Wednesday, April 19, 2017
Panel Upholds Award of ‘Fees-on-Fees’ Under Statute
By KENNETH OFGANG, Staff Writer
A statute that permits federal judges to sanction attorneys for vexatious litigation permits an award of fees to opposing counsel for litigating the right to fees, the Ninth U.S. Circuit Court of Appeals ruled yesterday.
In a published order, the panel—Judges Alex Kozinski, Richard A. Paez, and Marsha S. Berzon—denied reconsideration of the appellate commissioner’s ruling calculating sanctions against Boston attorney Michael J. Flynn and his client, Timothy Blixseth. The two were ordered to pay nearly $192,000 in fees and costs incurred by several creditors of Blixseth, a co-founder of the bankrupt Yellowstone Mountain Club.
Blixseth was found jointly liable for all but around $34,000 of the award, for which Flynn was found separately liable by statute.
Blixseth and one of his ex-wives developed the Yellow Mountain Club as an exclusive resort for “ultra-wealthy” golfers and skiers. He has blamed the 2008 mortgage crisis for the collapse of his finances.
His wealth was estimated by Forbes magazine at $1.3 billion when it named him one of the 400 wealthiest Americans in 2006. Creditors have claimed Blixseth has hidden assets.
Blixseth, represented by Flynn, appealed the denial of a motion to recuse the District of Montana bankruptcy judge assigned to his case. The Ninth Circuit affirmed, agreeing with the district judge that Blixseth’s accusations were “a transparent attempt to wriggle out of an unfavorable decision by smearing the reputation of the judge who made it.”
In August 2015, the Ninth Circuit panel said Blixseth and Flynn were subject to attorney fees incurred by creditors on that appeal, citing Rule 38 of the Federal Rules of Appellate Procedure and 28 U.S.C. §1927.
Rule 38 says:
“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.”
Section 1927 provides:
“Any 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.”
In yesterday’s order, the panel agreed with the appellate commissioner that fees incurred in litigating the right to fees, or “fees on fees,” cannot be awarded under Rule 38, but may be awarded under §1927. The panel also denied, without comment, Flynn’s motion that the judges recuse themselves.
Because Rule 38 refers to “damages,” the judges said, it is not a fee-shifting statute, and the only attorney fees that may be awarded under the rule are those “incurred in defending against the frivolous issues or frivolous portions of an appeal.”
Section 1927, by contrast, “may be characterized as a fee-shifting provision, despite its sanctions trigger,” the panel said. The legislation’s purpose, the judges said, it to shift the burden of the vexatious litigation onto the vexatious lawyer, noting that fee-shifting statutes generally are interpreted as permitting the award of “fees on fees.”
The case is Blixseth v. Yellowstone Mountain Club, LLC, 12-35986.
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