Blixseth v. Suisse

• Decision Date: 11 June 2020
• Docket Number: No. 16-35304,16-35304
• Citation: 961 F.3d 1074
• Parties: Timothy L. BLIXSETH, Appellant, v. CREDIT SUISSE, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

961 F.3d 1074

Timothy L. BLIXSETH, Appellant,

v.CREDIT SUISSE, Appellee.

No. 16-35304

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 17, 2019 San Francisco, California

Filed June 11, 2020

Becky S. James (argued) and Rachael A. Robinson, James & Associates, Calabasas, California, for Appellant.

Christopher J. Cariello (argued), Orrick Herrington & Sutcliffe LLP, New York, New York; Robert M. Loeb, Orrick Herrington & Sutcliffe LLP, Washington, D.C.; J. Richard Orizotti, Poore Roth & Robinson P.C., Butte, Montana; Evan R. Levy, Mark A. McDermott, and Shaud G. Tavakoli, Skadden Arps Slate Meagher & Flom LLP, New York, New York; for Appellee.

Before: Richard A. Paez, Marsha S. Berzon, and Jay S. Bybee, Circuit Judges.

OPINION

BERZON, Circuit Judge:

We have been here, or nearly here, before. Timothy Blixseth ("Blixseth") appeals the district court's dismissal of his challenge to an exculpation clause (the "Exculpation Clause" or the "Clause") approved by the bankruptcy court as a part of a settlement plan to which Blixseth objected. The district court dismissed the challenge because it determined that Blixseth's case is equitably moot, even though we previously held his challenge to the Exculpation Clause not equitably moot. Although the court erred in doing so, we hold the Exculpation Clause valid, and so affirm the dismissal.

I

Timothy Blixseth and Edra Blixseth, his wife at the time, founded the Yellowstone Club in 2000 as an "exclusive ski and golf community" in Big Sky, Montana. In 2005, representing that he was planning to take the Yellowstone Club global, Blixseth borrowed $375 million from Credit Suisse and other lenders. See Blixseth v. Kirschner (In re Yellowstone Mountain Club, LLC) , 436 B.R. 598, 607, 609–13. (Bankr. D. Mont. 2010), amended in part by No. 08-61570-11, 2010 WL 3504210 (Bankr. D. Mont. Sept. 7, 2010). To secure the loan, Blixseth offered the assets of companies related to the Club—Yellowstone Mountain Club, LLC; Yellowstone Development, LLC; Big Sky Ridge, LLC; and Yellowstone Club Construction Company, LLC. Id . at 608–13.

Blixseth and Edra Blixseth divorced in 2008. As a result of the divorce proceedings, Edra Blixseth became the indirect owner of the Yellowstone companies. Id . at 632. The companies had entered "a downward spiral," id. at 618, largely because Blixseth mismanaged and misused the money from the 2005 loan, see id . at 613–15. As a result, repayment of that loan was no longer viable. Id . at 620. Edra Blixseth decided to take the companies (collectively, the "Debtors") through Chapter 11 bankruptcy proceedings, with the intention of selling the Debtors’ assets to CrossHarbor Capital Partners, LLC, a real estate management company that had purchased residential lots in the Yellowstone Club and had offered to buy the Club. Id. at 619–21, 630–31.

The bankruptcy proceedings were contentious. The Debtors, Blixseth, CrossHarbor, Credit Suisse—the Debtors’ largest creditor—and a committee of unsecured creditors battled over the companies’ assets. As the bankruptcy court noted, "litigation and the threat of litigation is and was plentiful in this case." In re Yellowstone Mountain Club, LLC , 460 B.R. 254, 274 (Bankr. D. Mont. 2011).

Settlement negotiations narrowed the scope of the litigation. On April 3, 2009, the Debtors filed a Second Amended Reorganization Plan and Disclosure Statement, which included an exculpation clause releasing certain nondebtors from liability for acts or omissions arising out of the Chapter 11 proceedings. Credit Suisse was not included as an exculpated party. It objected to the plan and, specifically, the Clause, on the ground that "such releases are strictly forbidden in the Ninth Circuit and grounds for denial of confirmation of the Plan." Blixseth, who was also not included as an exculpated party, adopted and joined Credit Suisse's objections.

Credit Suisse's objection threatened the confirmation of the plan and set off another intense round of negotiations. Over the course of a weekend in May 2009, Credit Suisse, CrossHarbor, and the Debtors negotiated a "global settlement" that allowed the Debtors to avoid liquidating their assets. Id . at 264–65. This settlement formed the basis for the Third Amended Joint Plan (the "Plan"). The Plan resolved lingering litigation between the parties and, relevant here, included the Exculpation Clause at issue, which now covered Credit Suisse as an exculpated party. The full Clause, set out in Section 8.4 of the Plan, provides:

None of [the Exculpated Parties, including Credit Suisse, CrossHarbor, and Edra Blixseth], shall have or incur any liability to any Person for any act or omission in connection with, relating to or arising out of the Chapter 11 Cases, the formulation, negotiation, implementation, confirmation or consummation of this Plan, the Disclosure Statement, or any contract, instrument, release or other agreement or document entered into during the Chapter 11 Cases or otherwise created in connection with this Plan; provided, however, that nothing in this Section 8.4 shall be construed to release or exculpate any Exculpated Party from willful misconduct or gross negligence as determined by a Final Order or any breach of the Definitive Agreement or any documents entered into in connection therewith.

Blixseth, who was not covered by the revised exculpation clause, again objected to the Plan. The bankruptcy court approved the Plan on June 2, 2009, and Blixseth appealed. The district court reversed the bankruptcy court's confirmation of the Plan because of the breadth of the Exculpation Clause. The court instructed the bankruptcy court to "explicitly identify and delineate those persons or representatives determined to be within the scope of the release parameters of Section 524(e)."

On remand, the bankruptcy court conducted two days of evidentiary hearings and argument on the Exculpation Clause. On September 30, 2011, the court confirmed the plan once more, not modifying the Plan but construing the Clause to be "narrow in both scope and time." In re Yellowstone Mountain Club, LLC , 460 B.R. at 272.

Blixseth appealed again. The district court rejected the Plan proponents’ argument that Blixseth's appeal was barred by the doctrine of equitable mootness but concluded that Blixseth did not have standing to appeal the bankruptcy court's approval of the Plan. Blixseth and the Plan proponents cross appealed to this Court. In an unpublished disposition, we affirmed the district court in part and reversed in part, holding (1) that Blixseth was a "person aggrieved" by the bankruptcy court's order and thus had standing to challenge that order, and (2) that Blixseth's challenge to the Exculpation Clause was not equitably moot because it was "apparent that one or more remedies is still available." Blixseth v. Yellowstone Mountain Club, LLC , 609 F. App'x 390, 391–92 (9th Cir. 2015) (citation omitted). We remanded to the district court with instructions to consider the merits of Blixseth's challenge to the Clause.

But on remand, the district court did not rule on the merits of Blixseth's challenge to the Clause. Instead, it dismissed Blixseth's challenge on the ground that it was barred by equitable mootness.

This appeal followed.

II

As an initial matter, we face a procedural question: Credit Suisse contends Blixseth's appeal should be dismissed outright because of his failure to respond to our order requiring him to show cause for why his appeal should persist in the wake of a purported global settlement.

During the pendency of this appeal, we became aware that settlement negotiations among the parties to the dispute had been ongoing and the parties might have reached a settlement. We issued an order stating:

It appears that these appeals may be moot because of settlement or should otherwise be dismissed. Within 21 days after the filing date of this order, appellant shall move to voluntarily dismiss these appeals or show cause why these appeals should not be dismissed. If appellant fails to respond to this order, these appeals will be automatically dismissed by the Clerk for failure to prosecute. See 9th Cir. R. 42-1. If appellant files a response, appellees shall file a response or an appropriate motion within 14 days after service of appellant's filing. Further briefing is stayed pending resolution of this order.

It turned out that Blixseth had settled with two parties, CrossHarbor and Yellowstone Mountain Club, LLC, but not with Credit Suisse. In response to our order, Blixseth moved to dismiss CrossHarbor and Yellowstone Mountain Club; he did not explain why he made no motion concerning Credit Suisse, nor did he explain why his appeal with regard to Credit Suisse was not moot.

Our order had stated that Blixseth's appeal would be "automatically dismissed by the Clerk," if he failed to respond to the order. In fact it was not dismissed. Blixseth did respond to the order, albeit incompletely, by moving to dismiss two defendants but not responding with regard to Credit Suisse.

Blixseth finally did respond as to mootness with regard to Credit Suisse—a month and a half later than required by our order—after Credit Suisse moved to dismiss his appeal.¹ Given Blixseth's belated response with regard to Credit Suisse, we have the authority to dismiss Blixseth's appeal now for incomplete compliance with our order. But equitable factors persuade us not to do so.

Under our Circuit's rules,

[w]hen an appellant fails to file a timely record, pay the docket fee, file a timely brief, or otherwise comply with rules requiring processing the appeal for hearing, an order may be entered by the clerk dismissing the appeal. In all instances of failure to prosecute an appeal to hearing as required, the Court may take such other action as it deems appropriate.

9th Cir. R. 42-1 (emphases added). In general, "[d]ismissal is a harsh penalty and is to be imposed only in extreme circumstances," because, inter alia , "public policy...