College Columns December 2021 - Page 28

The Splits continued from page 27
established history , id . at 1011 , “ Congress unambiguously and unequivocally waived sovereign immunity for causes of action brought under Section 544 ( b )( 1 ).” Id . at 1013 .
The majority of lower courts have adopted the reasoning of the Ninth Circuit , and while the Tenth Circuit has yet to weigh into the debate , a recent decision in the Utah Bankruptcy Court , affirmed by the Utah District Court , previews a possible addition of another Circuit to the Ninth Circuit ’ s camp . In re All Resort Grp ., Inc ., 617 B . R . at 375 , aff ’ d U . S . v . Miller , 2:20-CV-00248-BSJ ( D . Utah Sep . 8 , 2021 ). To the arguments already articulated in the two Circuit decisions , the Utah Bankruptcy Court added its own interpretation of the unequivocal and unambiguous language of Sections 106 ( a )( 1 ) and 544 ( b )( 1 ). Noting that the “ nature of the dispute has to do with the peculiar characteristics of a Section 544 ( b ) claim ,” In re All Resort Grp ., Inc ., 617 B . R . at 385 – 86 , the question then became “ whether § 106 ( a )( 1 ) ‘ abrogates sovereign immunity as to § 544 ( b )( 1 ), including the underlying state law cause of action ,’ or whether the waiver does not apply to that underlying law .” Id . at 386 ( quoting Zazzali , 869 F . 3d at 1013 ). The court then concluded :
[ T ] he plain text of § 106 ( a )( 1 ) unequivocally abrogates sovereign immunity as to the underlying state law cause of action . The statute contains no exceptions , qualifiers , or carve-outs in its language , “ indicating a clear legislative intent to be as broad as possible in abrogating sovereign immunity in the bankruptcy context .” Id . ( quoting Jamestown S ’ Klallam Tribe v . McFarland , 579 B . R . 853 , 857 ( E . D . Cal . 2017 )).
The Court emphasized that “ Congress placed marked emphasis on the breadth of the statute by choosing the critical phrase ‘ with respect to ,’” citing to the Supreme Court ’ s past construction of “ with respect to ” as expansive . Id . Arguing for a consistent application of both Sections 106 ( a )( 1 ) and 106 ( a )( 3 ) to Section 544 ( b ), the Court found that , in order to achieve “ the most harmonious result ” between the two subsections , based on the “ cardinal principle of statutory construction that a statute ought , upon the whole , to be so construed that , if it can be prevented , no clause , sentence or word shall be superfluous , void or insignificant ,” both subsections of Section 106 must apply equally to Section 544 ( b ). Id . at 388 ( internal quotation marks and citation omitted ). This interpretation ended any conclusion that there was a “ sovereign immunity ‘ tie ’” in the case that favored the government ’ s position . Id . Finally , the Court pointed out that , if Congress had intended to preempt state law fraudulent transfer claims incorporated through Section 544 ( b ), it knew how to do so as demonstrated by Section 544 ( b )( 2 ) and had not done so . Id . at 393 .
If the Utah Bankruptcy and District Court views are adopted by the Tenth Circuit , the Ninth Circuit will become the majority view . But if the Seventh Circuit ’ s reading of the statute prevails as the majority view and if Congress meant what it said on its broad view of the waiver of sovereign immunity in bankruptcy , then Congress may , once again , have to rewrite Section 106 with the hope that the “ third time ’ s the charm .”
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