Blixseth v. Brown (In Re Yellowstone Mountain Club, LLC)
561 B.R. 1090
9th Cir.2016Background
- Timothy Blixseth developed Yellowstone Mountain Club and used Credit Suisse loan proceeds for personal debts; related shareholder suits and a marital settlement assigned the entities to his ex-wife.
- The Yellowstone entities filed chapter 11; a nine-member Unsecured Creditors’ Committee (UCC) was appointed, chaired by Blixseth’s former lawyer Stephen Brown.
- Blixseth sued Brown in district court alleging misuse of confidential information and malpractice; the district court dismissed for lack of leave under Barton v. Barbour.
- Blixseth sought bankruptcy-court permission to sue (a Barton motion); the bankruptcy court denied leave and dismissed his claims on the merits; the district court affirmed.
- On appeal to the Ninth Circuit, the court considered (1) whether Barton applies to UCC members, (2) whether pre-petition claims require Barton leave, and (3) whether the bankruptcy court could enter final judgments on Barton claims given Article I/Stern constraints.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Barton requires leave before suing UCC members | Barton shouldn’t apply to UCC members like Brown because they represent creditors, not the estate | Barton protects court-appointed officers; UCC duties align with trustee functions | Barton applies to UCC members for acts in their official capacity; such suits require bankruptcy-court leave |
| Whether pre-petition claims against Brown required Barton leave | Pre-petition tort/contract/fraud claims are distinct from UCC duties and may be litigated in district court without leave | Claims are intertwined with Brown’s UCC role and thus subject to Barton | Pre-petition claims are not subject to Barton leave and may proceed in district court |
| Whether bankruptcy courts can enter final judgments on Barton claims (Stern/Article I issue) | Stern forbids bankruptcy adjudication of common-law claims; these are traditional tort/contract claims requiring Article III adjudication | Barton claims stem from the bankruptcy and concern official acts, so they fall within bankruptcy authority | Stern does not bar bankruptcy courts from adjudicating Barton claims because such claims stem from the bankruptcy itself |
| Whether Brown is entitled to derived judicial immunity / whether claims are barred by exculpation | Brown claims derivative judicial immunity for official acts and plan exculpation bars claims | Blixseth disputes immunity and contends exculpation is already being litigated separately | Remanded: bankruptcy court must determine whether Brown qualifies for derived judicial immunity; exculpation issue remains for separate appeal |
Key Cases Cited
- Barton v. Barbour, 104 U.S. 126 (1881) (requires leave of appointing bankruptcy court before suing court-appointed officers in another forum)
- In re Crown Vantage, 421 F.3d 963 (9th Cir. 2005) (Barton doctrine scope and requirement of leave)
- In re DeLorean Motor Co., 991 F.2d 1236 (6th Cir. 1993) (extending Barton protection to counsel functioning as trustee-equivalent)
- Carter v. Rodgers, 220 F.3d 1249 (11th Cir. 2000) (applying functional-equivalent test to sales-approval designees)
- Stern v. Marshall, 564 U.S. 462 (2011) (limits on Article I bankruptcy adjudication of certain common-law claims)
- In re Castillo, 297 F.3d 940 (9th Cir. 2002) (limits on derived judicial immunity for bankruptcy officers)