RALEIGH – Campbell Law School Dean J. Rich Leonard is among a group of academics who have filed an amicus brief with the U.S. Supreme Court urging the high court to take up an appeal challenging a state’s right to assert immunity from litigation when it initiates an involuntary bankruptcy case against a third party.
An article published on April 3 by Bloomberg Law, states that high court attention is needed to address a 2024 decision from the U.S. Court of Appeals for the Ninth Circuit on state sovereign immunity waivers that could “pose problems inside and outside of bankruptcy,” Leonard, a former North Carolina bankruptcy judge, and several other law professors said in a friend-of-the-court filing Wednesday. A number of other news outlets have covered the case including Law 360.
The brief supports a petition lodged by former billionaire entrepreneur Timothy Blixseth, who is trying to sue the Montana Department of Revenue for pursuing an “improper” involuntary bankruptcy case against him to collect on an unpaid tax, the article states.
“The Ninth Circuit in August held that Montana’s initiation of the Chapter 7 case doesn’t amount to a waiver of sovereign immunity, and Blixseth’s suit doesn’t have the effect of putting the state under the jurisdiction of the bankruptcy court,” the article continues.
The Ninth Circuit panel, which reversed the holding of a lower court, failed to consider the unique nature of involuntary bankruptcy proceedings and departed from Supreme Court decisions on sovereign immunity waivers, the professors wrote in their brief.
“Amici are unaware of any decision of this Court that has permitted a state to voluntarily invoke federal jurisdiction and then later use sovereign immunity as a defense to its conduct in the judicial process,” they wrote. “To the contrary, this Court’s waiver decisions have, as discussed above, repeatedly protected the judicial process by prohibiting its misuse.”
Blixseth, the founder of private ski resort Yellowstone Mountain Club, says Montana pursued a decade-long bankruptcy case in bad faith and forced him to sell valuable assets at a steep loss, including a Mexican resort and property on a private island in Turks and Caicos.
He filed his bankruptcy court suit in 2021 after the Ninth Circuit determined that Montana’s tax agency lacked grounds to pursue the involuntary bankruptcy because its claim was in dispute. Montana has argued that although it partially waived its immunity to participate as a creditor in the bankruptcy proceedings, it didn’t consent to being a defendant in any legal action Blixseth might bring in the bankruptcy court.
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