Glasser Ex Rel. Kirschner v. Blixseth

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS MAY 02 2016
MOLLY C. DWYER, CLERK
FOR THE NINTH CIRCUIT U.S. COURT OF APPEALS
BRIAN A. GLASSER, Esquire, as No. 14-56184
successor to Marc S. Kirschner as trustee
of the Yellowstone Club Liquidating Trust, D.C. No. 2:11-cv-08283-GAF-SP
Plaintiff - Appellee,
MEMORANDUM*
v.
TIMOTHY L. BLIXSETH,
Defendant - Appellee,
CHRISTOPHER CONANT, former
counsel for the Defendant,
Third party - Appellant.
Appeal from the United States District Court
for the Central District of California
Gary A. Feess, District Judge, Presiding
Argued and Submitted February 25, 2016
Pasadena, California
Before: KOZINSKI, PAEZ, and BERZON, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Christopher Conant (“Conant”) appeals the district court’s order granting
sanctions against him for filing a frivolous counterclaim on behalf of his client,
Timothy Blixseth (“Blixseth”). We reverse.
1. The district court abused its discretion by ordering sanctions against Conant
under 28 U.S.C. § 1927 because that section does not allow for the imposition of
sanctions based on initial pleadings, such as a counterclaim. De Dios v. Int’l
Realty & Invs., 641 F.3d 1071, 1076 (9th Cir. 2011); In re Keegan Mgmt. Co., 78
F.3d 431, 435 (9th Cir. 1996).
2. The district court also erred in granting sanctions under its inherent powers.
Before awarding sanctions under its inherent powers, a court “must make an
explicit finding that counsel’s conduct constituted or was tantamount to bad faith.”
Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 648-49 (9th Cir. 1997)
(internal quotation marks omitted). Such a finding “is warranted where an attorney
knowingly or recklessly raises a frivolous argument.” Id. at 649 (internal quotation
marks omitted).
The district court concluded that Blixseth’s counterclaim was frivolous for
two reasons: 1) “it [was] asserted against Kirschner in his individual capacity, in
violation of Federal Rule of Civil Procedure 13,” and 2) “Blixseth [did] not [seek]
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leave from the Bankruptcy Court to file the counterclaims against Kirschner in his
official capacity, in contravention of Barton [v. Barbour, 104 U.S. 126 (1881)].”
As to the first reason, although Blixseth did improperly name Kirschner in
his personal capacity, Blixseth promptly sought leave to amend his counterclaim to
name Kirschner in his official capacity as trustee once the defect was brought to his
attention. This quick response militates against a finding of bad faith.
As to the second reason, it is true that the Barton doctrine prohibits a
claimant from suing a bankruptcy trustee without first receiving approval from the
bankruptcy court. In re Crown Vantage, Inc., 421 F.3d 963, 970-71 (9th Cir.
2005). Blixseth failed to obtain prior approval for his counterclaims against
Kirschner. Nonetheless, this case involved the unusual situation where the
bankruptcy trustee voluntarily and affirmatively filed suit in the Central District of
California. In light of Conant’s belief that Blixseth’s counterclaims were
compulsory, it was reasonable for Conant to include Blixseth’s counterclaims in
his responsive pleading without seeking leave of the bankruptcy court.
The district court also cited “the ‘scorched earth’ approach demonstrated by
Blixseth in the bankruptcy and other proceedings” to support its finding of bad
faith. But Blixseth’s approach in other proceedings does not show that Conant
acted in bad faith here. Although the counterclaims may ultimately have been
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improper, Conant did not file them in bad faith and the district court should not
have imposed sanctions against him.
REVERSED.
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