United States v. Miller
The Supreme Court ruled 8-1 that the Bankruptcy Code's waiver of the federal government's immunity from lawsuits covers only the federal bankruptcy claim itself — not the underlying state-law fraud claims that define what a trustee must prove to win.
The decision makes it much harder for bankruptcy trustees to recover money that was transferred to the federal government before a company went bankrupt, resolving a long-running split among federal appeals courts.
How it got here: The Bankruptcy Court ruled for the trustee; the District Court affirmed; the Tenth Circuit affirmed; the United States asked the Supreme Court to hear the case to resolve a split among the federal appeals courts.
The Case in Depth
What happened
A Utah transportation company went bankrupt after two of its shareholders misappropriated $145,000 in company funds to pay their own personal federal income tax bills. The company received nothing in return. The company's bankruptcy trustee sued the United States to recover that money for the benefit of the company's other creditors, arguing that Utah's fraudulent-transfer law entitled him to set aside the payments.
The question before the Court
Can a bankruptcy trustee use the Bankruptcy Code's waiver of the federal government's immunity from lawsuits to sue the government under a state's fraud law, even though the government would normally be immune from that state-law claim outside of bankruptcy?
The Court's answer
No — the Bankruptcy Code's immunity waiver (§106(a)) opens the courthouse door for the federal bankruptcy claim created by §544(b), but it does not change the substantive requirements that claim imposes on the trustee. Under §544(b), a trustee can only set aside a transfer if an actual creditor could have challenged it under state law outside of bankruptcy. Because the federal government's immunity would have blocked any creditor from suing it under Utah's fraud law outside bankruptcy, the trustee cannot point to an "actual creditor" capable of winning that claim — and the immunity waiver does not cure that gap.
The Court also found a self-limiting clause in §106(a) itself, which says explicitly that nothing in that section "shall create any substantive claim for relief or cause of action not otherwise existing." Reading the waiver to reach the underlying state-law fraud claim would give the trustee a new substantive right against the government that does not exist anywhere else in the law — exactly what Congress said §106(a) would not do.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Bankruptcy trustees who discover that a failing company paid money to the federal government — for example, using company funds to pay shareholders' personal tax bills — will generally be unable to claw that money back through the Bankruptcy Code's fraud-avoidance process. The government can still defeat such claims by pointing out that no creditor could have challenged the transfer under state law, since the government's immunity would have blocked any such state-law suit outside bankruptcy.
What changes now
The case is sent back to the lower courts. The trustee may pursue an alternative argument — raised for the first time at the Supreme Court — that he can satisfy §544(b)'s actual-creditor requirement by pointing to the two shareholders who orchestrated the payments rather than the government itself, since those individuals are not protected by sovereign immunity. The Supreme Court expressed no view on whether that approach succeeds under Utah law or the Bankruptcy Code.
What this does not decide
The Court did not decide whether the trustee can meet §544(b)'s actual-creditor requirement by suing the shareholders who benefited from the payments rather than the government directly. It also left open the government's separate arguments about preemption and the Appropriations Clause. Those questions return to the lower courts on remand.
Concurrences and dissents
Dissent — Justice Gorsuch
Justice Gorsuch argued the majority confuses sovereign immunity — an affirmative defense — with the substantive elements of the fraud claim itself. In his view, the underlying fraudulent transfer was undisputedly valid under Utah law; §106(a) simply bars the government from invoking immunity as a defense in the bankruptcy proceeding. That does not change what the trustee must prove; it only removes one defense the government could otherwise raise. He would have sided with the majority of circuits that had ruled in the trustee's favor.
How the Court got there
The legal reasoning, step by step
- Sovereign-immunity waivers are purely jurisdictional tools: they allow courts to hear cases against the government but do not create new legal rights or change what a claimant must prove. The Court applied this baseline principle to §106(a) of the Bankruptcy Code, which waives the government's immunity 'with respect to' a list of bankruptcy provisions including §544.
- Section 106(a)(5) contains an explicit self-limiting clause stating that nothing in that section 'shall create any substantive claim for relief or cause of action not otherwise existing' under some other law. The Court read this as a built-in confirmation that the waiver only opens the courthouse door — it does not rewrite the elements of the underlying claim.
- The structure of §544 itself reinforced that conclusion. Section 544(a) lets a trustee avoid certain transfers even 'whether or not such a creditor exists,' while §544(b) specifically requires identifying an actual creditor who could have challenged the transfer under applicable state law outside bankruptcy. This deliberate contrast shows Congress wanted the §544(b) trustee to stand in a creditor's shoes — no better positioned than that creditor would be.
- Decades of bankruptcy practice and precedent treat §544(b) trustees as subject to the same defenses and limitations that would apply to the creditor they are stepping in for. Reading §106(a) to strip the government's immunity defense on the state-law claim would give the trustee greater rights than any actual creditor — a result that conflicts with this long-settled understanding.
- The Court applied the rule that sovereign-immunity waivers must be construed narrowly, with all ambiguities resolved in the government's favor. Because §106(a) does not 'unmistakably clearly' waive immunity for state-law claims nested within §544(b)'s 'applicable law' clause, the narrower reading controls.
- The Court also rejected the trustee's argument that the phrase 'with respect to' in §106(a) sweeps broadly enough to cover the underlying state-law elements. That phrase is highly context-sensitive, and the surrounding statutory context — including §106(a)(5)'s self-limiting clause and the narrow-construction canon for immunity waivers — decisively cuts against the expansive reading.
Doctrinal impact
Cases affected by this decision
Distinguishes Kirtz (601 U.S. 42)
Kirtz involved a statute that explicitly authorized suits against the government; §106(a) does not, so Kirtz does not support expanding the immunity waiver here.
Reaffirms FAA v. Cooper (566 U.S. 284)
Reaffirmed the rule that ambiguities in the scope of sovereign-immunity waivers must be resolved in the government's favor.