Blixseth v. Brown (In re Yellowstone Mountain Club, LLC)

Ninth Circuit lays down rules governing derivative judicial immunity for official committee members.

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Case Type:
Business
Case Status:
Affirmed in part and Reversed in part
Citation:
14-35363 (9th Circuit, Nov 28,2016) Published
Tag(s):
Ruling:

The Barton doctrine, which requires permission of the bankruptcy court to sue a bankruptcy trustee in any court other than the bankruptcy court, applies to actions against members of an official committee of unsecured creditors sued based upon acts performed in their capacity as members of the official committee.  

Procedural context:

Appeal from district court order affirming bankruptcy court order (1) denying plaintiff's request for permission to sue a member of the official committee in the district court, and (2) dismissing plaintiff's claims on the merits.

Facts:

Plaintiff, the former principal of the Debtor, had caused the Debtor to borrow $375 million, but used some of the proceeds to pay his personal debts. Plaintiff was advised by his personal attorney, Stephen Brown, in connection with the transaction. Plainitff was subsequently sued by shareholders of the Debtor. On Brown's advice, Plaintiff settled. The Debtor subsequently filed for bankruptcy, and Brown was appointed to the official committee. Plaintiff subsequently sued Brown in district court, alleging Brown had used confidential information to Plaintiff's detriment in the bankruptcy case. The district court held it lacked jurisdiction because the Barton doctrine required Plaintiff to obtain bankruptcy court permission to sue Brown, a committe member, in district court. Plaintiff argued to the bankruptcy court  that some of his claims were based upon prepetition activity, but the bankruptcy court held the claims could not be separated and then dismissed the claims on the merits because the committee member had quasi-judicial immunity. The Court of Appeals held that the lower courts were correct to apply the Barton doctrine to actions against committee members. While the doctrine normally applies to receivers and bankruptcy trustees, the doctrine should be applied to members of official committees because they are statutorily obliged to perform tasks related to the administration of the bankruptcy estate and may be timid in the discharge of their duties if not protected by the doctrine. Finding that certain of Plaintiffs' claims were based upon alleged prepetition misconduct, the Court of Appeals reversed the bankruptcy court's holding that the Barton doctrine applied to the entirety of the claims and held that Plaintiff did not require bankruptcy court permission to pursue those claims in the district court.  Regarding the postpetition claims, the Court held the bankruptcy court did not abuse its discretion in denying permission to prosecute the claims because Plaintiff sought a personal judgment against Brown. The Court also held that if a claim is subject to the Barton doctrine, then by definition it is not a Stern v. Marshall claim because the claim could not exist independently of the bankruptcy case. Finally, the Court held that the bankruptcy court had failed to make the required factual findings showing the applicability of judicial immunity and remanded so the bankruptcy court could consider the factors.

Judge(s):
Kozinski, Paez and Berzon

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