In Blixseth v. Yellowstone Mountain Club, LLC,[1] the Ninth Circuit Court of Appeals provided guidance on awards of attorneys’ fees. While a damages statute precludes any fee award (under the American Rule), and a punitive statute or sanction does not permit an award of fees in litigating the fee award itself, the court found that an attorney bringing a frivolous appeal (or other matter) can be liable not only for fees incurred in the proceeding itself, but for fees incurred in litigating the order to show cause why fees should not be awarded.
Prior Decisions
This decision was the latest in a long line of cases involving the ill-fated 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 available only to club members and their invited guests.”[2] Following an adverse ruling,[3] Timothy Blixeth (“Blixeth”), a co-founder of Yellowstone, moved to disqualify the bankruptcy judge. “Blixseth and his attorneys hurled nineteen accusations of misconduct at a bankruptcy judge who had ruled against Blixseth. In a forty-seven page opinion, the judge found the accusations to be meritless.”[4] The Ninth Circuit concluded that the appeal constituted, “a transparent attempt to wriggle out of an unfavorable decision by smearing the reputation of the judge who made it,”[5] and issued an order to show cause why Blixeth and his counsel should not be sanctioned for prosecuting a frivolous appeal. The court determined that fees should be awarded under Fed.R.App.P. 38 and 28 U.S.C. § 1927.[6]
The court referred the determination of the amount of the fee awards to the Appellate Commissioner,[7] who awarded a total of $157,358.15 jointly and severally against Blixseth and his counsel, as well as additional $34,574.41 solely against Blixseth’s attorney. The latter award represented fees incurred by counsel in responding to the attorney’s response to the order to show cause.[8]
The Fee-on-Fee Award
The 2017 decision addressed two alternative bases for fee awards for frivolous appeals.
Fed.R.App.P. 38 states: “If a court of appeals determines that an appeal is frivolous, it may, after a separately filed motion or notice from the court and reasonable opportunity to respond, award just damages and single or double costs to the appellee.” Blixeth’s attorney argued, and the court agreed, 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.”[9] However, this did not end the inquiry.
Under 28 U.S.C. § 1927, “[a]ny attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” The court characterized this statute as a “fee-shifting” provision. Citing to a pair of Supreme Court decisions, the Ninth Circuit 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,[10] 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.”[11]
The Court relied on its prior decision interpreting fee awards against petitioning creditors when an involuntary filing is dismissed. In In re S. California Sunbelt Developers, Inc.,[12] the Ninth Circuit held that Bankruptcy Code §303(i)(1) is a fee-shifting statute, and thus the bankruptcy court appropriately awarded fees incurred in litigating the fee award itself. Sunbelt also distinguished “damages” provisions, which do not permit an award of fees.[13]
Since 28 USC §1927 applies only to attorneys, the Court found that the Appellate Commissioner appropriately awarded fees for litigating the fee award only against Blixeth’s counsel.
[1] 2017 WL 1379203 (9th Cir. Apr. 18, 2017).
[2] Blixseth v. Yellowstone Mountain Club, LLC, 742 F.3d 1215, 1218 (9th Cir. 2014).
[3] A $40 million judgment against Blixeth (although the Ninth Circuit characterized this as a favorable ruling, since the Trustee sought a judgment of $286.4 million). Id. at 1221.
[4] Blixseth v. Yellowstone Mountain Club, LLC, 796 F.3d 1004, 1006 (9th Cir. 2015), cert. denied sub nom. Flynn v. Yellowstone Mountain Club, LLC, 136 S. Ct. 1455 (2016) (internal citation omitted).
[5] Blixseth, 742 F.3d at 1218.
[6] Blixseth, 796 F.3d at 1007.
[7] See Ninth Circuit Rule 39–1.9.
[8] Blixseth, 2017 WL 1379203 at *2.
[9] Blixseth, 2017 WL 1379203, at *2 (emphasis added), citing Haeger v. Goodyear Tire & Rubber Co., 813 F.3d 1233, 1254 (9th Cir. 2016), cert. granted, 137 S.Ct. 30 (2016), and In re S. Cal. Sunbelt Developers, Inc., 608 F.3d 456, 466 (9th Cir. 2010).
[10] “The former version of Rule 11 . . . provides that, if a pleading is signed in violation of the Rule, the court shall impose upon the attorney or client “an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading ... including a reasonable attorney's fee.” The December 1, 1993, … amendment to Rule 11 specifically allows a district court to include the expenses associated with sanctions proceedings.” See Margolis v. Ryan, 140 F.3d 850, 854–55 (9th Cir. 1998); Blixseth, 2017 WL 1379203, at *2 (internal citations omitted).
[11] Id. at *3, citing 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).
[12] 608 F.3d 456, 464 (9th Cir. 2010).
[13] Citing Sternberg v. Johnston, 595 F.3d 937 (9th Cir.2010) (debtor was not entitled to attorney's fees incurred in pursuing damages for automatic stay violation).