IN RE BLIXSETH Bankruptcy No. 09-60452-7. Adversary No. 10-00088.
463 B.R. 896 (2012)
In re Edra D. BLIXSETH, Debtor. Richard Samson, Plaintiff, v. Timothy L. Blixseth, Desert Ranch LLLP, Desert Ranch Management LLC, and Does 1-5, Defendants.
United States Bankruptcy Court, D. Montana.
January 3, 2012.
Bradley Robert Duncan , Hugh Robert McCullough , Davis Wright Tremaine LLP, Seattle, WA, David B. Cotner , Missoula, MT, Dennis J. Holahan , Law Office of Dennis Holahan, Los Angeles, CA, for Plaintiff.
Patrick Timothy Fox , Doubek & Pyfer LLP, Helena, MT, Philip H. Stillman , Stillman & Associates, Encinitas, CA, for Defendants.
Does 1-5, pro se.
MEMORANDUM of DECISION
RALPH B. KIRSCHER, Bankruptcy Judge.
Pending in this Adversary Proceeding is Defendant Timothy Blixseth's ("Tim") "Motion for Reconsideration of This Court's August 1, 2011 Order Denying Motion to Dismiss Adversary Complaint Pursuant to Fed.R.Bankr.P. 7012(b)" filed August 15, 2011. Tim's motion is accompanied by a request for judicial notice. On the same date that Tim filed his motion for reconsideration, the Court entered an Order agreeing to hold all matters in this Adversary Proceeding in abeyance pending resolution of a motion to withdraw the reference filed with the United States District Court for the District of Montana ("District Court"). The District Court declined to withdraw the reference. Thus, Tim's motion for reconsideration is ready for decision. This Memorandum of Decision sets forth the Court's findings of fact and conclusions of law. For the reasons discussed below, Tim's request for reconsideration is denied.
On October 1, 2010, the Plaintiff Richard Samson ("Samson") commenced this Adversary Proceeding by filing a complaint against Tim and other parties, alleging certain unlawful acts related to Tim and Debtor Edra Blixseth's ("Edra") Marital Settlement Agreement ("MSA").
Shortly thereafter, on November 19, 2010, Tim filed a pro se "Amended Motion to Disqualify Bankruptcy Judge Kirscher." Tim, through counsel, filed another "Motion to Disqualify Bankruptcy Judge Kirscher" on December 14, 2010. Following a hearing held January 18, 2011, I entered a decision on February 25, 2011, denying Tim's request that I disqualify myself from this and various other proceedings.
Following the hearing on Tim's request for disqualification, a hearing on Tim's motion to dismiss was held February 14, 2011. After the February 14, 2011, hearing and before the Court entered a ruling on Tim's request for dismissal, the Court was advised that an involuntary bankruptcy had been filed against Tim in the United States Bankruptcy Court for the District of Nevada. Because of the involuntary bankruptcy proceeding, the Court held Tim's motion to dismiss in abeyance. Upon later learning that the involuntary proceeding was dismissed, this Court entered a Memorandum of Decision and Order on August 1, 2011, denying Tim's motion to dismiss Count I (to set aside the MSA), Count IV (preferential transfer), Count V (breach of fiduciary duty), Count VII (constructive trust), and Count VIII (equitable subordination). The Court sua sponte ruled in the same Memorandum of Decision and Order that it would grant
As instructed, Samson filed a motion to withdraw the reference in District Court. On October 5, 2011, United States District Court Judge Sam E. Haddon entered a brief order denying the motion to withdraw reference.
While Judge Haddon was considering Samson's request for withdrawal of the reference, Samson filed a motion for leave to file brief regarding procedural status and memorandum in support, which motion the Court granted on October 26, 2011. Thereafter, Tim filed a response to the Trustee' brief and attached thereto the transcript of a hearing held before Judge Haddon on September 30, 2011, a brief and transcript and the transcript of the hearing held October 21, 2011, before Judge Sharon J. Waters of the Superior Court of California, County of Riverside ("Superior Court"). Tim also filed a suggestion of lack of subject matter jurisdiction over Counts II, III, and VI. Given Judge Haddon's October 5, 2011, ruling and upon consideration of the recent pleadings filed by the parties, the Court deems it appropriate to now consider Tim's pending request for reconsideration.
In the pending request for reconsideration, Tim does not seek reconsideration of that portion of the Court's August 1, 2011, decision finding that it lacked subject matter jurisdiction over Samson' fraudulent conveyance claims. Rather, Tim seeks partial reconsideration of this Court's August 1, 2011, Order under F.R.B.P. 7012(b). Rule 7012 sets forth the time and procedures for serving responsive pleadings, for asserting factual and legal defenses and objections, and for making preliminary motions and motions for judgment on the pleadings. Rule 7012 is, by its plain language, not a rule that provides for reconsideration. Tim's reference to such Rule is thus obviously a reference to the title of Tim's original motion to dismiss.
Other than F.R.B.P. 7012(b), Tim's motion for reconsideration cites not a single rule or code section. While it is obvious Tim is requesting that this Court reconsider a portion of its August 1, 2011, ruling, it is not clear whether Tim is requesting relief under F.R.B.P. 9023 or 9024. The Court deems Tim's motion a request under Rule 59. Rule 59, Fed.R.Civ.P., incorporated into the Federal Rules of Bankruptcy Procedure by Rule 9023, provides in pertinent part: "A new trial may be granted to all or any of the parties and on all or part of the issues ... (2) in an action tried without a jury, for any of the reasons for which rehearings have heretofore been granted in suits in equity in the courts of the United States." Under Rule 9023, "[a] motion to alter or amend a judgment must be filed no later than  days after the entry of the judgment."
In Brandt v. Esplanade of Central Montana, Inc., et al. ("Brandt"), 19 Mont. B.R. 401, 403 (D.Mont.2002), the District Court, in affirming this Court's decision, discussed amendment of an order under Rule 59(e): "Amendment or alteration is appropriate under Rule 59(e) if (1) the district court is presented with newly discovered evidence, (2) the district court committed clear error or made an initial decision that was manifestly unjust, or (3) there is an intervening change in controlling law. School Dist. No. 1J, Multnomah County v. ACandS, Inc., 5 F.3d 1255, 1263 (9th Cir.1993)." See also In re Teigen, 11 Mont. B.R. 91, 92 (Bankr.D.Mont.1992). Absent highly unusual circumstances, a motion for reconsideration should not be granted if the above test is not met. 389 Orange Street Partners v. Arnold, 179 F.3d 656, 665 (9th Cir.1999). Finally, a Rule 59(e) motion may not be used to raise arguments or present evidence for the first time when they could reasonably have been raised earlier in the litigation. Kona Enterprises, Inc. v. Estate of Bishop, 229 F.3d 877, 890 (9th Cir.2000).
Tim first argues this Court made a factual error when it refused to abstain because this "Court was under the erroneous impression that no parallel action had been commenced in the California Superior Court to enforce the terms of the Marital Settlement Agreement entered between Mr. Blixseth and the Debtor, Edra Blixseth." The Court's impression, if erroneous, was formed from the argument and evidence presented by Tim's counsel. In the brief filed in support of the motion to abstain filed November 11, 2010, Tim did not assert the existence of a parallel action but instead argued that the California Superior Court,
Brief in support of Motion for Mandatory Abstention or Permissive Abstention, docket entry no. 9, p. 6. Similarly, Tim's counsel argued at the February 14, 2011, hearing: "[T]here is an action in state court. Judge Waters specifically retained jurisdiction. And there's an expedient method by which Mr. Samson can go to California and get answers to the questions that he poses by way of his complaint."
The statements by Tim's counsel regarding the California Superior Court's retained jurisdiction do not establish the existence of a parallel state court action. Indeed, it appeared from other statements made by the parties that as of November 18, 2011, the date Tim filed his motion, and February 14, 2011, the date of the hearing on Tim's motion to dismiss, that nothing had transpired in Tim and Edra's California Superior Court divorce proceeding since approximately the date of Tim and Edra's judgment of dissolution, which was October 7, 2008. Given the absence of any evidence of a parallel state court action, this Court was precluded from exercising
Furthermore, the evidence presented to date does not conclusively establish that the California Superior Court retained jurisdiction to consider the matters at issue in this Adversary Proceeding. Judge Waters commented at the October 21, 2011, California Superior Court hearing that the MSA between Tim and Edra "was, and remains, the most unusual settlement agreement that I never put on the record, because I never heard the terms of the settlement." Not knowing the terms of the MSA, Judge Waters issued a judgment on October 7, 2008, providing that the Superior Court of California would retain "jurisdiction as provided for in the MSA in accordance with the terms and provisions of the MSA." Through this Court's review of the MSA, it found two provisions addressing the California Superior Court's continuing jurisdiction:
Pages 28 and 41 of the MSA. The relief sought by Samson in his complaint does not appear to fall within either of the aforementioned passages from the MSA. Provided the MSA is not set aside, the Court agrees that the California Superior Court has continuing jurisdiction to consider Tim's pending request for entry of judgment. However, vague statements regarding retained jurisdiction do not show the existence of a parallel state court action.
Moreover, the Court is not persuaded that Tim's July 5, 2011, request for money judgment is a parallel proceeding. As noted earlier, unbeknownst to this Court and between the time of the February 14, 2011, hearing and entry of the Memorandum of Decision and Order on August 1, 2011, Tim sought on or about July 5, 2011, a money judgment against Edra in the sum of $999,996, which amount Tim alleges was to be paid "by November 12, 2008 to satisfy his claim for unpaid management fees (relative to BLX Group, Inc.) [paragraph 16.A.(b) of MSA] [.]"
Upon learning of Tim's July 5, 2011 motion in California, Samson filed a motion in Edra's main bankruptcy case on September 26, 2011, requesting that this Court issue an injunction to preclude Judge Waters from deciding Tim's request for money judgment. Before this Court entered a decision on Samson's request for an injunction, Judge Waters held a hearing on October 21, 2011, after which she entered a decision on November 16, 2011, staying all proceedings with respect to the MSA, including Tim's request for a money judgment. As a result of Judge Waters' decision, Samson withdrew his request for an injunction.
Notwithstanding Judge Waters' decision to stay all proceedings with respect to the MSA, Tim's request for a money judgment is not the same as Samson's request to set aside the MSA. Rather, the outcome of Tim's request for a money judgment is dependent in large part on
Tim also argues in this request for reconsideration that this Court is precluded from evaluating the validity of the MSA. As this Court explained in its August 1, 2011, Memorandum of Decision in Adversary Proceeding 10-00088, the Rooker-Feldman doctrine is not an issue because when a state court merely adopts a marital property settlement without adjudicating the property division, such as it appears Judge Waters did with respect to the MSA, subsequent claims alleging misconduct by the former spouse in obtaining that settlement are not barred by Rooker-Feldman because the plaintiff is alleging misconduct by the spouse rather than error by the state court. This Court also sua sponte examined the domestic relations exception and concluded such exception did not apply to the Samson's claims, including Samson's claim to set aside the MSA.
While apparently not disputing the foregoing, Tim argues this Court committed a legal error by failing to require that Samson plead restitution. In support of such argument, Tim argues "Cal.Code Civ. P. § 1691 requires the party seeking rescission to ... restore all consideration or `everything of value which he has received' under the contract. The statute's language is clear." Village Northridge Homeowners Assn. v. State Farm Fire & Casualty Co., 50 Cal.4th 913, 921-922, 114 Cal.Rptr.3d 280, 237 P.3d 598 (2010). Without addressing the merit or applicability of such law or argument, the evidence this Court has seen in other related proceedings shows that several of the assets Edra received through the MSA, such as the Yellowstone Club, consisting of Yellowstone Mountain Club, LLC, Yellowstone Development, LLC, Big Sky Ridge, LLC, and Yellowstone Club Construction Company, LLC, along with Big Springs Realty, LLC, and Yellowstone Club World, LLC, were financially insolvent as of the effective date of the MSA. According to Tim's argument, if the assets had no value, requiring Samson to plead restitution would be a pointless exercise.
Finally, Tim argues this Court erred when it labeled various of his defenses as affirmative defenses which were inappropriate to consider in a motion to dismiss. Tim argues this Court failed to take judicial notice of certain court filings and other matters of public record, which filings and documents, such as the MSA, would establish the absence of a disputed issue of fact. More specifically, Tim argues the MSA is "central to the Trustee's Claim" and that the MSA, along with the order approving the MSA and the transcript of the July 8, hearing on approval of the MSA "establish res judicata, statutory, equitable and judicial estoppel, as well as waiver and release." A reading of the Court's August 1, 2011, Memorandum of Decision shows the Court did consider various filings and documents, such as the MSA. Therefore, the Court finds Tim's latter argument without merit.
The Court doubts that either Tim or Edra anticipated the volume of litigation their complicated web of corporations, real estate holdings and operating companies, and their subsequent acrimonious divorce, would produce. For instance, the Yellowstone Club entities, consisting of Yellowstone Mountain Club, LLC, Yellowstone Development, LLC, Big Sky Ridge, LLC, and Yellowstone Club Construction Company, LLC sought bankruptcy protection on November 10, 2008. See Bankruptcy Case Nos. 08-61570, 08-61571, 08-61572
Notwithstanding the foregoing, Tim argues the California Superior Court is better acquainted with the facts and is better equipped to expeditiously deal with various of the issues raised in this Adversary Proceeding. For instance, Tim argues in a brief that "California has a statutory mechanism in place to rapidly adjudicate and enforce settlements, Cal.Code Civ. P. § 664.6. The statutory procedure is `an expeditious, valid alternative statutorily created.'" Brief in support of Motion for Mandatory Abstention or Permissive Abstention, docket entry no. 9, p. 6. Additionally, at that hearing, Tim's counsel stated:
The Court agrees with Tim that Judge Waters is fully qualified and capable to rule on various of the issues raised in this Adversary Proceeding. However, the Court questions the ability of any court to fashion an expeditious ruling on any issue until they are fully apprised of the inner workings of Tim and Edra's business dealings, and the impact thereon caused by the various bankruptcy proceedings.
For instance, Tim is, in the California Superior Court, seeking a money judgment against Edra in the sum of $999,996, yet Tim did not file a claim in Edra's bankruptcy case for the above debt and would thus not participate in any distribution from her bankruptcy estate. Instead,
Keeping matters in one court also prevents parties from inadvertently misstating events in another court. For instance, in discussing this Court's scheduling of the hearing on Samson's motion to stay the California proceedings, Tim's counsel stated to Judge Waters:
While the Court certainly appreciates Judge Waters' input on the matter, what the record before this Court reflects is that Samson filed his motion for injunction and requested an expedited hearing on September 26, 2011. On September 27, 2011, this Court entered an Order setting the matter for expedited hearing October 4, 2011. On September 30, 2011, Tim, through counsel, filed a request to continue the October 4, 2011, hearing to October 17, 2011, "to enable Mr. Blixseth to properly research and respond to the Trustee's Motion and to subpoena the Debtor and other key witnesses whose testimony is directly relevant to the Trustee's Motion. Because there is no hearing scheduled in the state court on Mr. Blixseth's Motion for a Money Judgment, there is no reason to expedite the hearing at this time." Because the Court's schedule would not accommodate Tim's request to continue the matter to October 17, 2011, the Court entered an Order on October 3, 2011, continuing the hearing on Samson's motion to November 8, 2011. This Court could not have continued the hearing on Samson's motion for the purpose of allowing Judge Waters to weigh in on the matter because this Court was not aware that Judge Waters had scheduled a hearing on Tim's request for money judgment.
For the reasons discussed above, Tim's motion for reconsideration is denied. However, denial of Tim's request for reconsideration does not bring finality to the Court's August 1, 2011, Memorandum of Decision and Order, and this Court must bring finality to such decision so the parties may move forward.
As a court of equity, this Court has broad discretion under Rules 59(e) and 60(b), Fed.R.Civ.P., to sua sponte reconsider, vacate, or modify past orders so long as no intervening rights have become vested in reliance on the order. Meyer v.
As instructed by this Court on August 1, 2011, the parties filed a motion for withdrawal of the reference with Judge Haddon. Judge Haddon denied such request on October 5, 2011, and the matter has sat since that time awaiting a ruling by this Court on Tim's pending request for reconsideration. Given the state of the record, including Judge Haddon's comments made September 30, 2011, this Court's August 1, 2011, decision does not yet constitute entry of a judgment or final order. As such, the court has inherent power to modify, alter, or vacate the August 1, 2011 decision. See United States v. Martin, 226 F.3d 1042, 1048-49 (9th Cir.2000) (authority of district courts to reconsider their own orders before they become final absent some contrary rule or statute allows them to correct decisions based on shifting precedent); Reswick v. Reswick (In re Reswick), 446 B.R. 362, 373 (9th Cir. BAP 2011).
The Court sua sponte amends its August 1, 2011, Memorandum of Decision and Order in accordance with this Memorandum of Decision. In particular, I find the Court erred when it made reference to subject matter jurisdiction in its August 1, 2011, ruling. Subject matter jurisdiction "refers to a tribunal's `"power to hear a case."'" Union Pacific R. Co. v. Locomotive Engineers and Trainmen Gen. Comm. of Adjustment, Central Region, 558 U.S. ___, ___, 130 S.Ct. 584, 596, 175 L.Ed.2d 428 (2009) (quoting Arbaugh v. Y & H Corp., 546 U.S. 500, 514, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006), in turn quoting United States v. Cotton, 535 U.S. 625, 630, 122 S.Ct. 1781, 152 L.Ed.2d 860 (2002)). The Supreme Court in Stern v. Marshall specifically stated its decision did not implicate questions of subject matter jurisdiction:
Stern v. Marshall, 131 S.Ct. at 2607. The Supreme Court then went on to conclude only that bankruptcy courts lack the constitutional authority to enter final judgments on state law counterclaims that are not resolved in the claims allowance process. Id. at 2620.
Having now had the benefit of more time to reflect on Stern v. Marshall, I find the Court's August 1, 2011, decision in this Adversary Proceeding was flawed in one respect. The "jurisdiction of the bankruptcy courts, like that of other federal courts, is grounded in, and limited by, statute." Battle Ground Plaza, LLC v. Ray (In re Ray), 624 F.3d 1124, 1130 (9th Cir.2010) (quoting Celotex Corp. v. Edwards, 514 U.S. 300, 307, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995)). A bankruptcy court's jurisdiction is, generally, prescribed by 28 U.S.C. § 1334(b). In addition to granting jurisdiction to bankruptcy courts over bankruptcy cases, the statute provides that "the district courts [and by reference pursuant to 28 U.S.C. § 157, the bankruptcy courts] shall have original but not exclusive jurisdiction of all civil proceedings
In a 5-4 decision, the Supreme Court in Stern v. Marshall concluded that—even though the proceeding was core under 28 U.S.C. § 157(b)(2)(C) and that the bankruptcy court had the statutory authority to resolve the matter—the bankruptcy court nevertheless lacked the constitutional power to finally decide a state-law counterclaim where the counterclaim was not so closely related to the creditor's claim that it could be adjudicated as part of the claims resolution process. Shortly after the Supreme Court entered its decision in Stern v. Marshall, this Court entered its August 1, 2011 decision concluding:
Such decision was flawed. In March of this year, the United States Supreme Court entered a decision that provides instructful guidance on the matter addressed here. See Henderson ex rel. Henderson v. Shinseki, ___ U.S. ___, 131 S.Ct. 1197, 1202, 179 L.Ed.2d 159 (2011). In an attempt to "bring some discipline" to the use of the term "jurisdictional" the Supreme Court in Henderson wrote:
In Stern v. Marshall, the Supreme Court reiterated:
Consistent with the above, several courts have recently concluded that Stern v. Marshall does not deprive bankruptcy courts of subject matter jurisdiction. See, e.g., In re Wilderness Crossings, LLC, 2011 WL 5417098, *1 (Bankr.W.D.Mich. Nov 08, 2011); In re Bujak, 2011 WL 5326038, *2 (Bankr.D.Idaho Nov. 03, 2011); In re Sunra Coffee LLC, 2011 WL 4963155, *4 (Bankr.D.Haw. Oct 18, 2011); and In re Citron, 2011 WL 4711942, *2 (Bankr.E.D.N.Y. Oct 06, 2011).
Following the express language of Henderson and Stern v. Marshall, this Court concludes that because the United States District Court for the District of Montana would have the requisite subject-matter jurisdiction to adjudicate the claims in this Adversary Proceeding, so too does this Court. Consistent with the foregoing, the Court will enter a separate order providing as follows:
IT IS ORDERED that Defendant Timothy Blixseth's Motion for Reconsideration of This Court's August 1, 2011 Order Denying Motion to Dismiss Adversary Complaint Pursuant to Fed.R.Bankr.P. 7012(b) filed August 15, 2011, at docket entry no. 57 is DENIED.
IT IS FURTHER ORDERED that the Court's Order of August 1, 2011, is amended to read as follows:
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