In re Mitchell, BAP No. CC-97-1350-OBMe

CourtU.S. Bankruptcy Appellate Panel, Ninth Circuit
Writing for the CourtOLLASON
Citation222 BR 877
Decision Date15 July 1998
Docket NumberAdversary No. 96-01918 RA.,BAP No. CC-97-1350-OBMe,Bankruptcy No. SB 95-25776 RA
PartiesIn re Harry H. MITCHELL and June M. Mitchell, Debtors. Harry H. MITCHELL and June M. Mitchell, Appellants, v. CALIFORNIA FRANCHISE TAX BOARD; California State Board of Equalization, Appellees.

222 B.R. 877 (1998)

In re Harry H. MITCHELL and June M. Mitchell, Debtors.
Harry H. MITCHELL and June M. Mitchell, Appellants,
CALIFORNIA FRANCHISE TAX BOARD; California State Board of Equalization, Appellees.

BAP No. CC-97-1350-OBMe, Bankruptcy No. SB 95-25776 RA, Adversary No. 96-01918 RA.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted February 18, 1998.

Decided July 15, 1998.

222 BR 878

Harry H. Mitchell, Palm Desert, CA, pro se.

David S. Chaney, Assistant Attorney General, Los Angeles, CA, for Appellees.

Before: OLLASON, BRANDT and MEYERS, Bankruptcy Judges.


OLLASON, Bankruptcy Judge.


Harry and June Mitchell ("Debtors") filed an adversary complaint in their chapter 71 bankruptcy case against the California Franchise Tax Board ("FTB") and California Board of Equalization ("Board") (together the "State"). Debtors sought a declaratory judgment that certain deficient income taxes were dischargeable and discharged. In addition, they sought monetary damages for the State's alleged violations of the Due Process and Equal Protection Clauses of the Fourteenth Amendment of the United States Constitution. The State asserted the defense of Eleventh Amendment sovereign immunity. The bankruptcy court granted the State's motion for judgment on the pleadings and dismissed the complaint for lack of jurisdiction. We AFFIRM.


Debtors filed a voluntary bankruptcy petition on November 9, 1995. They allegedly listed the FTB as one of their creditors to whom they owed approximately $300,000 in income taxes and interest. In 1992, the FTB had notified Debtors of proposed assessments for deficient income taxes for the years 1973, 1974, 1976, 1977 and 1980. In the same year, Debtors requested a hearing before the FTB and the request was denied. The proposed assessments were not final at the time Debtors filed the bankruptcy petition.

The FTB did not file a proof of claim in Debtors' bankruptcy case. On February 29, 1996, the bankruptcy court issued a discharge

222 BR 879
order. Following the discharge order, the Board set a hearing on Debtors' appeal of the proposed assessments. On December 16, 1996, the bankruptcy court entered a temporary restraining order to stay the Board's proceedings against Debtors based on prepetition tax claims, and an order to show cause regarding a preliminary injunction

In January of 1997, Debtors filed a first amended complaint against the FTB and the Board to "Determine Dischargeability of Debt and Other Relief," invoking the bankruptcy court's core and pendent jurisdiction. Debtors alleged that the FTB had "attempted to extract an income tax from them by issuing fraudulent assessments" and denied them their right to a protest hearing. They disputed their liability for the debt.

In count one Debtors sought a determination that the debt owed to FTB was discharged pursuant to the February 29, 1996 discharge order. They alleged in paragraph 29 that the debt to the State "was a dischargeable debt under 11 U.S.C. Section 523. . . ." They further stated in paragraph 35: "Plaintiff's alleged debt to defendant FTB was discharged in the Discharge Order of the Bankruptcy Court."

In count two, Debtors asserted claims of common law fraud and violations of the California Revenue and Taxation Code. In count three, Debtors alleged that the FTB and the Board violated § 1 of the Fourteenth Amendment by (1) depriving them of property without due process of law, and (2) denying them equal protection of the laws.

As relief, Debtors sought a judgment that the debt allegedly owing to the FTB was dischargeable and was discharged. Debtors further sought general, special and punitive damages, and attorney's fees and costs. They also sought to enjoin any action by the Board while the adversary proceeding was pending.

The State answered the complaint. In paragraph 3, the State admitted the allegation of Debtors' paragraph 35 that the tax debt was discharged. However, in paragraph 2, the State denied the allegation of Debtors' paragraph 29 that the debt was dischargeable under § 523. In addition, the State answered in their paragraph 14 that "the FTB's claim at the time of the filing of the debtors' Bankruptcy Petition was not finally assessed but was assessable and therefore nondischargeable."

The State also asserted as affirmative defenses: (1) failure to state a claim; and (2) to the second and third counts only, that the claims were barred by the Eleventh Amendment.

On March 7, 1997, after considering supplemental briefing in the matter of the preliminary injunction, the bankruptcy court issued an order denying a preliminary injunction.

On April 3, 1997, the State filed a motion for judgment on the pleadings. The State argued that the complaint should be dismissed because: (1) it had not waived its Eleventh Amendment immunity; (2) Congress could not abrogate its sovereign immunity through code provisions, and, thus; (3) the bankruptcy court lacked personal jurisdiction over it.2

222 BR 880

Debtors opposed the motion. A hearing on the motion took place on April 25, 1997, at which time the bankruptcy court expressed its opinion that it lacked jurisdiction over the State without its consent, and the code could not abrogate the State's sovereign immunity, pursuant to the opinion of the Supreme Court in Seminole.3 On April 29, 1997, the bankruptcy court entered its order for judgment on the pleadings in favor of the State and for dismissal of Debtors' complaint for lack of jurisdiction; Debtors timely appealed.


1. Whether count one of the complaint, which sought a judgment that the tax debt was dischargeable and discharged, was a "suit" against the State that was prohibited by the Eleventh Amendment.

2. Whether the State waived its sovereign immunity defense as to count one by (1) failing to raise the sovereign immunity defense to that count in the answer, or (2) by admitting to Debtors' allegation that the debt had been discharged.

3. Whether the bankruptcy court erroneously gave retroactive effect to the holding of Seminole.

4. Whether Debtors' Fourteenth Amendment claims trumped the State's Eleventh Amendment immunity.


A judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c) is reviewed de novo. George v. Pacific-CSC Work Furlough, 91 F.3d 1227, 1229 (9th Cir.1996), cert. denied, ___ U.S. ___, 117 S.Ct. 746, 136 L.Ed.2d 684 (1997). In considering a motion for judgment on the pleadings, all factual allegations in the nonmovant's pleadings are taken as true and all contravening assumptions in the movant's pleadings are taken as false. Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir.1989). A judgment on the pleadings is appropriate when, even if all allegations in the complaint are true, the moving party is entitled to judgment as a matter of law. Westlands Water Dist. v. Firebaugh Canal, 10 F.3d 667, 670 (9th Cir.1993).

Whether the State has asserted its sovereign immunity in a particular suit is, in the first instance, a question of subject matter jurisdiction and a question of law, reviewable de novo. See McCarthy v. United States, 850 F.2d 558, 560 (9th Cir.1988), cert. denied, 489 U.S. 1052, 109 S.Ct. 1312, 103 L.Ed.2d 581 (1989). The party bringing the action in federal court bears the burden of establishing the court's jurisdiction. Lord v. Babbitt, 991 F.Supp. 1150, 1156 (D.Alaska 1997). In addition, the interpretation of statutory provisions is reviewed under the de novo standard of review. In re Germaine, 152 B.R. 619, 622 (9th Cir. BAP 1993).


The State contends that it is immune from Debtors' suit. Sovereign immunity is guaranteed to the State by the Eleventh Amendment, which provides:

The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens
222 BR 881
of another State, or by Citizens or Subjects of any Foreign State.


The Eleventh Amendment limits Article III judicial power, denying to federal courts "authority to entertain a suit brought by private parties against a state without its consent." Ford Motor Co. v. Dep't of Treasury of Indiana, 323 U.S. 459, 464, 65 S.Ct. 347, 89 L.Ed. 389 (1945). It reflects a broad principle of sovereign immunity which also extends to protect a State from suits brought without the State's consent by the State's own citizens, Edelman v. Jordan, 415 U.S. 651, 662-63, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974), and suits invoking the federal-question jurisdiction of Article III courts. Coeur d'Alene, ___ U.S. at ___, 117 S.Ct. at 2033, 138 L.Ed.2d at 447 (citing Seminole); Sofamor Danek Group, Inc. v. Brown, 124 F.3d 1179, 1183 (9th Cir.1997).

Debtors' complaint named state agencies. Unless the State waives immunity and consents to suit in federal court, there is only one way to divest the State of its sovereign immunity and hale it into federal court — Congress can abrogate the State's immunity through appropriate legislation.4 The inquiry whether Congress properly abrogated the State's immunity requires a two-part test: "first, whether Congress has `unequivocally expressed its intent to abrogate the immunity'; and second, whether Congress has acted `pursuant to a valid exercise of power.'" Seminole, 517 U.S. at 55, 116 S.Ct. 1114 (quoting Green v. Mansour, 474 U.S. 64, 68, 106 S.Ct. 423, 88 L.Ed.2d 371 (1985)) (citation omitted).

Congress clearly expressed its intent to abrogate the States' Eleventh Amendment immunity by enacting § 106 of the code pursuant to its Article I powers and the Bankruptcy Clause.5 Section 106(a) provides that "sovereign immunity is abrogated as to a governmental unit" with respect to proceedings brought, inter alia, for determinations of (1) tax liability under § 505; and (2) dischargeability of a debt under § 523 —...

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