Blixseth v. Yellowstone Mountain Club, LLC

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 OPINION
OWNER LLC; CIP YELLOWSTONE
LENDING LLC; CROSSHARBOR
CAPITAL PARTNERS, LLC; MARC S.
KIRSCHNER; CREDIT SUISSE AG,
CAYMAN ISLANDS BRANCH;
YELLOWSTONE CLUB LIQUIDATING
TRUST,
Appellees.
Appeal from the United States District Court
for the District of Montana
Sam E. Haddon, District Judge, Presiding
Argued and Submitted
November 5, 2013—Seattle, Washington
Filed February 18, 2014
2 BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB
Before: Alex Kozinski, Chief Judge, Richard A. Paez
and Marsha S. Berzon, Circuit Judges.
Per Curiam Opinion
SUMMARY*
Bankruptcy
The panel affirmed the district court’s affirmance of the
bankruptcy court’s denial of a recusal motion.
The panel held that the bankruptcy court did not abuse its
discretion in denying the recusal motion because a reasonable
person with knowledge of all the facts would not have
concluded that the bankruptcy judge’s impartiality might
reasonably be questioned. The panel held that there was no
merit to appellant’s claims of alleged ex parte
communications, rulings made by the judge that purportedly
denied appellant due process, and supposedly biased
statements made by the judge during various proceedings.
The panel stated that appellant’s claims were “a transparent
attempt to wriggle out of an unfavorable decision by
smearing the reputation of the judge who made it.”
*
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
COUNSEL
Michael James Flynn, Sr., Rancho Santa Fe, CA (argued),
Phillip H. Stillman, Stillman & Associates, Miami Beach, FL,
Patrick T. Fox, Doubek Pyfer & Fox, LLP, Helena, MT,
Christopher J. Conant, Conant Law LLC, Denver, CO and
Michael J. Ferrigno, Law Office of Michael Ferrigno, PLLC,
Meridian, ID, for Appellant.
James A. Patten, Patten, Peterman, Bekkedahl & Green,
PLLC, Billings, MT (argued), Michael R. Lastowski, Duane
Morris LLP, Wilmington, DE, Robert R. Bell, Mullin, Hoard
& Brown, Amarillo, TX and Benjamin P. Hursh, Crowley
Fleck, PLLP, Missoula, MT for Appellees.
OPINION
PER CURIAM:
Timothy Blixseth sounds the clarion call of many a
disappointed litigant: “It’s not fair!” He insists that the judge
who presided over the administration of the Yellowstone
Mountain Club ski resort’s bankruptcy was biased against
him and should have recused himself. The bankruptcy judge
denied the recusal motion and the district court affirmed.
Blixseth has now filed a blunderbuss appeal.
I
Blixseth and his ex-wife founded Yellowstone Mountain
Club, a ski and golf resort built on the twin pillars of luxury
and exclusivity. A haven for the ultra-wealthy, Yellowstone
offers “Private Powder”: over 2,200 acres of skiable terrain
4 BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB
available only to club members and their invited guests. See
Yellowstone Club, Ski, http://goo.gl/tfWQ5n. It was at one
point the only private ski area in the world. See In re BLX
Group, Inc., 419 B.R. 457, 460 (Bankr. D. Mont. 2009). In
2005, Yellowstone borrowed $342 million. Id. at 461. The
same day, over $200 million of this money was “disbursed by
Blixseth to various personal accounts and payoffs benefitting
Blixseth and [his ex-wife] personally.” Id. Unsurprisingly,
Yellowstone eventually filed for bankruptcy.
Blixseth objected to the proposed bankruptcy settlement
plan (the Plan), arguing that his ex-wife and others were the
cause of Yellowstone’s financial problems. See In re
Yellowstone Mountain Club, LLC, 436 B.R. 598, 641–44
(Bankr. D. Mont. 2010), amended in part by In re
Yellowstone Mountain Club, LLC, No. 08-61570-11, 2010
WL 3504210 (Bankr. D. Mont. Sept. 7, 2010). The
bankruptcy court disagreed. It found that Blixseth had
misappropriated Yellowstone’s cash and property for his
personal use and that his fraudulent intent in doing so “could
not be more clear.” Id. at 657–64. The bankruptcy court
entered a $40 million judgment against Blixseth—the amount
the court determined was necessary to pay off certain classes
of creditors. Id. at 679. The district court reversed on narrow
grounds, directing the bankruptcy court to give proper notice
to the affected parties and further refine an exculpation clause
in the Plan. See generally Blixseth v. Yellowstone Mountain
Club, LLC, No. CV-09-47, 2010 WL 4371368 (D. Mont.
Nov. 2, 2010).1
1
On remand, the bankruptcy court explained that, in its view, notice was
proper and the exculpation clauses were supported by Ninth Circuit
precedent. In re Yellowstone Mountain Club, LLC, 460 B.R. 254, 258–63,
266–77 (Bankr. D. Mont. 2011). Blixseth again appealed, but the district
BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB 5
While the case was again before the bankruptcy court,
Blixseth filed a motion alleging numerous incidents of
judicial misconduct and urging that the bankruptcy judge
recuse himself. The bankruptcy judge denied the motion, and
the district court affirmed, finding that “extraordinary
consideration was accorded Blixseth and his position
throughout the proceedings.”
II
We review the bankruptcy judge’s denial of a recusal
motion for abuse of discretion. See In re Marshall, 721 F.3d
1032, 1039 (9th Cir. 2013). Recusal is appropriate where “a
reasonable person with knowledge of all the facts would
conclude that the judge’s impartiality might reasonably be
questioned.” Pesnell v. Arsenault, 543 F.3d 1038, 1043 (9th
Cir. 2008). Actual bias isn’t required; the appearance of
impropriety can be a sufficient basis for judicial recusal. See
Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847,
864–65 (1988); Yagman v. Republic Ins., 987 F.2d 622, 626
(9th Cir. 1993). We gauge appearance by considering how
the conduct would be viewed by a reasonable person, not
someone “‘hypersensitive or unduly suspicious.’” United
States v. Holland, 519 F.3d 909, 913 (9th Cir. 2008) (quoting
In re Mason, 916 F.2d 384, 386 (7th Cir. 1990)).
Blixseth’s accusations fall into three categories:
(1) alleged ex parte communications; (2) rulings made by the
court held that Blixseth lacked appellate standing to challenge the
bankruptcy court’s ruling because he no longer claimed to be an unsecured
creditor and thus had no interest in the Plan. Memorandum & Order, No.
2:11-cv-00065, Dkt. # 121 (D. Mont. Mar. 6, 2013). That decision is
currently the subject of a separate appeal.
6 BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB
judge that purportedly denied Blixseth due process; and
(3) supposedly biased statements made by the judge during
various proceedings. We see no need to clutter the pages of
the Federal Reporter with a discussion of each one of
Blixseth’s myriad and often duplicative claims. A few
examples in each of the three categories more than suffice to
give a sense of Blixseth’s accusations.
A. The “Ex Parte” Communications
While ex parte communications are discouraged, see, e.g.,
United States v. Van Griffin, 874 F.2d 634, 637 (9th Cir.
1989), they aren’t always improper and don’t necessarily call
for recusal. See Willenbring v. United States, 306 F.2d 944,
946 (9th Cir. 1962); see also Reed v. Rhodes, 179 F.3d 453,
468–69 (6th Cir. 1999). Ex parte motions may be brought in
emergencies, to preserve state secrets and in a variety of other
contexts. The Federal Rules of Civil Procedure specifically
recognize the legitimacy of ex parte contacts in certain
circumstances. See, e.g., Fed. R. Civ. P. 6(c). Ex parte
contacts are improper where, given all the circumstances,
they could cause a reasonable person to question that judge’s
impartiality. See Pesnell, 543 F.3d at 1043; United States v.
Wecht, 484 F.3d 194, 214–15 (3d Cir. 2007).
We start with the incident that Blixseth claims most
clearly demonstrates the judge’s partiality: that the judge met
with representatives of the debtor and bankruptcy bidders in
Blixseth’s absence. The meeting concerned an upcoming
non-public auction of the debtor’s assets. In a non-public
bankruptcy auction, the debtor’s assets are auctioned off to
qualified bidders—parties who commit to making a certain
minimum bid and provide collateral as a guarantee of that
commitment. This is a procedure widely employed by
BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB 7
bankruptcy courts to maximize the value of estates. See, e.g.,
Peterson v. U.S. Bank Nat’l Ass’n, 918 F. Supp. 2d 89, 98
(D. Mass. 2013); In re Trident Water Works, Inc., No. 09-
49166, 2010 WL 5167286, at *2 (Bankr. W.D. Wash. Aug.
27, 2010); In re Farmland Indus., Inc., 376 B.R. 718, 730
(Bankr. W.D. Mo. 2007).
The debtor, Yellowstone, and the unsecured creditors
were attempting to identify qualified bidders so they could
conduct an auction. They invited the judge to one informal
meeting in the hope that he could help them resolve
differences about the proposed auction. Blixseth wasn’t the
debtor or an unsecured creditor and he never attempted to
qualify as a bidder. The upcoming auction therefore did not
affect his interests and he had no right to participate. An ex
parte contact with a judicial officer is one where a party who
has a right to be present is excluded. Because Blixseth had
no right to be present, the meeting between the judge, the
debtor, the unsecured creditors and potential qualified bidders
wasn’t ex parte as to him. See In re Goodwin, 194 B.R. 214,
222 (9th Cir. BAP 1996).
Blixseth argues that any meeting between the judge and
the parties was improper because the judge hadn’t yet ruled
on Blixseth’s liability. He suggests that, during the meeting,
the judge and the parties must have discussed Blixseth’s
claim. But Blixseth provides no evidence that anything other
than the upcoming auction was discussed at the meeting. A
judge need not remove himself from all legitimate activity in
administering a complex estate simply because he has
motions pending. Blixseth presents nothing that would have
required the judge to recuse himself.
8 BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB
Blixseth makes a variety of other claims about supposedly
improper ex parte contacts. He points to an email from a
senior bankruptcy judge to Yellowstone’s counsel providing
two case citations. But the senior judge didn’t preside over
the Yellowstone bankruptcy,2 and Blixseth doesn’t explain
how the email shows bias on the part of the bankruptcy judge
whose recusal he seeks.
Equally meritless is Blixseth’s assertion that four emails
sent by one of the bankruptcy judge’s law clerks show
improper bias. The emails discussed such innocuous details
as the date for the filing of the bankruptcy petition, what
paperwork was required before a cash collateral motion could
be approved and the judge’s intention to enter a generic order
unless counsel wished to submit a proposed order. Ex parte
communications with judicial staff concerning routine
administrative matters do not raise any inference of bias. See
In re Kensington Int’l Ltd., 368 F.3d 289, 305 (3rd Cir. 2004).
Blixseth’s overwrought argument that these emails prove
some sort of conspiracy against him is wholly unfounded.
Nor are we persuaded that a phone call between a law
clerk assisting a different judge and the bankruptcy trustee in
a related proceeding demonstrates that the bankruptcy judge
is biased. Blixseth claims to have heard from a third party
that, during the call, the clerk encouraged the trustee to
2
At oral argument, Yellowstone’s counsel suggested that the senior
judge’s email was related to a mediation that occurred in 2009. Blixseth’s
counsel, Michael Flynn, responded that it was a “complete fabrication” to
suggest that in 2009 the senior judge “was involved in a mediation in this
case.” Flynn’s statements to this court are demonstrably inaccurate: The
record shows that the senior judge acted as a mediator in this case in 2009.
Counsel could have verified his assertion following oral argument, but he
has not retracted his erroneous statement.
BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB 9
complete a settlement before Blixseth could back out. Even
if this rumor were true, encouraging parties to finalize a
settlement before one of them has a change of heart is not
improper.
B. Denial of Due Process
“[J]udicial rulings alone almost never constitute a valid
basis for a bias or partiality [recusal] motion.” Liteky v.
United States, 510 U.S. 540, 555 (1994). Recusal is only
warranted if rulings are based on extrajudicial “knowledge
that the [judge] ought not to possess” or “reveal such a high
degree of favoritism or antagonism as to make fair judgment
impossible.” Id. at 550, 555.
We have already concluded that Blixseth’s claims of ex
parte contacts are baseless. His only other significant
argument that the judge relied on extrajudicial sources is that
the judge improperly took judicial notice of facts established
in related proceedings. But such facts don’t constitute
“knowledge that the [judge] ought not to possess.” Id. at 550.
If Blixseth believed the judge erred in considering them, his
remedy was to raise the issue on appeal.
Nor do any of Blixseth’s claims of judicial antagonism
hold water. For example, Blixseth complains that the judge
ruled against him on three summary judgment motions (all
filed on the same day) after the opposition filed an omnibus
response, but before Blixseth filed a reply brief. Blixseth
claims that, because the version of Fed. R. Civ. P. 56 in effect
at the time provided that he “may file a reply within 14 days
after the response is served,” it was improper for the judge to
rule before such a reply was filed. See Fed. R. Civ. P. 56
(2009). At most, this was another error that Blixseth was free
10 BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB
to raise on appeal. It comes nowhere near showing that the
judge had “such a high degree of favoritism or antagonism as
to make fair judgement impossible.” Liteky, 510 U.S. at 555.
There is simply no evidence that the judge acted out of an
improper or corrupt motive.
Blixseth fails to acknowledge that the judge made a
number of significant rulings in his favor. For example,
Yellowstone argued that the damages against Blixseth should
be $286.4 million, but the bankruptcy judge held Blixseth
liable for only $40 million. In re Yellowstone Mountain Club,
436 B.R. at 679. Such favorable rulings cut strongly against
any inference that the judge was unable to “render fair
judgment.” Liteky, 510 U.S. at 551.
A judge isn’t required to recuse himself even if he
becomes “exceedingly ill disposed towards [a] defendant []
who has been shown to be a thoroughly reprehensible
person.” Id. at 550–51. Here, not only is there no sign of
antagonism requiring recusal, there’s not even any evidence
of a general negative disposition towards Blixseth. The
bankruptcy judge, in fact, showed remarkable restraint given
Blixseth’s scorched-earth litigation tactics.
C. “Biased” Statements
“[J]udicial remarks [made] during the course of a trial”
require recusal only if “they reveal such a high degree of
favoritism or antagonism as to make fair judgment
impossible.” Id. at 555. Blixseth cherry-picks a handful of
quotes out of an enormous record; none shows even a slight
degree of antagonism.
BLIXSETH V. YELLOWSTONE MOUNTAIN CLUB 11
According to Blixseth, the 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.” This is, at best, a distortion of the record.
The judge was asking counsel about points raised in his brief.
One of those had to do with Flynn’s reputation: Opposing
counsel stated that he had previously accepted Flynn’s factual
representations because “at the time [he] was not aware of
Mr. Flynn’s reputation.” The judge said “Then another
statement that was made, I believe in your brief, is you make
some reference to now you know Mr. Flynn’s reputation.
What is that? What did you mean by that?”
Asking counsel to explain statements in briefs doesn’t
give the appearance of partiality. One would expect a judge
to seek clarification of statements impugning the reputation
of one of the lawyers before him. Just as with his other
claims, Blixseth makes extravagant accusations, but fails to
back them up with even a shred of credible evidence.
* * *
Blixseth’s claims are a transparent attempt to wriggle out
of an unfavorable decision by smearing the reputation of the
judge who made it. The bankruptcy court was correct in
denying the recusal motion, as was the district court in
affirming.
AFFIRMED.