United States v. Miller (No. 23-824)
Summary
The Supreme Court case United States v. Miller (2025) addresses the scope of sovereign immunity waivers in bankruptcy proceedings, specifically concerning fraudulent transfers. The Court held that §106(a) of the Bankruptcy Code waives sovereign immunity only for the federal cause of action created by §544(b), not for underlying state-law claims. This decision clarifies the interplay between federal bankruptcy law and state fraudulent transfer statutes when the federal government is involved.
The ruling reverses the Tenth Circuit's decision, reinforcing the principle that waivers of sovereign immunity should be narrowly construed. It emphasizes that §106(a) is a jurisdictional provision and does not create new substantive rights against the government. The case involved a bankruptcy trustee attempting to recover funds from the IRS, arguing that a state fraudulent transfer law applied, but the Supreme Court disagreed.
Justice Jackson delivered the opinion, with Justice Gorsuch dissenting. The ruling hinged on interpreting the phrase "with respect to" in §106(a)(1) and its impact on the actual-creditor requirement in §544(b).
Expected Effects
This decision will likely make it more difficult for bankruptcy trustees to recover funds from the federal government in cases involving fraudulent transfers. Trustees will need to identify an actual creditor who could have successfully sued the government under state law outside of bankruptcy proceedings, a hurdle that sovereign immunity often makes insurmountable. This could reduce the amount of assets available to creditors in bankruptcy cases where the government received fraudulent transfers.
It clarifies the limits of sovereign immunity waivers in bankruptcy, preventing the expansion of trustee powers beyond what is explicitly granted by Congress. The ruling reinforces the traditional understanding that waivers of sovereign immunity are jurisdictional and do not create new substantive rights.
Lower courts will need to re-evaluate cases involving similar claims, and bankruptcy trustees will need to adjust their strategies when pursuing fraudulent transfer claims against the government. The decision may also prompt Congress to consider whether to amend the Bankruptcy Code to provide a clearer waiver of sovereign immunity in such cases.
Potential Benefits
- Protects taxpayer funds: By making it harder to recover funds from the government, the decision helps ensure that taxpayer money is not easily clawed back in bankruptcy proceedings.
- Upholds sovereign immunity: The ruling reinforces the important principle of sovereign immunity, which protects the government from lawsuits unless it explicitly consents.
- Provides clarity: The decision clarifies the scope of §106(a), reducing uncertainty and potential litigation over the issue of sovereign immunity in bankruptcy cases.
- Limits expansion of trustee powers: The ruling prevents bankruptcy trustees from exceeding the powers granted to them by Congress, ensuring a balance between creditor rights and government protections.
- Reinforces jurisdictional limits: The decision reaffirms that waivers of sovereign immunity are jurisdictional and do not create new substantive rights.
Most Benefited Areas:
Potential Disadvantages
- Reduces creditor recovery: By making it more difficult to recover funds from the government, the decision could reduce the amount of assets available to creditors in bankruptcy cases.
- May incentivize fraudulent transfers to the government: The ruling could create an incentive for debtors to make fraudulent transfers to the government, knowing that it will be harder for trustees to recover those funds.
- Increases complexity for trustees: Trustees will need to carefully analyze state law and sovereign immunity issues before pursuing fraudulent transfer claims against the government, increasing the complexity and cost of bankruptcy proceedings.
- Potentially unfair to creditors: Some may argue that the decision is unfair to creditors who are harmed by fraudulent transfers to the government, as it limits their ability to recover those funds.
- May require legislative action: If Congress disagrees with the Court's interpretation, it may need to amend the Bankruptcy Code to provide a clearer waiver of sovereign immunity.
Constitutional Alignment
The decision aligns with the principle of sovereign immunity, which is rooted in the Constitution's structure and the inherent nature of government. While not explicitly mentioned, the concept is tied to the idea that the government cannot be sued without its consent, protecting its ability to function effectively. This aligns with the overall structure of the Constitution, which establishes a framework for government operations.
The ruling also respects the separation of powers, as it interprets a statute passed by Congress (the Bankruptcy Code) and avoids expanding the scope of a waiver of sovereign immunity beyond what Congress clearly intended. This upholds the legislative authority of Congress to determine the extent to which the government can be sued.
However, some might argue that the decision could potentially conflict with the Fifth Amendment's Takings Clause if it allows the government to retain fraudulently transferred assets at the expense of creditors. This is a potential area of concern, though the Court did not directly address it.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).