Equipment Acquisition Resources, Inc. v. United States (In Re Equipment Acquisition Resources, Inc.)
451 B.R. 454
Bankr. N.D. Ill.2011Background
- Debtor Equipment Acquisition Resources, Inc. filed a voluntary Chapter 11 petition; Brandt became plan administrator.
- Debtor conducted an investigation showing transfers to IRS totaling $4,737,260.66 from Oct 2007 to Dec 2008 to satisfy officers'/shareholders' tax liabilities.
- Eight transfers occurred within two years before petition; one transfer of $2,324,288 occurred just outside that two-year window.
- Amended adversary complaint added Count IV seeking avoidance/recovery of all nine payments under §544(b) and Illinois UFTA §5(a)(2).
- Settlement approved Feb. 1, 2011 resolved eight transfers; remaining transfer of $2,324,288 remained subject to Count IV.
- IRS moved to dismiss Count IV under Rule 12(b)(1) or for judgment on the pleadings under Rule 12(c); court denied and held sovereign immunity does not bar Count IV.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does §106(a)(1) abrogate sovereign immunity for Count IV under §544(b)? | Debtor relies on C.F. Foods and related cases to show abrogation permits state-law claims under §544(b). | United States contends sovereign immunity bars §544(b) state-law claims against the IRS. | Yes; §106(a)(1) abrogates sovereign immunity for §544(b) actions. |
| Is Illinois UFTA §5(a)(2) properly actionable under §544(b) against the United States? | Trustee may use state-law fraudulent-transfer rights as authorized by §544(b)(1). | Immunity applies because no unsecured creditor could sue the United States under Illinois law. | Yes; Illinois UFTA §5(a)(2) claims are actionable via §544(b) against the United States. |
Key Cases Cited
- C.F. Foods, L.P. v. United States, 265 B.R. 74 (Bankr. E.D. Pa. 2001) ( §106(a)(1) abrogates immunity for §544 state-law actions.)
- Custom Contractors, LLC v. United States, 439 B.R. 544 (Bankr. S.D. Fla. 2010) (Supports broad §106(a)(1) abrogation allowing trustee §544(b) actions.)
- Anton Motors, Inc. (Field v. Montgomery Cnty., Md.), 177 B.R. 58 (Bankr. D. Md. 1995) (Early view on §106(a) comprehensive waiver; later-cited authority.)
- Grubbs Construction Co. v. Florida Dept. of Revenue, 321 B.R. 346 (Bankr. M.D. Fla. 2005) (Sovereign immunity analysis tied to §544(b); distinguished in later decisions.)