BANKRUPTCY CORNER
BANKRUPTCY CORNER
Sovereign Immunity Not Waived As To All Underlying Substantive Requirements
JASON S. RIGOLI
On March 26, 2025, the United States Supreme Court issued and 8-1 decision in United States v. Miller, Case No. 23- 824, 2025 U. S. LEXIS 1279( 2025), resolving a circuit split about the scope of the sovereign immunity waiver found in 11 U. S. C. § 106( a) as applied to 11 U. S. C. § 544( b).
Section 106( a)( 1) abrogate sovereign immunity as to governmental units“ with respect to 59 different provisions of the Bankruptcy Code, including § 544.” 2025 U. S. LEXIS 1279 at * 12( quoting 11 U. S. C. § 106( a)( 1)). Section 544( b) authorizes 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.” Id. at * 9( quoting 11 U. S. C. § 544( b)( 1)). Section 544( b)( 1) requires the trustee“ identify an actual creditor or creditors who could have set aside the transaction in question under applicable law. Id. at * 10( internal quotation marks and citations omitted). 544( b)( 1) does not give a trustee any greater rights than the actual creditor would have by asserting the claim on its own. Id. at * 10-11.( citation omitted).
In Miller, the trustee, as is common in most bankruptcy cases, sued the United States to avoid a payment to IRS by a corporate debtor on behalf of the debtor’ s principal invoking state fraudulent transfer laws of Utah by way of 11 U. S. C. § 544( b)( 1), and identifying a private creditor as the party from whom the trustee was deriving the estate’ s authority to avoid the transfer. This is where the split has occurred. Outside of bankruptcy a private, general unsecured creditor could not sue the United States to avoid and recover a fraudulent transfer using Utah or any other state’ s fraudulent transfer laws because of sovereign immunity. Is the abrogation of sovereign immunity in § 106( a) a blanket waiver which includes the underlying substantive claim, or is a
separate analysis required with respect to the underlying claim being asserted? In Miller, the Supreme Court held the latter. If the“ actual creditor” could not assert the claim against the United States on its own outside of bankruptcy, then § 106( a) did not act to“ alter the substantive meaning of § 544( b)’ s“ applicable law” clause by providing a waiver of immunity that would not otherwise exist under the external source of law.” Id. at * 14.
The Miller opinion is not limited to the United States government, § 106( a) applies to“ governmental units,” which includes arms of each fifty states. For example, Florida has not waived sovereign immunity as to claims under Florida’ s Uniform Fraudulent Transfer Act, Chapter 726, Florida Statutes. Therefore, under Miller a trustee’ s claim under § 544( b) identifying a private party as the“ actual creditor” from whom the standing is derived is equally subject to a sovereign immunity defense.
Conclusion
While the Miller opinion may limit the estate’ s ability to avoid and recover certain fraudulent transfers made to governmental units, it is by no means the end of the death knell for estates. Miller does not apply to fraudulent transfer claims brought under 11 U. S. C. § 548, which limits to claw-back period to two years, or to preference claims brought pursuant to 11 U. S. C. § 547. For those claims exceeding two years, trustees can seek relief against the parties for whose benefit the transfers to the governmental unit were made.
This article was submitted by Jason S. Rigoli, Esq., Furr and Cohen, P. A., 2255 Glades Road, Suite 419A, Boca Raton, FL 33431, jrigoli @ furrcohen. com
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