- Case Type:
- Case Status:
- Affirmed in part and Reversed in part
- 16-35304 (9th Circuit, Jun 11,2020) Published
- The Ninth Circuit affirmed the confirmation of a Chapter 11 Plan that included a limited non-consensual third party release of certain creditors for potential claims arising out of conduct in the Chapter 11 case. The panel distinguished Ninth Circuit cases which bar third party releases in a Chapter 11 under 11 U.S.C. § 524(e), which relates to the discharge of prepetition debt.
- Procedural context:
- This was a second appeal to the Ninth Circuit relating to the validity of the release ("Exculpation Clause"). The district court had dismissed the second appeal (for the second time) as equitably moot. The Ninth Circuit held that the appeal was not equitably moot, but "[c]onsidering the merits of Blixseth’s challenge, we hold that § 524(e) does not prohibit the Exculpation Clause at issue, because the Clause covers only liabilities arising from the bankruptcy proceedings and not the discharged debt. "
- Timothy Blixseth ("Blixseth") and Edra Blixseth, his wife at the time, founded the Yellowstone Club in 2000 as a ski and golf community in Big Sky, Montana. In 2005, Blixseth borrowed $375 million from Credit Suisse and other lenders. To secure the loan, Blixseth offered the assets of certain companies ("Yellowstone Companies") related to the Club. Edra Blixseth, who via divorce became the indirect owner of the Yellowstone Companies, filed Chapter 11 petitions for the Yellowstone Companies with the goal of selling the assets. A Chapter 11 Plan was confirmed, which included the Exculpation Clause, whereby Credit Suisse and other parties were released from any liability for claims arising from the Chapter 11 case (other than claims for willful or gross misconduct). Blixseth appealed the order confirming the Plan on the grounds, among others, such releases are strictly forbidden in the Ninth Circuit. As stated in the decision, "the Exculpation Clause here deals only with the highly litigious nature of Chapter 11 bankruptcy proceedings. . . . Considering the merits of Blixseth’s challenge, we hold that § 524(e) does not prohibit the Exculpation Clause at issue, because the Clause covers only liabilities arising from the bankruptcy proceedings and not the discharged debt."
- Richard A. Paez, Marsha S. Berzon, and Jay S. Bybee, Circuit Judges.
In re Carol Engen
Summarizing by Bradley Pearce
3101 in the system
2 Being Processed