Court Opinion

ID: 818067
Source: CourtListenerOpinion
Date Created: 2013-02-01 22:30:17.293364+00
Date Added: 2024-06-11T08:45:45.789891
License: Public Domain

FILED
 1                         ORDERED PUBLISHED                DEC 17 2012

 2                                                      SUSAN M SPRAUL, CLERK
                                                          U.S. BKCY. APP. PANEL
                                                          O F TH E N IN TH C IR C U IT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5
 6   In re:                        )      BAP No.      NV-11-1305-PaJuH
                                   )
 7   TIMOTHY L. BLIXSETH,          )      Bk. No.      11-15010
                                   )
 8             Alleged Debtor.     )
     ______________________________)
 9                                 )
     STATE OF MONTANA, Department )
10   of Revenue,                   )
                                   )
11             Appellant,          )
                                   )
12   v.                            )      O P I N I O N
                                   )
13   TIMOTHY L. BLIXSETH,          )
                                   )
14             Appellee.           )
     ______________________________)
15
16                   Argued and Submitted on July 20, 2012
                            at Pasadena, California
17
                           Filed - December 17, 2012
18
19             Appeal from the United States Bankruptcy Court
                         for the District of Nevada
20
          Honorable Bruce A. Markell, Bankruptcy Judge, Presiding
21
22
     Appearances:     Lynn Hamilton Butler, of Brown McCarroll, LLP,
23                    argued for Appellant; Charles D. Axelrod, of Fox
                      Rothschild LLP, argued for Appellee.
24
25
     Before:   PAPPAS, JURY, and HOLLOWELL, Bankruptcy Judges.
26
     Opinion by Judge Pappas
27   Dissent by Judge Hollowell
28
 1   PAPPAS, Bankruptcy Judge:
 2
 3        The Montana Department of Revenue (“MDOR”) appeals the order
 4   of the bankruptcy court dismissing the involuntary bankruptcy
 5   petition it and others filed against the alleged debtor, Timothy
 6   Blixseth (Blixseth), for improper venue.    We REVERSE.
 7                                   FACTS
 8        On April 5, 2011, MDOR, along with the Idaho State Tax
 9   Commission and the California Franchise Tax Board, filed an
10   involuntary chapter 71 bankruptcy petition (the “Petition”)
11   against Blixseth in the bankruptcy court for the District of
12   Nevada.    The Petition listed Blixseth’s residence and mailing
13   address as Medina, Washington, and Blixseth’s “county of
14   residence or principal place of business” as Las Vegas, Nevada.
15   The box on the Petition titled “Location of Principal Assets of
16   Business Debtor (if different from previously listed address)”
17   was left blank.    The “Venue” box on the Petition indicated that
18   venue in the District of Nevada was appropriate because Blixseth
19   had been domiciled, had a residence, principal place of business,
20   or had principal assets, in the District of Nevada for the longer
21   part of 180 days before the petition was filed.
22        In the Petition, MDOR asserted a claim against Blixseth in
23   the amount of $219,258,2 the Idaho State Tax Commission asserted
24
          1
25           Unless otherwise indicated, all chapter, section and rule
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
26   to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
27        2
               MDOR asserts this amount is the undisputed portion of its
28                                                        (continued...)

                                      -2-
 1   a claim against Blixseth for $1,117,914, and the California
 2   Franchise Tax Board asserted a claim against Blixseth for
 3   $986,957.95, all for unpaid taxes.     Just a few days later, on
 4   April 20, after settling their claims with Blixseth, the Idaho
 5   State Tax Commission and the California Franchise Tax Board
 6   withdrew as petitioning creditors in the Petition, leaving MDOR
 7   as the sole petitioning creditor.
 8        Meanwhile, on April 8, 2011, the bankruptcy court, acting
 9   sua sponte, had entered an “Order to Show Cause Why Venue in This
10   District is Proper And Why Transfer of Case is Not Appropriate”
11   (the “OSC”).    In the OSC, the bankruptcy court noted that
12   Blixseth’s Washington street and mailing address were listed in
13   the Petition.    The court expressed concern that venue in Nevada
14   was not proper “because of the paucity of the connection between
15   Blixseth and the petitioning creditors’ selected venue.”      The OSC
16   required the petitioning creditors to present admissible evidence
17   sufficient to support a finding that venue in Nevada complied
18   with 28 U.S.C. § 1408.    That statute provides in pertinent part
19   that:
20        [A] case under title 11 may be commenced in the
          district court for the district –
21        (1) in which the domicile, residence, principal place
          of business in the United States, or principal assets
22        in the United States, of the person or entity that is
          the subject of such case have been located for the one
23        hundred and eighty days immediately preceding such
24
             2
25         (...continued)
     larger claim held against Blixseth. Blixseth and MDOR are
26   engaged in litigation before the Montana State Tax Appeals Board
27   regarding the balance of MDOR’s tax claim, which exceeds $56
     million. That litigation was stayed, however, when the
28   bankruptcy case was filed pursuant to MDOR’s stay motion.

                                      -3-
 1        commencement . . .;
 2        The petitioning creditors responded to the OSC on April 18,
 3   2011.       In their response they asserted that, based on a thorough
 4   review of public records, the only indicator they had to
 5   determine proper venue for the involuntary bankruptcy case under
 6   28 U.S.C. § 1408 was their discovery that Blixseth recently “had
 7   transferred most of his assets out of his personal name and into
 8   two Nevada corporate entities.”      The petitioning creditors
 9   asserted that Blixseth’s principal assets consisted of his 98%
10   partner’s interest in Desert Ranch LLLP, a Nevada limited
11   liability limited partnership (“Desert Ranch”), and his 40%
12   member’s interest in Desert Ranch Management LLC, a Nevada
13   limited liability company (“Desert Management”).      The creditors
14   contended, because Blixseth’s equity interests in the two Nevada
15   entities were his principal assets, venue was proper in Nevada.
16   Additionally, the petitioning creditors outlined several factors
17   that they argued militated against transfer of the case to
18   another district.
19        In response to the OSC, Blixseth filed a motion to dismiss
20   (“MTD”) the Petition.3      Blixseth asserted that there was no basis
21   for venue for the bankruptcy case in Nevada.      Blixseth stated
22   that he had resided in Washington since 2007, after previously
23   residing in California.      Moreover, Blixseth asserted that he
24
25
26           3
             Blixseth also challenged MDOR’s status as an eligible
27   petitioning creditor and asserted that MDOR filed the involuntary
     petition in bad faith as a tactic to gain a litigation advantage
28   in the state tax court.

                                         -4-
 1   conducted no business in Nevada, had no place of business in
 2   Nevada, and had no property in Nevada.
 3        Importantly, though, in a declaration filed to support the
 4   MTD, Blixseth acknowledged that his primary asset was indeed his
 5   98% limited partnership interest in Desert Ranch.   Blixseth
 6   Supplemental Omnibus Declaration at ¶ 21, May 4, 2011 (“All of my
 7   income derives from entities held by Desert Ranch LLLP.”).
 8   However, he explained that Desert Ranch is a holding company for
 9   a number of non-Nevada entities whose principal assets are real
10   estate holdings located in Idaho, Washington, California, Mexico
11   and the Turks & Caicos.   He stated that the business records and
12   original partnership agreement for Desert Ranch are maintained in
13   Idaho; its bookkeeping is done in California; and the company
14   conducts no business in Nevada.
15        Blixseth also admitted that his 40% member’s interest in
16   Desert Management comprised the rest of his principal assets.
17   Blixseth explained that Desert Management is the general partner
18   of Desert Ranch, and its only asset is a 2% interest in Desert
19   Ranch.   Blixseth noted that he and his son co-manage Desert
20   Management, and that the LLC has no offices or place of business,
21   and does not conduct business, in Nevada.   Other than the
22   interests in Desert Ranch and Desert Management, Blixseth stated,
23   he owns only his personal effects.
24        A hearing on the OSC was conducted by the bankruptcy court
25   on April 22, 2011.   MDOR, by then the only petitioning creditor,
26   argued that, based on Nevada’s charging order statutes for LLCs
27   and LLLPs, and a decision by a Washington appellate court
28   interpreting a statute similar to the Nevada laws, for venue

                                       -5-
 1   purposes, the location of a debtor’s uncertificated interest in a
 2   limited liability company or a limited liability partnership is
 3   the entity’s state of registration.    The bankruptcy court
 4   continued the hearing so that the parties could submit briefs to
 5   more fully: (1) address the location of Blixseth’s equity
 6   interests in Desert Ranch and Desert Management; (2) analyze the
 7   Nevada statutes regarding the right to obtain a charging order
 8   against a limited partner’s partnership interest; and (3) discuss
 9   how Article 9 of the Uniform Commercial Code (“UCC”) would treat
10   Blixseth’s interests in Desert Ranch and Desert Management.
11        At the initial hearing, the bankruptcy court also asked MDOR
12   to address why the interests of justice and convenience to the
13   parties required that the case remain in Nevada, rather than
14   transferring the case to a different venue.    MDOR conceded that,
15   as to the convenience of the parties, venue in Nevada made little
16   difference since the petitioning creditors were not located in
17   Nevada.   However, MDOR argued that “the heart of a creditor’s
18   concern is the transfer of the assets . . . into Nevada vehicles
19   that are created for asset protection measures.”    Hr’g Tr. (Apr.
20   22, 2011) at 28:21-23.   MDOR argued that because Nevada law could
21   apply to unwind the transfer, Nevada had a greater interest in
22   the case than another state.   Thus, MDOR argued that transfer to
23   another venue was not in the interests of justice.
24        On April 27, 2011, Blixseth filed a renewed motion to
25   dismiss and a motion for sanctions.4   Blixseth and MDOR submitted
26
          4
27           The non-venue related issues raised in the MTD were
     deferred by the bankruptcy court to be considered with the motion
28                                                      (continued...)

                                     -6-
 1   their supplemental briefs on May 4, 2011, and the continued
 2   hearing on the OSC was held May 18, 2011.
 3        At the hearing on May 18, the bankruptcy court identified
 4   the issue before it as when “all someone has is an equity
 5   interest in a Nevada limited-liability, limited-partnership and a
 6   membership interest in an LLC, can you say for purposes of [28
 7   U.S.C. §] 1408 that his principal assets are in Nevada?”    Hr’g
 8   Tr. (May 18, 2011) at 20:23-21:1.     In its arguments to the court,
 9   MDOR asserted that Blixseth had a statutory connection with
10   Nevada with respect to the governance and operation of Desert
11   Ranch and Desert Management.   Furthermore, MDOR reiterated its
12   position that, based on the Nevada charging order statutes that
13   require a creditor to enforce a judgment against a debtor’s
14   interest in an LLLP or LLC solely in a Nevada court, the location
15   of the debtor’s interest is the state of registration.    Blixseth,
16   however, argued that the common law principle that intangible
17   assets are located at the person’s domicile applied in this case
18   and was supported by case law and the UCC.
19        At the close of the second hearing, the bankruptcy court
20   announced its findings of fact and conclusions of law and ruled
21   that venue of the bankruptcy case in Nevada was improper.    While
22   Blixseth had not argued so, the bankruptcy court concluded that
23   intangible ownership interests have no physical location.
24   Therefore, the bankruptcy court determined that, in this case,
25   venue based on the location of Blixseth’s principal assets was
26
          4
27         (...continued)
     for sanctions. Proceedings concerning both motions have been
28   stayed pending this appeal.

                                     -7-
 1   unavailable.    And because it was undisputed that Blixseth did not
 2   reside, was not domiciled, and did not have a principal place of
 3   business in Nevada, there was no other basis for venue in Nevada.
 4         In the alternative, the bankruptcy court noted that because
 5   courts have, for various non-venue purposes, ascribed a location
 6   for intangible assets, the bankruptcy court could also in this
 7   case determine the location of Blixseth’s ownership interests in
 8   Desert Ranch and Desert Management.     The court decided, applying
 9   the common law, that “you look to the residence of the owner of
10   the intangible.”   Hr’g Tr. (May 18, 2011) at 62:16-17.    In the
11   court’s opinion, this view was “supplemented and buttressed by”
12   the notion that creditors would look to Article 9 of the UCC to
13   determine where to perfect a security interest in a borrower’s
14   intangible asset and that, under the UCC, general intangibles are
15   located at the owner’s residence.      Hr’g Tr. (May 18, 2011) at 62-
16   63.   Thus, to the extent they had any cognizable situs at all,
17   the bankruptcy court held that, for the purpose of determining
18   the proper venue for an involuntary case against him, Blixseth’s
19   intangible ownership interests in the Nevada entities were not
20   located in Nevada.   Based upon this analysis, the bankruptcy
21   court ruled that venue in the District of Nevada was improper.
22         An order dismissing the Petition against Blixseth was
23   entered on May 27, 2011, and MDOR timely appealed.
24                               JURISDICTION
25         The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
26   § 157(b)(1) and 28 U.S.C. § 1334.      We have jurisdiction under 28
27   U.S.C. § 158.
28   ///

                                      -8-
 1                                   ISSUE
 2        The sole issue in this appeal is whether, for venue purposes
 3   under 28 U.S.C. § 1408(1), Blixseth’s principal assets,
 4   consisting of his intangible equity interests in Desert Ranch and
 5   Desert Management, were located in Nevada.
 6                            STANDARDS OF REVIEW
 7        We review a bankruptcy court’s conclusions of law de novo
 8   and its factual findings for clear error.      Hopkins v. Cerchione
 9   (In re Cerchione), 414 B.R. 540, 545 (9th Cir. BAP 2009).     Unless
10   there are pertinent factual disputes, a bankruptcy court’s
11   interpretation of the venue statutes and its determination of
12   whether a case is filed in an improper venue are reviewed de
13   novo.    Kerobo v. Sw. Clean Fuels, Corp., 285 F.3d 531, 533 (6th
14   Cir. 2002); Modaressi v. Vedadi, 441 F. Supp. 2d 51, 53-54
15   (D.D.C. 2006).
16                                 DISCUSSION
17   A.   Venue Law
18        The statute 28 U.S.C. § 1408(1) provides that venue for a
19   bankruptcy case may be based upon any of four alternatives: the
20   debtor’s (1) domicile, (2) residence, (3) principal place of
21   business in the United States, or (4) principal place of assets
22   in the United States.    Proper venue is determined by reference to
23   the facts existing within the 180-day period prior to the filing
24   of the bankruptcy petition.    28 U.S.C. § 1408(1).   Any one of the
25   four bases is sufficient to support proper venue.     Broady v.
26   Harvey (In re Broady), 247 B.R. 470, 472 (8th Cir. BAP 2000); In
27   re Shelton, 2001 WL 35814440, at *3 (Bankr. D. Idaho Oct. 12,
28   2001).    Even so, the “ground of location of assets will not

                                      -9-
 1   frequently provide a real alternative because the residence of an
 2   individual is likely to be located in the district in which the
 3   individual’s principal assets are located.”    1 COLLIER   ON

 4   BANKRUPTCY, ¶ 4.02[c] (Alan N. Resnick & Henry J. Sommer eds.,
 5   16th ed., 2012).
 6        Venue statutes “speak[] to an appropriate, geographically
 7   identified forum for the effective administration of the
 8   bankruptcy process.”   In re Murrin, 461 B.R. 763, 782 n.36
 9   (Bankr. D. Minn. 2012), rev’d on other grounds, Murrin v. Hanson
10   (In re Murrin), 477 B.R. 99 (D. Minn. 2012); see also VE Holding
11   Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1576 (Fed.
12   Cir. 1990) (venue statutes protect a defendant “from the
13   inconvenience of having to defend an action in a trial court that
14   is either remote from the defendant’s residence or from the place
15   where the acts underlying the controversy occurred”); In re
16   Washington, Perito & Dubuc, 154 B.R. 853, 861 (Bankr. S.D.N.Y.
17   1993) (“The purpose of statutory venue requirements is to ensure
18   that a case is filed in a forum that is convenient for the
19   parties in interest.”).   Even when a bankruptcy petition is filed
20   in a proper district, the bankruptcy court may still transfer the
21   case to another district “if the court determines that the
22   transfer is in the interest of justice or for the convenience of
23   the parties.”   Rule 1014(a)(1).   If a petition is filed in an
24   improper district, the court “may dismiss the case or transfer it
25
26
27
28

                                    -10-
 1   to any other district” to accommodate the interest of justice or
 2   convenience of the parties.    Rule 1014(a)(2).5
 3        Here, MDOR asserts that the fourth alternative under 28
 4   U.S.C. § 1408(a)(1) provides the basis for venue for this
 5   bankruptcy case in Nevada.    In explaining the decision to file
 6   the Petition in Nevada, the petitioning creditors explained that
 7   it was unclear whether Blixseth resided or was domiciled in
 8   Washington because the public real property records indicated his
 9   residence there was owned by a corporation.    See Hr’g Tr. (May
10   18, 2011) at 17-19.   On the other hand, because they discovered
11   that Blixseth had transferred all of his valuable assets into
12   Desert Ranch, which is co-managed by Blixseth and his son through
13   Desert Management, the creditors felt justified in asserting in
14   the Petition that Blixseth’s principal assets were located in
15   Nevada.6   The creditors’ decision to file the Petition in Nevada
16   gives rise to the substantive question in this appeal:    whether
17   Blixseth’s principal assets, consisting of his equity interests
18
19
20        5
             The authority to transfer cases is governed by the Rules;
     there is no bankruptcy-specific venue statute similar to 28
21
     U.S.C. § 1406(a) requiring transfer or dismissal of a case if
22   venue is improper. U.S. Tr. v. Sorrells (In re Sorrells), 218
     B.R. 580, 585-86 (10th Cir. BAP 1998).
23
          6
             MDOR does not argue that Blixseth’s principal place of
24
     business was located in Nevada as a result of his ownership of
25   Desert Ranch and Desert Management. According to Blixseth’s
     declaration, it appears that Desert Ranch and Desert Management
26   conduct no business in Nevada. Blixseth Dec. (May 4, 2011) at 3.
27   See also In re Murrin, 461 B.R. at 787 (ownership interests in
     entities that hold real estate outside the state are eliminated
28   as “business” for venue purposes).

                                     -11-
 1   in the entities Desert Ranch and Desert Management, are located
 2   in Nevada for purpose of venue of the bankruptcy case.
 3   B.   The Location of Blixseth’s Principal Assets
 4        It is undisputed that Desert Ranch and Desert Management
 5   were established under, and exist pursuant to, Nevada law.
 6   N.R.S. 88.350—88.415 [LLLP] and N.R.S. 86.011 et seq. [LLC].
 7   Blixseth also does not contest that his interests in these Nevada
 8   entities constitute his “principal assets.”   Thus, because the
 9   bankruptcy court decided no questions of fact, we review de
10   novo its legal conclusion that Blixseth’s ownership interests in
11   Desert Ranch and Desert Management were not located in Nevada for
12   bankruptcy venue purposes.
13        Of course, Blixseth’s uncertificated member’s interests in
14   the Nevada LLC and partner’s interest in the LLLP are intangible.
15   Intangible property has no physical location; the location or
16   situs of intangible property is a “legal fiction.”   Delaware v.
17   New York, 507 U.S. 490, 498 (1993) (“intangible property is not
18   physical matter which can be located on a map”); Office Depot
19   Inc. v. Zuccarini, 596 F.3d 696, 702 (9th Cir. 2010) (“attaching
20   a situs to intangible property is necessarily a legal fiction”);
21   In re Murrin, 461 B.R. at 788 (intangible property is “almost
22   completely independent of physical presence”); In re Shelton,
23   2001 WL 35814440 at *4 (intangible property has no physical
24   characteristics that would serve as a basis for assigning it to a
25   particular locality).   As a result, we are tempted to agree with
26   the bankruptcy court’s primary holding in this case that because
27   intangible property has no physical location, the fourth basis to
28   support venue in a bankruptcy case where a debtor’s principal

                                    -12-
 1   assets consist of intangible property is simply inapplicable, and
 2   therefore, bankruptcy venue must be based on one of the other
 3   three alternatives in 28 U.S.C. § 1408(1).
 4        However, though intangible property has no physical
 5   location, courts have frequently ascribed a location to
 6   intangible assets for various purposes.   Thus, the Ninth Circuit
 7   has held in a case involving internet domain names that, in
 8   determining the location of intangible property for venue
 9   purposes, a trial court must adopt a “context-specific” analysis
10   that employs a “common sense appraisal of the requirements of
11   justice and convenience in particular conditions.”    Office Depot
12   Inc., 596 F.3d at 702 (citation omitted).    Indeed, the Ninth
13   Circuit made clear that a single intangible property may be
14   located in multiple places for different purposes.    Id.
15        MDOR and Blixseth both acknowledge that assigning a location
16   to Blixseth’s intangible ownership interests in this bankruptcy
17   case requires a common sense, context-specific analysis.    But
18   while the cases that the parties cite may address what location
19   should be ascribed to intangible property in different scenarios,
20   none address the situs of intangible property based on the
21   principal place of a debtor’s assets in a bankruptcy case.    See,
22   e.g., Delaware v. New York, 507 U.S. 490 (dispute among states
23   over right to escheat intangible personal property); Office Depot
24   Inc., 596 F.3d 696 (quasi in rem jurisdiction challenge to
25   complaint for turnover of internet domain names owned by judgment
26   debtor to satisfy a judgment); Koh v. Inno-Pac. Holdings, Ltd.,
27   54 P.3d 1270 (Wash. Ct. App. 2002) (judgment creditor seeking to
28   enforce foreign judgment via a charging order against a debtor’s

                                   -13-
 1   interest in an LLC); Oliner v. Canadian Pac. Ry. Co., 311
 2   N.Y.S.2d 429 (N.Y. App. Div. 1970) (jurisdictional challenge in
 3   ownership dispute of stock certificates).      We, also, have been
 4   unable to locate case law discussing the location of intangible
 5   assets for bankruptcy venue purposes in general, nor more
 6   particularly, the location of a member’s interest in an LLC or a
 7   partner’s interest in an LLLP.
 8        Because the approach dictated by the Ninth Circuit mandates
 9   a context-specific analysis for the particular purpose at issue,
10   in gauging the venue for a bankruptcy case, we believe that the
11   “principal place of assets” should “[l]ogically . . . be
12   construed in a way most resonant with the functional concerns of
13   the administration of the bankruptcy estate [since] all assets in
14   question will be administered by a trustee serving under the
15   jurisdiction of the forum court.”       In re Murrin, 461 B.R. at 788.
16   In contrast to this approach, the bankruptcy court opted for
17   alternative “bright-line” rules for determining the location of
18   intangible property for bankruptcy venue purposes.      It held that
19   intangible assets either have no location at all or are always
20   located at the debtor’s residence.
21        Because the Ninth Circuit instructs that, in this situation,
22   we must examine the context of a particular case, and that we
23   apply “common sense” notions of justice and convenience based
24   upon the particular circumstances, we respectfully disagree with
25   the bankruptcy court’s “one-size-fits-all” approach.      Moreover,
26   while the bankruptcy court’s particular conclusions may be
27   justified under other facts, under the circumstances in this
28   case, we disagree that Blixseth’s interests in Desert Ranch and

                                      -14-
 1   Desert Management should either have no situs at all, or should
 2   be deemed to be located in Washington, where Blixseth resides.
 3          We first consider the context of this contest.    This venue
 4   issue arises in a creditor’s action to place Blixseth into
 5   involuntary bankruptcy so that his available assets may be
 6   liquidated for the benefit of his creditors, including MDOR.
 7   Viewed in this way, an involuntary bankruptcy case is, at bottom,
 8   a creditor collection device.    If successful in prosecuting the
 9   Petition, Blixseth’s creditors, acting through a bankruptcy
10   trustee, will seize and sell Blixseth’s interests in Desert Ranch
11   and Desert Management to satisfy their collective claims.      Given
12   that goal, it is important to consider what rights a bankruptcy
13   trustee would have to seize and liquidate Blixseth’s interests in
14   the Nevada LLLP and LLC.
15          An LLC is governed by the laws of the state in which it is
16   organized.    See generally Weddell v. H2O, Inc., 271 P.3d 743
17   (Nev. 2012) (discussing Nevada’s enactment of the uniform LLC
18   statute found in the N.R.S. at Chapter 86 and the applicability
19   of that statute to Nevada’s LLC’s).     An LLC is formed in Nevada
20   by the execution and filing of articles of organization, along
21   with paying a filing fee, with the Secretary of State.      Id. at
22   749.    The owners of an LLC are called members.    A member is “the
23   owner of a member’s interest in a limited-liability company.”
24   Id.    A “member’s interest” is defined by statute as “a share of
25   the economic interests in a limited-liability company, including
26   profits, losses and distributions of assets.”      N.R.S. 86.091.
27   “The interest of each member of a limited-liability company is
28   personal property.”    N.R.S. 86.351.   A Nevada LLC is a separate

                                     -15-
 1   entity from its members.    N.R.S. 86.371 (“[N]o member or manager
 2   of any limited-liability company formed under the laws of this
 3   State is individually liable for the debts or liabilities of the
 4   company.”).
 5        Under Nevada law, a partnership, including an LLLP, is “an
 6   association of two or more persons to carry on as co-owners a
 7   business for profit[.]”    N.R.S. 87.060(1), 88.606(1).      A
 8   partnership may register as an LLLP at the time of filing its
 9   certificate of limited partnership by filing a combined
10   certificate of limited partnership and limited liability limited
11   partnership with the Nevada Secretary of State.        N.R.S.
12   88.606(4).    An LLLP comes into existence with the filing of the
13   LLLP certificate of registration.        N.R.S. 88.606(5).   The owners
14   of an LLLP are referred to as “Partners,” and may be either
15   General Partners or Limited Partners.        N.R.S. 88.315(6); (7).
16   General Partners participate in the control of the partnership;
17   Limited Partners do not.    N.R.S. 88.455.      A partner in an LLLP,
18   General or Limited, is a separate entity from the LLLP, “unless
19   the trier of fact determines that adherence to the fiction of a
20   separate entity would sanction fraud or promote a manifest
21   injustice.”   N.R.S. 88.608(1).
22        Importantly, the Nevada legislature has made clear that a
23   creditor, looking to seize a debtor’s member interest in an LLC,
24   or a partner interest in an LLLP, as a means of satisfying the
25   debtor’s debts, can do so in only one way.        Under N.R.S. 86.401,
26   upon “application to a court of competent jurisdiction by any
27   judgment creditor of a member, the court may charge the member’s
28   interest [in a Nevada LLC] with payment of the unsatisfied amount

                                       -16-
 1   of the judgment with interest.”    N.R.S. 86-401(1) (LLCs).   This
 2   remedy is referred to as a “charging order.”    Weddell, 271 P.3d
 3   at 749-50.   “No other remedy . . . is available to the judgment
 4   creditor attempting to satisfy the judgment . . . .”    N.R.S. 86-
 5   401(2).   The same exclusive remedy is provided for creditor
 6   actions targeting a partner’s interest in a Nevada LLLP.      N.R.S.
 7   88.535(1) (the same wording as N.R.S. 86-401(1), except
 8   substituting “partner” for “member”).    Like N.R.S. 86-401(2),
 9   N.R.S. 88-535(2) is the exclusive remedy by which a judgment
10   creditor of a limited liability limited partner (or an assignee
11   of the partner) may satisfy a judgment out of the partnership
12   interest of the judgment debtor.
13        As can be seen, Blixseth’s creditors’ rights to seize his
14   assets as a member in Desert Management and Limited Partner in
15   Desert Ranch are prescribed exclusively by Nevada’s statutes.     In
16   a bankruptcy case, employing the powers granted by § 544(a)(1),7
17   Blixseth’s bankruptcy trustee could assert the same rights as his
18
          7
19          § 544. Trustee as lien creditor and as successor to
     certain creditors and purchasers
20
          (a) The trustee shall have, as of the commencement of
21        the case, and without regard to any knowledge of the
22        trustee or of any creditor, the rights and powers of,
          or may avoid any transfer of property of the debtor or
23        any obligation incurred by the debtor that is voidable
          by--
24
25        (1) a creditor that extends credit to the debtor at the
          time of the commencement of the case, and that obtains,
26        at such time and with respect to such credit, a
27        judicial lien on all property on which a creditor on a
          simple contract could have obtained such a judicial
28        lien, whether or not such a creditor exists[.]

                                    -17-
 1   creditors to pursue his interests in the LLC and LLLP.    Under
 2   Nevada’s statutes, because a creditor seeking to realize the
 3   value of Blixseth’s interests would be limited to asking a Nevada
 4   court for a charging order, the trustee must also resort solely
 5   to the state court to secure a charging order.   In our opinion,
 6   when this involuntary bankruptcy case is viewed in context, we
 7   are persuaded that because Blixseth’s interests in the LLC and
 8   LLLP were created and exist under, and his creditor’s remedies
 9   are limited by, Nevada state law, that is sufficient reason to
10   deem Blixseth’s interests to be located in Nevada.
11        The case law, while sparse, is not to the contrary.    While
12   there are no similar bankruptcy decisions, one case involving
13   facts closely aligned with this one is Koh, 54 P.3d 1270.     There,
14   in determining whether Washington’s courts could exercise quasi
15   in rem jurisdiction in a creditor’s action for a charging order
16   concerning a nonresident’s member’s Washington LLC interest, the
17   state court held that the proper situs of that member’s interest
18   was Washington, the state in which the LLC was created.
19   Referring to the language in the Washington statutes which, like
20   Nevada, are based on the uniform laws, specifying that a
21   collecting creditor is limited to the remedy of a charging order,
22   the court concluded that “where a partnership organizes under the
23   laws of a state, the partnership interest is located within that
24   state.”   Id. at 1272.
25        In addition to pursuing a charging order, a bankruptcy
26   trustee in Blixseth’s case may have other methods of liquidating
27   his interests in Desert Ranch and Desert Management.   As a
28   practical matter, since these interests would constitute property

                                   -18-
 1   of the bankruptcy estate under § 541(a), by standing in
 2   Blixseth’s shoes as a member or partner in the entities, the
 3   trustee could seek to judicially dissolve the companies and
 4   distribute their assets to the members.   But just as they do with
 5   creditor actions seeking entry of a charging order, the Nevada
 6   statutes grant exclusive jurisdiction for such a proceeding to
 7   the Nevada district courts.8   In analogous settings, the courts
 8   of several states have held that jurisdiction to dissolve a
 9   corporation rests only in the courts of the state of
10   incorporation.   Young v. JCR Petroleum, Inc., 423 S.E.2d 889, 892
11
          8
12           The trustee may seek to dissolve either Desert Ranch, an
     LLLP, Desert Management, an LLC, or both. The legal mechanisms
13   for judicial dissolution of the two business structures are
14   nearly identical.
          N.R.S. 88.550 lists five situations in which an LLLP must be
15   dissolved. The first four are initiated within the partnership.
     The fifth provides for judicial dissolution: “A limited
16
     partnership is dissolved and its affairs must be wound up upon
17   the happening of the first of the following to occur: . . .
     5. Entry of a decree of judicial dissolution under NRS 88.555.”
18   N.R.S. 88.550(5). N.R.S. 88.555, in turn, provides that “On
19   application by or for a partner the district court may decree
     dissolution of a limited partnership whenever it is not
20   reasonably practicable to carry on the business in conformity
     with the partnership agreement.”
21        In nearly identical language, N.R.S. 86.491 provides for
22   judicial dissolution of an LLC. Three situations are initiated
     within the company. The fourth provides that “A limited-
23   liability company must be dissolved and its affairs wound up: . .
     . (d) Upon entry of a decree of judicial dissolution pursuant to
24
     NRS 86.495.” N.R.S. 86.491(d). N.R.S. 86.495(1) then provides
25   the authority to dissolve the company in the Nevada district
     court: “Upon application by or for a member, the district court
26   may decree dissolution of a limited liability company whenever it
27   is not reasonably practicable to carry on the business of the
     company in conformity with the articles of organization or
28   operating agreement.”

                                    -19-
 1   (W. Va. 1992) (“The courts of one state do not have the power to
 2   dissolve a corporation created by the laws of another state.”);
 3   Valencia Bartels de Nunez v. Valencia Bartels, 684 So. 2d 1008,
 4   1012 (La. Ct. App. 1996); Warde-McCann v. Commex, Ltd., 522
 5   N.Y.S.2d 19, 19 (N.Y. App. Div. 1987); Spurlock v. Santa Fe
 6   P.R.R. Co., 694 P.2d 299, 313 (Ariz. Ct. App. 1984); see also 19
 7   C.J.S. CORPORATIONS § 932 (1990) (“[T]he courts of one state or
 8   country have no jurisdiction or power to dissolve a corporation
 9   created by another state or country[.]”).   Of special interest
10   here, in a case dealing with an action to dissolve a Nevada LLC,
11   an Ohio court held that there was no basis for concluding that an
12   Ohio court has the authority to dissolve a Nevada LLC.    Durina v.
13   Filtroil, Inc., 2008 WL 4307892, at *2 (Ohio Ct. App. 2010)
14   (citing, inter alia, Kulp v. Fleming, 62 N.E. 334, 339 (Ohio
15   1901) (“[O]ur courts have no jurisdiction to adjudicate the
16   affairs of a foreign corporation, and any attempt to wind up its
17   business by a comprehensive decree in our courts would be
18   futile.”)).
19        In sum, the Nevada legislature has made it clear that, to
20   sell Blixseth’s member interests, a bankruptcy trustee must
21   resort to the Nevada courts either to obtain a charging order
22   against Blixseth’s interest in the LLLP or LLC, or to dissolve
23   those entities.   Through these restrictions, in our opinion, the
24   statutes implicitly reflect the legislature’s assumption that a
25   member’s or partner’s interests are “located” in Nevada.
26   Consistent with that assumption, in the context of this case, we
27   believe Nevada should be deemed the location of Blixseth’s
28   interests in Desert Ranch and Desert Management.

                                    -20-
 1        For several reasons, our conclusion that Nevada is the
 2   proper venue for this case is also bolstered by notions of
 3   justice and convenience of the parties under these facts.
 4        First, it is undisputed that Blixseth availed himself of the
 5   benefits of establishing the Nevada LLLP and LLC.   It is also
 6   uncontradicted that he then transferred all of his valuable
 7   assets into those entities.   Presumably, in organizing the Nevada
 8   entities, and conveying his valuable properties to them, Blixseth
 9   desired to take advantage of the separate legal identities
10   bestowed on Desert Ranch and Desert Management under Nevada law
11   in his future dealings with business associates and personal
12   creditors.   Given Blixseth’s strategy in dealing with his assets,
13   we find it disingenuous that he now argues that, although he
14   chose to take advantage of the Nevada statutory scheme in
15   creating the LLLP and LLC, into which he then transferred all of
16   his valuable assets, now Nevada is not a proper venue for his
17   creditors to pursue their efforts to seize and liquidate those
18   assets.   Surely, if notions of justice carry any weight,
19   Blixseth’s conduct warrants a conclusion that venue in Nevada is
20   proper.
21        Moreover, as noted above, if Blixseth is eventually
22   adjudicated an involuntary debtor, it is obviously more
23   convenient for a Nevada trustee to administer his bankruptcy
24   case.   Put another way, how can it be anything other than
25   inconvenient, assuming as Blixseth apparently argues that
26   Washington is a proper venue for the bankruptcy case, for a
27   trustee appointed there to have to come to a Nevada court to
28   obtain a charging order or to dissolve Desert Ranch and Desert

                                    -21-
 1   Management.   Under these facts, as compared to Washington, Nevada
 2   would seem to be the much more convenient venue for the
 3   bankruptcy case.9
 4        Again, we acknowledge that the bankruptcy court’s decision
 5   that intangible assets may have no situs or that, if they do
 6   possess a “location,” it should be the same as the debtor’s
 7   residence, may be defensible when founded on different facts.
 8   However, the Ninth Circuit has instructed that, in determining
 9   where a debtor’s assets are located for venue purposes, common
10   sense, context, justice and convenience must guide a trial court.
11
          9
12           We respectfully disagree with our dissenting colleague
     that the common law, or provisions of the Uniform Commercial
13   Code, compel a different result in determining the venue of an
14   involuntary bankruptcy case prosecuted under these facts.
     Indeed, as to the common law, one of the cases cited in the
15   dissent (involving a lien perfection dispute, not a venue
     contest), quoting Justice Cardozo, states that, in determining
16
     the appropriate situs for general intangibles, “the root of the
17   selection is generally a common sense appraisal of the
     requirements of justice and convenience in particular
18   conditions.” In re Iroquois Energy Mgmt., LLC, 284 B.R. 28, 31
19   (Bankr. W.D.N.Y. 2002) quoting Severnoe Sec. Corp. v. London &
     Lancashire Ins. Co., 174 N.E. 299, 300 (N.Y. 1931). Moreover,
20   the UCC provisions cited in the dissent govern perfection of a
     security interest in a debtor’s assets by a secured creditor, not
21   the collection rights of unsecured creditors like MDOC. In
22   applying the UCC, the bankruptcy court in In re Washington,
     Perito & Dubuc, 154 B.R. 853 (Bankr. S.D.N.Y. 1993), the other
23   case cited in the dissent, found that the accounts receivable
     were located at the principal place of business of the debtor, a
24
     dissolving law firm, not where some of the account debtors were
25   located. We agree with that bankruptcy court that, given the
     fact that the law firm had an established place of business, the
26   accounts should be deemed located there. We also agree with the
27   court’s observation that the bankruptcy court should avoid “venue
     being placed in distant locations having only attenuated
28   connections to the [debtor] or its creditors.” Id. at 862.

                                    -22-
 1   When we consider those factors and this record, we think
 2   Blixseth’s interests in Desert Ranch and Desert Management should
 3   be deemed to be located in Nevada, and that venue for this
 4   involuntary bankruptcy case is proper there.
 5                            VI. CONCLUSION
 6        We REVERSE the order of the bankruptcy court dismissing this
 7   involuntary bankruptcy case for improper venue.
 8
 9
10
11                     Dissent begins on next page.
12
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14
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16
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                                   -23-
 1   HOLLOWELL, Bankruptcy Judge, Dissenting:
 2
 3        I agree with the majority that resolution of this appeal
 4   requires a “context specific” analysis.     However, the majority
 5   has distorted that analysis by interpreting context-specific as
 6   “case-specific.”
 7        “Context” is defined as the “interrelated conditions in
 8   which something exists or occurs.”    MERRIAM -WEBSTER ’S COLLEGIATE
 9   DICTIONARY 250 (Frederick C. Mish, ed., 10th ed. 2000).       The
10   majority’s conclusion that the location of an intangible asset
11   for bankruptcy venue purposes is the jurisdiction where
12   collection must be pursued focuses on what may happen during (or
13   at the end) of a case instead of on conditions as they exist at
14   the commencement of the case.   Thus, the majority’s analysis is
15   based on what may happen if an order for relief is actually
16   entered against Blixseth, but that was not the question the
17   bankruptcy court had to address.   The issue at the beginning of
18   the case was not how to collect Blixseth’s assets but simply
19   where those assets were located.   I believe that the bankruptcy
20   court correctly looked to Article 9 of the Uniform Commercial
21   Code (UCC) to decide the location of Blixseth’s intangible
22   personal property interest in the LLLP and LLC.
23        At common law, intangible property follows the person
24   (mobilia sequuntur personam) and is located where a person is
25   domiciled.   Delaware v. New York, 507 U.S. 490, 503 (1993).           Like
26   the Uniform Limited Liability Company Act (and Revised ULLCA),
27   the UCC has been adopted by Nevada.    Article 9 of the UCC follows
28   the common law doctrine by locating, for perfection purposes,

                                     -1-
 1   intangible property at a debtor’s residence.   See Nev. Rev. Stat.
 2   § 88.528 (describing interest in limited partnership as personal
 3   property); Nev. Rev. Stat. § 104.9102(pp) (defining general
 4   intangibles); Nev. Rev. Stat. § 104.9301 (perfection principles).
 5   As the bankruptcy court noted, the UCC governs how Blixseth would
 6   have pledged or otherwise encumbered his partnership interests.
 7   Because it also governs the perfection of any pledged interest,
 8   it provides notice to competing creditors and parties in interest
 9   of the existence and priority of any encumbrances.   A number of
10   courts have, therefore, determined that using the place of
11   perfection is the best approach for determining the location of a
12   debtor’s intangible property for purposes of venue of a
13   bankruptcy case.   In re Iroquois Energy Mgmt., Inc., 284 B.R. 28,
14   32 (Bankr. W.D.N.Y. 2002); In re Washington, Perito & Dubuc, 154
15   B.R. 853, 861 (Bankr. S.D.N.Y. 1993).
16        I fail to see why the majority assumes that Nevada’s
17   enactment of the ULLCA or its laws regarding limited partnerships
18   should determine the location of an intangible asset.   Nevada has
19   also adopted the UCC which, unlike the uniform LLC statute, has a
20   specific provision that answers the question of where an
21   intangible asset is located.
22        When venue is based on the location of a debtor’s principal
23   assets, using the UCC to make that determination is straight
24   forward and predictable.   The majority’s approach is neither.
25   Instead it requires courts to reach into a case and engage in
26   speculation about facts that have not yet been established.
27   Therefore, I respectfully dissent.
28

                                     -2-