Timothy Blixseth v. Credit Suisse, 961 F.3d 1074

Timothy Blixseth founded the Yellowstone Club; after a $375 million loan and alleged mismanagement, related entities filed Chapter 11 and negotiated a plan to sell assets to CrossHarbor.
The Third Amended Joint Plan contained an Exculpation Clause protecting certain non-debtors (later amended to include Credit Suisse) from liability for acts or omissions arising out of the Chapter 11 process, except for willful misconduct or gross negligence.
Blixseth objected; the bankruptcy court confirmed the Plan after hearings. The district court initially reversed, the Ninth Circuit held Blixseth had standing and that his challenge was not equitably moot, and remanded for merits review.
On remand the district court dismissed Blixseth’s challenge as equitably moot; Blixseth appealed to this Court. The Ninth Circuit considered whether to dismiss for procedural noncompliance but declined.
On the merits the Ninth Circuit reviewed de novo whether § 524(e) barred approval of the limited exculpation clause as applied to Credit Suisse, and ultimately held the Clause valid because it covered only liabilities arising from the bankruptcy process, not debts discharged in bankruptcy.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether appeal should be dismissed for failure to comply with a show-cause order	Blixseth offered partial response and belated explanation	Credit Suisse argued dismissal for incomplete compliance	Court declined dismissal on equitable grounds and heard the appeal
Whether the appeal/challenge is equitably moot	Blixseth: remedies remain available; appeal not moot	Credit Suisse/district court: vacating clause would disrupt plan; appeal moot	Ninth Circuit held earlier panel ruling binding: appeal not equitably moot
Whether 11 U.S.C. § 524(e) bars the Exculpation Clause releasing a non-debtor for acts during bankruptcy	Blixseth: § 524(e) prohibits discharge/release of non-debtors' liabilities	Credit Suisse: Clause is narrow, limited to bankruptcy- related acts, excludes gross misconduct	Court held § 524(e) does not bar a narrow exculpation limited to actions in the Chapter 11 process
Whether lack of consideration or privity prevents enforcement of the Plan's releases against Blixseth	Blixseth: no consideration/privity, so he cannot be bound	Credit Suisse: bankruptcy court acts by operation of law; confirmation power does not depend on creditor consent	Court held consideration/privity arguments irrelevant to bankruptcy court's statutory confirmation power

PWS Holding Corp. v. Nat’l Fuel Gas Dist. Corp., 228 F.3d 224 (3d Cir.) (upholding limited exculpatory clause for acts during plan process)
Underhill v. Royal, 769 F.2d 1426 (9th Cir. 1985) (traditional bar on discharging nondebtor liabilities under prior precedent)
American Hardwoods, Inc. v. Deutsche Credit Corp., 885 F.2d 621 (9th Cir. 1989) (limits on using §105 to discharge nondebtor liabilities)
Lowenschuss v. Resorts Int’l, Inc., 67 F.3d 1394 (9th Cir. 1995) (broad Ninth Circuit language that §524(e) precludes nondebtor discharges)
In re Pacific Lumber Co., 584 F.3d 229 (5th Cir. 2009) (contrasting view: §524(e) barred certain nondebtor releases)
In re Thorpe Insulation Co., 677 F.3d 869 (9th Cir. 2012) (equitable-mootness doctrine and availability of remedial modifications)