra, developed the Yellowstone Mountain Club, an exclusive ski and golf resort in Montana that caters to the “ultra-wealthy.” Edra subsequently filed for bankruptcy on behalf of the Yellowstone entities, and the U.S. Trustee appointed nine individuals to serve as the Unsecured Creditors' Committee (UCC). Blixseth suspected that his attorney, Stephen Brown, used confidential information to Blixseth’s detriment in the bankruptcy proceedings. Brown was one of the UCC members. Blixseth filed suit against Brown, but the district court held that it lacked jurisdiction because Blixseth did not first obtain the bankruptcy court’s permission to sue, as required by Barton v. Barbour. No court of appeals has held that Barton applies to suits against UCC members, but some have extended Barton to actors who are not bankruptcy trustees or receivers. Because creditors have interests that are closely aligned with those of a bankruptcy trustee, the court explained that there is good reason to treat the two the same for purposes of the Barton doctrine. Therefore, the court concluded that Barton applies to UCC members like Brown who are sued for acts performed in their official capacities. The court also concluded that Blixseth does not need permission from the bankruptcy court before bringing his pre-petition claims in district court. In this case, Blixseth's claims of misconduct are so intertwined with and dependent upon Brown's actions as a member of the UCC that it is impossible to separate the pre-petition claims from Brown’s activities on the UCC. However, the court concluded that Blixseth needed the bankruptcy court’s permission before bringing claims challenging conduct related to Brown's actions after he was appointed UCC chair in district court. Finally, the court concluded that the district court’s order did not afford Blixseth anything close to an independent decision by an Article III adjudicator; Stern v. Marshall does not preclude bankruptcy courts from adjudicating Barton claims; and the court remanded for the bankruptcy court to consider whether Brown is entitled to derived judicial immunity for Blixseth’s post-petition claims. Accordingly, the court affirmed in part, vacated in part, and remanded in part.
Court Description: Bankruptcy. The panel affirmed in part and vacated in part the district court’s affirmance of (1) the bankruptcy court’s denial of plaintiff’s request for permission, pursuant to Barton v. Barbour, 104 U.S. 126 (1881), to sue a member of an Unsecured Creditors’ Committee in district court, and (2) the bankruptcy court’s dismissal of plaintiff’s claims on the merits. Under the Barton doctrine, plaintiffs must obtain authorization from the bankruptcy court before initiating an action in district court against certain officers appointed by the bankruptcy court for actions the officers have taken in their official capacities. The panel held that Barton applies to UCC members who are sued for acts performed in their official capacities. Any such suit must be brought in the bankruptcy court, or in another court only with the express permission of the bankruptcy court. The panel held that claims alleging misconduct by the defendant prior to the bankruptcy proceedings could be brought without permission from the bankruptcy court. The panel held that the bankruptcy court erred in holding that these pre-petition claims were so intertwined with the defendant’s actions as a member of the UCC that they could not be separated from the post-petition claims. IN RE YELLOWSTONE MOUNTAIN CLUB 3 As to claims challenging defendant’s conduct related to his actions after he was appointed UCC chair, the panel held that the bankruptcy court did not abuse its discretion in denying plaintiff’s Barton motion to bring these post-petition claims in district court. The panel held that the bankruptcy court did not exceed its Article I jurisdiction by adjudicating on the merits plaintiff’s post-petition claims, which stemmed from the bankruptcy. The panel held that the bankruptcy court erred in dismissing post-petition claims on the ground of derivative judicial immunity for defendant’s actions taken as UCC chair. The panel remanded for the bankruptcy court to consider whether defendant was entitled to derived judicial immunity because he acted within the scope of his authority, he candidly disclosed his proposed acts to the bankruptcy court, the debtor had notice of his proposed acts, and the bankruptcy court approved the proposed acts.
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