Supreme Court Narrows Sovereign Immunity Waiver

In an 8–1 decision authored by Justice Ketanji Brown Jackson, the US Supreme Court held in United States v. Miller that the federal government’s sovereign immunity is not waived for underlying state-law claims that support a bankruptcy trustee’s action under Section 544(b) of the Bankruptcy Code.

The Court reversed the Tenth Circuit’s decision, ruling that Section 106(a)’s waiver of sovereign immunity applies only to the trustee’s statutory avoidance power under Section 544(b), not the state-law causes of action that underpin such claims.

The case arose from the bankruptcy of a Utah-based transportation company whose owners had used company funds to pay off personal IRS debts. The trustee sought to avoid these transfers under Utah’s fraudulent transfer law, invoking Section 544(b) of the Bankruptcy Code.

Lower courts found that sovereign immunity had been waived under Section 106(a), allowing the trustee to proceed against the United States.

The Supreme Court disagreed. It concluded that Section 106(a) does not extend sovereign immunity waivers to the state-law claims a trustee may rely on to invoke Section 544(b).

The Court emphasized that sovereign immunity waivers must be narrowly construed and do not alter the substantive requirements of statutory claims. Here, the trustee failed to identify an actual unsecured creditor who could sue the government, rendering the Section 544(b) claim deficient.

For attorneys counseling clients in bankruptcy proceedings, Miller underscores the importance of closely analyzing the scope of statutory waivers of sovereign immunity. Counsel should assess whether equitable relief might be available and ensure that any attempt to sue the United States for money damages rests on a clearly established and narrow statutory waiver.