Mitchell v. Franchise Tax Board

• Decision Date: 21 April 2000
• Docket Number: No. 98-56475,98-56475
• Citation: 209 F.3d 1111
• Parties: (9th Cir. 2000) In re: HARRY H. MITCHELL;JUNE M. MITCHELL,Debtors. HARRY H. MITCHELL; JUNE M. MITCHELL, OPINION Appellants, v. FRANCHISE TAX BOARD,STATE OF CALIFORNIA;BOARD OF EQUALIZATION,STATE OF CALIFORNIA,Appellees
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1111

209 F.3d 1111 (9th Cir. 2000)

In re: HARRY H. MITCHELL;JUNE M. MITCHELL,Debtors.

HARRY H. MITCHELL; JUNE M. MITCHELL, OPINION Appellants, v. FRANCHISE TAX BOARD,STATE OF CALIFORNIA;BOARD OF EQUALIZATION,STATE OF CALIFORNIA,Appellees.

No. 98-56475

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted November 3, 1999

Submission Vacated November 8, 1999

Resubmitted March 14, 2000

Filed April 21, 2000

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] COUNSEL: Harry H. Mitchell, Palm Desert, California, appellant pro se.

David S. Chaney, Deputy Attorney General, Los Angeles, California, for the appellees.

Appeal from the Bankruptcy Appellate Panel for the Ninth Circuit; Lawrence Ollason, Philip H. Brandt, and James W. Meyers, Bankruptcy Judges, Presiding. BAP No. CC-97-01350 OlBrMe

Before: James R. Browning and A. Wallace Tashima, Circuit Judges, and Samuel P. King, ^* District Judge.

TASHIMA, Circuit Judge:

Harry and June Mitchell ("Mitchells") filed an adversary complaint in their bankruptcy case against the California Franchise Tax Board ("FTB") and the California Board of Equalization ("Board") (together, the "State") to determine the amount and dischargeability of taxes owed to the State. The Mitchells also asserted state and federal claims, alleging, inter alia, violations of the Fourteenth Amendment. The Mitchells appeal the Bankruptcy Appellate Panel's ("BAP") affirmance of the bankruptcy court's dismissal of all claims for lack of jurisdiction on the basis of state sovereign immunity under the Eleventh Amendment of the United States Constitution. We have jurisdiction over this appeal pursuant to 28 U.S.C. S 158(d) and affirm the decision of the BAP.

I.

The Mitchells filed a voluntary Chapter 7 bankruptcy petition in bankruptcy court in late 1995. The Mitchells listed the FTB as one of their creditors to whom they owed approximately $300,000 in state income taxes and interest. The FTB did not file a proof of claim in the Mitchells' bankruptcy proceedings. In February 1996, the bankruptcy court issued a general discharge order as to all pre-petition debts.

In March 1997, the Mitchells filed their first amended complaint against the FTB and the Board in bankruptcy court to: (i) Determine the amount and dischargeability of their debt to the FTB ("Count 1"); (ii) Assert claims of common law fraud and violations of the California Revenue and Taxation Code ("Count 2"); and (iii) Claim violations of due process and equal protection under the Fourteenth Amendment ("Count 3"). The State defended against all counts by asserting failure to state a claim. Specifically, the State answered Count 1 of the complaint by admitting the tax debt was discharged pursuant to the terms of the bankruptcy court's order, but denied the allegation that the debt was dischargeable under the Bankruptcy Code. The State answered Counts 2 and 3 by asserting Eleventh Amendment sovereign immunity. In April 1997, the State enlarged its assertion of Eleventh Amendment immunity to include Count 1 by filing a motion to dismiss all claims for lack of jurisdiction.

The bankruptcy court, relying upon Seminole Tribe of Florida v. Florida, 517 U.S. 44 (1996), dismissed the case for lack of jurisdiction. The BAP affirmed, Mitchell v. California Franchise Tax Bd., 222 B.R. 877, 881-82 (B.A.P. 9th Cir. July 15, 1998) (holding that although Congress expressed its intent to abrogate Eleventh Amendment immunity in 11 U.S.C. S 106(a), it could not do so under Seminole Tribe). The BAP found that S 106(a) was passed pursuant to the Bankruptcy Clause of Article I, which does not provide Congress with abrogation power, as opposed to the Fourteenth Amendment, S 5, which does. See id. Additionally, the panel noted that: (i) Count 1 of the Mitchells' complaint was a "suit" for Eleventh Amendment purposes; (ii) The State did not waive its immunity by admitting the tax debt was discharged or by amending its answer; (iii) Application of Seminole Tribe was not retroactive because the Mitchells' amended complaint was filed after Seminole Tribe was decided; and (iv) The State was immune from the Mitchells' Fourteenth Amendment due process and equal protection claims. See id. at 882-88.

II.

We review decisions of the BAP de novo. See Arden v. Motel Partners (In re Arden), 176 F.3d 1226, 1227 (9th Cir. 1999). In other words, we independently review the bankruptcy court's rulings on appeal from the BAP. See Tuli v. Republic of Iraq (In re Tuli), 172 F.3d 707, 709 (9th Cir. 1999). Jurisdictional issues in bankruptcy, including sovereign immunity assertions, are also reviewed de novo. See Vylene Enters., Inc. v. Naugles, Inc. (In re Vylene Enters., Inc.), 90 F.3d 1472, 1475 (9th Cir. 1996). The bankruptcy court's findings of fact are reviewed for clear error. See Ardmor Vending Co. v. Kim (In re Kim), 130 F.3d 863, 865 (9th Cir. 1997).

III.

Under the Eleventh Amendment,¹ a state is immune from suit under state or federal law by private parties in federal court absent a valid abrogation of that immunity or an express waiver by the state. See College Savs. Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., 119 S. Ct. 2219, 2223 (1999); Seminole Tribe, 517 U.S. at 64-68.

A.

The Mitchells first contend that they have not commenced a "suit" against the State. By its terms, the Eleventh Amendment only provides immunity in "suit[s] in law or equity." Courts have found that certain bankruptcy proceedings do not constitute "suits" in the Eleventh Amendment sense. In Texas v. Walker, 142 F.3d 813, 820-22 (5th Cir. 1998), cert. denied, 119 S. Ct. 865 (1999), for example, the Fifth Circuit found that a discharge order concerning a debt owed to a state does not constitute a suit where the state is neither a defendant nor listed as a creditor. Similarly, in Virginia v. Collins (In re Collins), 173 F.3d 924, 929 (4th Cir. 1999), cert. denied, 120 S. Ct. 785 (2000), the court found that there was no Eleventh Amendment suit where the debtors asked for their bankruptcy case to be reopened -but did not directly sue the state -for a determination that certain debts owed the state were discharged pursuant to a previous discharge order.

The Walker court noted, however, that "commencement of certain adversary proceedings directly against a state that has not filed a proof of claim in a bankruptcy case would" come within the scope of the Eleventh Amendment. Walker, 142 F.3d at 823; see also Maryland v. Antonelli Creditor's Liquidating Trust, 123 F.3d 777, 786-87 (4th Cir. 1997) (holding that while an original bankruptcy proceeding where "[t]he state is not named [as] a defendant" is not a suit, "an adversary proceeding" directly against the state would be).

The Mitchells' contention that Count 1 did not rise to the level of an Eleventh Amendment suit must fail, because they instituted an adversary proceeding directly against the State.² In order to resolve their complaint, the Bankruptcy Court must make a separate determination specifically binding on the State as to whether particular debts owed to the State were discharged. See 28 U.S.C. S 157(b)(2)(I) (actions to determine the "dischargeability of particular debts" are within core bankruptcy jurisdiction).

Although the Mitchells argue that Count 1 is "essentially a petition," the complaint particularly requests a determination of dischargeability with respect to "all defendants," including the FTB and the Board. Such a determination entails the exercise of in personam jurisdiction over the State in contrast to the bankruptcy court's general in rem jurisdiction over the property of the estate. See Collins, 179 F.3d at 930 (distinguishing "jurisdiction over the debtor and his estate" from "bankruptcy court jurisdiction over the state"). Unlike a general discharge order, in the present case, a summons was served on the State, such that it was required to respond to the Mitchells' complaint. See NVR Homes, Inc. v. Clerks of the Circuit Courts (In Re NVR), 189 F.3d 442, 451 (4th Cir. 1999) (utilizing "coercion . . . to attend" and the requirement of "jurisdiction over the state" as factors in analyzing whether a proceeding constituted a "suit " under the Eleventh Amendment), cert. denied, 120 S. Ct. 936 (2000); cf. Collins, 173 F.3d at 929 ("The Commonwealth .. . was not named as a defendant, was not served with process, and was not compelled to appear in bankruptcy court.").

The Mitchells further argue that because they did not request affirmative monetary relief, there is no suit. While courts generally construe "action leading to an order forcing a payment to citizens [as] the quintessential`suit' under the Eleventh Amendment," In re NVR Homes, 189 F.3d at 453, this factor is not dispositive. See id.; Morrell v. Franchise Tax Bd. (In re Morrell), 218 B.R. 87, 89-90 (Bankr. C.D. Cal. 1997) (holding debtor's complaint to determine dischargeability of tax debt barred by Eleventh Amendment).

Moreover, a decision in favor of the Mitchells would effectively prevent the State from collecting monies otherwise due to it, and it is difficult to draw a rational distinction between a bankrupt's attempt to recover funds already paid to the state from one that seeks to discharge present debts to the state. Finally, suits only requesting non-monetary relief do not divest the state of its immunity. See Seminole Tribe, 517 U.S. at 58 ("The Eleventh Amendment does not exist solely in order to `preven[t] federal-court judgments that must be paid out of a State's treasury . . . .' ") (quoting Hess v. Port Auth. Trans-Hudson Corp., 513 U.S. 30, 48 (1994)); Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 100 (1984) (holding that the Eleventh Amendment applies "regardless of the nature of the relief sought"). This principle reinforces the notion that we should not rely too heavily upon whether a money judgment is sought in determining whether a "suit" exists in the first instance.³

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