Supreme Court weighs whether bankruptcy waiver lets trustees sue government over old transfers

The Supreme Court heard argument in United States v. Miller on whether a bankruptcy trustee may use 11 U.S.C. §544(b) to recover transfers to the United States when sovereign immunity would have blocked a state‑law avoidance suit outside bankruptcy.

Miss Dubin, counsel (first argument), told the court that "this trustee's claim is time barred," and that the trustee's reliance on §544(b) fails because that provision permits the trustee to "step into the creditor's shoes" only when a real‑world creditor could have avoided the transfer under state law. She said §106(a) is a waiver of sovereign immunity for listed code sections but "plainly does not waive immunity for a state law claim outside bankruptcy," and it does not alter the substantive prerequisites of the incorporated provisions.

The government's argument focused on the interaction between §548, which generally carries a two‑year federal lookback, and §544(b), which incorporates state law avoidability and in many states carries longer limitations periods. Counsel urged the court to preserve Congress's choice of repose in §548 and decline a reading of §106(a) that would let a trustee "circumvent the code's two year lookback period" when sovereign immunity would have barred a predicate state‑law action.

Trustee counsel Miss Blatt countered that §106(a)'s waiver "with respect to §544" permits trustees to avoid fraudulent transfers inside bankruptcy "even though sovereign immunity applies outside bankruptcy." Blatt said Congress specifically enumerated the affected sections and could not plausibly have intended a requirement that the government both waive immunity and be subject to state law elements by a second, separate waiver.

Throughout the argument, justices pressed both sides on statutory text and consequences. One justice described a hypothetical "playbook for fraud" and asked whether a trustee's theory would allow insiders to escape liability if the trustee can recover from the IRS but cannot pursue insiders because of statutes of limitation. The government responded that its reading better preserves a regime in which creditors and trustees pursue insiders outside the bankruptcy lookback when appropriate.

The bench also probed precedent and practical mechanics. Counsel discussed Moore v. Bay and related cases about whether a trustee can sometimes recover more than a single creditor could, and whether §106(a) should be read to waive immunity only as to federal statutory causes of action or also as to state‑law elements imported into those claims.

Miss Dubin, in rebuttal, clarified that §544(a) operates differently because some priority rules — for example, the tax‑lien priority rule codified at 26 U.S.C. §6323 — operate without a suit and that §106(a) allows those federal code provisions to be enforced in bankruptcy. She reiterated the government's primary position that §544(b) "doesn't come into play unless a transfer is already voidable under state law," and where state law would have barred an action against the United States, §544(b) should not be available to circumvent federal repose.

The argument turned on two central interpretive questions: whether Congress's explicit, section‑by‑section waiver in §106(a) was intended to allow trustees to invoke incorporated state‑law elements against governments without a further waiver of state sovereign immunity, and how to reconcile that reading with the uniform, long‑standing understanding that §544(b) requires an "actual creditor" who could have brought the cause of action under state law. The justices repeatedly asked whether resolving that textual question would require the Court to reach constitutional issues about state sovereign immunity or instead could be resolved on statutory grounds.

The case was submitted.

Next steps: The Court will issue a decision after conference and opinion drafting; no further argument was scheduled at the end of the session.