Arnold v. Conrad Myers, as Trustee for ) the DBSI Liquidating Trust

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
WAVETRONIX, LLC; DAVID ) No. 15-35106
ARNOLD; MICHAEL JENSEN, )
) D.C. No. 4:12-cv-00244-MJP
Plaintiffs, )
) MEMORANDUM*
and )
)
BLAKE SIME ATKIN, )
)
Appellant, )
)
v. )
)
CONRAD MYERS, as Trustee for )
the DBSI Liquidating Trust and )
William Rich; JAMES R. ZAZZALI, )
Trustee for the DBSI Estate )
Litigation Trust and as Trustee for )
the DBSI Private Actions Trust, )
)
Trustees-Appellees, )
)
PAUL JUDGE; THOMAS VAR )
REEVE; JOHN MAYERON; )
JOHN D. FOSTER; WALTER )
MOTT; CHARLES HASSARD; )
GARY BRINGHURST; DOUGLAS )
SWENSON; JEREMY SWENSON, )
FILED
NOV 24 2017
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
*This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.

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)
Defendants-Appellees. )
)
Appeal from the United States District Court
for the District of Idaho
Marsha J. Pechman, Chief District Judge, Presiding**
Argued and Submitted November 8, 2017
Portland, Oregon
Before: FERNANDEZ, W. FLETCHER, and MELLOY,*** Circuit Judges.
Blake S. Atkin, attorney for Wavetronix, LLC, (“Wavetronix”) appeals the
district court’s orders sanctioning him pursuant to Federal Rule of Civil Procedure
11 (Rule 11),1 and also sanctioning him pursuant to 28 U.S.C. § 1927.2 We affirm
in part and vacate and remand in part.
(1) Atkin was the attorney for Wavetronix, which had received infusions
**The Honorable Marsha J. Pechman, Chief District Judge for the District of
Washington, was sitting by designation.
***The Honorable Michael J. Melloy, United States Circuit Judge for the U.S.
Court of Appeals for the Eighth Circuit, sitting by designation.
1The Rule 11 sanction arising out of his filing of this action against Conrad
Myers was imposed by Chief District Judge B. Lynn Winmill.
2The § 1927 sanction arising out of his filing of a motion for reconsideration
of the imposition of Rule 11 sanctions was imposed by then Chief District Judge
Marsha J. Pechman.
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of cash from various members of the DBSI, Inc. group of companies3 that
thereafter entered bankruptcy. The bankruptcy court adopted a liquidation plan
(the “Plan”) for the DBSI entities and Conrad Myers was appointed trustee of the
DBSI Liquidating Trust. As part of his duties, Myers sought to liquidate the trust’s
interests in Wavetronix. Atkin then filed this action against the trustee in his
personal capacity.
Atkin did not seek leave of the bankruptcy court before filing the action.
The district court could properly determine that in so proceeding Atkin filed a
legally baseless4 complaint, which was not objectively reasonable,5 and for which
there was not an objectively good faith argument following a reasonable inquiry.6
Atkin’s action in opening this new front, in order to stave off Myers’ attempts to
liquidate Stellar’s interests and without seeking leave from the bankruptcy court,
3One of those members was Stellar Technologies, LLC (“Stellar”) which, at
bankruptcy, held an equity interest in and promissory notes from Wavetronix.
4See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393, 110 S. Ct. 2447,
2454, 110 L. Ed. 2d 359 (1990).
5See Truesdell v. S. Cal. Permanente Med. Grp., 293 F.3d 1146, 1153 (9th
Cir. 2002).
6See Zaldivar v. City of Los Angeles, 780 F.2d 823, 831 (9th Cir. 1986),
abrogated on other grounds by Cooter & Gell, 496 U.S. at 399, 405, 110 S. Ct. at
2458, 2461.
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was a plain violation of the well-known Barton doctrine,7 as well as a violation of
the terms of the Plan for liquidating DBSI assets. Atkin seeks to avoid this result
by claiming that the Barton doctrine does not apply if a trustee is actually
operating a business,8 but liquidating a business is not the same as operating one,9
and nothing pled in the complaint indicates that Myers was engaged in aught but
liquidation as directed by the bankruptcy court. Atkin also says that he did
research the issue, but that does not excuse his reaching an objectively
unreasonable conclusion. See Zaldivar, 780 F.2d at 831; see also Chambers v.
NASCO, Inc., 501 U.S. 32, 47, 111 S. Ct. 2123, 2134, 115 L. Ed. 2d 27 (1991).
And while Atkins tries to parse or evade the purpose of the Plan’s terms, it is
obvious that the Plan was designed to protect the trustee when he is acting within
the scope of his authority.10 In short, the district court did not abuse its discretion11
7See Barton v. Barbour, 104 U.S. 126, 127, 26 L. Ed. 672 (1881); Blixseth v.
Brown (In re Yellowstone Mountain Club, LLC), 841 F.3d 1090, 1094 (9th Cir.
2016); Harris v. Wittman (In re Harris), 590 F.3d 730, 741–42 (9th Cir. 2009);
Beck v. Fort James Corp. (In re Crown Vantage, Inc.), 421 F.3d 963, 970–71 (9th
Cir. 2005).
8See Med. Dev. Int’l v. Cal. Dep’t of Corr. & Rehab., 585 F.3d 1211, 1218
(9th Cir. 2009); see also 28 U.S.C. § 959(a).
9See In re Crown Vantage, 421 F.3d at 972.
10See In re Yellowstone, 841 F.3d at 1094; Leonard v. Vrooman, 383 F.2d
556, 560 (9th Cir. 1967). No facts pled in the complaint indicate that Myers acted
(continued...)
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when it imposed Rule 11 sanctions on Atkin.
(2) After a futile attempt to have us consider an interlocutory appeal from
the order imposing Rule 11 sanctions and after the case was transferred from Chief
Judge Winmill’s calendar to Chief Judge Pechman’s calendar, Atkin sought to
reprise his arguments regarding the Rule 11 sanctions decision by filing a motion
for reconsideration. The district court denied that motion and imposed 28 U.S.C.
§ 1927 sanctions upon him. Without further explication the district court found
that “the motion for reconsideration was taken to needlessly prolong the litigation
and the sanctions issue and without a reasonable basis in law.” We sympathize
with the district court’s frustration with Atkin’s motion,12 but, unlike Rule 11
sanctions, the standard for § 1927 sanctions is a subjective13 rather than an
objective one. It requires bad faith14 or something akin to bad faith, that is,
10(...continued)
outside the scope of his authority from the bankruptcy court.
11See Cooter & Gell, 496 U.S. at 401–02, 110 S. Ct. at 2458–59; see also
United States v. Hinkson, 585 F.3d 1247, 1263 (9th Cir. 2009) (en banc).
12See Sch. Dist. No. 1J v. ACandS, Inc., 5 F.3d 1255, 1263 (9th Cir. 1993)
(setting out grounds for a motion for reconsideration).
13See Moore v. Keegan Mgmt. Co. (In re Keegan Mgmt. Co., Sec. Litig.), 78
F.3d 431, 436 (9th Cir. 1996).
14See Pac. Harbor Capital, Inc. v. Carnival Air Lines, Inc., 210 F.3d 1112,
(continued...)
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recklessness plus something more, like frivolousness15 or an improper purpose.16
Whether “recklessness plus” is actually a species of bad faith17 or a separate
concept18 is of no moment here. The difficulty here is that the district court found
neither subjective bad faith nor recklessness. The absence of those findings
constrains us to vacate the § 1927 award of sanctions and remand for further
proceedings. See Keegan, 78 F.3d at 436.
AFFIRMED as to Rule 11 sanctions, VACATED and REMANDED as to
§ 1927 sanctions. The parties shall bear their own costs on appeal.
14(...continued)
1118 (9th Cir. 2000).
15See B.K.B. v. Maui Police Dep’t, 276 F.3d 1091, 1107 (9th Cir. 2002).
16See Fink v. Gomez, 239 F.3d 989, 993–94 (9th Cir. 2001).
17See Keegan, 78 F.3d at 436.
18See Barber v. Miller, 146 F.3d 707, 711 (9th Cir. 1998).
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