Know the [Bankruptcy] Law Before Taking Action!

It was recently reported in Law360's article titled “Sanctioned Attorney Tells 9th Circ. $9B Claim Was ‘Mistake’" that a sanctioned lawyer, representing himself, argued that filing a $9 billion counterclaim against a bankruptcy trustee in violation of the “Barton” rule was simply a “mistake.”  In Glasser v. Blixseth, 9th Circuit case 14-56184, attorney Christopher Conant sought reversal of U.S. District Judge Gary A. Feess’ order finding that he had filed a frivolous counterclaim.  (11/1/2012 Decision, case 11-08283, Central Dist. of CA).  The case is related to the long-running Montana bankruptcy of Yellowstone Mountain Club (case no. 08-61570) and others, and the efforts of the former and current bankruptcy trustees to recover on large fraudulent transfer claims against the debtor’s owner.  The Barton doctrine requires the appointing court’s approval before claims may be asserted against a trustee.

In imposing sanctions against Canton, Judge Feess found that arguments against sanctions were “utterly unpersuasive,” “frivolous,” and were based on a distortion of certain case law that the Court had previously rejected, as well as a distortion of the Court’s own prior orders. (Decision, p. 33).  In addition, Judge Feess emphasized that just four days prior to filing the counterclaim, Canton received an opinion in another related case dismissing the complaint for violation of the Barton doctrine, so that there was no question he was familiar with the rule. (Decision, p. 33).  Judge Feess also noted the “scorched earth” tactics taken in the related litigation, and so concluded that the purpose of the counterclaim was vexation and harassment. (Decision, p. 35).  Given this, it seems unlikely that the 9th Circuit will accept that filing the counterclaim was simply a mistake; indeed, Law360 quotes Circuit Judge Richard Paez as saying to Conant that “Your explanation of why you did that just makes no sense to me.”

From some of the opinions in the related cases, it is evident that these cases represent the extreme of misconduct.  However, the saga nonetheless points out the importance of knowing unique bankruptcy laws before taking action.

Patricia B. Fugée
FisherBroyles, LLP