Lead Opinion
OPINION
The Montana Department of Revenue (“MDOR”) appeals the order of the bankruptcy court dismissing the involuntary bankruptcy petition it and others filed against the alleged debtor, Timothy Blix-seth (Blixseth), for improper venue. We REVERSE.
FACTS
On April 5, 2011, MDOR, along with the Idaho State Tax Commission and the California Franchise Tax Board, filed an involuntary chapter 7
In the Petition, MDOR asserted a claim against Blixseth in the amount of $219,258,
Meanwhile, on April 8, 2011, the bankruptcy court, acting sua sponte, had entered an “Order to Show Cause Why Venue in This District is Proper And Why Transfer of Case is Not Appropriate” (the “OSC”). In the OSC, the bankruptcy court noted that Blixseth’s Washington street and mailing address were listed in the Petition. The court expressed concern that venue in Nevada was not proper “because of the paucity of the connection between Blixseth and the petitioning creditors’ selected venue.” The OSC required the petitioning creditors to present admissible evidence sufficient to support a finding that venue in Nevada complied with 28 U.S.C. § 1408. That statute provides in pertinent part that:
[A] case under title 11 may be commenced in the district court for the district—
(1) in which the domicile, residence, principаl place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of such case have been located for the one hundred and eighty days immediately preceding such commencement ...;
The petitioning creditors responded to the OSC on April 18, 2011. In their response they asserted that, based on a thorough review of public records, the only indicator they had to determine proper venue for the involuntary bankruptcy case under 28 U.S.C. § 1408 was their discovery that Blixseth recently “had transferred most of his assets out of his personal name and into two Nevada corporate entities.” The petitioning creditors asserted that Blixseth’s principal assets consistеd of his 98% partner’s interest in Desert Ranch LLLP, a Nevada limited liability limited partnership (“Desert Ranch”), and his 40% member’s interest in Desert Ranch Management LLC, a Nevada limited liability company (“Desert Management”). The creditors contended, because Blixseth’s equity interests in the two Nevada entities were his principal assets, venue was proper in Nevada. Additionally, the petitioning creditors outlined several factors that they
In response to the OSC, Blixseth filed a motion to dismiss (“MTD”) the Petition.
Importantly, though, in a declaration filed to support the MTD, Blixseth acknowledged that his primary asset was indeed his 98% limited partnership interest in Desert Ranch. Blixseth Supplemental Omnibus Declaration at ¶ 21, May 4, 2011 (“All of my income derives from entities held by Desert Ranch LLLP.”). However, he explained that Desert Ranch is a holding company for a number of non-Nevada entities whose principal assets are real estate holdings located in Idaho, Washington, California, Mexico and the Turks & Caicos. He stated that the business records and original partnership agreement for Desert Ranch are maintained in Idaho; its bookkeeping is done in California; and the company conducts no business in Nevada.
Blixseth also admitted that his 40% member’s interest in Desert Management comprised the rest of his principal assets. Blixseth explained that Desert Management is the general partner of Desert Ranch, and its only asset is a 2% interest in Desert Ranch. Blixseth noted that he and his son co-manage Desert Management, and that the LLC has no offices or place of business, and does not conduct business, in Nevada. Other than the interests in Desert Ranch and Desert Management, Blixseth stated, he owns only his personal effects.
A hearing on the OSC was conducted by the bankruptcy court on April 22, 2011. MDOR, by then the only petitioning creditor, arguеd that, based on Nevada’s charging order statutes for LLCs and LLLPs, and a decision by a Washington appellate court interpreting a statute similar to the Nevada laws, for venue purposes, the location of a debtor’s uncertificated interest in a limited liability company or a limited liability partnership is the entity’s state of registration. The bankruptcy court continued the hearing so that the parties could submit briefs to more fully: (1) address the location of Blixseth’s equity interests in Desert Ranch and Desert Management; (2) analyze the Nevada statutes regarding the right to obtain a charging order against a limited partner’s partnership interest; and (3) discuss how Article 9 of the Uniform Commercial Code (“UCC”) would treat Blixseth’s interests in Desert Ranch аnd Desert Management.
At the initial hearing, the bankruptcy court also asked MDOR to address why the interests of justice and convenience to the parties required that the case remain in Nevada, rather than transferring the case to a different venue. MDOR conceded that, as to the convenience of the parties, venue in Nevada made little difference since the petitioning creditors were not located in Nevada. However, MDOR argued that “the heart of a creditor’s concern is the transfer of the assets ... into Nevada vehicles that are created for asset protection measures.” Hr’g Tr. (Apr. 22, 2011) at 28:21-23. MDOR argued that because Nevada law could apply to unwind the transfer, Nevada had a greater inter
On April 27, 2011, Blixseth filed a renewed motion to dismiss and a motion for sanctions.
At the hearing on May 18, the bankruptcy court identified the issue before it as when “all someone has is an equity interest in a Nevada limited-liability, limited-partnership and a membership interest in an LLC, can you say for purposes of [28 U.S.C. § ] 1408 that his principal assets are in Nevada?” Hr’g Tr. (May 18, 2011) at 20:28-21:1. In its arguments to the court, MDOR asserted that Blixseth had a statutory connection with Nevada with respect to the governance and operation of Desert Ranch and Desert Management. Furthermore, MDOR reiterated its position that, based on the Nevada charging order statutes that require a creditor to enforce a judgment against a debtor’s interest in an LLLP or LLC solely in a Nevada court, the location of the debtor’s interest is the state of registration. Blix-seth, however, argued that the common law principle that intangible assets are located at the person’s domicile applied in this case and was supported by case law and the UCC.
At the close of the second hearing, the bankruptcy court announced its findings of fact and conclusions of law and ruled that venue of the bankruptcy case in Nevada was improper. While Blixseth had not argued so, the bankruptcy court concluded that intangible ownership interests have no physical location. Therefore, the bankruptcy court determined that, in this case, venue based on the location of Blixseth’s principal assets was unavailable. And because it was undisputed that Blixseth did not reside, was not domiciled, and did not have a principal place of business in Nevada, there was no other basis for venue in Nevada.
In the alternative, the bankruptcy court noted that because courts have, for various non-venue purposes, ascribed a location for intangible assets, the bankruptcy court could also in this case determine the location of Blixseth’s ownership interests in Desert Ranch and Desert Management. The court decided, applying the common law, that “you look to the residence of the owner of the intangible.” Hr’g Tr. (May 18, 2011) at 62:16-17. In the court’s opinion, this view was “supplemented and buttressed by” the notion that creditors would look to Article 9 of the UCC to determine where to perfect a security interest in a borrower’s intangible asset and that, under the UCC, general intangibles are located at the owner’s residence. Hr’g Tr. (May 18, 2011) at 62-63. Thus, to the extent they had any cognizable situs at all, the bankruptcy court held that, for the purpose of determining the proper venue for an involuntary case against him, Blixseth’s intangible ownership interests in the Nevada entities were not located in Nevada. Based upon this analysis, the bankruptcy court ruled that venue in the District of Nevada was improper.
An order dismissing the Petition against Blixseth was entered on May 27, 2011, and MDOR timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § 157(b)(1) and 28
ISSUE
The sole issue in this appeal is whether, for venue purposes under 28 U.S.C. § 1408(1), Blixseth’s principal assets, consisting of his intangible equity interests in Desert Ranch and Desert Management, were located in Nevada.
STANDARDS OF REVIEW
We review a bankruptcy court’s conclusions of law de novo and its factual findings for clear error. Hopkins v. Cerchione (In re Cerchione),
DISCUSSION
A. Venue Law
The statute 28 U.S.C. § 1408(1) provides that venue for a bankruptcy case may be based upon any of four alternatives: the debtor’s (1) domicile, (2) residence, (3) principal place of business in the United States, or (4) principal place of assets in the United States. Proper venue is determined by reference to the facts existing within the 180-day period prior to the filing of the bankruptcy petition. 28 U.S.C. § 1408(1). Any one of the four bases is sufficient to support proper venue. Broady v. Harvey (In re Broady),
Venue statutes “speak[] to an appropriate, geographically identified forum for the effective administration of the bankruptcy process.” In re Murrin,
B. The Location of Blixseth’s Principal Assets
It is undisputed that Desert Ranch and Desert Management were established under, and exist pursuant to, Nevada law. N.R.S. 88.350-88.415 [LLLP] and N.R.S. 86.011 et seq. [LLC]. Blixseth also does not contest that his interests in these Nevada entities сonstitute his “principal assets.” Thus, because the bankruptcy court decided no questions of fact, we review de novo its legal conclusion that Blixseth’s ownership interests in Desert Ranch and Desert Management were not located in Nevada for bankruptcy venue purposes.
Of course, Blixseth’s uncertificated member’s interests in the Nevada LLC and partner’s interest in the LLLP are intangible. Intangible property has no physical location; the location or situs of intangible property is a “legal fiction.” Delaware v. New York,
However, though intangible property has no physical location, courts have frequently ascribed a location to intangible assets for various purposes. Thus, the Ninth Circuit has held in a case involving internet domain names that, in determin
MDOR and Blixseth both acknowledge that assigning a location to Blixseth’s intangible ownership interests in this bankruptcy case requires a common sense, context-specific analysis. But while the cases that the parties cite may address what location should be ascribed to intangible property in different scenarios, none address the situs of intangible property based on the principal place of a debtor’s assets in a bankruptcy case. See, e.g., Delaware v. New York,
Because the approach dictated by the Ninth Circuit mandates a context-specific analysis for the particular purpose at issue, in gauging the venue for a bankruptcy case, we believe that the “principal place of assets” should “[ljogically ... be construed in a way most resonant with the functional concerns of the administration of the bankruptcy estate [since] all assets in question will be administered by a trustee serving under the jurisdiction of the forum court.” In re Murrin,
Because the Ninth Circuit instructs that, in this situation, we must examine the context of a particular case, and that we apply “common sense” notions of justice and convenience based upon the particular circumstances, we respectfully disagree with the bankruptcy court’s “one-size-fits-all” approach. Moreover, while the bankruptcy court’s particular conclusions may be justified under other facts, under the circumstances in this case, we disagree thаt Blixseth’s interests in Desert Ranch and Desert Management should either have no situs at all, or should be deemed to be located in Washington, where Blix-seth resides.
We first consider the context of this contest. This venue issue arises in a creditor’s action to place Blixseth into involuntary bankruptcy so that his available assets may be liquidated for the benefit of his creditors, including MDOR. Viewed in this way, an involuntary bankruptcy case is, at bottom, a creditor collection device. If successful in prosecuting the Petition, Blixseth’s creditors, acting through a bankruptcy trustee, will seize and sell Blix-seth’s interests in Desert Ranch and Desert Management to satisfy their collective claims. Given that goal, it is important to
An LLC is governed by the laws of the state in which it is organized. See generally Weddell v. H20, Inc.,
Under Nevada law, a partnership, including an LLLP, is “an association of two or more persons to carry on as co-owners a business for profit[.]” N.R.S. 87.060(1), 88.606(1). A partnership may register as an LLLP at the time of filing its certificate of limited partnership by filing a combined certificate of limited partnership and limited liability limited partnership with the Nevada Secretary of State. N.R.S. 88.606(4). An LLLP comes into existence with the filing of the LLLP certificate of registration. N.R.S. 88.606(5). The owners of an LLLP are referred to as “Partners,” and may be either General Partners or Limited Partners. N.R.S. 88.315(6); (7). General Partners participate in the control of the partnership; Limited Partners do not. N.R.S. 88.455. A partner in an LLLP, General or Limited, is a separate entity from the LLLP, “unless the trier of fact determines that adherence to the fiction of a separate entity would sanction fraud or promote a manifest injustice.” N.R.S. 88.608(1).
Importantly, the Nevada legislature has made clear that a creditor, looking to seize a debtor’s member interest in an LLC, or a partner interest in an LLLP, as a means of satisfying the debtor’s debts, can do so in only one way. Under N.R.S. 86.401, upon “application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the member’s interest [in a Nevada LLC] with paymеnt of the unsatisfied amount of the judgment with interest.” N.R.S. 86.401(1) (LLCs). This remedy is referred to as a “charging order.” Weddell,
As can be seen, Blixseth’s creditors’ rights to seize his assets as a member in Desert Management and Limited Partner in Desert Ranch are prescribed exclusively by Nevada’s statutes. In a bankruptcy case, employing the powers granted
The case law, while sparse, is not to the contrary. While there are no similar bankruptcy decisions, one case involving facts closely aligned with this one is Koh,
In addition tо pursuing a charging order, a bankruptcy trustee in Blixseth’s case may have other methods of liquidating his interests in Desert Ranch and Desert Management. As a practical matter, since these interests would constitute property of the bankruptcy estate under § 541(a), by standing in Blixseth’s shoes as a member or partner in the entities, the trustee could seek to judicially dissolve the companies and distribute their assets to the members. But just as they do with creditor actions seeking entry of a charging order, the Nevada statutes grant exclusive jurisdiction for such a proceeding to the Nevada district courts.
In sum, the Nevada legislature has made it clear that, to sell Blixseth’s member interests, a bankruptcy trustee must resort to the Nevada courts either to obtain a charging order against Blixseth’s interest in the LLLP or LLC, or to dissolve those entities. Through these restrictions, in our opinion, the statutes implicitly reflect the legislature’s assumption that a member’s or partner’s interests are “located” in Nevada. Consistent with that assumption, in the context of this case, we believe Nevada should be deemed the location of Blixseth’s interests in Desert Ranch and Desert Management.
For several reasons, our conclusion that Nevada is the proper venue for this case is also bolstered by notions of justice and convenience of the parties under these facts.
First, it is undisputed that Blixseth availed himself of the benefits of establishing the Nevada LLLP and LLC. It is also uncontradicted that he then transferred all of his valuable assets into those entities. Presumably, in organizing the Nevada entities, and conveying his valuable properties to them, Blixseth desired to take advantage of the separate legal identities bestowed on Desert Ranch and Desert Management under Nevada law in his future dealings with business associates and personal creditors. Given Blixseth’s strategy in dealing with his assets, we find it disingenuous that he now argues that, although he chose to take advantage of the Nevada statutory scheme in creating the LLLP and LLC, into which he then transferred all of his valuable assets, now Nеvada is not a proper venue for his creditors to pursue their efforts to seize and liquidate those assets. Surely, if notions of justice carry any weight, Blixseth’s conduct warrants a conclusion that venue in Nevada is proper.
Moreover, as noted above, if Blixseth is eventually adjudicated an involuntary debtor, it is obviously more convenient for a Nevada trustee to administer his bankruptcy case. Put another way, how can it be anything other than inconvenient, assuming as Blixseth apparently argues that
Again, we acknowledge that the bankruptcy court’s decision that intangible assets may have no situs or that, if they do possess a “location,” it should be the same as the debtor’s residence, may be defensible when founded on different facts. However, the Ninth Circuit has instructed that, in determining where a debtor’s assets are located for venue purposes, common sense, context, justice and convenience must guide a trial court. When we consider those factors and this record, we think Blixseth’s interests in Desert Ranch and Desert Management should be deemed to be located in Nevada, and that venue for this involuntary bankruptcy case is proper there.
VI. CONCLUSION
We REVERSE the order of the bankruptcy court dismissing this involuntary bankruptcy case for improper venue.
Notes
. Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
. MDOR asserts this amount is the undisputed portion of its larger claim held against Blixseth. Blixseth and MDOR are engaged in litigation before the Montana State Tax Appeals Board regarding the balance of MDOR’s tax claim, which exceeds $56 million. That litigation was stayed, however, when the bankruptcy case was filed pursuant to MDOR’s stay motion.
. Blixseth also challengеd MDOR’s status as an eligible petitioning creditor and asserted that MDOR hied the involuntary petition in bad faith as a tactic to gain a litigation advantage in the state tax court.
. The non-venue related issues raised in the MTD were deferred by the bankruptcy court to be considered with the motion for sanctions. Proceedings concerning both motions have been stayed pending this appeal.
. The authority to transfer cases is governed by the Rules; there is no bankruptcy-specific venue statute similar to 28 U.S.C. § 1406(a) requiring transfer or dismissal of a case if venue is improper. U.S. Tr. v. Sorrells (In re
. MDOR does not argue that Blixseth’s principal place of business was located in Nevada as a result of his ownership of Desert Ranch and Desert Management. According to Blix-seth’s declaration, it appears that Desert Ranch and Desert Management conduct no business in Nevada. Blixseth Dec. (May 4, 2011) at 3. See also In re Munin,
. § 544. Trustee as lien creditor and as successor to certain creditors and purchasers
(a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by—
(1) a creditor that extends credit to the debtor at the time of the commеncement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists!.]
. The trustee may seek to dissolve either Desert Ranch, an LLLP, Desert Management, an LLC, or both. The legal mechanisms for judicial dissolution of the two business structures are nearly identical.
N.R.S. 88.550 lists five situations in which an LLLP must be dissolved. The first four are initiated within the partnership. The fifth provides for judicial dissolution: “A limited partnership is dissolved and its affairs must be wound up upon the happening of the first of the following to occur: ... 5. Entry of a decree of judicial dissolution under NRS 88.555.” N.R.S. 88.550(5). N.R.S. 88.555, in turn, provides that "On application by or for a partner the district court may decree dissolution of a limited partnership whenever it is not reasonably practicable to carry on the business in conformity with the partnership agreement.”
In nearly identical language, N.R.S. 86.491 provides for judicial dissolution of an LLC. Three situations are initiated within the company. The fourth provides that "A limited-liability company must be dissolved and its affairs wound up: ... (d) Upon entry of a decree of judicial dissolution pursuant to NRS 86.495.” N.R.S. 86.491(d). N.R.S. 86.495(1)
. We respectfully disagree with our dissenting colleague that the common law, or provisions of the Uniform Commercial Code, compel a different result in determining the venue of an involuntary bankruptcy case prosecuted under these facts. Indeed, as to the common law, one of the cases cited in the dissent (involving a lien perfection dispute, not a venue contest), quoting Justice Cardozo, states that, in determining the appropriate situs for general intangibles, "the root of the selection is generally a common sense appraisal of the requirements of justice аnd convenience in particular conditions.” In re Iroquois Energy Mgmt., LLC,
Dissenting Opinion
Dissenting.
I agree with the majority that resolution of this appeal requires a “context specific” analysis. However, the majority has distorted that analysis by interpreting context-specific as “case-specific.”
“Context” is defined as the “interrelated conditions in which something exists or occurs.” Merriam-WebsteR’s Collegiate Dictionary 250 (Frederick C. Mish, ed., 10th ed. 2000). The majority’s conclusion that the location of an intangible asset for bankruptcy venue purposes is the jurisdiction where collection must be pursued focuses on what may happen during (or at the end) of a case instead of on conditions as they exist at the commencement of the case. Thus, the majority’s analysis is based on what may happen if an order for relief is actually entered against Blixseth, but that was not the question the bankruptcy court had to address. The issue at the beginning of the case was not how to collect Blixseth’s assets but simply where those assets were located. I believe that the bankruptcy court correctly looked to Article 9 of the Uniform Commercial Code (UCC) to decide the location of Blixseth’s
At common law, intangible property follows the person (mobilia sequuntur per-sonam) and is located where a person is domiciled. Delaware v. New York, 507 U.S. 490, 508,
I fail to see why the majority assumes that Nevada’s enactment of the ULLCA or its laws regarding limited partnerships should determine the location of an intangible asset. Nevada has also adopted the UCC which, unlike the uniform LLC statute, has a specific provision that answers the question of where an intangible asset is located.
When venue is based on the location of a debtor’s principal assets, using the UCC to make that determination is straight forward and predictable. The majority’s approach is neither. Instead it requires courts to reach into a case and engage in speculation about facts that have not yet been established. Therefore, I respectfully dissent.