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.