TIMOTHY L. BLIXSETH, Appellant, v. YELLOWSTONE MOUNTAIN CLUB, LLC; AD HOC GROUP OF CLASS B UNIT HOLDERS; CIP SUNRISE RIDGE OWNER LLC; CIP YELLOWSTONE LENDING LLC; CROSSHARBOR CAPITAL PARTNERS, LLC; MARC S. KIRSCHNER; CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH; YELLOWSTONE CLUB LIQUIDATING TRUST, Appellees.
No. 12-35986
United States Court of Appeals, Ninth Circuit
April 18, 2017
D.C. No. 11-CV-73-SEH
Before: Alex Kozinski, Richard A. Paez, and Marsha S. Berzon, Circuit Judges.
ORDER
SUMMARY*
Bankruptcy / Sanctions
The panel filed an order: (1) denying appellant‘s counsel‘s motion and amended motion for reconsideration of the Appellate Commissioner‘s orders awarding attorneys’ fees and non-taxable costs under
The panel had ordered appellant and his counsel to pay appellees’ attorneys’ fees and costs in defending against the appeal under Rule 38; ordered counsel to pay appellees’ attorneys’ fees and costs in defending against the appeal under § 1927; and referred to the Appellate Commissioner the determination of an appropriate amount of attorneys’ fees and costs. The Appellate Commissioner entered orders awarding fees and costs.
Denying counsel‘s motion and amended motion for reconsideration of the Appellate Commissioner‘s orders, the panel held that the Commissioner correctly declined to award fees-on-fees under Rule 38 for the preparation of appellees’ statements regarding appellant‘s pro se response and counsel‘s response to the court‘s order to show cause against them, and correctly awarded fees and costs under § 1927 against counsel for preparing the statements regarding counsel‘s response. The panel held that because Rule 38 is a damage provision authorizing an award of “just damages,” an award of fees and costs under Rule 38 must be limited to appellees’ direct fees and costs for defending against the frivolous appeal, and may not include the fees and costs incurred regarding the imposition of sanctions. Agreeing with the Eleventh Circuit, the panel held that, unlike Rule 38, § 1927 is a fee-shifting provision allowing an award of fees-on-fees.
COUNSEL
Paul D. Moore, Duane Morris LLP, Boston, Massachusetts; Michael R. Lastowski, Duane Morris LLP, Wilmington, Delaware; Benjamin P. Hursh, Crowley Fleck PLLP, Missoula, Montana; for Appellees CrossHarbor Capital Partners, LLC, and CIP Sunrise Ridge Owner LLC.
James A. Patten, Patten Peterman Bekkedahl & Green PLLC, Billings, Montana, for Appellee Yellowstone Mountain Club, LLC.
Robert R. Bell, Mullin Hoard & Brown LLP, Amarillo, Texas, for Appellees Brian A. Glasser as Trustee, and Yellowstone Club Liquidating Trust.
ORDER
I
Background
We ordered Timothy L. Blixseth and his attorney Michael J. Flynn to pay appellees’ attorneys’ fees and costs in defending against this appeal under
The Appellate Commissioner entered a second amended order and amended orders (Docket Entry Nos. 148, 149, 150) awarding attorneys’ fees and non-taxable costs as follows:
- $105,881.26 in favor of CrossHarbor Capital Partners, LLC and CIP Sunrise Ridge Owner LLC and jointly and severally against Blixseth and Flynn;
- $24,796.41 in favor of CrossHarbor Capital Partners, LLC and CIP Sunrise Ridge Owner LLC and against Flynn;
- $42,031.81 in favor of Brian A. Glasser, Trustee, and Yellowstone Club Liquidating Trust and jointly and severally against Blixseth and Flynn;
- $9,065.50 in favor of Brian A. Glasser, Trustee, and Yellowstone Club Liquidating Trust and against Flynn;
- $9,505.08 in favor of Yellowstone Mountain Club, LLC and CIP Yellowstone Lending LLC and jointly and severally against Blixseth and Flynn; and
- $712.50 in favor of Yellowstone Mountain Club, LLC and CIP Yellowstone Lending LLC and against Flynn.
Flynn filed a motion and an amended motion for reconsideration of the Appellate Commissioner‘s second amended order and amended orders. We deny Flynn‘s motion and amended motion for reconsideration (Docket Entry Nos. 151, 152). The Appellate Commissioner‘s second amended order and amended orders awarding attorneys’ fees and non-taxable costs remain in effect.
The Appellate Commissioner correctly declined to award attorneys’ fees and non-taxable costs under Rule 38 against Blixseth and Flynn for preparing appellees’ statements regarding Blixseth‘s pro se response and Flynn‘s response to the court‘s order to show cause against Blixseth and Flynn (“fees-on-fees“), and correctly awarded fees and costs under § 1927 against Flynn for preparing the statements regarding Flynn‘s response. We publish this order to address the availability of fees and costs for litigating sanctions under Rule 38 and § 1927.
II
Discussion
Flynn objected to appellees’ requests for attorneys’ fees for preparing joint statements regarding Blixseth‘s pro se response and Flynn‘s response to the court‘s order to show cause. Flynn argued that the court may not include the expense of litigating the order to show cause in the attorney‘s fees and non-taxable costs that the court ordered Blixseth and Flynn to pay as a sanction, citing Haeger v. Goodyear Tire & Rubber Co., 813 F.3d 1233, 1254 (9th Cir. 2016), cert. granted, 2016 WL 2927901, 137 S. Ct. 30 (U.S. Sept. 29, 2016) (No. 15-1406), and In re S. Cal. Sunbelt Developers, Inc., 608 F.3d 456, 466 (9th Cir. 2010).
A. Sunbelt Distinguishes Fee-Shifting Provisions From Damages Provisions
In Sunbelt, thirteen creditors filed involuntary bankruptcy petitions against two alleged debtors. See Sunbelt, 608 F.3d at 460. After the petitions were dismissed,
This court affirmed the judgments against the creditors, holding that the bankruptcy court properly awarded fees-on-fees because § 303(i) is a fee-shifting provision rather than a sanctions statute such as Rule 11. Id. at 460, 462. The court relied on Business Guides, Inc. v. Chromatic Communications Enterprises, Inc., 498 U.S. 533, 553 (1991), and Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 409 (1990), in which the Supreme Court distinguished fee-shifting provisions, where eligibility turns on the merits or outcome of the litigation and costs are shifted for the litigation as a whole, from sanctions statutes like the former version of Rule 11, where eligibility for fees turned on whether a specific pleading was well-founded and costs are shifted only for a
discrete portion of the litigation. See Sunbelt, 608 F.3d at 462.
In Sunbelt, the court noted that courts have uniformly held that time spent establishing the entitlement to and amount of the fee is compensable under federal fee-shifting provisions, and that it would be inconsistent with the policy of § 303(i) to dilute the fee award by refusing to compensate time spent establishing the rightful claim to a fee. Id. at 463. The court also observed that, with respect to fee-shifting statutes, a court should make only one determination of fee eligibility and the fee award should encompass all aspects of the civil action. Id. (citing Comm‘r, INS v. Jean, 496 U.S. 154, 161-62 (1990) (fee-shifting statutes favor treating a case as an inclusive whole, rather than as atomized line items; approving award of fees-on-fees under federal fee-shifting statute for preparing the fee application and for the ensuing efforts to support the application)).3
Sunbelt held otherwise, however, with respect to sanctions under the court‘s inherent power against the controlling individuals. As to those sanctions, Sunbelt determined that the bankruptcy court erred in holding the individuals liable for the debtors’ fees and costs incurred on the § 303(i) motions. See Sunbelt, 608 F.3d at 466. Only the direct costs of opposing an offending pleading or motion, and not fees-on-fees, may be included in an award under the court‘s inherent power, we concluded, stating:
In Cooter & Gell . . . the Supreme Court held that
Federal Rule of Civil Procedure 11 did not authorize recovery of attorney‘s fees incurred to defend an award of Rule 11 sanctions on appeal. Relying on language in the version of Rule 11 in effect at that time, the Court reasoned that Rule 11 sanctions were limited to “those expenses directly caused” by the improper filing, which did not include costs of appeal. Id. We extended that principle in Lockary v. Kayfetz, 974 F.2d 1166 (9th Cir. 1992). In Lockary, the district court imposed sanctions under its inherent power rather than Rule 11. Id. at 1170. The sanctions included not only the costs incurred by the defendants to oppose the plaintiffs’ improper filings, but also the “defendants’ cost of preparing and supporting their motion for sanctions.” Id. at 1177. The law firm appealed and, relying on Cooter & Gell, we reversed:
Cooter & Gell suggests that the trial court should limit sanctions to the opposing party‘s more “direct” costs, that is, the costs of opposing the offending pleading or motion. We thus find that the district court erred in including the defendants’ attorneys’ fees for preparing the motion for sanctions in the sanctions it imposed.
C. Rule 38 Is A Damage Provision Authorizing Award of “Just Damages”
Blixseth and Flynn were not sanctioned under the court‘s inherent power, so Sunbelt is not directly applicable. Instead, we sanctioned Blixseth and Flynn under Rule 38 and sanctioned Flynn under § 1927. See Blixseth, 796 F.3d at 1007-09.
Under
The award of fees and costs under Rule 38 thus must be limited to appellees’ direct fees and costs for defending against the frivolous appeal, and may not include the fees and costs incurred regarding the imposition of sanctions. See Cooter & Gell, 496 U.S. at 406-07; Sunbelt, 608 F.3d at 466-67 & n.4; Lyddon, 996 F.2d at 214; Lockary, 974 F.2d at 1178; see also Haeger, 813 F.3d at 1242, 1254 (affirming award of attorneys’ fees and costs incurred after a misleading discovery response as a sanction under court‘s inherent power to compensate party for losses sustained as a result of misconduct).
D. Section 1927 Is A Fee-Shifting Provision Allowing Award Of Fees-On-Fees
We conclude otherwise concerning fees-on-fees for sanctions imposed under § 1927. That section does not refer to “damages” as Rule 38 does. Instead, it provides that a court may include the excess “costs, expenses, and attorneys’ fees” that the party victimized by the sanctionable conduct “incurred because of such conduct.” A different analysis therefore applies to the award under § 1927, against Flynn alone, of the fees incurred in preparing appellees’ statements regarding Flynn‘s response to the order to show cause.
With regard to § 1927, we agree with the analysis set forth persuasively in Norelus v. Denny‘s, Inc., 628 F.3d 1270, 1297-1302 (11th Cir. 2010). Like Norelus, we conclude that the costs of obtaining sanctions may be included in a sanctions award under § 1927.
Norelus emphasized that the plain language of § 1927 permits recovery of fees “incurred because of [the sanctionable] conduct,” and that were there no sanctionable conduct, there would have been no proceeding to impose sanctions, and no fees incurred in that proceeding. Id. at 1298. So the fees expended to obtain the sanctions award are, in the statute‘s terms, “incurred because of [the sanctionable] conduct.” Id. The Norelus court further noted that excluding the costs of obtaining the sanctions award would not fully compensate the harmed party for the wrongful conduct it had suffered. Id.; see also Haynes v. City & Cnty. of San Francisco, 688 F.3d 984, 987-88 (9th Cir. 2012) (the purpose of § 1927 is to compensate victims of attorney‘s malfeasance).
The holding of Norelus is consistent with the analysis ordinarily applied in other cost- and fee-shifting situations to allow parties to recover the cost of establishing their right to and the amount of attorneys’ fees, or fees-on-fees. See Norelus, 628 F.3d at 1301; see also Jean, 496 U.S. at 161-62; Sunbelt, 608 F.3d at 462-64 & n.4. In allowing awards of fees-on-fees, courts have relied on the language and purpose of the fee-shifting provision at issue, reasoning that not allowing fees-on-fees would undermine congressional policies governing attorneys’ fees awards. See Norelus, 628 F.3d at 1301.
The reasoning of Norelus is consistent with Sunbelt and this court‘s fees-on-fees case law. Accordingly, we follow Norelus in holding that § 1927 allows an award of attorneys’ fees incurred in obtaining a sanctions award. See Norelus, 628 F.3d at 1297-1302. Appellees’ attorneys’ fees and non-taxable costs incurred in preparing appellees’ statements regarding Flynn‘s responses to the order to show cause are awardable against Flynn under § 1927. Id.
III
Conclusion
We deny Flynn‘s motion and amended motion for reconsideration (Docket Entry Nos. 151, 152) of the Appellate Commissioner‘s second amended order and amended orders (Docket Entry Nos. 148, 149, 150). The Appellate Commissioner‘s second amended order and amended orders awarding attorneys’ fees and non-taxable costs remain in effect. Flynn‘s requests in the motion and amended motion for reconsideration for recusal of this panel, appointment of a new panel, conversion of this matter to a criminal proceeding, transfer of the matter to the United States Attorney, and holding of the awards in abeyance are denied. Flynn‘s suggestion for reconsideration en banc is rejected on behalf of the Court. See 9th Cir. Gen. Order 6.11.
No further filings by Blixseth or Flynn will be entertained in this closed appeal unless specifically requested by further order of the court.