Court Opinion

ID: 3029751
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:43:20.470478+00
Date Added: 2024-06-11T11:12:44.454746
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

In re: PEGASUS GOLD CORPORATION,       
et al.
                         Debtor.

THE STATE OF MONTANA; THE
STATE OF MONTANA DEPARTMENT OF
ENVIRONMENTAL QUALITY; THE
STATE OF MONTANA DEPARTMENT OF
ADMINISTRATION, RISK MANAGEMENT
DIVISION; THE ATTORNEY                       No. 03-15958
GENERAL OF THE STATE OF
MONTANA; and SPECTRUM                         D.C. No.
                                           CV-02-00255-DWH
ENGINEERING, INC.,                             OPINION
                         Appellants,
                 v.
HARRISON J. GOLDIN, in his
capacity as liquidating trustee for
the Pegasus Gold Corporation
Liquidating Trust; and
RECLAMATION SERVICES
CORPORATION,
                          Appellees.
                                       
       Appeal from the United States District Court
                for the District of Nevada
      David Warner Hagen, District Judge, Presiding

                 Argued and Submitted
       November 5, 2004—San Francisco, California

                   Filed January 11, 2005

                             385
386                  IN RE: PEGASUS GOLD CORP.
  Before: Pamela Ann Rymer and Michael Daly Hawkins,
          Circuit Judges, and Rudi M. Brewster,*
                    Senior District Judge.

                   Opinion by Judge Hawkins

   *Honorable Rudi M. Brewster, Senior United States District Judge for
the Southern District of California, sitting by designation.
388             IN RE: PEGASUS GOLD CORP.

                      COUNSEL

Brian M. Morris (argued), Office of the Montana Attorney
General, Helena, Montana, for the appellants.
                   IN RE: PEGASUS GOLD CORP.                 389
Michael P. Richman (argued), Mayer, Brown, Rowe & Maw,
LLP, New York, New York, and Edmond “Buddy” Miller
(briefed), Downey, Brand, LLP, Reno, Nevada, for the appel-
lees.

                          OPINION

HAWKINS, Circuit Judge:

   We must decide difficult questions regarding the bank-
ruptcy court’s post-confirmation subject matter jurisdiction
and the scope of a state’s waiver of Eleventh Amendment
immunity. We conclude that even though a bankruptcy
court’s post-confirmation “related to” jurisdiction is substan-
tially more limited than its pre-confirmation jurisdiction, there
is a sufficiently close nexus in this case between the current
action and the original bankruptcy proceeding to confer sub-
ject matter jurisdiction on the bankruptcy court. Nonetheless,
because the current adversarial action is not “logically relat-
ed” to the original proofs of claims that the State of Montana
filed in the underlying bankruptcy action, the State has not
waived its Eleventh Amendment immunity with respect to the
current action and the claims against it must be dismissed.

        FACTS AND PROCEDURAL HISTORY

   In 1998, Pegasus Gold Corporation and eighteen of its affil-
iates (collectively, the “Debtors”) commenced voluntary
Chapter 11 proceedings in the United States Bankruptcy
Court in Nevada. The Debtors operated two mines in Montana
(the “Zortman Sites”). The State of Montana and its Depart-
ment of Environmental Quality (“DEQ”) (collectively, the
“State”) filed several proofs of claims against the Debtors.
These claims pertained to the Debtors’ reclamation obliga-
tions and various environmental compliance and clean up
obligations. According to the State, although Pegasus had
390               IN RE: PEGASUS GOLD CORP.
posted substantial reclamation bonds in connection with the
mines, the existing amounts would not be sufficient and the
State sought an additional $8.5 million in the bankruptcy pro-
ceeding.

   The Debtors and the State then participated in lengthy and
extensive negotiations concerning financial responsibility for
reclamation and water treatment at the Zortman Sites. Eventu-
ally, the Debtors, the State and a number of other parties
reached a settlement agreement, which the Bankruptcy Court
approved on December 22, 1998 (the “Zortman Agreement”).
Under the Zortman Agreement, the Debtors would form a
new entity, Reclamation Services Corporation (“RSC”),
which would perform reclamation work for the State at the
mines, at least until the State could conduct a competitive bid-
ding process for such work. The bankruptcy estate would con-
tribute up to $1 million in operating capital for RSC, and also
transfer $600,000 to the State to be used only for paying RSC
for the reclamation work. The estate also transferred another
$450,000 to the State for reclamation purposes, but this sum
was not expressly designated to be paid to RSC.

   A few days later, the Bankruptcy Court confirmed the
Debtors’ liquidating/reorganizing plan (the “Plan”). Article
VIII of the Plan specifically provided for the formation of
RSC, as contemplated by the Zortman Agreement, and called
for the Debtors to contribute up to $1 million in equity capital
for RSC. Shares of RSC became assets of the Debtors’ Liqui-
dating Trust.

   Shortly after Plan confirmation, Montana and RSC entered
into a letter agreement enabling RSC to begin interim recla-
mation work while the parties negotiated a more comprehen-
sive agreement. Montana and RSC eventually executed a
formal work agreement in April 1999 (the “Master Agree-
ment”). Among other things, the Master Agreement calls for
disputes between Montana and RSC to be decided by arbitra-
tion or in Montana state court pursuant to Montana law.
                   IN RE: PEGASUS GOLD CORP.                 391
   Problems arose almost immediately. After a series of bill-
ing disputes, Montana terminated RSC on June 24, 1999, and
hired a new company, Spectrum Engineering, Inc.
(“Spectrum”), to perform the reclamation work. Spectrum
apparently hired a number of RSC employees to do this work.
RSC went out of business shortly thereafter.

   RSC and the bankruptcy trustee (collectively, “Appellees”)
then brought the current action against the State and Spectrum
in bankruptcy court, alleging a number of contract claims
stemming from the State’s alleged breach of the Zortman
Agreement, the Plan, and the Master Agreement. The com-
plaint also alleges that the State: was unjustly enriched, fraud-
ulently induced RSC to enter into the Letter Agreement and
Master Agreement, and tortiously interfered with RSC’s rela-
tionship with its employees. Separate claims against Spectrum
for tortious interference and conversion round out the com-
plaint.

   The State and Spectrum (collectively, “Appellants”) moved
to dismiss the complaint, arguing that the bankruptcy court
lacked subject matter jurisdiction over the action. The State
also asserted Eleventh Amendment immunity from suit. The
bankruptcy court denied the motion, and the district court
affirmed the bankruptcy court’s denial. In re Pegasus Gold
Corp., 296 B.R. 227 (D. Nev. 2003).

   This appeal followed. With respect to the determination
that the State waived its sovereign immunity, the bankruptcy
court’s and district court’s orders on this issue are immedi-
ately appealable under the “collateral order doctrine.” Puerto
Rico Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506
U.S. 139, 147 (1993). Moreover, we are also required to
resolve issues of subject matter jurisdiction in an interlocutory
appeal from a denial of immunity, because “if appellate courts
lack jurisdiction, they cannot review the merits of these prop-
erly appealed rulings.” Meredith v. Oregon, 321 F.3d 807,
816 (9th Cir. 2003). Thus, we consider the existence of sub-
392                 IN RE: PEGASUS GOLD CORP.
ject matter jurisdiction before determining the sovereign
immunity issue.

                  STANDARD OF REVIEW

   Questions of subject matter jurisdiction are reviewed de
novo, In re McGhan, 288 F.3d 1172, 1178 (9th Cir. 2002), as
are questions of sovereign immunity. In re Bliemeister, 296
F.3d 858, 861 (9th Cir. 2002).

                         DISCUSSION

I.    Subject Matter Jurisdiction

   [1] A bankruptcy court has jurisdiction over “all civil pro-
ceedings arising under title 11, or arising in or related to cases
under title 11.” 28 U.S.C. § 1334(b). Proceedings “arising in”
bankruptcy cases are generally referred to as “core” proceed-
ings, and essentially are proceedings that would not exist out-
side of bankruptcy, such as “matters concerning the
administration of the estate,” “orders to turn over property of
the estate,” and “proceedings to determine, avoid, or recover
preferences.” 28 U.S.C. § 157(b)(2); see also In re Harris
Pine Mills, 44 F.3d 1431, 1435-37 (9th Cir. 1995).

   [2] The bankruptcy court also has jurisdiction over a much
broader set of cases: those proceedings that are “related to” a
bankruptcy case. The Ninth Circuit has adopted the “Pacor
test” for determining the scope of “related to” jurisdiction. In
re Fietz, 852 F.2d 455, 457 (9th Cir. 1988). Under this formu-
lation, the test is whether:

      the outcome of the proceeding could conceivably
      have any effect on the estate being administered in
      bankruptcy. Thus, the proceeding need not necessar-
      ily be against the debtor or against the debtor’s prop-
      erty. An action is related to bankruptcy if the
      outcome could alter the debtor’s rights, liabilities,
                   IN RE: PEGASUS GOLD CORP.                   393
    options, or freedom of action (either positively or
    negatively) and which in any way impacts upon the
    handling and administration of the bankrupt estate.

Id. (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.
1984)) (emphasis in original).

   [3] We have yet to apply the Pacor test in the post-
confirmation context. Many other circuits and bankruptcy
courts have modified or limited the test when the proceeding
arises post-confirmation. See, e.g., In re Craig’s Stores of
Texas, Inc., 266 F.3d 388, 390-91 (5th Cir. 2001) (bankruptcy
jurisdiction ceases to exist “other than for matters pertaining
to the implementation or execution of the plan”); Trans World
Airlines, Inc. v. Karabu Corp., 196 B.R. 711, 714 (Bankr. D.
Del. 1996) (subject matter jurisdiction over proceedings that
could affect the debtor’s ability to consummate the plan); In
re Walker, 198 B.R. 476, 482 (Bankr. E. D. Va. 1996) (post-
confirmation jurisdiction remains to the extent disputes affect
successful implementation and consummation of the plan);
Eubanks v. Esenjay Petroleum Corp., 152 B.R. 459, 464 (E.
D. La. 1993) (jurisdiction exists if proceeding has “a conceiv-
able effect on the debtor’s ability to consummate the con-
firmed plan”).

   [4] The Third Circuit recently reviewed the assorted post-
confirmation approaches, concluding that although the courts
“have varied the standard they apply post-confirmation, the
essential inquiry appears to be whether there is a close nexus
to the bankruptcy plan or proceeding sufficient to uphold
bankruptcy court jurisdiction over the matter.” In re Resorts
Int’l, Inc., 372 F.3d 154, 166-67 (3d Cir. 2004). The court
also recognized that in cases involving continuing trusts (such
as litigation trusts, or, as here, a liquidating trust), trusts “by
their nature maintain a connection to the bankruptcy even
after the plan has been confirmed.” Id. at 167. The court ulti-
mately concluded that matters affecting “the interpretation,
implementation, consummation, execution, or administration
394               IN RE: PEGASUS GOLD CORP.
of the confirmed plan will typically have the requisite close
nexus.” Id.

   [5] We agree that post-confirmation bankruptcy court juris-
diction is necessarily more limited than pre-confirmation
jurisdiction, and that the Pacor formulation may be somewhat
overbroad in the post-confirmation context. Therefore, we
adopt and apply the Third Circuit’s “close nexus” test for
post-confirmation “related to” jurisdiction, because it recog-
nizes the limited nature of post-confirmation jurisdiction but
retains a certain flexibility, which can be especially important
in cases with continuing trusts. See id. at 166-67.

   [6] Here, while the majority of the claims asserted in the
complaint are common state tort and contract claims involv-
ing post-confirmation conduct, the Appellees also allege that:
the State breached the Plan and the Zortman Agreement; the
State breached the covenant of good faith and fair dealing
with respect to these agreements; and the State committed
fraud in the inducement at the time it entered into the Plan and
the Zortman Agreement. Among the remedies sought for
these claims are disgorgement of the $1,050,000 paid to the
State as part of the settlement and rescission of the Zortman
Agreement. Resolution of these claims will likely require
interpretation of the Zortman Agreement and the Plan. Com-
pare Resorts Int’l, 372 F.3d at 170 (no post-confirmation
jurisdiction over accounting malpractice action where no need
“to interpret or construe the Plan or the incorporated Litiga-
tion Trust Agreement.”).

   Moreover, these claims — and the attendant remedies
sought — could affect the implementation and execution of
the Plan itself, which specifically called for the creation of
RSC and the transfer of debtor money to fund it. See Craig’s
Stores, 266 F.3d at 390-91. We therefore conclude that these
claims have a sufficiently “close nexus” to the bankruptcy
                      IN RE: PEGASUS GOLD CORP.                         395
proceeding to uphold “related to” jurisdiction over at least
these three claims.1

   [7] The remaining claims have a much more tangential
relationship to the underlying bankruptcy proceeding. None-
theless, the bankruptcy court could properly exercise supple-
mental jurisdiction over these claims. Pursuant to 28 U.S.C.
§ 1367, district courts have “supplemental jurisdiction over all
other claims that are so related to claims in the action within
[the court’s] original jurisdiction that they form part of the
same case or controversy under Article III of the United
States Constitution.” This circuit has applied § 1367 to bank-
ruptcy claims, even when the subject matter jurisdiction is
based on “related to” bankruptcy jurisdiction. See Sec. Farms
v. Int’l Bhd. of Teamsters, 124 F.3d 999, 1008 n.5 (9th Cir.
1997). Here, the remaining claims involve a “common
nucleus of operative facts” and would ordinarily be expected
to be resolved in one judicial proceeding, and therefore the
bankruptcy court has supplemental jurisdiction over the
remaining claims. See United Mine Workers v. Gibbs, 383
U.S. 715, 725 (1966).2
  1
     We specifically note that in reaching this decision, we are not per-
suaded by the Appellees’ argument that jurisdiction lies because the action
could conceivably increase the recovery to the creditors. As the other cir-
cuits have noted, such a rationale could endlessly stretch a bankruptcy
court’s jurisdiction. See Resorts Int’l, 372 F.3d at 170; Craig’s Stores, 266
F.3d at 391.
   2
     The Appellants also argue that the court lacks supplemental jurisdic-
tion over Spectrum, who did not participate in the bankruptcy proceeding.
However, “[s]upplemental jurisdiction extends over state claims brought
against a party even when that party was not subject to the federal claim
primarily at issue.” Davis v. Courington, 177 B.R. 907, 912 (B.A.P. 9th
Cir. 1995). In any event, because of our conclusion in Part II that the State
has not waived its immunity with respect to the claims in the complaint,
all of the claims against the State must be dismissed, and thus any basis
for supplemental jurisdiction over Spectrum will also disappear.
396                   IN RE: PEGASUS GOLD CORP.
II.        Eleventh Amendment Immunity

   [8] The Eleventh Amendment precludes suits “in law or
equity, commenced or prosecuted against one of the United
States by Citizens of another State, or by Citizens or Subjects
of any Foreign State.” Tenn. Student Assistance Corp. v.
Hood, 124 S. Ct. 1905, 1909 (2004). Thus, “agencies of the
state are immune from private damage actions or suits for
injunctive relief brought in federal court.” Dittman v. Califor-
nia, 191 F.3d 1020, 1025 (9th Cir. 1999) (internal quotation
marks omitted). This immunity is not absolute, however, and
“a State may waive its sovereign immunity by consenting to
suit.” Coll. Sav. Bank v. Fla. Prepaid Postsecondary Educ.
Expense Bd., 527 U.S. 666, 670 (1999). Waiver will generally
exist where the State either voluntarily invokes jurisdiction or
makes a clear declaration that it intends to submit itself to
jurisdiction. Id. at 675-76.

   [9] It is clear that a state may waive its sovereign immunity
by filing a proof of claim in a bankruptcy proceeding, thus
voluntarily invoking the jurisdiction of the federal courts. See
id. at 681 n.3; see also Gardner v. New Jersey, 329 U.S. 565,
573 (1947) (“[H]e who invokes the aid of the bankruptcy
court by offering a proof of claim and demanding its allow-
ance must abide the consequences of that procedure.”). What
is less clear, and the principal issue in this case, is the extent
of that waiver.

      A.    Logical Relationship

   [10] We first confronted the extent of a state’s waiver in In
re Lazar, 237 F.3d 967 (9th Cir. 2001). In that case, we fol-
lowed a number of sister circuits to hold that by filing a proof
of claim, “the state waives its Eleventh Amendment immunity
with regard to the bankruptcy estate’s claims that arise from
the same transaction or occurrence as the state’s claim.” Id.
at 978 (emphasis added). To determine whether a claim
against the state arises out of the “same transaction or occur-
                  IN RE: PEGASUS GOLD CORP.                  397
rence” as the state’s proof of claim, we applied the “logical
relationship” test for compulsory counterclaims:

    A logical relationship exists when the counterclaim
    arises from the same aggregate set of operative facts
    as the initial claim, in that the same operative facts
    serve as the basis of both claims or the aggregate
    core of facts upon which the claim rests activates
    additional legal rights otherwise dormant in the
    defendant.

Id. at 979 (quoting In re Pinkstaff, 974 F.2d 113, 115 (9th Cir.
1992)).

   Applying this test, we concluded in Lazar that the bank-
ruptcy estate’s action for reimbursement from a California
fund for petroleum cleanup undertaken by the debtor was log-
ically related to the state’s proof of claim for unpaid under-
ground storage tank fees (which would have been contributed
to the cleanup fund). We noted that “both concern the Fund
and both arise out of activities associated with the same bank-
ruptcy case.” Id. at 980.

   [11] Here, however, the basis for the State’s claims was the
insufficiency of the Debtors’ reclamation bonds and various
environmental obligations of the Debtors. Those claims do
not arise from the same aggregate set of operative facts as the
Appellees’ claims for a post-confirmation breach of contract.
See Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 380
(1994) (facts underlying original dispute and those involving
breach of a settlement agreement unrelated); see also In re
Creative Goldsmiths, 119 F.3d 1140, 1149 (4th Cir. 1997)
(action to avoid payment of corporate income taxes does not
arise out of same transaction or occurrence as state’s proof of
claim for sales and withholding taxes simply because both
involve taxes).

  While the State’s proofs of claim (seeking environmental
compliance) and the settlement agreement (creating an entity
398                IN RE: PEGASUS GOLD CORP.
to effect compliance) obviously involve the same general sub-
ject matter, the timing of events here provides a critical dis-
tinction from cases like Lazar, because the Debtors could not
have asserted any type of counterclaim against the State at the
time it filed its proofs of claims. The “logical relationship” test
adopted in Lazar was based on Federal Rule of Civil Proce-
dure 13(a) involving compulsory counterclaims, and, of
course, it would be hard to conclude that the Debtors in this
case had a compulsory bankruptcy counterclaim regarding a
company yet to be formed or an agreement yet to be made.
The rationale underlying proof of claim waiver of immunity
also presupposes that the state will be able to determine ex
ante whether it will be opening itself up to a counterclaim by
electing to participate in the bankruptcy estate. See Arecibo
Cmty. Health Care, Inc. v. Commonwealth of Puerto Rico,
270 F.3d 17, 29 (1st Cir. 2001) (“As with any case of a know-
ing and intelligent waiver of rights, the state has the option
. . . of determining whether the potential benefit from waiving
its immunity will exceed the potential liability.”); see also In
re Straight, 143 F.3d 1387, 1392 (10th Cir. 1998) (holding
that state waives sovereign immunity against compulsory
counterclaims arising from the same transaction or occurrence
as the state’s proof of claim); In re Creative Goldsmiths, 119
F.3d at 1148 (same).

   The Appellees contend that although this circuit adopted
the Rule 13(a) test in Lazar, we extended its application
beyond compulsory counterclaims in In re Harleston, 331
F.3d 699 (9th Cir. 2003). In Harleston, a California agency
filed a proof of claim in the bankruptcy proceeding but failed
to prosecute it. Id. at 701. Two years after the discharge order
was entered in the bankruptcy case, the state commenced col-
lection efforts against Harleston, who promptly filed a com-
plaint in bankruptcy court, seeking declaratory relief that the
debt had been discharged. Id. at 703. We determined that the
state’s original waiver extended to the later action, noting:
“As the adversary proceeding seeks to clarify the scope of the
                    IN RE: PEGASUS GOLD CORP.                     399
bankruptcy proceeding, the proceedings are logically related.
The same set of operative facts underlies both.” Id. at 703.

   Harleston does not alter the result in this case. There, the
debtor sought only declaratory relief regarding the effect of
the original proof of claim, not damages or other affirmative
relief. Moreover, it was the sort of action the state could have
reasonably anticipated as a consequence of its original bank-
ruptcy court filing. The facts underlying the current action
against the State, however, are not “the same aggregate set of
operative facts” that gave rise to the State’s proofs of claims
in the first place. Lazar, 237 F.3d at 979. Although involving
the same general subject matter — reclamation at the mine
sites — the relationship between the claims in the current
action and the State’s original claim against the Debtors is
significantly more tenuous than the relationships presented in
Lazar or Harleston. We recognize that courts should gener-
ally interpret Rule 13 broadly “to analyze whether the essen-
tial facts of the various claims are so logically connected that
considerations of judicial economy and fairness dictate that all
the issues be resolved in one lawsuit,”3 but those consider-
ations are not present here; there has already been one pro-
ceeding, in which the Debtors had no possible counterclaims
against the State, and now there is a subsequent proceeding,
involving newly arisen claims against the State.

  B.   Active Participation

   Appellees argue that even if the district court erred by find-
ing the “logical relationship” test was satisfied, this court
could still affirm the holding based on the State’s active and
extensive participation in the bankruptcy cases. Appellees rely
on two Ninth Circuit cases, In re Bliemeister, 296 F.3d 858
(9th Cir. 2002), and In re White, 139 F.3d 1268 (9th Cir.
  3
   Pochiro v. Prudential Ins. Co., 827 F.2d 1246, 1249 (9th Cir. 1987)
(quoting Harris v. Steinem, 571 F.2d 119, 123 (2d Cir. 1978)).
400                IN RE: PEGASUS GOLD CORP.
1998), in which this court found that a sovereign’s actions in
the suit were incompatible with preserving immunity.

   White and Bliemeister, however, do not advance the Appel-
lees’ position. White simply reaffirms the familiar concept
that by making a claim, a sovereign waives immunity with
respect to that claim, and holds that this waiver survives a
conversion from a Chapter 11 to a Chapter 7 proceeding. 139
F.3d at 1271-73. In Bliemeister, the state did not file a proof
of claim, but did participate in an adversary proceeding
regarding dischargeability, and then claimed sovereign immu-
nity only after an oral argument in which the bankruptcy court
announced its preliminary leanings. 296 F.3d at 860. The
court found that the state was improperly trying to gain a tac-
tical advantage by raising the defense only after it expected to
lose on the merits. Id. at 862.

   Here, the State does not dispute that it has waived its
immunity by filing a proof of claim. The question is whether
that waiver extends to the current adversarial action. Neither
White nor Bliemeister suggest that active participation with
respect to a claim can waive immunity beyond the scope of
that claim (or claims “logically related” to it). See Bliemeister,
296 F.3d at 862-63 (state waived immunity with respect to
dischargeability of debt); White, 139 F.3d at 1273 (entity
waived tribal immunity “with respect to adjudication of that
claim,” and conversion of proceeding from Chapter 11 to
Chapter 7 did not alter or extend scope of the initial waiver).
If aggressively pursuing a claim in bankruptcy could expand
the scope of a waiver, then states would be chilled from advo-
cating their rights within the bankruptcy proceeding. Our
cases do not hold that active participation can expand the
scope of the state’s initial waiver, and we decline to extend
those cases today.

   [12] In sum, although the claims in the current action sat-
isfy the “related to” test for subject matter jurisdiction, they
do not arise out of the “same transaction or occurrence” as the
                     IN RE: PEGASUS GOLD CORP.                      401
proofs of claims that the State filed in the underlying action,
and thus the State should not be deemed to have waived its
immunity with respect to the current suit. The bankruptcy
court and district court erred in holding to the contrary.

                          CONCLUSION

   [13] This court has subject matter jurisdiction over this
action because the Appellees’ claims are “related to” the orig-
inal bankruptcy action in that they involve the interpretation
and implementation of the confirmed bankruptcy plan. How-
ever, the claims against the State do not arise out of the “same
transaction or occurrence” as the State’s original proofs of
claims, and thus the State has not waived its Eleventh Amend-
ment immunity with respect to the current adversary proceed-
ing. The bankruptcy court must therefore dismiss all the
claims against the State and Spectrum for lack of jurisdiction.4

   AFFIRMED IN PART; REVERSED IN PART. Each party
to bear its own costs on appeal.

  4
    We express no comment on the merits of the underlying action, as we
simply hold that any such action against the State must proceed in state
court. We assume, as the State conceded at argument, that principles of
tolling would apply to the statute of limitations in any subsequent state
court action.