Summary
The Supreme Court held that Section 106(a) of the Bankruptcy Code waives the federal government's sovereign immunity only for the federal avoidance claim under §544(b), not for the underlying state-law claims that supply the applicable law. Because sovereign immunity bars an actual creditor from suing the government under state fraudulent-transfer statutes, a bankruptcy trustee cannot satisfy the actual creditor requirement to avoid transfers made to pay personal federal tax liabilities. The Court reversed the Tenth Circuit's decision.
Topics
Practice areas
Questions Presented
- Whether §106(a) waives sovereign immunity for state‑law claims nested within a §544(b) bankruptcy avoidance action.
- Whether the waiver applies only to the federal §544(b) cause of action itself.
Holdings
- Section 106(a)’s sovereign‑immunity waiver applies only to the §544(b) claim itself and not to any state‑law claims nested within that federal claim.
- The decision of the Tenth Circuit is reversed and the case is remanded.
Key quotations
“Section 106(a)’s sovereign‑immunity waiver applies only to the §544(b) claim itself and not to any state‑law claims nested within that federal claim.” (at 604 U.S. ____ (2025) 1)
“Waivers of sovereign immunity function simply as “prerequisite[s] for jurisdiction”—they do not create any new substantive rights or alter any pre‑existing ones.” (at 604 U.S. ____ (2025) 3)
Factual background
A Utah‑based transportation business collapsed after two shareholders misappropriated $145,000 of company funds to pay their personal federal tax liabilities. The bankruptcy trustee filed an avoidance action under §544(b) against the United States, invoking Utah’s fraudulent‑transfer statute as the applicable law.
Procedural history
The Bankruptcy Court entered judgment for the trustee, the District Court affirmed, and the Tenth Circuit affirmed. The Supreme Court granted certiorari.
Remand instructions
The case is remanded for further proceedings consistent with this opinion.