Timothy L. Blixseth v. Credit Suisse

This case arises from a bankruptcy involving the Yellowstone Mountain Club in Montana. Neither Petitioner nor Respondent was a debtor in the bankruptcy. Respondent Credit Suisse was a creditor, while Petitioner Timothy L. Blixseth was an equity holder, with significant, independent and personal claims against Credit Suisse based on its pre-bankruptcy misconduct. As part of the Yellowstone Mountain Club’s plan of reorganization under Chapter 11 of the Bankruptcy Code, however, the bankruptcy court approved an exculpation clause that barred Blixseth from bringing certain personal claims against Credit Suisse without Blixseth’s consent; without providing Blixseth with any compensation for his lost claims; and without providing him with due process. The Ninth Circuit, along with several other circuits, had long held such exculpation clauses to be invalid, beyond the subject matter and personal jurisdiction of the bankruptcy courts, and in contravention of 11 U.S.C. §§ 524(a)(2) and 524(e). When this case made its way to the Ninth Circuit for the second time, however, a three-judge panel did an about-face and upheld the exculpation clause in a published opinion based on a “narrowness” standard not previously recognized by either the Ninth Circuit or any other circuit. The question presented is: Whether a nonconsensual exculpation clause in a bankruptcy reorganization plan purporting to release non-debtor third parties from claims by other nondebtor parties is invalid.