Blixseth v. Brown et al

Filing 101

ORDER granting in part and denying in part 26 Motion to Dismiss for Lack of Jurisdiction; granting in part and denying in part 29 Motion to Dismiss; granting in part and denying in part 34 Motion to Dismiss; finding as moot 40 Motion to Dismiss; granting in part and denying in part 18 Motion to Dismiss for Lack of Jurisdiction. Signed by Judge Donald W. Molloy on 3/5/2012. (dle)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
MISSOULA DIVISION
TIMOTHY L. BLIXSETH,

)
)
Plaintiff,
)
)
vs.
)
)
STEPHEN BROWN, an individual;
)
GARLINGTON, LOHN & ROBINSON,
)
PLLP, a Montana professional limited
)
liability partnership; JAMES A. PATTEN, )
an individual; PATTEN PETERMAN
)
BEKKEDAHL & GREEN, PLLC, a
)
Montana professional limited liability
)
company; J. THOMAS BECKETT, an
)
individual; PARSONS BEHLE &
)
LATIMER, a Utah professional
)
corporation; THOMAS L.
)
HUTCHINSON, an individual;
)
BULLIVANT, HOUSER, BAILEY, P.C., )
an Oregon professional corporation;
)
SAMUEL T. BYRNE, an individual;
)
CROSSHARBOR CAPITAL PARTNERS )
LLC, a Delaware limited liability
)
company; and JOHN DOES 1-100,
)
)
Defendants.
)
___________________________________ )

CV 11–85–M–DWM

ORDER

Timothy Blixseth filed this lawsuit alleging that his former attorney,
1

Defendant Steven Brown and his law firm,1 engaged in various misconduct when
he sat as chair of the Unsecured Creditors Committee in Blixseth’s bankruptcy
proceedings. Blixseth claims that Brown’s co-defendants conspired with Brown
and aided and abetted him. The defendants move to dismiss for lack of subject
matter jurisdiction and for failure to state a claim for which relief can be granted.
The defendants’ motion to dismiss for lack of subject matter jurisdiction is well
taken in my view. As a result, it is unnecessary to address whether Blixseth has
stated a claim for which relief may be granted.
BACKGROUND
The facts underlying this case are storied and complex. The parties have
litigated myriad issues before Bankruptcy Judge Kirscher, who thoroughly
recounted the factual background of this case in Yellowstone Mt. Club v. Official
Comm. of Unsecured Creditors, 415 B.R. 769 (Bankr. D. Mont. 2009) and
Yellowstone Mt. Club, LLC v. Kirschner, 436 B.R. 598 (Bankr. D. Mont. 2010).
Blixseth brings several claims against Brown, including legal malpractice,
breach of fiduciary duty, breach of contract, fraud, equitable indemnity,
comparative indemnity, and contribution.
1

In addition to the attorney defendants in this case, Mr. Blixseth is also
suing the attorneys’ law firms. For the sake of brevity, though, the Court refers
only to the attorneys in this order.
2

The thrust of his complaint is that Attorney Brown wrongfully sat as Chair
of the Unsecured Creditors Committee and engaged in misconduct while he was
Chair. Brown represented Blixseth in various pre-petition matters, including a
loan transaction with Credit Suisse and Blixseth’s divorce negotiations with his
wife, Edra. Blixseth claims that, as Chair of the Committee, Brown took positions
that conflicted with the advice that he had previously given Blixseth in these
matters and that he used confidential client information to Blixseth’s detriment.
For example, Blixseth claims that Brown initially approved the use of the Credit
Suisse loan proceeds and the inclusion of a release in the marital settlement
agreement but then reneged on those positions once he became Chair of the
Committee. He also claims that one result of Brown’s conduct was that
CrossHarbor Capital Partners—which Blixseth claims aided and abetted
Brown—was able to purchase the Yellowstone Club at a substantially discounted
cost because of the breach.
As part of the bankruptcy proceedings, the Bankruptcy Court addressed the
Credit Suisse loan and the marital settlement agreement and concluded that (1) Mr.
Blixseth fraudulently misappropriated the proceeds from the Credit Suisse loan
and (2) the release in the marital settlement agreement was fraudulent. Yellowstone
Mt. Club, 436 B.R. 598. Blixseth now claims that Brown, on account of his bad
3

legal advice, should indemnify him for the Bankruptcy Court’s judgment.
Aside from Mr. Brown, his law firm, and CrossHarbor and its agent (Samuel
Byrne), Blixseth names three other defendant attorneys and their law firms: James
Patten (Patten Peterman Bekkedahl & Green, PLLC), J. Thomas Beckett (Parsons
Behle & Latimer), and Thomas Hutchinson (Bullivant, Houser, Bailey, P.C.). Each
of these attorneys represented different entities involved in the bankruptcy
proceedings. His claims are that Brown’s attorney co-defendants conspired with
Brown and aided and abetted him to Blixseth’s detriment.
Because the parties are familiar with the facts of this case, they are restated
here only when necessary to explain the Court’s decision.
ANALYSIS
The attorney defendants2 argue that this Court does not have subject matter
jurisdiction because Blixseth did not first seek leave from the Bankruptcy Court,
under the Barton Doctrine, before filing this lawsuit. I agree. The Barton Doctrine

Defendant Samuel Byrne of CrossHarbor Capital Partners does not argue
that the Barton Doctrine applies here, but, since the Barton Doctrine is
jurisdictional, the Court must nevertheless determine whether it applies to Mr.
Blixseth’s claims against Mr. Byrne. See Crown Vantage, Inc. v. Fort James
Corp., 421 F.3d 963, 970 (9th Cir. 2005) (observing that the Barton Doctrine is
jurisdictional); McDaniel v. Blust, ___ F.3d ___, 2012 WL 401591 at *1–*3 (4th
Cir. Feb. 9, 2012) (same); Gonzalez v. Thaler, 132 S. Ct. 641, 648–49 (2012)
(observing that courts must sua sponte address their subject matter jurisdiction).
2

4

applies to all of Blixseth’s claims. Since Blixseth has not sought leave from the
bankruptcy court to file his claims here, the district court does not have subject
matter jurisdiction over them.
A.

The Barton Doctrine

The Barton Doctrine is derived from the United States Supreme Court’s
decision in Barton v. Barbour, 104 U.S. 126 (1881). It requires a party to “first
obtain leave of the bankruptcy court before it initiates an action in another forum
against a bankruptcy trustee or other officer appointed by the bankruptcy court for
acts done in the officer’s official capacity.” Crown Vantage, Inc. v. Fort James
Corp., 421 F.3d 963, 970 (9th Cir. 2005) (discussing Barton). If the Bankruptcy
Court has not granted leave, then other courts do not have subject matter
jurisdiction. Id. at 971; see also McDaniel v. Blust, ___ F.3d ___, 2012 WL
401591 at *1–*3 (4th Cir. Feb. 9, 2012).
The purpose of the Barton Doctrine is to centralize bankruptcy litigation,
which helps avoid inconsistent rulings from different courts and ensures that the
forum most familiar with the case—the bankruptcy court—presides over related
claims. See generally Crown Vantage, 421 F.3d 963. That concern is particularly
relevant here, since the Bankruptcy Court has addressed or is addressing issues
that are similar (if not the same) to those presented in Blixseth’s complaint. If this
5

Court were to now intercede and decide the merits of Blixseth’s claims, it would
run the risk of frustrating the bankruptcy proceedings through a collateral attack.
The Barton Doctrine also enables the bankruptcy court to keep a watchful
eye on court-appointed or -approved officers. As Judge Posner described:
Just like an equity receiver, a trustee in bankruptcy is working in effect
for the court that appointed or approved him, administering property that
has come under the court's control by virtue of the Bankruptcy Code. If
he is burdened with having to defend against suits by litigants
disappointed by his actions on the court's behalf, his work for the court
will be impeded.
This concern is most acute when suit is brought against the trustee while
the bankruptcy proceeding is still going on. The threat of his being
distracted or intimidated is then very great . . . . Without the [Barton
Doctrine], trusteeship will become a more irksome duty, and so it will
be harder for courts to find competent people to appoint as trustees.
Trustees will have to pay higher malpractice premiums, and this will
make the administration of the bankruptcy laws more expensive (and the
expense of bankruptcy is already a source of considerable concern).
Furthermore, requiring that leave to sue be sought enables bankruptcy
judges to monitor the work of the trustees more effectively. It does this
by compelling suits growing out of that work to be as it were prefiled
before the bankruptcy judge that made the appointment; this helps the
judge decide whether to approve this trustee in a subsequent case.
Matter of Linton, 136 F.3d 544, 545 (7th Cir. 1998); see also Crown Vantage, 421
F.3d at 970–71; McDaniel, __ F.3d __, 2012 WL 401591 at *3–*4; Carter v.
Rodgers, 220 F.3d 1249, 1252–53 (11th Cir. 2000).
The Barton Doctrine generally applies if three conditions are met: (1) the

6

plaintiff must be attempting to “initiate[ ] an action in another forum” (2) “against
a bankruptcy trustee or other officer appointed by the bankruptcy court” (3) “for
acts done in the officer’s official capacity.” Crown Vantage, 421 F.3d at 970. Each
of these conditions is met here.
First, the District Court is a different forum than the Bankruptcy Court for
purposes of the Barton Doctrine. This is true despite the fact that a bankruptcy
court’s jurisdiction is derivative of the district court’s. 28 U.S.C. §§ 157, 1334;
Kashani v. Fulton, 190 B.R. 875 (B.A.P. 9th Cir. 1995); In re Miles, 430 F.3d
1083, 1087 (9th Cir. 2005). In Kashani, the Bankruptcy Appellate Panel of the
Ninth Circuit explained:
The Debtors have argued on appeal that the requirement for leave to sue
the Trustee does not apply in either the bankruptcy court or the district
court, because each court would qualify as the appointing court by virtue
of the jurisdiction conferred upon the district court under 28 U.S.C. §
1334 and the referral of the district court's jurisdiction to the bankruptcy
court by way of 28 U.S.C. § 157(a). While it is true that 28 U.S.C. §
157(a) does allow the district court to refer jurisdiction to the
bankruptcy court, both courts cannot concurrently preside over the same
aspects of the case. Once the district court refers the case to the
bankruptcy court, unless the district court withdraws that reference, in
whole or in part pursuant to 28 U.S.C. § 157(d), the case is within the
subject matter jurisdiction of the bankruptcy court. The district court, in
any federal district, or a bankruptcy court in any district other than the
Southern District of California would, in the present case, be classified
as a court other than the appointing court.
We conclude that leave to sue the trustee is required to sue in those
7

federal courts other than the bankruptcy court which actually approves
the trustee's appointment.
Other courts, relying on Kashani, have reached the same conclusion. See e.g.
Carter, 220 F.3d at 1252; Posin v. Sheehan, 2011 WL 3022305 at *2 (N.D. W. Va.
July 22, 2011) (“Courts applying the Barton Doctrine have held that the district
court in the same federal district as the appointing bankruptcy court is considered
a court other than the appointing court for purposes of determining subject matter
jurisdiction. See [Kashani, 190 B.R. at 884]”); Schafler v. Field, 2001 WL
34553964 at *3 (D. Md. 2001) (same), aff’d, 26 Fed. Appx. 315 (4th Cir. Feb. 5,
2002); see also Harris, 590 F.3d at 741–42; In re Ben Franklin Retail Stores, Inc.,
231 B.R. 717, 720 (Bankr. N.D. Ill. 1999)).
Second, Mr. Brown, as Chair of the Unsecured Creditors Committee, was a
“court-approved” officer. The plain language of the Barton Doctrine suggests that
the Doctrine applies only to court “appointed” officers, Crown Vantage, 421 F.3d
at 970, but courts have extended Barton to include court “approved” officers, see
e.g. Carter, 220 F.3d at 1252 n.4. In Carter, the Eleventh Circuit addressed the
question of whether Barton applies to trustees appointed by the United States
Treasury and held:
In this case, Defendants . . . were not court “appointed,” but rather court
“approved.” We find this distinction irrelevant, and hold that these court
8

approved officers functioned as the equivalent of court appointed
officers for purposes of the Barton Doctrine.
Id. (citing In re DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir. 1993)); accord
Lawrence v. Goldberg, 573 F.3d 1265, 1269 (11th Cir. 2009). The Ninth Circuit
has not yet addressed this question, nor has it (or any other court, for that matter)
addressed a lawsuit against a member of an unsecured creditors committee. But the
Eleventh Circuit’s logic applies here. In the past, bankruptcy courts were
responsible for appointing members of an unsecured creditors committee. See
generally In re Barney’s, Inc., 197 B.R. 431 (Bankr. S.D.N.Y. 1996). But, now, the
United States Treasury has responsibility for that task. See 11 U.S.C. § 1102(a)(1).
Since the United States Treasury’s appointments are subject to the bankruptcy
court’s approval, see 11U.S.C. § 1102(a)(4), committee members—like Mr. Brown
here—are “functionally equivalent” to court-appointed officers. Lawrence, 573
F.3d at 1269; Carter, 220 F.3d at 1252 n.4.
Barton applies with equal force to all of Brown’s co-defendants because the
nature of Blixseth’s claims against them is based solely on their alleged conspiracy
with Brown or their aiding and abetting him while he was Chair of the Unsecured
Creditors Committee. See e.g. McDaniel, __ F.3d __, 2012 WL 401591. Absent the
alleged wrongful conduct of Brown, as Chair of the Committee, Blixseth has no

9

claim against the co-defendants. See e.g. Hughes v. Pullman, 36 P.3d 339 (Mont.
2001) (dismissing a conspiracy claim when the underlying tort claim had been
dismissed); see also Peschel v. City of Missoula, 664 F. Supp. 2d 1149, 1173 (D.
Mont. 2009); Master-Halco, Inc. v. Scillia Dowling & Natarelli, LLC, 739 F. Supp.
2d 109, 121 (D. Conn. 2010) (“As with civil conspiracy, plaintiffs alleging aiding
and abetting must prove an underlying tort that defendants allegedly facilitated; it
goes without saying that individuals cannot aid and abet themselves.” (citations
omitted)).
Third, all of Blixseth claims are based on Brown’s alleged misconduct as
Chair of the Unsecured Creditors Committee. Carter, 220 F.3d 1249. Some of
Brown’s alleged misconduct occurred before he was named Chair of the Unsecured
Creditors Committee, but the torts did not accrue until he was Chair. For example,
Blixseth alleges that Brown gave him bad legal advice in the Credit Suisse loan
transaction and the marriage settlement agreement with Blixseth’s former wife,
Edra. But, as Blixseth apparently acknowledges, the damages that he suffered as a
result of that legal advice (including any future damages for lost business
opportunities) occurred only as a result of the bankruptcy proceedings and the
positions that Brown took as Chair of the Committee. In particular, Blixseth claims
that Brown, as Chair of the Committee, used information from his previous
10

representation of Mr. Blixseth against Mr. Blixseth. And makes the further
assertion that it was Brown’s bad legal advice and the positions he took as Chair of
the Committee that caused the Bankruptcy Court to conclude that Blixseth had
committed fraud. See generally Yellowstone Mt. Club, 436 B.R. 598. Even though
some of Blixseth’s claims are based on advice that Brown gave him before the
bankruptcy proceedings, his claims accrued only as a result of the bankruptcy
proceedings and Brown’s legal actions as Chair of the Committee.
Blixseth argues that the Barton Doctrine does not apply to Brown’s acts
because they were ultra vires and, therefore, not “done in the officer’s official
capacity.” It is an assertion but he has not met his burden of showing that the acts
were ultra vires. Even so, the Barton Doctrine applies to allegations of intentional
misconduct or fraud. See McDaniel, __ F.3d __, 2012 WL 401591, *4
(“[B]ankruptcy trustees and their counsel require protection against suits [under the
Barton Doctrine] that are based on unfounded allegations regardless of whether
there is a claim that the alleged wrongdoing was intentional. . . . And, the need for
bankruptcy courts to be ‘kept in the loop’ so that they make appropriate
appointments in the future is arguably even greater when intentional misconduct
has occurred.” (citing Linton, 136 F.3d at 544–46)).
Each of the Barton Doctrine elements is met here. Absent some exception to
11

that Doctrine, the Court does not have subject matter jurisdiction over Mr.
Blixseth’s claims.
B.

The effect of the U.S. Supreme Court’s decision in Stern v.
Marshall

Blixseth argues that the Barton Doctrine cannot be applied here because the
Bankruptcy Court is without jurisdiction under Stern v. Marshall, 131 S. Ct. 2594
(2011). In Stern, the U.S. Supreme Court held that bankruptcy courts may not issue
final judgments on “core,” common-law or state-law claims. That holding, though,
does not bar application of the Barton Doctrine.
1.

The bankruptcy court’s statutory decision-making authority

To understand the effect of Stern, one must first understand the bankruptcy
court’s statutory decision-making authority.
Federal courts “have original and exclusive jurisdiction over all cases under
title 11” and “have original but not exclusive jurisdiction of all civil proceedings
arising under title 11, or arising in or related to cases under title 11.” 28 U.S.C. §
1334(a), (b); Lazar v. Cal., 237 F.3d 967, 973 n.2 (9th Cir. 2001). “In other words,
those matters falling under the heading of concurrent jurisdiction (i.e., civil actions
involving claims that arise under or in or are related to Title 11 proceedings) may
be filed originally in state court, then subsequently removed by one of the parties to

12

federal district court.” Lazar, 237 F.3d at 973 n.2 (internal quotation marks and
citations omitted).
A district court may refer “any or all cases under title 11 and any or all
proceedings arising under title 11 or arising in or related to a case under title 11” to
bankruptcy courts. 28 U.S.C. § 157(a). But the district court may withdraw that
referral “for cause shown.” Id. at 157(e).
The scope of a bankruptcy court’s statutory decision-making authority
depends on whether the case is a “core” proceeding or a “non-core” proceeding. 28
U.S.C. § 157. Bankruptcy courts have statutory authority to hear and render final
judgments in “core” proceedings arising under Title 11 or arising in a case under
Title 11. 28 U.S.C. § 157(b)(1). In “non-core” proceedings, though, bankruptcy
courts cannot issue final judgments. Instead they may, if the parties consent, only
issue findings of fact and conclusions of law. 28 U.S.C. § 157(c)(1).
Section 157(b)(2) lists 16 examples of core proceedings (the list is not
exhaustive).3 Relevant here, one of those examples is “matters concerning the
3

Under 28 U.S.C. § 157(b)(2), core proceedings include, but are not limited

to:
(A) matters concerning the administration of the estate; (B) allowance
or disallowance of claims against the estate or exemptions from property
of the estate, and estimation of claims or interests for the purposes of
confirming a plan under chapter 11, 12, or 13 of title 11 but not the
13

administration of the estate.” Id. at 157(b)(2)(A). The Ninth Circuit has expressly
held that a plaintiff’s common-law tort claims or state-law claims against a courtappointed officer for the officer’s alleged misconduct in administering the estate
constitute a core proceeding. See e.g. In re Harris, 590 F.3d 730, 738–41 (9th Cir.
2009); In re Harris Pine Mills, 44 F.3d 1431, 1438 (9th Cir. 1995); see also In re
Arnold Print Works, Inc., 815 F.2d 165 (1st Cir. 1987) (holding that a contract
claim arising out of the trustee’s sale of estate assets “falls within the literal
wording of 28 U.S.C. § 157(b)(2)(A) ‘matters concerning the administration of the
liquidation or estimation of contingent or unliquidated personal injury
tort or wrongful death claims against the estate for purposes of
distribution in a case under title 11; (C) counterclaims by the estate
against persons filing claims against the estate; (D) orders in respect to
obtaining credit; (E) orders to turn over property of the estate; (F)
proceedings to determine, avoid, or recover preferences; (G) motions to
terminate, annul, or modify the automatic stay; (H) proceedings to
determine, avoid, or recover fraudulent conveyances; (I) determinations
as to the dischargeability of particular debts; (J) objections to
discharges; (K) determinations of the validity, extent, or priority of
liens; (L) confirmations of plans; (M) orders approving the use or lease
of property, including the use of cash collateral; (N) orders approving
the sale of property other than property resulting from claims brought by
the estate against persons who have not filed claims against the estate;
(O) other proceedings affecting the liquidation of the assets of the estate
or the adjustment of the debtor-creditor or the equity security holder
relationship, except personal injury tort or wrongful death claims; and
(P) recognition of foreign proceedings and other matters under chapter
15 of title 11.
28 U.S.C. § 157(b)(2).
14

estate,’ because it involves a claim that arose out of the administrative activities of
[the trustee]”).
Here, all of Blixseth’s claims against the various lawyers are core claims
because they arise out Brown’s alleged misconduct as Chair of the Committee,
which involved “matters concerning the administration of the estate.” 28 U.S.C. §
157(b)(2)(A).
2.

Stern v. Marshall

In Stern v. Marshall, 131 S. Ct. 2594 (2011), the United States Supreme
Court held that bankruptcy courts do not have constitutional authority to issue final
judgments in core proceedings that are based on state- or common-law claims.
Specifically, the Court concluded that, while a bankruptcy court had statutory
authority to hear the estate’s common-law counterclaim for tortious interference
—a core proceeding under 28 U.S.C. § 157(b)(2)(C)—it did not have authority to
hear the case under Article III of the United States Constitution, since only Article
III judges have the power to hear cases “‘at the common law, or in equity, or in
admiralty.’” Stern, 131 S. Ct. at 2609 (quoting Murray’s Lessee v. Hoboken Land
& Improvement Co., 59 U.S. 272 (1856)).
The Bankruptcy Court for the District of Montana recently addressed the
effect of Stern in the underlying bankruptcy proceeding here. See Blixseth v.
15

Blixseth, 2011 WL 3274042 at *10–*12 (Bankr. D. Mont. Aug. 1, 2011). There, a
trustee had filed a fraudulent conveyance claim (among others) against Blixseth.
The Bankruptcy Court concluded the proceeding was a core proceeding under §
157(b)(2)(H) (“proceedings to determine, avoid, or recover fraudulent
conveyances”). But it reasoned that, under Stern, it could not issue a final judgment
on the fraudulent conveyance claim because it was a core, common-law claim.
Blixseth, 2011 WL 327042, *11–*12 (discussing Stern, 131 S. Ct. 2594).
To that extent, in my view, the Bankruptcy Court’s reading of Stern is
correct. A bankruptcy court cannot issue a final judgment on core, common-law or
state-law claims. See Ortiz v. Aurora, 665 F.3d 906 (7th Cir. 2011) (holding that,
under Stern, bankruptcy courts do not have authority to issue final judgments on
core, state-law claims).
The Bankruptcy Court, though, went one step further. It concluded that it
could not even address the fraudulent conveyance claim—e.g., by issuing proposed
findings and conclusions—because it did not have statutory authority to do so:
Unlike in non-core proceedings, a bankruptcy court has no statutory
authority to render findings of fact and conclusions of law for core
proceedings that it may not constitutionally hear. While 28 U.S.C. §
157(c)(1) allows a bankruptcy judge to render findings and conclusions
in “a proceeding that is not a core proceeding but that is otherwise related
to a case under title 11,” no other code provision allows bankruptcy
judges to do the same in core proceedings. Similarly, no provision allows
16

parties to consent to a bankruptcy court making final decisions in core
proceedings as 28 U.S.C. § 157(c)(2) allows parties to consent for noncore proceedings. The code provides only that “Bankruptcy judges may
hear and determine all cases under title 11 and all core proceedings
arising under title 11, or arising in a case under title 11, referred under
subsection (a) of this section, and may enter appropriate orders and
judgments, subject to review under section 158 of this title.” 28 U.S.C.
§ 157(b)(1). Since this Court may not constitutionally hear the fraudulent
conveyance claim as a core proceeding, and this Court does not have
statutory authority to hear it as a non-core proceeding, it may in no case
hear the claim.
Id.4
The Bankruptcy Court’s reading of Stern is reasonable, but it leads to an odd
The Bankruptcy Court later clarified that it does not view Stern as
“jurisdictional.” See Sampson v. W. Capital Partns., LLC, 2011 WL 6217416 at *3
(Bankr. D. Mont. Dec. 14, 2011) (discussing Henderson v. Shinseki, 131 S. Ct.
1197, 1201 (2011)); Blixseth v. Kirschner, AP 9–14, p. 5 (Dkt # 682) (Bankr. D.
Mont. Dec. 13, 2011) (same). The Bankruptcy Court noted that a number of other
courts have reached the same conclusion. Blixseth, AP 9–14 (Dkt # 682) (citing
Wilderness Crossings, LLC v. Classic Prods. Corp., 2011 WL 5417098 at *1
(Bankr. W.D. Mich. Nov. 8, 2011); Bujak v. Canyon Co., 2011 WL 5326038 at *2
(Bankr. D. Idaho Nov. 3, 2011); Sunra Coffee LLC v. Sunra Coffee LLC, 2011 WL
4963155 at *4 (Bankr. D. Haw. Oct. 18, 2011); Citron v. Citron, 2011 WL
4711942 at *2 (Bankr. E.D.N.Y. Oct. 6, 2011)).
Whether Stern is jurisdictional, though, is a red herring for purposes of this
case. To say that a rule is “jurisdictional” simply means that a court must employ
that rule sua sponte at any point in the litigation and that the parties cannot waive
or forfeit the rule’s effect. Gonzalez v. Thaler, 132 S. Ct. 641, 648–49 (2012); see
also Sharifeh v. Fox, 2012 WL 469980 at *5–*6 (N.D. Ill. Feb. 10, 2012). Here,
Blixseth timely invoked Stern, and he has not waived its application. So,
regardless of whether Stern is jurisdictional, it applies here. To say that a rule is
not jurisdictional does not mean in my view that the rule confers jurisdiction, as
the Bankruptcy Court seems to suggest. See Sampson, 2011 WL 6217416 at *3;
Blixseth, AP 9–14, p. 5 (Dkt # 682).
4

17

result—Why, for example, would a bankruptcy court be permitted to issue
proposed findings and conclusions in a non-core proceeding, see 28 U.S.C. §
157(c)(1), but not a core proceeding, which, by definition, is more central to the
bankruptcy litigation?
Not only is this an odd result, it is probably not the result that the Stern Court
intended. See Emerald Casino, Inc. v. Flynn, 2012 WL 280724 (N.D. Ill. Jan. 31,
2012). The Stern Court expressed that its decision would not “meaningfully
change” or have any “practical consequences” on the courts’ workload:
[T]he current bankruptcy system also requires the district court to review
de novo and enter final judgment on any matters that are “related to” the
bankruptcy proceedings, § 157(c)(1), and permits the district court to
withdraw from the bankruptcy court any referred case, proceeding, or
part thereof, § 157(d). Pierce has not argued that the bankruptcy courts
“are barred from ‘hearing’ all counterclaims” or proposing findings of
fact and conclusions of law on those matters, but rather that it must be the
district court that “finally decide[s]” them. We do not think the removal
of counterclaims such as Vickie’s from core bankruptcy jurisdiction
meaningfully changes the division of labor in the current statute; we
agree with the United States that the question presented here is a
“narrow” one.
Stern, 131 S. Ct. at 2620.
Stern, then, suggests that bankruptcy courts may issue proposed findings of
fact and conclusions of law in core, common-law claims, so long as the district
court makes the final decision. The Northern District of Illinois recently reached

18

the same conclusion:
A fair reading of this language [from Stern] is that a district court may
choose to withdraw the reference, but that bankruptcy courts are
permitted to hear counterclaims, and to propose a disposition, so long as
it is the district court which makes any final decisions.
The conclusion for which Defendants argue—that the bankruptcy judge
may take no action at all on the Trustee’s counterclaims—thus does not
appear to be dictated by Stern . . . .
Emerald Casino, 2012 WL 280724 at *4–*5.
The Emerald Casino court then explained that to conclude otherwise would
lead to a “‘bizarre’” result:
“A

claim brought by the estate against a creditor who has not filed a
claim against the estate would be within the bankruptcy court’s related-to
jurisdiction, but if the creditor later filed a claim in the bankruptcy case,
then—although the estate’s claim could have a major impact on the
bankruptcy estate by offsetting the creditor’s claim—the claim would
now be a counterclaim under § 157(b)(2)(C), and bankruptcy court
jurisdiction would be completely lost.”
Id. (quoting In re Emerald Casino, Inc., 459 B.R. 298, 300 n.1 (Bankr. N.D. Ill.
Aug. 26, 2011)).
I agree. Stern does not bar the Bankruptcy Court from issuing proposed
findings of fact and conclusions of law in this matter. It therefore does not bar
application of the Barton Doctrine either. As a practical matter, the bankruptcy
court’s proposed findings and conclusions would be helpful to the district court,

19

given “the value of the bankruptcy judge’s familiarity with relevant law and the
facts of the case[ ] before [it].” Emerald Casino, 2012 WL 280724 at *5.
C.

28 U.S.C. § 959(a) and 28 U.S.C. § 157(b)(5)

Stern aside, the parties discuss two statutory provisions that either provide an
exception to the Barton Doctrine or bar its application altogether—28 U.S.C. §
959(a) and 28 U.S.C. § 157(b)(5). Neither of these statutes applies here, though.
The first provision—28 U.S.C. § 959(a)—codifies a long-standing exception
to Barton. See Diners Club, Inc. v. Bumb, 421 F.2d 396, 398–99 (9th Cir. 1970). It
provides: “Trustees, receivers or managers of any property, including debtors in
possession, may be sued, without leave of the court appointing them, with respect
to any of their acts or transactions in carrying on business connected with such
property.” 28 U.S.C. § 959(a). The Ninth Circuit has interpreted § 959(a) as
applying “only if the . . . officer is actually operating the business, and only to acts
or transactions in conducting the debtor’s business in the ordinary sense of the
words or in pursuing that business as an operating enterprise.” Med. Dev. Intl. v.
Cal. Dept. of Corrs. & Rehab., 585 F.3d 1211, 1217–18 (9th Cir. 2009) (citations
and internal quotation marks omitted).
The Medical Development court emphasized that § 959(a) applies only to the
trustee’s ongoing or continuous operation of the debtor’s business. Id. It does not
20

apply to a trustee’s or officer’s court-ordered administration of the debtor’s
property or estate—e.g., administering and liquidating a debtor’s estate. Id.; see
also Muratore v. Darr, 375 F.3d 140, 144 (1st Cir. 2004); Carter, 220 F.3d at
1253. The First Circuit explained that § 959(a) “is intended to permit actions
redressing torts committed in furtherance of the debtor’s business, such as the
common situation of a negligence claim in a slip and fall case where a bankruptcy
trustee, for example, conducted a retail store.” Muratore, 375 F.3d at 144 (citation
and internal quotations omitted). Here, since the thrust of Blixseth’s claims are
based on Lawyer Brown’s conduct as Chair of the Unsecured Creditors
Committee—and not the ongoing operation of any of Blixseth’s businesses—§
959(a) does not apply.
The second provision—28 U.S.C. § 157(b)(5)—requires that certain actions
be “tried” in the district court, not the bankruptcy court:
The district court shall order that personal injury tort and wrongful death
claims shall be tried in the district court in which the bankruptcy case is
pending, or in the district court in the district in which the claim arose,
as determined by the district court in which the bankruptcy case is
pending.
In In re Marshall, 600 F.3d 1037 (9th Cir. 2010)—the same case underlying
the Supreme Court’s decision in Stern, 131 S. Ct. 2594—the Ninth Circuit held that
§ 157(b)(5) deprives a bankruptcy court of subject matter jurisdiction over any
21

“recognized tort,” including non-physical-injury claims such as defamation and
tortious interference. 600 F.3d at 1068–69. The Supreme Court disagreed, making
clear that § 157(b)(5) does not deprive a bankruptcy court of jurisdiction over a
“personal injury tort” claim. Id. at 2606. Thus, § 157(b)(5) does not prevent this
Court from applying Barton.
CONCLUSION
All of Blixseth’s claims are subject to the Barton Doctrine, and no
exceptions apply. Since Blixseth did not first seek leave from the Bankruptcy Court
before he filed his complaint in the district court, the Court does not have subject
matter jurisdiction over his claims.
IT IS ORDERED that the motions to dismiss filed by James Patten (dkt #
18), Thomas Hutchinson (dkt # 26), J. Thomas Beckett (dkt # 29), and Stephen
Brown (dkt # 34) are GRANTED IN PART and DENIED IN PART. The Court
concludes that it does not have subject matter jurisdiction over Timothy Blixseth’s
claims. The Court GRANTS the motions to that extent. Blixseth’s complaint (dkt
#1) is therefore DISMISSED WITHOUT PREJUDICE for lack of subject matter
jurisdiction. The Court DENIES AS MOOT the defendants’ claims under Federal
Rule of Civil Procedure 12(b)(6).
IT IS FURTHER ORDERED that Samuel Byrne’s motion to dismiss (dkt #
22

40) is DENIED AS MOOT.
Dated this 5th day of March 2012.

23