bank of an involuntary petition out of the district of nevada there are two issues that are before the court one has to do with the eligibility of the creditors the nd has to do with the actual creditor pool of the debtor as it existed on the petition date i'd like to begin with the eligibility of the creditors because it effects ultimately whether the number of in the creditor pool have materiality to two decision what we do your honor we are asking the court to all three at the time believed and swore to that in the petition that they had undisputed claims eligible to be involuntary petitioning creditors prior to trial the yellowstone club trustee signed on as a joining petitioning creditor once accepted that becomes one of the petition creditors you have for i'd like to start with the yellowstone club trustee it's the easiest to dispose of the bank the bankruptcy court held that it was eligible as fishing credit why because it had an unstated final final judgment on appeal also your honor at that point is not before the court it was not appealed from the district court and if you look at it if that the point were to be won by blix it would be enlarging his rights and restricting our rights because it would reduce the number of creditors so i submit your honor it's not properly before the court that's one creditor the next i would submit your honor would be the idaho state tax commission you had a final non appealable default state court judgment that judgement though if you if you look at the basis was the filed sworn self reported tax returns of mr b of record he refused to pay them finally the idaho state tax commission followed a lawsuit he did not answer why of record he admitted on stand that it under the advice of counsel he failed to answer the judgment was taking that there is nothing objective lee in the record that shows there's any dispute as to that liability or that amount that arises out of those tax returns that are memorialized in that judgment that would be a claim number two the rd your honor would be the california franchise tax board that that liability was based upon the two thousand and seven self reported filed sworn to tax return of mr blix that liability although no judgment was taken that the court the record before the court shows multiple attempts by the state of california to try to collect that liability the or exactly there's nothing in the right yes absolutely the the the tax returns of record there is no amendment in the record there is no administrative or state core federal court dispute and tax court or state court i'm sorry that would he made very very a assertions that his counsel were making phone calls to california there was nothing objective in the record there was no here's and then i thought that in the settlement that mr blix with entered into a california that he  that in the settlement agreement the settlement agreement that was post filing there was i understand that the yes if you think the position is that is that is the time at which we mark this whole thing yes or no there was no dispute as of that time the settlement is obtained later on yes objective dispute under th circuit law they have to show something more than just a cursory conclusory statement i dispute and there's nothing a record of that and keep in mind and what about i thought the dispute was more specific in terms of the last carry back that actually came out of the district court's opinion and if you look at what the district court opinion looked at was an entry in one of the internal memos from like two thousand and nine that there was a negotiation that if in when this was going to file his two thousand and eight return he would they would look at it review it and see if there's a loss carry forward loss carry back i apologise the most telling part of the record is there's a tax due notice from march of two thousand and eleven a month before the filing and it shows due in knowing to the california franchise tax board the exact principal mt that was doing knowing off of the returns are we now at this point in your argument are you talking about the required number of creditors the number of petitioning creditors to sign that yes your honor yes or you have to get three out of three or you have to get three states and the yellowstone club exactly yes or they can knock out two of those exact and you're in trouble and that that's when we would go to his credit pool whether he sufficiently proved that the existence of creditors the as to california your honor keep in mind that at some point in time if there actually a dispute keep in mind the trial was in two thousand and thirteen this is the two thousand and seven tax return you would have found something more in the record that that affects weight the liability which came directly off of his return and the amount which is easily calculated under state law so with that your honor we would submit two things one the post settlement and keep in mind if this court decides to open up that post filing area for review keep state of montana had an ongoing audit against mr blix that there were multiple audit issues one audit issue mr blix has continually and repeatedly admitted to the liability throughout this entire process that was one claim versus many however if you look at the audit as a whole it would be a partially undisputed claim of a creditor partially undisputed claim gets divorce tax and focus media in the th circuit a partially undisputed claim is eligible as a claim in a involuntary bankruptcy under three o three for congress to congress death in congress stepped in and actually adopted the th circuit's reasoning if you look at the language in vortex and focus media actually it's a quote in focus medium from vortex that talks about a dispute as liability and in some cases amount a year later congress of mensa statute and puts in and amount completely consistent also your honor under th circuit law and i believe the other circuits in order for a change an intervening change to have an effect on prior law especially in the two thousand and five bankruptcy amendments were which were there were some very subject of changes to the bankruptcy code in two thousand and five if you look at that  progression or that that analysis you have to show or the you would have to show that there was a clearly irreconcilable difference made by congress and prior law as i stated it's actually directly and easily reconcilable because they're using your language are you saying there is no dispute as to amount the asked to audition number for absolutely yes in fact the only evidence of record is t montana auditor who on the record calculated exactly what the amount is to the penny using the state regulations and that requires an audit number four to stand alone as a separate liability yes yes yes your honor and that trial that none of the other audit issues would lower the amount due and or audit issue number four that's that's consistent with the testimony of the auditor in other words you had your mr blix original two thousand and four tax return you had the audit issue number for liability that was admitted to that is going to be your baseline there was nothing in that audit that could have reduced that liability but let me just ask you if you were to play this out you got a tax return with fifty two particular items yes and one of is not this feud but fifty one dollars of them are in your view can undisputed item always stand alone it it can if that is the baseline for that tax year that you're let me let me differentiate with what you're asking if you're talking about multiple items in one year's tax return credit that you would offset and offsets another issue the offset against two thousand and four then there would be an issue here though the testimony and the stipulation were that none of the other audit issues per year would have a reducing effect on audit issue number four thereby making that one your baseline liability i guess what i'm having some trouble with is that that's an example where it wouldn't have an impact on a reduction but given the complexity of tax returns were sometimes you have more than one baseline you have different years that are imported for a variety of reasons what concerns me about your interpretation is that you would be able to in effect kind of slice and dice the tax returns because you could come up with some number or entry o call it that would in fact  not change and therefore that becomes a separate item and a separate non disputed liability and so i'm having some trouble kind of playing that out if you to look at different other different tax issues we would be like taking the tax returns and and kind of making swiss cheese out of them and i'd appreciate your response i would agree from the standpoint of a single year tax return say you had a gross wages of one hundred dollars but then you had a business loss of ninety nine dollars those are two separate items where you can't say oh you have one hundred dollars you know you net it out because that's at final number that's why that the issue is clear in a post filing audit because you always have that original return you know what was said and then you look at the multiple issues on at the most multiple audit issues and you look at each one to see how it could affect that year and for two thousand and four while there were audits issues that would affect two thousand and four as an increase there were there were no audit issues that would affect it as it decrease you want to save you remain oh yes yes yes you're on  good morning and i please the court nathan schultz on behalf of the appellee mr blix it's no exaggeration to say that this is been an unbelievably strange and convoluted saga i don't envy mr butler trying to fit all his issues into twelve or thirteen minutes and i'm not going to try from the get go to respond point by point because there is one particular issue which if resolved and mr blix as favor is enough for this court to affirm factual issue and there's really no factual dispute here about that issue montana acknowledges that when the petition was filed the audit was outstanding as to audit years and as to all but basically one issue there was a pending dispute that's ninety nine point five percent of the audit amount and of course the one issue is the infamous audit issue number four but montana never had a claim for audit issue number four the bankruptcy code defines claim as a right to payment my town doesn't have a right to payment for audit issue number four if they had wanted to get to a right to payment there were two ways to do that for the two thousand and four return one was to complete the audit as a two thousand and four get to a final determination as to the liability for that tax year another way is they could have issued a jeopardy assessment they didn't do that so they didn't do either of the two things that would be required to establish a liability therefore even if we set aside dispute as to amount mr blix said had a good faith bona fide dispute as to liability for all of the audit years because the audit hadn't been concluded but we know that and we could stop right there but we know that montana makes the argument as to dispute about amount and that hinges on this idea that if your claims dispute as to amount but the amount  undisputed is above the statutory minimum then you're ok sort of materiality concept and this really comes out of a minority of bankruptcy court opinions and they all have really the same hypothetical concern which is and they use these specific numbers in the cases let's say of a creditor with a one hundred one thousand dollars claim but one hundred dollars is in dispute and i refer to this is the point one percent hypothetical and bankruptcy judges are really uncomfortable with the idea that one hundred dollars dispute suit would keep somebody from exercising their right to file an involuntary bankruptcy position but that hypothetical ignores the other end of the spectrum let's say you have a fifty six thousand dollars claim of which only two hundred dollars is undisputed those numbers aren't made up that's the exact ratio we have here montana says that issue number four was two hundred and nineteen thousand dollars as of the petition day but we have a two hundred dollars of undisputed amount to put somebody into bankruptcy when they are asserting a fifty six thousand dollars or fifty six million dollars in our case claim there's a huge issue of leverage there in so the point one hypothetical point one percent hypothetical isn't enough to justify that interpretation and when you look at i think for important things about the interpretation of the statute it reveals why the majority position is correct those four things are statutory construction legislative history jurisprudence around section three hundred and three b and then policy so starting with statutory construction we start with plain meaning and judge dorsey had an extensive treatment of this in the district court opinion and it was that on there's no material qualifier in the language in the statute it says you have to be the holder of a claim that's not subject to bona fide dispute as to liability or amount that's very since the bankruptcy act in one thousand nine hundred and eight it was five hundred dollars to start it's fourteen thousand at the time of this case now i think sixteen thousand today that's really i think to say you know why should we bother with the expense in the administration of a bankruptcy proceeding of all we're talking about is a very small amount of money the bonafide dispute qualifier is something ple different that's about and we know this from the next point legislative history that's about protecting debtors from having a creditor leverage them with the threat of involuntary bankruptcy to resolve a disputed claim and that's powerful leverage so when you look at the legislative history senator baucus who happens to be from montana said fide questions about their liability but who would rather pay up than suffer the stigma of involuntary bankruptcy proceedings it's necessary to protect the interest of debtors and to prevent misuse of the bankruptcy system as a tool of coercion to circuit so i think as to amount is disqualified if congress wanted to put in this material qualifier idea there's a very easy way they could have written that into the statute they did it and so it's not our job and it's not the court's job to question that and i think one thing about legislative history which we might not think of as legislative history but i think it is that powerful here is it's actually eight months from august of two thousand and four until april two thousand and five that focused media was decided in august  forty eight months later and five congress amended the statute i think that's powerful legislative history if they thought focused media got it right no need to amend the statute i guess that their response and appreciate your reaction as well dispute does that mean just be that matters and it doesn't matter if it's below the statutory minimum and so yes focused media talked about liability or amount and congress added liability or amount but not in the way dispute now the answer is yes the next question is does it matter if the undisputed amount exceeds the statutory minimum and you would say it doesn't matter it doesn't matter exactly  the side of mr blix is here and the decisions adopt the appropriate analysis they look at the plain meaning of the statute and follow the way we're supposed to look at statutes in these circumstances the point one hypothetical is it's not where you start but that's where the night minority of bankruptcy court start and policy not to neglect abuse i think it's important again policy for this was to protect others not to protect creditors we know that when the eighty four amendments happened what's the greater harm here the greater harm between having a debtor be leveraged by the threat of involuntary bankruptcy which is about the biggest leverage you can have versus taking away or at least delaying that remedy when a creditor has other remedies at the creditor can go get prejudgment attachment state taxing authority has about as many remedies i can think of aside from involuntary bankruptcy so if you're going to delay that versus subject the debtor to the threat and being very careful about high subject the debtor to that threat i think is critical we know that's important from the legislative history in eighty four so your position would be that you would literally have to amend it statute by inserting the word material to comport with use you or there are other ways you could do it for example it could have said apportion right instead of referring to the claim as a whole the statute could have said as long as a portion of the claim is undisputed and then you have the statutory minimum but we're talking about claim one claim it doesn't say a portion so there are lots of ways to make that clear especially when focused media came out if congress wanted to make it clear that focused media says what we meant they would have done that much more specifically  statute on its face very clearly is contrary i think to focus media and then i think lastly in terms of policy it's important to think about what's the impact outside of an involuntary bankruptcy case before what happens and if you use the point one hypothetical the creditor could just wave one one hundred dollars right if there was only one hundred dollars in dispute on a one hundred thousand dollars claim if the creditor felt like it was that important to get into involuntary bankruptcy they could just say no we're not going to assert one hundred dollars anymore the debtor can't do that on the flip side because the only way to deal with it and mr blix that situation right would be to pay the two hundred and nineteen thousand dollars eliminate the allegedly and let's suppose the two persuaded me on montana that still doesn't get you home use only eleven dollars more you still got to knock one more out don't you i don't think we do and here's what we have some unique facts in this case which are that there are four total potential creditors consider three of them have a drawn and said we're not prosecuting this involuntary petition we're done right here we go there it's because we settled or otherwise we're not doing this and section three hundred and three j of the bankruptcy code says that the bankruptcy court can dismiss an involuntary petition for want of prosecution so if montana is not qualified to prosecute this involuntary petition there's nobody left to prosecute it and therefore it be just me under three a three j anyway so even if the bankruptcy court was wrong and the district court was wrong about the other non montana creditors at best that's harmless mair harmless error or a moot point because there's no way to prosecute this unless montana's qualified in my town is not qualified so that gets us away from the other issues which i'm also happy to talk about the timing of their withdrawal of their desire to pursue these claims so california idaho withdrew almost immediately after following the petition after filing the petition think that timing matters for purposes of water prosecution because again that's not really a where they originally qualified question it's a different question it's is there somebody here to prosecute this petition because there has to be somebody to do that somebody was standing somewhat articulating because there are other issues we haven't even gotten to in this case whether mr blix is paying his debts as they came due which is another requirement and the petition has to be filing a good faith bankruptcy court and reach either of those issues and neither do the district court therefore because it found that we didn't have enough qualifying petition creditors so in your view it all boils down to montana i think if you ruled that montana was not eligible the court doesn't need to go any further if we look at the other issues and there are about four of them i think the twelve creditor requirement california and idaho's qualifications the ellison clubs qualifications and then the issue of one proton withdraw all those things are on solid ground twelve  requirement didn't get to it in the opening but the bankruptcy court in the district court cited extensive things in the record evidence in the record about the number of predators mr blix have had it was his that burden to identify twelve creditors and then it was montana's burden to show that they didn't qualify they didn't satisfy that burden there's nothing that would show that was a clearly erroneous holding and so therefore you need three and my ten almost seems to concede that they focus doesn't address a default judgment specifically carves out but number two there was no judgment on the two thousand and five tax year and so you get back to dispute as to liability or amount the claim they tried to use was not based on a judgment for the full amount of the claim it was only partial california i think is even clear and i think that's why a judge dorsey used that as part of the scotian and didn't reach idaho because there's california books and records which  show that there was a dispute raised that had to do with last carry forward or carry back and it's in the record whether it was going to succeed or not that's not the issue under vortex so i see my time's up i think the court if there are further questions  cannot divest the bankruptcy court the federal court will jurisdiction be very different from the question as to whether this is going to be left to prosecute those are two different questions yes your honor we may have we may have jurisdiction but that may not be anybody in the courtroom that the whe ther or not we would still have standing your honor the is in a string issue there that quite frankly that's not part of the facts here it hadn't been addressed in the past the i would submit that being part of that original group gives a standing to take the case to its conclusion to the under three o three b the one sort of the difficulty with that is you can have standing at the outset and standing isn't really the ultimate become moot and there's a whole series of other things that can happen that basically say case over so you're even though you're correct in your statement i'm standing at the isn't necessarily resolve the question but i think that's the basis for the  circuit holdings that subsequent actions don't impact the original filing i think that when you get down to it and it goes way back to one hundred and thirty nine her case in cook that was cited by vortex the subsequent paying off of a creditor does not impact the filing of the involuntary because it impacts the other creditors and i think that's the answer to that the other thing your honor congress has that the one percent issue is a red herring congress has addressed that it  set a limit a dollar limit and three o three b and that's the limit and i don't think that that the materiality and two hundred and ninety thousand dollars is definitely material as compared to that limit your honor as far as california please keep in mind i'm sorry i'm over my time to finish up with gail for that as far as california keep in mind i keep going back to this one the entry that was referenced by the district court dealt with something that occurred in a conversation that occurred in two thousand and nine regarding a potential loss carry back for two thousand and eight yes california's own records in march of two thousand and eleven in its notice of tax to show that the liabilities still existed that's nothing more than a discussion and if you think about it what would have been the best evidence in two thousand and thirteen to show that there was truly a loss carryforwards from two thousand and eight less carry back it would be the filing of the two thousand and eight california tax return or the two thousand and nine or the two thousand and ten or the two thousand and eleven none of that was of the record thank you thank you on it with that i submit the case thank you the case of montana department of revenue versus