Hillen v. City of Many Trees (In re CVAH, Inc.), 570 B.R. 816

Background

CVAH, a veterinary practice, filed chapter 7 bankruptcy on May 27, 2014, owing about $1.5 million in taxes to IRS and Idaho State Tax Commission.
In the six years before the petition CVAH made numerous payments from its accounts to defendants (banks, utilities, a landlord), allegedly to satisfy third‑party/personal debts of CVAH’s owner and family.
Trustee Noah Hillen (chapter 7 trustee) sued to avoid and recover those transfers as constructively and actually fraudulent under multiple theories, including § 544(b)(1) stepping into IRS’s shoes.
Trustee pleaded three claims: (1) avoidance via FDCPA (28 U.S.C. §§ 3301–3308) reach‑back (6 years), (2) avoidance invoking IRC collection provisions (including § 6901/§ 6502), and (3) state UFTA claims (Idaho Code §§ 55‑913/914) (4‑year look‑back).
Defendants moved to dismiss Claims One and Two, arguing § 544(b)(1) does not permit a trustee to invoke FDCPA/IRC extended look‑back periods, and that trustees cannot exercise IRS’s sovereign immunities or collection mechanisms.
The court held the motions to dismiss claims 1 and 2 should be denied.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether FDCPA and IRC are “applicable law” under § 544(b)(1)	Trustee: § 544(b)(1) allows stepping into IRS’s shoes and invoking federal statutes IRS could use outside bankruptcy	Defendants: “Applicable law” should not include these federal statutes or they conflict with Title 11	Court: § 544(b)(1) plain language is broad; FDCPA and IRC may be used if the triggering creditor (IRS) could use them outside bankruptcy
Whether FDCPA § 3003(c) (not to “modify Title 11”) bars trustee use of FDCPA look‑back	Trustee: §3003(c) doesn’t prohibit a trustee invoking FDCPA when IRS could do so; §544 is enabling, not modified	Defendants: Using FDCPA’s 6‑year rule would modify Title 11 and FDCPA is for U.S. only	Court: Adopts majority view — invoking FDCPA via §544(b)(1) does not modify Title 11 and FDCPA can be “applicable law” here
Whether trustee can rely on IRC (§6901/§6502) to avoid transfers	Trustee: Trustee can step into IRS’s shoes and use IRC collection remedies/limitations	Defendants: §6901 is an administrative assessment mechanism; trustee cannot perform IRS assessment or claim sovereign protections; trustee must be bound by state SOLs	Court: §6901 is procedural and not the proper route here; but trustee may nevertheless rely on state UFTA (and IRC collection rights generally) via §544(b)(1); trustee is not barred by inability to assess
Whether trustee is immune from state statute‑of‑limitations (nullum tempus) when standing in IRS’s shoes	Trustee: §544(b)(1) lets trustee inherit IRS’s rights, including immunity from state extinguishment periods when IRS could avoid transfers	Defendants: Nullum tempus protects sovereign public rights only; trustee is not sovereign and should be bound by state limits (Vaughan)	Court: Adopts majority — trustee, standing in IRS’s shoes under §544(b)(1), benefits from the same immunity from state extinguishment periods that IRS would have

Key Cases Cited

Acequia, Inc. v. Clinton, 34 F.3d 800 (9th Cir. 1994) (discusses trustee’s derivative § 544(b)(1) avoidance power and goal of estate restoration)
Patterson v. Shumate, 504 U.S. 753 (1992) (plain‑meaning rule and interpretation that “applicable nonbankruptcy law” can include federal law)
MC Asset Recovery LLC v. Commerzbank A.G. (In re Mirant Corp.), 675 F.3d 530 (5th Cir. 2012) (holds trustee may not use FDCPA under § 544(b)(1); court here declines to follow)
United States v. Summerlin, 310 U.S. 414 (1940) (establishes nullum tempus — U.S. not bound by state statutes of limitation for enforcement of public rights)
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard for plausibility on a motion to dismiss)
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (clarifies Twombly plausibility standard)
Bresson v. Commissioner, 213 F.3d 1173 (9th Cir. 2000) (applies Summerlin to hold federal government immune to state fraudulent transfer extinguishment periods)
Slone v. Commissioner, 810 F.3d 599 (9th Cir. 2015) (explains § 6901 is procedural and substantive liabilities derive from state law)
Culligan Water Conditioning of Tri‑Cities, Inc. v. United States, 567 F.2d 867 (9th Cir. 1978) (§6901 is not the exclusive method; IRS may bring court action without assessment)