Episode 117
Opinion Summary: United States v. Miller | Date Decided: 3/26/25 | Case No. 23-824
The question presented in this case is: Whether a bankruptcy trustee may avoid a debtor's tax payment to the United States under Section 544(b) when no actual creditor could have obtained relief under the applicable state fraudulent-transfer law outside of bankruptcy.
The Supreme Court held: Section 106(a)’s sovereign-immunity waiver applies only to a §544(b) claim itself and not to state-law claims nested within that federal claim.
Transcript
Miller, case number 23 824.
Speaker A:The question presented in this case is whether a bankruptcy trustee may avoid a debtor's tax payment to the United states under section 544 when no actual creditor could have obtained relief under the applicable state fraudulent transfer law outside of bankruptcy.
Speaker A:Justice Jackson delivered the opinion of the Court, joined by Chief Justice Roberts along with Justices Thomas Alito, Sotomayor, Kagan, Kavanaugh, and Barrett.
Speaker A:Justice Gorsuch filed a dissenting opinion.
Speaker A:This opinion is read by an automated voice.
Speaker B:Justice Jackson's majority Opinion this case concerns the powers given a bankruptcy trustee under section 544B of the Bankruptcy Code to set aside or avoid certain fraudulent transfers of a debtor's assets.
Speaker B:See 11 USC Sections 544B.
Speaker B:One respondent is the bankruptcy trustee of a failed Utah based business whose shareholders misappropriated $145,000 in company funds to satisfy their personal federal tax liabilities.
Speaker B:Respondent filed an avoidance suit against the United States seeking to claw back the misappropriated funds for the benefit of the bankruptcy estate.
Speaker B:He filed the action pursuant to section 544B, which allows a trustee to avoid any transfer of an interest of the debtor that is voidable under applicable law by a creditor holding an unsecured claim.
Speaker B:But to Prevail under section 544B, a trustee must identify an actual creditor who could have voided the transaction under applicable law outside of bankruptcy proceedings.
Speaker B:In this case, Respondent invoked Utah's fraudulent transfer statute, which gives creditors a cause of action to invalidate certain transfers by a debtor as the applicable law underlying his section 544B claim.
Speaker B:The government argued that respondent section 544B claim failed because respondent could not identify an actual creditor that could have voided the fraudulent transfer because sovereign immunity would bar any such Utah cause of action against the government.
Speaker B:The bankruptcy court disagreed, concluding that section 106 of the Bankruptcy Code, which waives the government's sovereign immunity with respect to some 59 bankruptcy code provisions, including section 544, also waives immunity for the Utah cause of action nested within the Section 544 claim.
Speaker B:The district court adopted the bankruptcy court's decision and the 10th Circuit affirmed held Section 106A's sovereign immunity waiver applies only to a Section 544B claim itself and not to state law claims nested within that federal claim.
Speaker B:Pp.
Speaker B:Schistdevitnatstui A.
Speaker B:This dispute turns on the interplay between section 106 and section 544B of the Bankruptcy Code.
Speaker B:Section 106A.1 provides that the government's sovereign immunity is abrogated with respect to a list of Code provisions, including section 544.
Speaker B:Respondent contends that section 106A also waives sovereign immunity with respect to whatever state law cause of action a trustee might invoke as the source of applicable law for his or her section 544B claim.
Speaker B:But that result would transform section 106A from a jurisdiction creating provision into a liability creating provision which conflicts with the court's traditional understanding of sovereign immunity waivers.
Speaker B:As the Court's precedents explain, sovereign immunity is jurisdictional in nature and operates to deprive courts of the power to hear suits against the United States absent Congress's express consent.
Speaker B:FDIC v.
Speaker B:Meyer, 510 U.S.
Speaker B:471, 475 waivers of sovereign immunity function simply as prerequisites for jurisdiction.
Speaker B:They do not create any new substantive rights or alter any pre existing ones.
Speaker B:United States vs.
Speaker B: -S-: Speaker B:106A's waiver of immunity, I.e.
Speaker B:the statute's grant of jurisdiction, into an affirmative expansion of the trustees avoidance powers under par.
Speaker B:544B conflicts with the Court's understanding of sovereign immunity waivers.
Speaker B:PP.
Speaker B:B Section 1.06A's Text, Context, and structure make clear that it does not operate to modify section 544B's substantive requirements.
Speaker B:Indeed, section 106 expressly provides that nothing in this section shall create any substantive claim for relief or cause of action not otherwise existing under some other source of law that language directly refutes.
Speaker B:Respondents argument that Section 106 sovereign immunity waiver extends to both the cause of action section 544 establishes and its elements brief for respondent.
Speaker B: direct conflict with section: Speaker B:5 Section 544's text and structure reinforce this conclusion.
Speaker B:Unlike section 544, section 544A has no actual creditor requirement and thus permits a trustee to invalidate certain transfers that a lienholder could avoided.
Speaker B:Whether or not such a creditor exists.
Speaker B:R.544.
Speaker B:This contrast reflects Congress's deliberate choice to tie the trustee's rights under subsection B to to the rights of an actual creditor under applicable law.
Speaker B:Eliminating the actual creditor requirement would upend decades of practice and precedent, recognizing that section 544 merely empowers a trustee to step into the shoes of a creditor subject to the same limitations and defenses that would apply to that creditor outside bankruptcy.
Speaker B:Finally, even if the language and Logic of section 544 and section 106A permitted respondents Broad reading of the sovereign immunity waiver, the Court's precedents would still foreclose that reading.
Speaker B:The Court's precedents require construing sovereign immunity waivers narrowly with any ambiguities resolved in favor of the Sovereign.
Speaker B:C e g FAAV Cooper 566 United States, 284, 291 pages.
Speaker B:Devich Dodvanatsti.
Speaker B:C respondent asserts that section 106A1's use of the phrase with respect to shows Congress's intent to abrogate sovereign immunity for all subjects that concern or regard the listed provisions, including the meaning of applicable law in section 544.
Speaker B:B.
Speaker B:Respondents reliance on dictionary definitions and cases that adopt capacious readings of phrases similar to with respect to cannot support his argument, as those authorities all examine those terms in very different statutory contexts.
Speaker B:Respondents textual argument thus flouts the fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.
Speaker B:Davis vs.
Speaker B: -US-: Speaker B:This canon carries particular force when construing phrases that govern conceptual relationships like with respect to whose meanings inherently depend on their surrounding context.
Speaker B:CEG Dubin vs United States, 599 U.S.
Speaker B:110, 119 noting that such phrases are context sensitive as set forth above, context cuts decidedly against Respondents broad reading of section 106.
Speaker B:Respondents appeal to section 106 enactment history is similarly unavailing.
Speaker B: Since its adoption in: Speaker B:South representative number 95,989, at 29hr rep.
Speaker B:Number 95,595, at 317.
Speaker B: Nothing in the: Speaker B:See Department of Agriculture Rural Development Rural Housing Service v.
Speaker B:Kurts, 601,249 pages.
Speaker B:D.
Speaker B:Respondents remaining Arguments lack merit.
Speaker B:First, the Court's interpretation does not render section 106 waiver meaningless with respect to section 544.
Speaker B:Section 106A enables trustees to prevail against the government under section 544A, which has no actual creditor requirement because federal tax law separately provides that tax liens held by the federal government may be invalidated under particular circumstances.
Speaker B:C.
Speaker B: USC section: Speaker B:Section 106A allows trustees to avoid transfers of these tax liens.
Speaker B:Section 106 also grants federal courts jurisdiction to hear Section 544 claims against state governments that have consented to being sued under their fraudulent transfer statutes.
Speaker B: argument that because section: Speaker B:Many of the other 58 bankruptcy code provisions listed as a whole in section 106 include subsections that plainly do not implicate sovereign immunity at all.
Speaker B: espondents reliance on Kurt's: Speaker B:Kurtz involved a statute that bears little resemblance in text, structure, or operation to section 106 and indeed explicitly authorized claims against the government.
Speaker B:Nothing in Kurtz suggests that courts should presume, in the absence of explicit statutory language, that Congress has waived the government's sovereign immunity.
Speaker B:Finally, the court declines respondent's invitation to affirm on alternative grounds, leaving it to the courts below to decide whether respondent may pursue these arguments on remand.
Speaker B:Pp.
Speaker B:15 to 19 in response to Justice Gorsuch's dissent, the majority contends that Justice Gorsuch's analysis incorrectly interprets the interaction between section 106 and section 544B.
Speaker B:The court emphasizes that sovereign immunity waivers are jurisdictional in nature and do not create new substantive rights or alter existing ones.
Speaker B:Under the Majority's view, Section 106A grants courts jurisdiction to hear Section 544 claims against the government but does not modify the substantive requirement that a trustee identify an actual creditor capable of avoiding the transfer under applicable law, since sovereign immunity would bar any creditor from pursuing a claim against the government under Utah law.
Speaker B:Outside of bankruptcy, the Trustee cannot satisfy section 544B's actual creditor requirement regardless of whether section 106A waives immunity for the federal cause of action itself.
Speaker B:71F.
Speaker B:41247 reversed Justice Gorsuch's dissenting opinion.
Speaker C:Justice Gorsuch dissents, arguing that the majority confuses the doctrine of sovereign immunity with the requirement to state a cause of action.
Speaker C:He identifies three relevant statutory provisions, 11 USC Section 106, which waives government sovereign immunity with respect to Section 544 Section 544, which empowers bankruptcy trustees to avoid transfers voidable under applicable law, and Utah's fraudulent transfer statute, which supplies the applicable law in this case.
Speaker C: tive requirements and section: Speaker C:Justice Gorsuch distinguishes between the existence of a valid substantive claim, which he maintains exists under Utah law, and the government's ability to assert an affirmative defense of sovereign immunity.
Speaker C:He argues that Section 106 merely waives an affirmative defense in bankruptcy proceedings without modifying any elements of the underlying claim or creating any new substantive right.
Speaker C:For these reasons, Gorsuch agrees with the majority of circuits that have considered this question and would hold that bankruptcy trustees may avoid fraudulent transfers to the United states under section 544.
Speaker A:Analysis of interplay Between Opinions the fundamental disagreement between the majority and dissent centers on whether Section 106 sovereign immunity waiver extends to the state law claim that provides the applicable law underlying a section 544 avoidance action.
Speaker A:The majority views section 106A as merely jurisdictional, granting courts power to hear section 544 claims against the government without altering the substantive requirements of those claims.
Speaker A:Justice Gorsuch, by contrast, views the sovereign immunity defense as distinct from the elements of the claim itself, arguing that section 106 simply removes an affirmative defense that would otherwise be available to the government.
Speaker A:This case highlights a tension in bankruptcy law between preserving the traditional limits on a trustee's avoidance powers and effectuating Congress's decision to include section 544among the provisions for which sovereign immunity is waived.
Speaker A:The majority prioritizes adherence to the traditional understanding that section 544 merely allows trustees to step into the shoes of actual creditors subject to the same limitations those creditors would face outside bankruptcy.
Speaker A:The dissent, meanwhile, focuses on giving meaningful effect to Congress's inclusion of Section 544 in Section 106A's immunity waiver, arguing that the majority's interpretation renders that waiver largely meaningless with respect to section 544B.
Speaker A:This divergence reflects deeper questions about how to interpret sovereign immunity waivers and the proper scope of a bankruptcy trustee's avoidance powers when the government is the transferee.
