463 B.R. 709
Bankr. D. Del.2012Background
- DBSI, Inc. and affiliates filed Chapter 11 bankruptcy on November 6, 2008; liquidation plan confirmed October 26, 2010, creating a DBSI Estate Liquidation Trust.
- Trustee alleges fraudulent transfers to insiders and on their behalf to the Movant States, within the statutory periods of 2 and 4 years before petition date.
- Counts Three through Six attempt to recover under § 544(b)(1) incorporating Idaho state fraudulent-transfer statutes.
- Movant States move to dismiss Counts Three through Six under Rule 12(b)(6), raising sovereign immunity defenses.
- Trustee argues Congress abrogated state sovereign immunity under § 106(a)(1) to permit § 544(b)(1) actions against states and their incorporated state-law claims.
- Court applies Katz to determine whether Congress could authorize courts to avoid fraudulent transfers and subordinate state sovereignty.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Katz abrogates state sovereign immunity for §544(b)(1) actions | Trustee says Congress abrogates immunity via Katz and §106(a)(1). | Movants contend immunity remains; §544(b)(1) not uniform law on bankruptcies for states. | Yes; immunity abrogated |
| Whether §106(a) abrogates immunity for state-law claims under §544(b)(1) | Trustee argues §106(a)(1) applies to state-law claims arising under §544(b)(1). | Movants argue no abrogation for §544(b) state-law causes of action. | Yes; abrogation applies to state-law actions under §544(b)(1) |
| Whether §544(b)(1) and State Laws constitute a uniform law on the subject of bankruptcies | States labeled §544(b) as uniform via §106(a) and Katz; state laws are applied uniformly. | Movants rely on footnote 15 of Katz; §544(b) may not be uniform across states. | Yes; §544(b)(1) constitutes uniform law under bankruptcy laws as applied to states |
| Whether state fraudulent-transfer statutes are encompassed by the §544(b)(1) abrogation | Trustee contends state laws incorporated via §544(b)(1) are enforceable against states. | Movants contend sovereignty remains for state-law components. | Yes; state-law claims are enforceable under §544(b)(1) |
Key Cases Cited
- Katz v. United States, 546 U.S. 356 (U.S. 2006) (Bankruptcy Clause permits abrogation of state sovereign immunity)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (U.S. 1989) (fraudulent transfer actions tracked through longstanding equity)
- BFP v. Resolution Trust Corp., 511 U.S. 531 (U.S. 1994) (fraudulent transfer law rooted in debtor-creditor relations)
- In re Custom Contractors, LLC, 439 B.R. 544 (Bankr.S.D.Fla. 2010) (abrogation of sovereign immunity extends to §544 actions derived from state law)
- In re Equip. Acquisition Res., Inc., 451 B.R. 454 (Bankr.N.D. Ill. 2011) (majority: §106(a)(1) abrogation includes §544-based state-law actions)
- In re Ginn-La, unreported (Bankr.S.D. Fla. 2010) (Dillworth v. Ginn-La cited; unpublished decision)