Court Opinion

ID: 4459127
Source: CourtListenerOpinion
Date Created: 2019-11-26 18:00:39.790132+00
Date Added: 2024-06-11T14:27:47.195539
License: Public Domain

FOR PUBLICATION

 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

STATE OF MONTANA                       No. 18-15064
DEPARTMENT OF REVENUE,
                  Appellant,            D.C. No.
                                   2:13-cv-01324-JAD
             v.

TIMOTHY L. BLIXSETH,                    OPINION
                       Appellee.

     Appeal from the United States District Court
               for the District of Nevada
     Jennifer A. Dorsey, District Judge, Presiding

       Argued and Submitted August 26, 2019
                Seattle, Washington

              Filed November 26, 2019

Before: Michael Daly Hawkins, M. Margaret McKeown,
          and Jay S. Bybee, Circuit Judges.

             Opinion by Judge Hawkins
2 STATE OF MONTANA DEP’T OF REVENUE V. BLIXSETH

                          SUMMARY *

                           Bankruptcy

    The panel affirmed in part decisions of the bankruptcy
and district courts, holding that the Montana Department of
Revenue, a creditor holding a claim that was partially
disputed as to amount, lacked standing to file an involuntary
Chapter 7 bankruptcy petition against a debtor under
11 U.S.C. § 303. Because all other petitioning creditors had
withdrawn from the proceedings, the panel remanded to the
bankruptcy court to determine whether the case should be
dismissed.

    Under 11 U.S.C. § 303(b)(1), a petitioning creditor’s
claims must not be (1) contingent or (2) “the subject of a
bona fide dispute as to liability or amount.” The panel
concluded that the Montana Department of Revenue’s claim
for the 2004 tax year was subject to a bona fide dispute as to
amount notwithstanding the debtor’s concession that a
deduction challenged in an audit was improper. Joining the
First and Fifth Circuits, the panel held that a claim is subject
to a bona fide dispute as to amount even if a portion of that
claim is undisputed.

                           COUNSEL

Lynn H. Butler (argued), Husch Blackwell LLP, Austin,
Texas; Mark J. Gardberg, Howard and Howard Attorneys
PLLC, Las Vegas, Nevada; for Appellant.

    *
      This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
   STATE OF MONTANA DEP’T OF REVENUE V. BLIXSETH 3

Nathan Andrew Schultz (argued), Goodwin Procter LLP,
San Francisco, California; Kevin O’Connell, Kevin
O’Connell P.C., Portland, Oregon; Jenny L. Doling and
Summer M. Shaw, Doling Shaw & Hanover APC, Palm
Desert, California; for Appellee.

                          OPINION

HAWKINS, Circuit Judge:

    We must determine whether a creditor holding a claim
that is partially disputed as to amount has standing to act as
a petitioning creditor in an involuntary bankruptcy
proceeding under 11 U.S.C. § 303. We join our sister
circuits and hold that a claim is subject to a bona fide dispute
as to amount within the meaning of 11 U.S.C. § 303(b)(1)
even if a portion of that claim is undisputed. We therefore
affirm the decisions of the bankruptcy and district courts that
the Montana Department of Revenue (“MDOR”) lacked
standing to file the involuntary Chapter 7 bankruptcy
petition against Timothy L. Blixseth. Because all other
petitioning creditors have withdrawn from the proceedings,
we remand to the bankruptcy court to determine whether this
case should be dismissed under 11 U.S.C. § 303(j)(3).

                      BACKGROUND

    This appeal arises out of the involuntary bankruptcy
proceedings commenced against Blixseth, a co-founder of
the private ski resort Yellowstone Mountain Club, see
Blixseth v. Yellowstone Mountain Club, LLC, 742 F.3d 1215,
1218 (9th Cir. 2014), by several state taxing authorities.
MDOR leads the charge.
4 STATE OF MONTANA DEP’T OF REVENUE V. BLIXSETH

I. MDOR’s Audit.

    MDOR commenced an audit of Blixseth and certain
“Related Blixseth Business Entities” for the 2002 through
2006 tax years. In July 2009, MDOR sent Blixseth a notice
of deficiency assessing $56.8 million in taxes, penalties, and
interest arising from eight “audit issues.” Relevant to this
appeal is the fourth audit issue—a disallowed deduction
Blixseth claimed for the environmental penalty payment
made by a pass-through entity in the 2004 tax year (“Audit
Issue 4”). Audit Issue 4 was not the only adjustment MDOR
claimed in connection with the 2004 tax year. For the 2004
tax year, MDOR assessed additional taxes of $5,505,515;
penalties of $990,993; and interest of $2,587,692 for a total
assessment of $9,084,100. By MDOR’s calculation, Audit
Issue 4 comprises roughly $200,000 of that amount.

    In response to the audit, Blixseth worked with MDOR in
an informal review process during which he conceded Audit
Issue 4, disputed the remaining audit issues, and provided
additional information and materials to MDOR. In light of
the additional information Blixseth provided, MDOR
adjusted its original audit assessment. MDOR ultimately
assessed additional taxes, penalties, and interest in the
amount of $57,017,038 for the 2002 through 2006 tax years.
Blixseth then filed a complaint before the Montana State Tax
Appeals Board disputing all audit issues with the exception
of Audit Issue 4. MDOR issued a statement of account,
claiming $216,657 owed in connection with Audit Issue 4.

II. The Involuntary Bankruptcy Proceedings.

    In April 2011, while Blixseth’s complaint was pending
before the Montana State Tax Appeals Board, MDOR,
joined by the Idaho State Tax Commission (“Idaho”) and the
California Franchise Tax Board (“California”), initiated
   STATE OF MONTANA DEP’T OF REVENUE V. BLIXSETH 5

involuntary bankruptcy proceedings against Blixseth.
MDOR, Idaho, and California each asserted claims for
unpaid taxes and associated penalties and interest in the
amounts of $219,258.00; $1,117,914.00; and $986,957.95,
respectively. MDOR’s claim consisted of the taxes,
penalties, and interest purportedly flowing from Audit Issue
4. Just a few weeks after filing the petition, California and
Idaho entered into settlement agreements with Blixseth and
withdrew as petitioning creditors. Thereafter, another entity,
the Yellowstone Club Liquidating Trust (“Yellowstone”),
filed a notice of joinder as a petitioning creditor and asserted
a $40,992,210.81 claim based on a judgment it obtained
against Blixseth in a separate proceeding.

    After some initial motion practice and an appeal
regarding venue, Blixseth moved to dismiss the bankruptcy
proceedings on the ground that the petitioning creditors’
claims were the subject of bona fide disputes. The
bankruptcy court allowed the parties to conduct discovery
and submit extensive briefing on the motion. In response to
a discovery request, Blixseth provided a non-exhaustive list
of eighteen current creditors and the amounts of their claims
as of the petition date. Separately, a group of eight
individuals, the members of an entity that had entered into a
settlement agreement involving Blixseth, filed notices of
appearance in the bankruptcy and identified themselves as
additional creditors of Blixseth.

    Following a two-day hearing, the bankruptcy court
entered an order converting Blixseth’s motion to dismiss into
a motion for summary judgment and granting the motion.
The bankruptcy court acknowledged that no party contested
that the petitioning creditors collectively held unsecured
claims exceeding the statutory minimum amount to initiate
an involuntary bankruptcy or that their claims were non-
6 STATE OF MONTANA DEP’T OF REVENUE V. BLIXSETH

contingent. Thus, the only issues before the court were
whether (1) Blixseth had more than eleven creditors on the
petition date, necessitating three qualified petitioning
creditors; and (2) the petitioning creditors’ claims were
subject to bona fide disputes as to liability or amount.

    The bankruptcy court first determined that Blixseth
submitted sufficient evidence to demonstrate he had more
than twelve creditors as of the petition date. Consequently,
at least three petitioning creditors needed qualifying claims
for the involuntary bankruptcy to proceed.

    The bankruptcy court then evaluated the petitioning
creditors’ standing. The court first evaluated “whether any
part of a disputed claim could serve as a claim justifying an
involuntary bankruptcy.” After reviewing the history of
§ 303(b)(1) and accompanying case law, the bankruptcy
court determined that § 303(b)(1) “should be construed to
disqualify petitioning claims based on any bona fide dispute
as to amount, even if some ‘portion’ of the claim is
undisputed.”

    With this understanding, the court looked to MDOR,
Idaho, California, and Yellowstone’s claims.            The
bankruptcy court determined that Idaho and California’s
claims were subject to bona fide disputes as to liability or
amount. Thus, at least two of the four petitioning creditors
lacked standing. To avoid confusion, the court also
addressed MDOR and Yellowstone’s claims. Looking at
MDOR’s claim, the bankruptcy court noted that MDOR
contended that it had over $50 million in claims against
Blixseth, and at the time most of those claims were
“disputed[] and disputed intensely.”            The court
acknowledged that “a taxing entity generally has but one
claim for each calendar year of a taxpayer’s life.” MDOR
had not shown that it was authorized to create a separate
   STATE OF MONTANA DEP’T OF REVENUE V. BLIXSETH 7

liability for Audit Issue 4 or if authorized that it took the
proper steps to create that separate liability. Blixseth’s
remaining liability for the 2004 tax year was disputed, and
thus, MDOR’s claim was the subject of a bona fide dispute.
The bankruptcy court determined that Yellowstone did have
standing as a joining, petitioning creditor, but one petitioning
creditor was not enough to sustain the petition. The
bankruptcy court therefore granted summary judgment in
favor of Blixseth.

III.    The District Court Appeal.

    MDOR appealed to the district court, and the district
court affirmed the bankruptcy court’s grant of summary
judgment. The district court agreed with the bankruptcy
court that a holder of a partially disputed claim cannot serve
as a petitioning creditor even if the undisputed portion of the
claim exceeds the statutory threshold amount. The district
court determined that MDOR and California’s claims were
subject to bona fide disputes as to amount. Because two of
the four petitioning creditors were ineligible and Blixseth
had at least twelve creditors, the district court did not reach
the arguments regarding Idaho and Yellowstone’s claims. 1
This timely appeal followed.

                  STANDARD OF REVIEW

   We review de novo a district court’s decision on a
bankruptcy court appeal. Rains v. Flinn (In re Rains),
428 F.3d 893, 900 (9th Cir. 2005). Summary judgment is
appropriate where the evidence demonstrates that there are
no genuine issues of material fact for trial and the moving

     1
       Yellowstone withdrew as a petitioning creditor shortly after the
district court’s decision.
8 STATE OF MONTANA DEP’T OF REVENUE V. BLIXSETH

party is entitled to judgment as a matter of law. Barboza v.
New Form, Inc. (In re Barboza), 545 F.3d 702, 707 (9th Cir.
2008).

                           DISCUSSION

   To commence involuntary bankruptcy proceedings
against a debtor, a creditor must be:

         a holder of a claim against [the debtor] that is
         not contingent as to liability or the subject of
         a bona fide dispute as to liability or amount
         . . . [and] such noncontingent, undisputed
         claims [must] aggregate at least $10,000[2]
         more than the value of any lien on property
         of the debtor securing such claims held by the
         holders of such claims.

11 U.S.C. § 303(b)(1). 3       Consequently, a petitioning
creditor’s claim must not be (1) contingent or (2) “the subject
of a bona fide dispute as to liability or amount.” Id. Both
requirements “aim to prevent creditors from using the threat
of an involuntary petition to bully an alleged debtor into
settling a speculative or validly disputed debt.” Chi. Title

    2
      On the petition date, the statutory threshold amount was $14,425.
See Revision of Certain Dollar Amounts in the Bankruptcy Code
Prescribed Under Section 104(a) of the Code, 75 Fed. Reg. 8747, 8748
(Feb. 25, 2010).

    3
      The number of petitioning creditors required depends upon the
number of creditors a debtor has as of the petition date. If a debtor has
twelve or more creditors, three petitioning creditors are required; if a
debtor has less than twelve creditors, only one petitioning creditor is
required. 11 U.S.C. § 303(b)(1), (2).
    STATE OF MONTANA DEP’T OF REVENUE V. BLIXSETH 9

Ins. Co. v. Seko Inv., Inc. (In re Seko Inv., Inc.), 156 F.3d
1005, 1007–08 (9th Cir. 1998). Here, we must determine
whether MDOR’s claim for the 2004 tax year is subject to a
bona fide dispute as to amount notwithstanding Blixseth’s
concession that the deduction challenged in Audit Issue 4
was improper. 4

I. The History of Section 303(b)(1).

    Section 303(b)(1) was enacted originally as part of the
Bankruptcy Reform Act of 1978 and in its original form did
not require that the creditor’s claim be free of a bona fide
dispute.    That requirement followed as part of the
Bankruptcy Amendments and Federal Judgeship Act of
1984, Pub. L. No. 98-353, 98 Stat. 333. The 1984
amendment to § 303(b)(1) addressed the risk of creditors
using bankruptcy to force debtors into paying legitimately

    4
      We disagree with MDOR’s assertion that liability stemming from
Audit Issue 4 is a freestanding claim. As a general matter, tax liability
accrues on an annual basis and creates a claim each tax year. Cf. Joye v.
Franchise Tax Bd., 578 F.3d 1070, 1077 (9th Cir. 2009) (explaining that
taxes become payable on annual basis and holding liability for 2000 tax
year became payable on January 1, 2001, thus constituting a pre-petition
claim in bankruptcy filed March 2001). On the petition date, all other
audit issues regarding Blixseth’s 2004 tax liability remained in dispute.
MDOR has not identified any clear authority under applicable state laws
demonstrating it had the right to seek payment of and assess penalties
and interest on a tax adjustment stemming from Audit Issue 4
independently from the remaining adjustments for the 2004 tax year. See
Mont. Code Ann. § 15-30-2631 (West 2019) (setting forth jeopardy
assessment process by which department may issue demand for
immediate payment of tax or deficiency in whole or part but which
MDOR did not utilize in Blixseth’s audit). Even MDOR’s audit
supervisor testified that concerns were raised internally regarding the
distinction between Blixseth’s concession that the deduction was
improper and the computation of tax and penalty amounts flowing from
the improper deduction.
10 STATE OF MONTANA DEP’T OF REVENUE V. BLIXSETH

disputed debts as an alternative to resolving the disputed
claims through other means. See 130 Cong. Rec. S7618
(daily ed. June 19, 1984) (statement of Sen. Baucus) (“I
believe this amendment . . . is necessary to protect the rights
of debtors and to prevent misuse of the bankruptcy system
as a tool of coercion.”). The amendment, however, did not
define the phrase “bona fide dispute.” See Liberty Tool &
Mfg. v. Vortex Fishing Sys., Inc. (In re Vortex Fishing Sys.,
Inc.), 277 F.3d 1057, 1064 (9th Cir. 2002).

    Following the 1984 amendment, “[t]here was
considerable question . . . whether disputes as to amount
alone were enough to make a petitioning creditor’s claim
invalid for purposes of filing an involuntary case.” 2 Collier
on Bankruptcy ¶ 303.11[2] (16th ed. 2019). Some courts
interpreted § 303(b) as denying standing to a creditor only
where there was a bona fide dispute as to liability; a dispute
as to the amount of the claim was not a basis for denying
standing. See, e.g., Subway Equip. Leasing Corp. v. Sims (In
re Sims), 994 F.2d 210, 221 (5th Cir. 1993); see also Credit
Union Liquidity Servs., LLC v. Green Hills Dev. Co. (In re
Green Hills Dev. Co.), 741 F.3d 651, 656–57 (5th Cir. 2014)
(explaining pre-BAPCPA interpretation). Our court held
that a dispute as to amount could create a bona fide dispute
as to the claim “if [the dispute] takes the total debt below
[the statutory threshold].” Focus Media, Inc. v. Nat’l Broad.
Co. (In re Focus Media, Inc.), 378 F.3d 916, 926 (9th Cir.
2004). In other words, we rejected the contention that “an
uncertainty or dispute as to amounts owed above [the
statutory threshold] can create a bona fide dispute as to the
entire debt.” Id. 5

    5
      MDOR argues at length that Focus Media is still controlling under
the test for implicit overruling clarified in Miller v. Gammie, 335 F.3d
    STATE OF MONTANA DEP’T OF REVENUE V. BLIXSETH 11

    In 2005, just a few months after our decision in Focus
Media, Congress amended § 303(b)(1) again as part of the
Bankruptcy Abuse Prevention and Consumer Protection Act
(“BAPCPA”), Pub. L. No. 109-8, 119 Stat. 23 (2005). The
BAPCPA amendment to § 303(b)(1) clarified that a
petitioning creditor’s claim must not be the subject of a bona
fide dispute “as to liability or amount.” Id. § 1234(a)(1)(A).

     Following the 2005 amendment, courts have been evenly
split on whether “a dispute as to any portion of a claim, even
if some dollar amount would be left undisputed, means there
is a bona fide dispute as to the amount of the claim.”
Fustolo v. 50 Thomas Patton Drive, LLC, 816 F.3d 1, 9 (1st
Cir. 2016) (internal quotation marks and citation omitted).

    Many courts, like the bankruptcy court and district court
here, have held that a bona fide dispute as to any amount of
a petitioning creditor’s claim strips the creditor of standing
under § 303(b)(1). See, e.g., id. at 10; In re QDOS, Inc.,
591 B.R. 843, 848–50 (Bankr. C.D. Cal. 2018); In re
Honolulu Affordable Hous. Partners, LLC, No. 15-00146,
2015 WL 2203473, at *2 (Bankr. D. Haw. May 7, 2015); In
re Vicor Techs., No. 12-39329-EPK, 2013 WL 1397460,
at *5–6 (Bankr. S.D. Fla. Apr. 5, 2013); In re Excavation,
Etc., LLC, No. 09-60953-fra7, 2009 WL 1871682, at *2
(Bankr. D. Or. June 24, 2009); In re Euro-Am. Lodging
Corp., 357 B.R. 700, 712 n.8 (Bankr. S.D.N.Y. 2007); Reg’l
Anesthesia Assocs. PC v. PHN Phys. Servs. (In re Reg’l
Anesthesia Assocs. PC), 360 B.R. 466, 469–70 (Bankr. W.D.

889, 900 (9th Cir. 2003) (en banc). Focus Media interpreted the prior
version of § 303(b)(1). The issue before this court is the meaning of the
amendment to § 303(b)(1). Therefore, the issue before us is not whether
Focus Media has been implicitly overruled by intervening case law but
instead one of statutory interpretation.
12 STATE OF MONTANA DEP’T OF REVENUE V. BLIXSETH

Pa. 2007); In re Orlinsky, No. 06-15417-BKC-RAM, 2007
WL 1240207, at *1 (Bankr. S.D. Fla. Apr. 24, 2007).

    Other courts, however, have held that the BAPCPA
amendment to § 303(b)(1) merely confirmed that only a
material dispute as to amount will strip a creditor of
standing. See, e.g., In re Gen. Aeronautics Corp., 594 B.R.
442, 463–66 (Bankr. D. Utah 2018); In re Clignett, 567 B.R.
583, 588–89 (Bankr. C.D. Cal. 2017); In re Stewart, Nos.
14-03177, 14-03179, 2015 WL 1282971, at *6 (Bankr. S.D.
Ala. Mar. 18, 2015); In re Miller, 489 B.R. 74, 81–83
(Bankr. E.D. Tenn. 2013); In re EM Equip., LLC, 504 B.R.
8, 18 (Bankr. D. Conn. 2013); In re Tucker, No. 5:09-bk-
914, 2010 WL 4823917, at *6 (Bankr. N.D. W. Va. Nov. 22,
2010); In re DemirCo Holdings, Inc., No. 06-70122, 2006
WL 1663237, at *2–4 (Bankr. C.D. Ill. June 9, 2006); In re
ELRS Loss Mitigation, LLC, 325 B.R. 604, 626–27 (Bankr.
N.D. Okla. 2005); see also 2 Collier on Bankruptcy
¶ 303.11[2].

II. Interpretation of “Bona Fide Dispute as to . . .
    Amount.”

    “[I]nterpretation of the Bankruptcy Code starts where all
such inquiries must begin: with the language of the statute
itself.” Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 69
(2011) (internal quotation marks omitted). The plain
language of § 303(b)(1) encompasses disputes “as to
liability or amount” and requires that “such noncontingent,
undisputed claims aggregate” the threshold amount.
11 U.S.C. § 303(b)(1). Because a dispute as to liability in a
sense renders the entire amount of the claim disputed, the
statute’s reference to “amount” encompasses a dispute as to
less than the entire amount. Furthermore, the statute’s plain
language does not cabin disputes as to amount to only
disputes that drop the amount of a claim below the statutory
   STATE OF MONTANA DEP’T OF REVENUE V. BLIXSETH 13

threshold. Indeed, the statutory text does not qualify the
word “amount” at all. See Fustolo, 816 F.3d at 10. We must
endeavor to give effect to all words in a statute. Ransom,
562 U.S. at 70. And, Congress’s inclusion of the word
“amount” could be rendered superfluous if a claim validly
but partially disputed in amount still qualified as a claim that
is not “the subject of a bona fide dispute as to liability or
amount.”

    Nevertheless, prior bankruptcy practice is informative,
and we “will not read the Bankruptcy Code to erode past
bankruptcy practice absent a clear indication that Congress
intended such a departure.” Hamilton v. Lanning, 560 U.S.
505, 516 (2010) (citation omitted). Before the BAPCPA
amendment to § 303(b)(1), circuits did not treat disputes as
to amount uniformly. Compare In re Focus Media, Inc.,
378 F.3d at 926, with In re Sims, 994 F.2d at 221. Although
the BAPCPA amendment clearly erodes the past practice of
excluding amount-based disputes, it does not clearly adopt
the materiality requirement imposed by Focus Media and
related cases.

    Two circuit courts have interpreted the post-BAPCPA
version of § 303(b)(1), and both followed the plain language
of the statute. The First Circuit held that any dispute as to
amount disqualifies the claimholder from acting as a
petitioning creditor. See Fustolo, 816 F.3d at 10 (declining
to “read a materiality requirement into section 303” and
instead following “the straightforward reading of
section 303, which places no qualifiers on the requirement
that any asserted claim be free of ‘bona fide dispute as to . . .
amount’” (alteration in original)). The Fifth Circuit
emphasized that through the BAPCPA amendment to
§ 303(b)(1), “Congress has made clear that a claimholder
does not have standing to file an involuntary petition if there
14 STATE OF MONTANA DEP’T OF REVENUE V. BLIXSETH

is a ‘bona fide dispute as to liability or amount’ of the claim.”
In re Green Hills Dev. Co., 741 F.3d at 660.

    We agree with our sister circuits’ adherence to the
statute’s plain meaning and hold that a creditor whose claim
is the subject of a bona fide dispute as to amount lacks
standing to serve as a petitioning creditor under § 303(b)(1)
even if a portion of the claim amount is undisputed.

    Contrary to MDOR’s contention, interpreting
§ 303(b)(1)’s inclusion of “amount” to bar all claims
disputed in amount, whether partially or fully disputed, does
not lead to an absurd result. See Lamie v. U.S. Tr., 540 U.S.
526, 536 (2004) (explaining that plain meaning controls if it
does not lead to absurd result). We recognize that MDOR is
not alone in suggesting that treating fully and partially
disputed claims alike might lead to anomalous results in
some circumstances. A leading treatise posits:

        Why would Congress want to disqualify a
        creditor whose claim is noncontingent and at
        least partially undisputed? Section 303’s
        requirements regarding type and number of
        claims are an attempt to balance a debtor’s
        interest in staying out of bankruptcy with the
        interest of creditors in putting a debtor into
        bankruptcy. Why shouldn’t the undisputed,
        noncontingent portion of a petitioning
        creditor’s claim count? Why disqualify the
        creditor in toto? Why effectively bar that
        creditor’s access to the bankruptcy forum?

2 Collier on Bankruptcy ¶ 303.11[2]; see also In re Gen.
Aeronautics Corp., 594 B.R. at 465–66 (asserting that
allowing a dispute over the threshold amount to qualify as a
bona fide dispute as to amount would lead to the absurd
   STATE OF MONTANA DEP’T OF REVENUE V. BLIXSETH 15

result of a $100 dispute barring a creditor holding a $100,000
claim $99,900 of which was undisputed).

    Yet, MDOR’s own claim exemplifies why following the
plain language is the logical interpretation that gives effect
to the statute’s basic policy. MDOR initiated an audit of
Blixseth and several related entities for the 2002 through
2006 tax years. Blixseth conceded that the deduction
challenged by Audit Issue 4 was improper, thus potentially
altering his tax liability for the 2004 tax year. By MDOR’s
calculation, Audit Issue 4 gave rise to $219,258 in additional
tax liability, penalties, and interest as of the petition date. In
full, however, MDOR claimed more than $9 million in tax
liability, penalties, and interest for the 2004 tax year
stemming from multiple audit issues. And, as soon as
Blixseth conceded the impropriety of the deduction
challenged in Audit Issue 4, MDOR sought to leverage an
approximately $200,000 concession to collect on a disputed
claim totaling more than $9 million along with tens of
millions of dollars in additional disputed tax liability. In
doing so, MDOR engaged in the very type of conduct that
§ 303(b)(1)’s “bona fide dispute” limitation seeks to
prohibit. See In re Seko Inv., Inc., 156 F.3d at 1007–08.

   Ultimately, although a portion of MDOR’s claim was
undisputed on the petition date, the vast majority of its claim
remained disputed. As a result, MDOR’s claim was the
subject of a bona fide dispute as to amount.

                       CONCLUSION

    We hold that MDOR’s claim was the subject of a bona
fide dispute as to amount on the petition date, and, therefore
the bankruptcy court and district court correctly concluded
that MDOR lacked standing to serve as a petitioning
creditor. MDOR also disputes whether Idaho, California,
16 STATE OF MONTANA DEP’T OF REVENUE V. BLIXSETH

and Yellowstone’s claims may sustain the petition
individually or in combination. We do not reach these issues
because all other petitioning creditors have withdrawn their
participation in the underlying bankruptcy proceedings.
Instead, we remand for the bankruptcy court to determine
whether this matter should be dismissed for want of
prosecution consistent with 11 U.S.C. § 303(j)(3).

    AFFIRMED, in part, and REMANDED with
instructions. Appellant to bear the costs on appeal.