Facts of the Case
In 2014, All Resorts Group, Inc. paid $145,138.78 to the Internal Revenue Service to cover personal tax debts of two of its principals. The company filed for Chapter 7 bankruptcy in 2017. Subsequently, the United States Trustee initiated an adversary proceeding against the United States to avoid these transfers, relying on Section 544(b)(1) of the Bankruptcy Code and Utah's Uniform Fraudulent Transfer Act. The United States did not contest the substantive elements required to establish a voidable transfer but argued that sovereign immunity would bar an actual creditor from avoiding the tax payments outside of bankruptcy. This prevented the Trustee from satisfying the "actual creditor requirement" of Section 544(b)(1). The Trustee countered that the sovereign immunity waiver in Section 106(a) of the Bankruptcy Code applied not only to the adversary proceeding but also to the underlying state law cause of action. The bankruptcy court ruled in favor of the Trustee, and both the district court and the U.S. Court of Appeals for the Tenth Circuit affirmed.
Questions
May a bankruptcy trustee avoid a debtor’s tax payment to the United States under 11 U.S.C. § 544(b) when no actual creditor could have obtained relief under the applicable state fraudulent-transfer law outside of bankruptcy?
Conclusions
-
Section 106(a) of the Bankruptcy Code abrogates the Government’s sovereign immunity with respect to a §544(b) claim but that waiver does not extend to state-law claims nested within that federal claim. Justice Ketanji Brown Jackson authored the 8-1 majority opinion of the Court.
The Bankruptcy Code allows trustees to “step into the shoes” of actual creditors to invalidate certain asset transfers, but only if the applicable law permits such action. Sovereign immunity blocks enforcement of state-law fraudulent-transfer claims against the federal government unless Congress has unambiguously waived that immunity. Section 106(a) grants courts jurisdiction to hear certain bankruptcy claims against the government, including §544(b) claims, but it explicitly states that it does not create any new substantive rights or causes of action. Because §544(b) requires that an identifiable unsecured creditor could have prevailed under applicable law outside bankruptcy, and because sovereign immunity would bar that creditor’s state-law suit against the federal government, the trustee cannot rely on §544(b) to void the transfer here.
The Court rejected the trustee’s arguments that the phrase “with respect to” in §106(a) broadened the waiver and that legislative history supported a more expansive reading. Instead, the Court emphasized that sovereign immunity waivers must be interpreted narrowly and that nothing in the statutory text clearly waived immunity for the necessary underlying state-law cause of action. Because no “actual creditor” could sue the federal government under Utah law, the trustee’s §544(b) claim fails.
Justice Neil Gorsuch authored a dissenting opinion.
Structure Over Spectacle: The Supreme Court's 2024 Term
Federalist Society Review, Volume 26
After several years of headline-grabbing decisions that reshaped national political debate—from abortion and affirmative action...
A Seat at the Sitting - December 2024
The December Docket in 90 Minutes or Less
Each month, a panel of constitutional experts convenes to discuss the Court’s upcoming docket sitting...
A Seat at the Sitting - December 2024
The December Docket in 90 Minutes or Less
Each month, a panel of constitutional experts convenes to discuss the Court’s upcoming docket sitting...
Text-and-History or Means-End Scrutiny? A Response to Professor Nelson Lund's Critique of Bruen
Federalist Society Review, Volume 24
Professor Nelson Lund’s “Bruen’s Preliminary Preservation of the Second Amendment,” recently published in the Federalist...
The Second Amendment protects 'weapons of war'
Editor's note: This post was first published in The Washington Examiner, and is republished here...
To Bear Arms for Self-Defense: A “Right of the People” or a Privilege of the Few? Part 2
Federalist Society Review, Volume 21
Note from the Editor: The Federalist Society takes no positions on particular legal and public...
The Third Party Doctrine and Carpenter v. United States - Podcast
Criminal Law & Procedure Practice Group Podcast
According to the Fourth Amendment, “The right of the people to be secure in their...
Fourth Circuit misinterprets Supreme Court 2nd Amendment precedent
In Kolbe v. Hogan, the Fourth Circuit, sitting en banc, became the first Federal Circuit...
The Sandbagging Phenomenon: How Governments Lower Eminent Domain Appraisals to Punish Landowners
Federalist Society Review, Volume 17, Issue 3
Note from the Editor: This article discusses a controversial practice known as “sandbagging” in eminent...
StingRay Technology and Reasonable Expectations of Privacy in the Internet of Everything
Federalist Society Review, Volume 17, Issue 1
Note from the Editor: This article discusses cell site simulators, also known as StingRays, and...
Massachusetts Stun Gun Laws at SCOTUS
On Monday, in Caetano v. Massachusetts, the Supreme Court issued a per curiam opinion vacating...
Bar Watch Bulletin August 8, 2008
Heller, Individual Rights, Terrorism, Rule of Law, the ICC, and Judicial Criticism
The American Bar Association's Annual Meeting will be taking place from August 7-12 in New...
Parker v. District of Columbia: DC Gun Ban Case
Online Debate
Earlier this year, the U.S. Court of Appeals for the District of Columbia Circuit ruled...
Dennis A. Henigan is the Vice President of the Brady Center to Prevent Gun Violence and Founder of its Legal Action Project. He is the author of Lethal Logic: Exploding the Myths that Paralyze American Gun Policy (Potomac Books 2009). 
