STATE OF MONTANA DEPARTMENT OF REV V TIMOTHY L. BLIXSETH
- Case Type:
- Consumer
- Case Status:
- Reversed and Remanded
- Citation:
- 22-60046 (9th Circuit, Aug 14,2024) Published
- Tag(s):
-
- Ruling:
- A bankruptcy court cannot award an involuntary debtor relief under 11 U.S.C. § 303(i) against a State merely because it was a petitioning creditor. First, a State does not waive its Eleventh Amendment sovereign immunity merely by filing an involuntary bankruptcy petition. 11 U.S.C. Second, 11 U.S.C. § 106(a)(1) -- which purports to waive sovereign immunity with respect to § 303 -- is unconstitutional.
The bankruptcy court's decision that a State has waived its sovereign immunity is immediately appealable under the collateral order doctrine.
- Procedural context:
- Following the bankruptcy court's decision that the State of Montana Department of Revenue (the "State") had waived sovereign immunity with respect to an involuntary bankruptcy petition against Timothy Blixseth, the State brought an interlocutory appeal of the bankruptcy court's decision to the United States Bankruptcy Appellate Panel for the Ninth Circuit Court of Appeals. The BAP ruled that it had no jurisdiction to hear the appeal because the bankruptcy court's decision against the State was not appealable because it was not a final decision or order.
The State timely appealed the bankruptcy court's order to the Ninth Circuit.
- Facts:
- The State of Montana Department of Revenue (the "State") and taxing authorities for California and Idaho filed an involuntary bankruptcy petition against Timothy Blixseth (of Yellowstone Club infamy) for failure to pay taxes. The Yellowstone Trust joined the petitioning creditors, but the States other than Montana settled with Blixseth. The bankruptcy court then ruled that the State's claim against Blixseth was subject to a bona fide dispute and that the involuntary petition could not be sustained with only one valid petitioning creditor (the Yellowstone Club Trust).
Before the involuntary petition was dismissed, the bankruptcy court discussed sovereign immunity with the State's counsel. At a hearing, the State's counsel affirmed the bankruptcy court's statement that "it is my view at this point that, as you [the State's counsel] have stated, by commencing an action in this court, not only [has the State] submitted to the jurisdiction of this Court [and] waived whatever sovereign immunity [the State] may have with respect to damages, fines, or penalties that might accrue because of actions taken in this Court."
Blixseth then brought an adversary proceeding against the State, seeking attorney's fees and costs, proximate and punitive damages, and sanctions against counsel under 11 U.S.C. § 303(i). The State moved to dismiss, arguing that (i) Eleventh Amendment sovereign immunity prevented the bankruptcy court from granting Blixseth any relief and (ii) the State's counsel's verbal waiver of sovereign immunity was ineffective. The bankruptcy court denied the State's motion to dismiss, holding that the State had waived its sovereign immunity and that 11 U.S.C. § 106(a)(1) superseded the State's right to assert sovereign immunity with respect to § 303. The bankruptcy court also held that damages under 11 U.S.C. § 303(i) were ancillary to the bankruptcy court's in rem jurisdiction.
- Judge(s):
- Rawlinson, Melloy (8th Circuit, sitting by designation), and Thomas
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