Montana Department of Revenue v. Timothy Blixseth
942 F.3d 1179
9th Cir.2019Background
- Montana Department of Revenue (MDOR) audited Timothy Blixseth for tax years 2002–2006 and assessed about $57 million; Audit Issue 4 (a disallowed deduction for 2004) produced roughly $216,657–$219,258 that Blixseth conceded while he disputed the rest of the 2004 adjustments.
- In April 2011 MDOR, the Idaho State Tax Commission, and the California Franchise Tax Board filed an involuntary Chapter 7 petition against Blixseth; MDOR claimed ~$219,258, Idaho ~$1.12 million, and California ~$987,000; California and Idaho later settled and withdrew.
- The Yellowstone Club Liquidating Trust later joined as a petitioning creditor asserting a ~$41 million judgment claim.
- The bankruptcy court converted Blixseth’s dismissal motion into summary judgment, found he had ≥12 creditors (requiring three petitioning creditors), and held that any bona fide dispute as to amount (even as to a portion) disqualifies a petitioning creditor; it ruled MDOR lacked standing. Yellowstone alone could not sustain the petition.
- The district court affirmed. The Ninth Circuit likewise held that a claim partially disputed as to amount is disqualifying under 11 U.S.C. § 303(b)(1), affirmed the judgments as to MDOR, and remanded to the bankruptcy court to determine dismissal under § 303(j)(3) after other petitioning creditors withdrew.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a claim that is partially disputed as to amount can qualify a creditor as a petitioning creditor under 11 U.S.C. § 303(b)(1) | MDOR: The undisputed portion (if exceeding the statutory threshold) should count; a partial dispute should not disqualify the whole claim | Blixseth: Any bona fide dispute as to amount (even partial) renders the claim ineligible to serve as a petitioning creditor | A creditor whose claim is subject to a bona fide dispute as to any amount lacks standing under § 303(b)(1), even if a portion is undisputed |
| Whether Audit Issue 4 created an independent, collectible prepetition claim separate from other 2004 tax adjustments | MDOR: Audit Issue 4 produced a separate, collectible tax liability (the conceded $216k) that could support standing | Blixseth: MDOR did not show state-law authority or steps taken to sever Audit Issue 4 from the broader disputed 2004 tax year adjustments | Court: MDOR failed to show a separate, independent claim; the 2004 liability remained largely disputed, so MDOR's claim was subject to a bona fide dispute |
| Whether the petition could proceed given the number of creditors and withdrawals | MDOR: Other petitioning creditors could sustain the petition | Blixseth: Because MDOR (and others) lacked qualifying claims and debtor had ≥12 creditors, there were not three qualifying petitioning creditors | Court: With MDOR lacking standing and other petitioners withdrawing, remaining petitioners were insufficient; remanded to bankruptcy court to consider dismissal under § 303(j)(3) |
Key Cases Cited
- Rains v. Flinn (In re Rains), 428 F.3d 893 (9th Cir.) (standard of review for bankruptcy appeals)
- Barboza v. New Form, Inc. (In re Barboza), 545 F.3d 702 (9th Cir.) (summary judgment standard in bankruptcy context)
- Vortex Fishing Sys., Inc. v. Liberty Tool & Mfg. (In re Vortex Fishing Sys., Inc.), 277 F.3d 1057 (9th Cir.) (discussion on "bona fide dispute" interpretation history)
- Focus Media, Inc. v. Nat’l Broad. Co. (In re Focus Media, Inc.), 378 F.3d 916 (9th Cir.) (pre-BAPCPA rule treating amount disputes as disqualifying only if they reduce the claim below the statutory threshold)
- Sims v. Subway Equip. Leasing Corp. (In re Sims), 994 F.2d 210 (5th Cir.) (treating amount disputes differently pre-BAPCPA)
- Fustolo v. 50 Thomas Patton Drive, LLC, 816 F.3d 1 (1st Cir.) (post-BAPCPA holding that any dispute as to amount disqualifies petitioning creditor)
- Green Hills Dev. Co. v. Credit Union Liquidity Servs., LLC (In re Green Hills Dev. Co.), 741 F.3d 651 (5th Cir.) (post-BAPCPA interpretation that Congress clarified standing excludes claims subject to bona fide disputes as to amount)
- Joye v. Franchise Tax Bd., 578 F.3d 1070 (9th Cir.) (tax liabilities accrue annually and can constitute prepetition claims)
- Ransom v. FIA Card Servs., N.A., 562 U.S. 61 (2011) (statutory-interpretation principles)
- Hamilton v. Lanning, 560 U.S. 505 (2010) (doctrine: do not erode past bankruptcy practice absent clear congressional intent)
- Lamie v. United States Trustee, 540 U.S. 526 (2004) (plain-meaning/absurd-results canon)