In Re: James Ellett, Debtor. Gerald Goldberg, Executive Director of the Franchise Tax Bap Board v. James Ellett
254 F.3d 1135 · Court of Appeals for the Ninth Circuit · 2001
Facts
James Ellett filed for Chapter 13 bankruptcy in 1994, scheduling the Franchise Tax Board (FTB) as a general unsecured creditor for pre-petition state income taxes. The FTB was notified of the bankruptcy but did not file a proof of claim or participate in the proceeding. Ellett's Chapter 13 plan was confirmed and completed, leading to his discharge in April 1997. Several months later, the FTB sent Ellett a demand for payment of these same income taxes, asserting they were not discharged and threatening collection actions. Ellett's counsel informed the FTB of the discharge order, but the FTB maintained its position that the obligations were not discharged and collection efforts would commence.
Procedural history
Ellett initiated an adversary proceeding in bankruptcy court seeking injunctive and declaratory relief against Gerald Goldberg, Executive Director of the FTB. Goldberg moved to dismiss for lack of jurisdiction based on state sovereign immunity, but the bankruptcy court denied the motion, applying *Ex Parte Young*. The Bankruptcy Appellate Panel (BAP) affirmed this denial. Goldberg then filed this interlocutory appeal to the Circuit Court.
Issue
May a bankruptcy court enjoin a state tax official from collecting state taxes purportedly discharged in a bankruptcy proceeding where the State declined to participate, considering state sovereign immunity under *Ex Parte Young* and the Tax Injunction Act?
Holding
Yes, a bankruptcy court may enjoin a state tax official from collecting state taxes purportedly discharged in a bankruptcy proceeding. The court affirmed the Bankruptcy Appellate Panel's decision, finding *Ex Parte Young* applicable and the Tax Injunction Act not a bar to the action.
Rule
The *Ex Parte Young* doctrine allows prospective equitable relief against a state official who is engaged in a continuing violation of federal law, as such an official is considered "stripped of official character" for sovereign immunity purposes. A bankruptcy court's discharge order is binding on a State, even if the State did not participate or file a proof of claim, due to the federal government's supreme power in bankruptcies and the court's in rem jurisdiction over the estate. The *Coeur d'Alene* exception to *Ex Parte Young* does not apply if the relief merely ensures state officials apply state law consistent with federal law, rather than a broad divestiture of state sovereignty. The *Seminole Tribe* exception is inapplicable as the Bankruptcy Code lacks a detailed remedial scheme precluding *Ex Parte Young* relief. The Tax Injunction Act does not bar bankruptcy courts from enforcing discharge injunctions against state tax collection.
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