Section 106(a) of the Bankruptcy Code waives sovereign immunity for certain claims, including those under § 544. But does this waiver allow a trustee to bring a suit against a governmental unit under § 544(b)(1) based on state law? Until recently, courts were split. To resolve the issue, the U.S. solicitor general filed a petition for certiorari in United States v. Miller,[1] arguing that trustees cannot avoid tax payments to the Internal Revenue Service (“IRS”) under § 544(b)(1) if no actual creditor could have obtained relief against the government under the applicable state fraudulent transfer law outside of bankruptcy.
On June 24, 2024, the Supreme Court granted certiorari,[2] and on March 26, 2025, it ultimately ruled in United States v. Miller that § 106(a) does not authorize trustees to bring fraudulent transfer claims against the government under § 544(b) unless an actual creditor could do so under state law.[3] This decision narrows trustees’ avoidance powers and impacts cases beyond tax-related transfers.
Facts
The respondent was the bankruptcy trustee of a failed Utah-based business debtor whose shareholders misappropriated $145,000 in company funds to satisfy their personal federal tax liabilities prepetition. The debtor received nothing in return for paying off those debts.
The respondent brought a fraudulent transfer action against the United States seeking to claw back the misappropriated funds for the benefit of the bankruptcy estate. He filed the action pursuant to § 544(b), 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.”[4] To avoid dismissal due to the two-year “look-back” period under a § 548 fraudulent transfer claim, the respondent invoked Utah’s then-applicable fraudulent transfer statute—which gives creditors a cause of action to invalidate certain transfers by a debtor—as the “applicable law” underlying his § 544(b) claim.[5]
The United States argued that the respondent’s § 544(b) claim failed. The 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 United States. The bankruptcy court disagreed, concluding that the scope of sovereign immunity waiver under § 106(a) includes waiver of sovereign immunity with respect to the Utah cause of action nested within the § 544(b) claim. On appeal, the district court adopted the bankruptcy court’s decision. The Tenth Circuit affirmed.
The Circuit Split
Fourth, Ninth, and Tenth Circuits
According to the Fourth, Ninth, and Tenth Circuits, § 106 unequivocally abrogates sovereign immunity for claims under § 544(b), including fraudulent transfer claims brought under state law.[6]
Seventh Circuit
According to the Seventh Circuit, the waiver of sovereign immunity in § 106 does not extend to a derivative § 544(b) claim based on state law.[7]
The Decision
The Supreme Court (8–1, Justice Jackson writing) reversed the Tenth Circuit and held that the waiver of sovereign immunity under § 106(a) does not extend to § 544(b) suits brought by a trustee under state law standing in the shoes of an actual creditor. The Court reasoned that precedent and “statutory text, context, and structure” all demonstrate that waivers of sovereign immunity (whether under § 106(a) or otherwise) are prerequisites for jurisdiction.[8]
With respect to precedent, the Court previously held that waiver of sovereign immunity empowers courts to hear claims against the government. But that waiver does not create any new substantive rights against the government.[9]
Even the plain language of § 106(a)(5) provides that “[n]othing in this section shall create any substantive claim for relief or cause of action not otherwise existing under this title, the Federal Rules of Bankruptcy Procedure, or nonbankruptcy law.”[10] Likewise, the history of § 544(b) supports the same outcome. Section 544(b) was expressly “derived” from § 70e of the Bankruptcy Act of 1898, which gives trustees the same rights as creditors under state law.
When considering the lawsuit’s context, the Court acknowledged a critical undisputed fact in the record. The parties had agreed that, outside of the bankruptcy proceedings, the government could invoke the defense of sovereign immunity to bar any lawsuit against it seeking to invalidate a federal tax payment under a state’s fraudulent transfer law.
Applying this framework, the Court concluded that the waiver of sovereign immunity under § 106(a) does not create a new way for the government to be sued. In other words, the government is subject to claims brought by a trustee under § 544(b). Yet the government would enjoy immunity for the underlying state law claim in a hypothetical suit brought by an actual creditor of the estate.
The dissent argued that the Court “confus[es]” sovereign immunity doctrine with the requirement of stating a cause of action.[11] According to the dissent, no basis exists for treating state-law avoidance claims differently just because the defendant is the government. Congress, the dissent argued, merely chose to waive an affirmative defense to an otherwise valid claim in one setting, but not another. Can the government defeat a fraudulent transfer claim by raising sovereign immunity as an affirmative defense? Yes, when a private creditor pursues relief in a court other than bankruptcy court. No, when a trustee pursues relief in bankruptcy court. With this sort of analysis, according to the dissent, no substantive claim for relief is created, and no elements of any claim are modified.[12] Notably, the dissent’s analysis is based on the undisputed fact that “[n]o one disputes that a fraudulent transfer took place.”[13]
Implications of Miller
Ultimately, the Supreme Court in Miller held that the waiver of sovereign immunity under § 106(a) does not enable a trustee to file a derivative suit against a governmental unit under § 544(b)(1) of the Bankruptcy Code. Miller, along with the cases discussed therein, involved payment transfers to satisfy federal tax liabilities. Thus, arguably, the Miller ruling may narrow trustees’ avoidance powers in matters that concern other sorts of payments to governmental units, especially when those matters are premised on state law. Those payments could include payments of restitution, civil penalties, fines, and the like.
Also, the respondent argued that it could have secured a Utah-law judgment against the United States under “applicable law.”[14] That judgment could have confirmed that the transfers to the IRS were voidable without the trustee having to sue the government or otherwise implicate sovereign immunity. However, the Court declined to consider those arguments because the respondent failed to raise them below.
The United States also raised arguments based on preemption and the Appropriations Clause of the U.S. Constitution. Although those were arguments raised below, the Supreme Court ultimately did not reach them on appeal. Notwithstanding, those arguments could present additional bases to narrow trustees’ avoidance powers against the United States further.
Any opinions and views expressed herein are Ms. Momoh’s own and not of the United States Attorney’s Office for the District of Minnesota or the United States Department of Justice.
Petition for a Writ of Certiorari, United States v. Miller, No. 23-824, 2024 WL 382516 (Jan. 29, 2024). ↑
United States v. Miller, 144 S. Ct. 2678 (2024). ↑
United States v. Miller, 604 U.S. 518 (2025). ↑
11 U.S.C. § 544(b)(1) (emphasis added). ↑
Utah Code § 25-6-305(1) (as currently codified) (“A claim for relief regarding a transfer or obligation under this chapter is extinguished unless action is brought: . . . under Subsection 25-6-202(1)(a), no later than four years after the transfer was made or the obligation was incurred or, if later, no later than one year after the transfer or obligation was or could reasonably have been discovered by the claimant[.]”). ↑
See, e.g., Miller v. United States, 71 F.4th 1247 (10th Cir. 2023) (focusing on the wording of § 106 and holding Bankruptcy Code’s abrogation of sovereign immunity applied, not only to the section of the Code permitting Chapter 7 trustee to “step into the shoes” of an actual unsecured creditor to avoid transfers that were voidable outside of bankruptcy under applicable state law, but also to the underlying state-law fraudulent transfer cause of action relied upon by trustee to avoid the transfers), cert. granted, 144 S. Ct. 2678 (2024); Cook v. United States (In re Yahweh Ctr., Inc.), 27 F.4th 960, 966 (4th Cir. 2022) (holding that IRS does not have sovereign immunity to escape liability for an avoidable transfer claim (receipt of tax penalties) under § 544(b) and that by filing a proof of claim, the IRS waived sovereign immunity with respect to that claim); Zazzali v. United States (In re DBSI, Inc.), 869 F.3d 1004, 1013 (9th Cir. 2017) (“Congress unambiguously and unequivocally waived sovereign immunity for causes of action brought under § 544(b)(1). To construe the statutes in the manner in which the government proposes would be to ignore the plain text of § 106(a)(1), something we are not at liberty to due [sic].”). ↑
See In re Equip. Acquisition Res., Inc., 742 F.3d 743, 748 (7th Cir. 2014) (“Nothing in § 106(a)(1) gives the trustee greater rights to avoid transfers than the unsecured creditor would have under state law. By concluding that § 106(a)(1) did just that, the courts below erred.”). ↑
Miller, 604 U.S. at 527. ↑
FDIC v. Meyer, 510 U.S. 471, 475 (1994); see also MOAC Mall Holdings LLC v. Transform Holdco LLC, 598 U.S. 288, 297 (2023) (Jackson, J.) (“An unmet jurisdictional precondition deprives courts of power to hear the case, thus requiring immediate dismissal.”). ↑
11 U.S.C. § 106(a)(5). ↑
Miller, 604 U.S. at 539. ↑
Id. at 541 (Gorsuch, J., dissenting). ↑
Id. ↑
Id. at 518. ↑
