Zazzali v. U.S.A. (In re DBSI, Inc.)

Ninth Circuit criticizes the Seventh for making the sovereign immunity waiver meaningless for Section 544(b)(1) suits.

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Case Type:
Case Status:
16-35597 (9th Circuit, Aug 31,2017) Published
Section 106(a)(1) abrogates sovereign immunity, allowing bankruptcy trustees to sue the United States under state fraudulent transfer law for prepetition tax payments. Disagreeing with the Seventh Circuit (In re Equipment Acquisition Resources, Inc., 742 F.3d 743 (7th Cir. 2014)), the Ninth Circuit concluded that the proper interpretation of section 106(a)(1) does not require a separate sovereign immunity waiver of state law causes of action.
Procedural context:
The trustee and the United States cross-appealed the district court's order affirming the decision of the bankruptcy court that Section 106(a)(1) abrogated sovereign immunity.
The bankruptcy trustee for DBSI, Inc., sued the United States to avoid approximately $17MM prepetition tax payments made by the debtor. The trustee sued under sections 548 and 544(b)(1), and Idaho's Uniform Fraudulent Transfer Act, seeking to take advantage of Idaho's four year statute of limitations. The bankruptcy court granted the Trustee judgment against the US for amounts paid by the debtor, net of amounts refunded by the US to two of DBSI's shareholders.
Hawkins, Gould, Paez

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