In Re: State of Montana Department of Revenue v. Timothy L. Blixseth
112 F.4th 837
9th Cir.2024Background
- The Montana Department of Revenue (State), along with other state tax agencies, filed an involuntary bankruptcy petition against Timothy Blixseth for unpaid taxes.
- Other state agencies settled and withdrew, leaving Montana the sole petitioning creditor; the bankruptcy court found Montana’s tax claim was subject to bona fide dispute and dismissed the petition.
- Blixseth subsequently sued the State under 11 U.S.C. § 303(i), seeking costs, attorney’s fees, and damages for the dismissed involuntary petition.
- The State moved to dismiss, asserting sovereign immunity; the bankruptcy court denied the motion, finding a waiver of immunity.
- The Bankruptcy Appellate Panel (BAP) dismissed the State’s interlocutory appeal, holding it did not satisfy the collateral order doctrine; the State appealed to the Ninth Circuit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Collateral order doctrine applicability | Denial of immunity is not immediately appealable | Immediate appeal allowed for sovereign immunity | Denials of sovereign immunity are immediately appealable |
| Waiver by voluntary invocation of court | State waived immunity by filing involuntary case | Waiver only applies if same transaction/claim | No waiver; §303(i) claim not from same transaction |
| Waiver via counsel’s statement | Counsel’s statement in court was waiver | Waiver requires unequivocal statutory expression | No waiver; counsel’s statement does not meet standard |
| Bankruptcy clause/Katz analysis | §303(i) remedies are core to bankruptcy function | Remedy for dismissed petition is not core function | §303(i) is not core; immunity not abrogated under Katz |
Key Cases Cited
- Gardner v. New Jersey, 329 U.S. 565 (limited waiver of immunity when state files a proof of claim in bankruptcy)
- College Sav. Bank v. Fla. Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666 (waiver of sovereign immunity must be unequivocal)
- United States v. Nordic Vill., Inc., 503 U.S. 30 (statutory text required to waive sovereign immunity)
- Central Va. Cmty. Coll. v. Katz, 546 U.S. 356 (states’ limited waiver of immunity for core bankruptcy proceedings)
- Hydranautics v. FilmTec Corp., 70 F.3d 533 (malicious prosecution claim is not a counterclaim to predicate suit)
- Montana Dept. of Revenue v. Blixseth, 942 F.3d 1179 (Bonafide dispute bars involuntary bankruptcy petition)