Montana v. Blixseth (In Re Blixseth)

484 B.R. 360
CourtUnited States Bankruptcy Appellate Panel for the Ninth Circuit
DecidedDecember 17, 2012
DocketBAP NV-11-1305-PaJuH; Bankruptcy 11-15010
StatusPublished
Cited by5 cases

This text of 484 B.R. 360 (Montana v. Blixseth (In Re Blixseth)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Appellate Panel for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Montana v. Blixseth (In Re Blixseth), 484 B.R. 360 (bap9 2012).

Opinions

OPINION

PAPPAS, Bankruptcy Judge.

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 71 bankruptcy petition (the “Petition”) against Blixseth in the bank[362]*362ruptcy court for the District of Nevada. The Petition listed Blixseth’s residence and mailing address as Medina, Washington, and Blixseth’s “county of residence or principal place of business” as Las Vegas, Nevada. The box on the Petition titled “Location of Principal Assets of Business Debtor (if different from previously listed address)” was left blank. The “Venue” box on the Petition indicated that venue in the District of Nevada was appropriate because Blixseth had been' domiciled, had a residence, principal place of business, or had principal assets, in the District of Nevada for the longer part of 180 days before the petition was filed.

In the Petition, MDOR asserted a claim against Blixseth in the amount of $219,258,2 the Idaho State Tax Commission asserted a claim against Blixseth for $1,117,914, and the California Franchise Tax Board asserted a claim against Blix-seth for $986,957.95, all for unpaid taxes. Just a few days later, on April 20, after settling their claims with Blixseth, the Idaho State Tax Commission and the California Franchise Tax Board withdrew as petitioning creditors in the Petition, leaving MDOR as the sole petitioning creditor.

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, principal 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 consisted 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 [363]*363argued militated against transfer of the case to another district.

In response to the OSC, Blixseth filed a motion to dismiss (“MTD”) the Petition.3 Blixseth asserted that there was no basis for venue for the bankruptcy case in Nevada. Blixseth stated that he had resided in Washington since 2007, after previously residing in California. Moreover, Blixseth asserted that he conducted no business in Nevada, had no place of business in Nevada, and had no property in Nevada.

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, argued 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 and 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[364]*364est in the case than another state. Thus, MDOR argued that transfer to another venue was not in the interests of justice.

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Cite This Page — Counsel Stack

Bluebook (online)
484 B.R. 360, Counsel Stack Legal Research, https://law.counselstack.com/opinion/montana-v-blixseth-in-re-blixseth-bap9-2012.