colleagues or i and that he would question another change then you probably best just to keep going then i would he she had it so this is a suit against the united states for the avoidance and recovery of payments made by the debtors s corporations to satisfy their owners tax liabilities that accrued on their portion of the corporation's income and there are two sets of payments in the case the first were made in the two years preceding bankruptcy and section five forty eight of the bankruptcy code gives the trustee a cause of action to avoid those payments as fraudulent transfers and we are not appealing the district court's judgment as to that group but the second group of payments were made in the two to four year period prior to bankruptcy and trustee sought to avoid these tax payments under section five forty four b of the bankruptcy code but the trustee has not proven one of the required elements of a section five forty four b claim what we refer to is the so the requirement is that the trustee must point to an actual unsecured creditors or of the debtor that could have avoided a transfer if no bankruptcy petition had been filed that is the triggering debtor but but the case law i do that's not a case characterizes the burden as you just articulated it which ninth circuit case describes it that way i don't i don't know if there's if no bankruptcy petition had been filed outside of bankruptcy bankruptcy law does not provide the substantive basis going one thing to me that i just really don't you know i'm not it not a bankruptcy provides a cause of action to avoid a transfer outside the two year period forty two but it's based on state law right  it's a five four four b cause of action sort of based on incorporate state i think so it's definitely a a federal cause of action because it is granted to the trustee yet in bankruptcy court state law doesn't provide for a trustee to sue in this circumstance it's federal law that provides that so federal law does provide the requirement the power and that power  is contingent on showing that an actual unsecured creditor could have avoided the transfer outside of bankruptcy does that mean and this is the key i guess been hearing throughout the week the billion dollar question does that mean that he also has to show that it's recoverable so recoverable is a is a is a different statute once the once the trustees has exercised an avoidance power under five forty four then you look to five fifty five section five fifty which provides the extent to which the amount is recoverable and i  actually do have so i can point to the ninth circuit case that states the exact language that about the interplay between those two sections and maybe this will helps clear up this is a two thousand and six case in  a and so that's that's how the interplay works effectively effectively it later goes on to say there's there's three things that the trustee must establish fraud or illegality under the applicable substantive law number two resulting ability of the transfer under the applicable law so as to allow avoidance pursuant to five forty four b and that's really where the meat of it of this case is is would this be voidable under the applicable law and why isn't it  cause of action or the state law basis yet under no circumstances can a a idaho resident for instance go into court and say i'm going to recover a tax payment made in fraud of me under the idaho fraudulent conveyance act or even to say i'm going to avoid against the united states h a transfer of a tax payment that's not available  to creditors outside of bankruptcy and there are many reasons for that one of which is is that we would the government would be immune from such a suit another reason is basic supreme aloose just privacy clause principles it's well understood that in the area of federal tax collection in receipt of payments that that's an area that the federal government has intended to occupy the full field and doesn't want the for the trust for a trustees claim under five forty four of them we're not disputing of a point it's not the making of a right this substance and elements of the claim must still be established but served to recover in order in order to avoid the payment you have to you have to prove the substantive elements but in terms of the trustees right to come into court and it's been waived this is not we're not disputing the meaning of section one o six one zero six waive sovereign immunity for a five forty four action absolute the question in this case is whether or not the elements of five forty four b have been met and one of the elements is not to show that the trustee could bring a claim one of the elements is to show that outside of bankruptcy and actual creditor could have done this the whole thing but you're still back into bankruptcy had been filed this one creditor would have the right to avoid a payment why is that now that bankruptcy they've been filed that he shouldn't share that valuable right with the rest of the creditors when bankruptcy is not going to going to recognize that preferential treatment of the one creditor with the avoiding power so we're going to give it to the trustee and we're going to allow that right to be shared among all creditors but there's no such right here there's no such right outside of bankruptcy to be shared among all the creditors requirement is in section five forty four b it's not the idaho or washington law correct i don't hole or washington law provides is the non bankruptcy law under which you would show that an actual creditor could have brought the coin ok but a requirement that it be a natural part of five hundred four correct so to the extent there was a waiver of sovereign congress may have sovereign immunity for a suit where there was an actual creditor not for a suit where there might have been an actual creditor had congress waived immunity with respect to idaho law it's the waiver is only to the extent that the trustee can prove an actual threat and every time i go back to the text of the statute it says or any obligation incurred by the debtor that is  mean these transfers are not voidable under applicable non bankruptcy law well it's a i mean it's peculiar the way five forty four b works which is it incorporates this whole body of non bankruptcy law and under it but under non bankruptcy law there's no you can't avoid transfers against the united states so the waiver of sovereign immunity then has to be understood to mean that we're only waiving with respect to what r t could have been done and that's i mean why would they waive why would they waive why would the congress have passed with such clear clarity five four four b you know when they knew at the time put the law under state law is that you can't avoid a village nordic village says no the waiver sovereign means to do vague to encompass all these bankruptcy actions well for sixteen years everyone had been perceiving like no that was fine you could go after the government in certain cases nobody is going after the government under state law theories in in five forty four p so the fix was let's go through and find every point in which the government might be involved in the government can be a defendant under five forty fo a and so you know they're waving and unity with respect to those actions for sure they're wavering immunity with respect to a five hundred four b action if you can prove that it's available under non bankruptcy law and it is in some circumstances there are state waivers of sovereign immunity there are i mean your point is nothing really stops the federal government is there a different policy consideration when it comes to five for four five forty four b doesn't say anything about the statute limits well allows you to go back four years no five four or b doesn't say that's the state law that's one of the problems is that if you interpret five forty four b to permit state law causes of action against the united states where you couldn't bring that action outside of bankruptcy then you're subjecting the united states to a variety of different you know four six even maybe even ten year limitations periods where were discoursing ten year old tax payments bill good morning may it please the court my name is jennifer radial here today on behalf of james a sally trustee for the d b s i state litigation trust what the government asks this court to do is to overturn the district court's judgment against it and allow the united states to keep out of the reach of the defrauded investors here millions in admitted fraudulent transfers doug swenson defrauded over ten thousand investors many of whom lost their retirement savings and the government has convicted mr swenson and three other insiders on multiple counts of wire and securities fraud there's no dispute here that the seventeen million dollars it is you was investors money paid to the i r s with the intent to defraud creditors and for the sole benefit of mr spence and in other words the government does not dispute that the trustee has established the elements avoidable transfers the only question is whether the united states should be treated differently than any other recipient of an intentional fraud on transfer both the district court and the bankruptcy court below how the answer to that question is no section one hundred six a of the bankruptcy code means precisely what it says federal sovereign immunity is abrogated and  three fundamental errors that the court made and i think you've touched upon each of them in the argument with the government and the first is that yar cited f d r versus miers and said there's a two step inquiry is there a waiver of sovereign immunity and is there a substantive cause of action and those two questions have to be separate but what e a are ignored is that the supreme court has also held in mitchell in white mountain apache tribe that that second question can't be answered by reference to the governments of several federal sovereign immunity the government does not dispute that there's no abrogation here and so they cannot rely upon sovereign immunity and call it a substantive element of the trustees claim the second big error is the big ignoring the distinction between avoidance and recovery which you discussed at length with the united states attorney i think if we go back to the e r opinion we cited the examples in our brief but it says very clearly that the e a a are got that wrong they say things like because no unsecured creditor could which they incorporate immunity as an element of defense available under state law but when once congress abrogates it in section one hundred six a the question is no longer whether the united states would be liable in a state court action outside of bankruptcy the question is once we treat the united states like every other private party who received a project on transfer would a private party be liable and the answer to that question is undoubtedly by including section five forty four and five fifty in the scope of the abrogation and one hundred six congress determined that fair is fair the united states is permitted to assert claims against a state as a claimant and because it's permitted to do so it's only right that when the united states receives assets wrongfully diverted from the estate it should be liable to the same extent as private parties if i could ask you a question collect their taxes from they have dug swenson who was the tax payer here did the d b s i entities were not liable for these taxes which was the fundamental reason that these payments are avoidable as a matter of law in the first place they can assert a tax claim against doug swenson who should have been the pay or in the first instance congress has thought carefully about how to treat the i r s and tax claims within the context of bankruptcy and in many instances it has provided special treatment to the i r s there are instances in which it's given priority other over other certain unsecured claims there are special discharge provisions but fraudulent transfers is simply not one of those areas that congress has determined to treat the i r s differently quite to the contrary as judge p mentioned in one of the six by including all of the avoidance provisions and the recovery provisions in the code congress has expressly determined that the united states should be liable just like everyone else and not be provided special treatment if i could i'd like to talk about the question that the united states focuses on which is that there is no one no creditor outside of bankruptcy who could have avoided these transfers we pose a hypothetical in our brief in our opposition brief that i think illustrates how these payments could have been avoided outside of bankruptcy and once that question is answered in the affirmative the elements of section five forty four b are met if we assume the same basic facts as we have here which are a debtor makes payments on behalf of a third party not liable to the i r s with the express intent to defraud their creditors and the de receives no value the only difference being that debtor doesn't file for bankruptcy the question is could a creditor outside of bankruptcy seek to avoid those tax payments and name only as as the only defendant mr swenson whose the person for whose benefit the transfer was made under the u f t a in idaho and elsewhere a person whose benefit transfer was made is on equal footing with the initial transferee and is liable for that transfer there's no doubt that that action could proceed against doug swenson that transfer would be avoidable your recovery judgment outside of bankruptcy would be only against drugs once and what one o six and five fifty does allow me to name the united states in bankruptcy court but there's no doubt that that transfer is voidable in state court the only reason the united states offers that that action could not persist in the manner that i've suggested is that the united states is an initial transferee would be necessary party i don't think that the united states or of the initial transferee is a necessary party dependent upon the facts and whereas here we have facts  asset is money which is fungible and you're not seeking any relief against the initial transferee i don't think that elements of rule nineteen a are met there's at least one case side in our brief in re group which holds precisely that which is that an initial transferee is not a necessary party but besides that more importantly when the united states argues that it would be a necessary party ignoring the most important part of rule nineteen there is no suggestion that the initial transfer ear of the united states in that hypothetical state court action would be an indispensable party and that's what would prevent that hypothetical state court action from proceeding without the united states you have to follow the path that you just outlined there in order to affirm the district court no i don't think so when i think that you could find alone that are in the united states analysis runs afoul of united states versus mitchell and that even looking to whether or not there would be immunity in a state court action is more than is required for to give full effect to section one of six a i think that you could read section five forty four b section one hundred six a as many of the other provisions of the code section five forty four b as the court recognized allows a trustee to stand in the shoes of a triggering creditor but it's a federal cause of action and the trustees rights are not completely coextensive with a state court creditors rights and bankruptcy and there are examples of that section five forty six extends the trustees statute of limitations so a trustee can that the trustees writes to avoid and recover up water then the state court creditor could avoid i couldn't void the entire transfer even though a state court creditor could only avoid a portion based upon the nature of his claim section one of six a operates exactly the same the question is not is there a state court would there be a defendant's state court the question is would there be a defense in state court that consistent with the bankruptcy code in other words can the united states rely upon a defense the code has expressly abrogated it can't rely upon the statute of limitations if five forty six applies it can't rely upon the limited nature of a creditor's right to recovery under state law because of five fifty and how that's been interpreted and the same is true with respect to one of six a can't rely upon sovereign immunity defense in light of se that the united states concern about being subject to varied laws of the states is really not something that's unique to section five forty four b it's there are lots of provisions of the code that refer to state law in the united states rights are dependent upon those so turning to the cross appeal after finding that these transfers were voidable as a matter of law the district court err in excluding approximately three point six million dollars from the trustees recovery by adopting an eleventh circuit ruling that hel r s acts like a bank when it receives tax payments and is therefore a mere conduit as to monies we funded to the insiders i wish that w emphatic lee rejected by this court under the ninth circuit's dominion standard the i r s exercises dominion at the time it accept the tax payment it obtains legal title and it has the u a refund if the i r s deems it appropriate if it's within a particular time frame there are hoops that the taxpayer has to jump through again unlike a bank and those sorts of hoops or restrictions and that the i r s has obligation to make a refund if those requirements are met are not unlike the restrictions that this court held in income net did not deprive that entity of dominion and the united states cites no keys in the ninth circuit or otherwise that once it exercises dominion when it receives those payments that events well after the transfer like the request for a refund  can change whether or not there's dominion at the time of the transfer and the united states argument is primarily that it would be unfair because it has already refunded some of these transfers to the insiders but that's really a policy decision that's already been made by congress and section five fifty section five fifty expressly contemplates that an initial transferee here the i r s remains fully liable for the full value of the transfer even if it has subsequently departed with the asset and there's a subsequent transferee the i r s is in a very similar position here the purpose of section five fifty is to restore the estate t position it would have been without the transfer and the i r s has refunds to the insiders did nothing to put the estate back into the position the debtors made these tax payments on behalf of the insiders but the i r s need the refunds to the insiders themselves but even under the eleventh circuit standard under any standard a transferee who receives a payment in satisfaction of a debt is by definition not conduit and the majority of the transfers here were issued and requested well after the i r s assessed the tax liability the i r s provides no legal basis to find that any of the refunds even if they were obligated to make them that were issued months and invest in some instances years after the assessment of a tax liability could ever be anything other than payments on a debt the united states doesn't address i would i think just like to conclude by saying bite with the observation that the court made in a mortgage store and that is in every fraudulent transfer case within a bankruptcy someone is going to be hurt it's either the recipients of the fraudulent transfer or into the creditors and congress has determined that as between creditors and recipients of project transfers it's the recipients of fraudulent transfers who should bear the burden there's really no better example of that in this case congress in section one hundred six five forty four and five fifty determined that as between the united states which received admitted intentional fraudulent transfers and the defrauded investors here it's the united states that should bear the burden and the trustee asks that the court affirm the district court's judgment but amended in so far as it excluded the three point six is thank you so there's a lot to cover a short period of time i know that there were a couple of open questions at the end i guess i'll start with that if the i c versus meyer so f d i c versus meyer says that  it was interpreted section thirteen forty six b twenty eight u s c thirteen says forty six b and that wave's immunity where among other things the united states if a private person would be liable to the claimant under state eet that's roughly analogous to what we have here where there's a reference to state law a waiver of sovereign immunity to a circumstance that would be available under under state law the court held that the substantive requirements of that derivative aspect of the statute had not been met because it was a constitutional claim that would not have been available under state law then u s postal service of the flamingo industries and that's sued clause so it's the supreme court has not twice taken us through this two part test where the there's a waiver of sovereign immunity with respect to one statute that incorporates  other law we have to go to the other law in this case the other law is is idaho law and these remedies are not available you can't avoid a transfer to the united states and or idaho law and therefore the waiver does not extend to  you know it only extends down to the elements of the statute that the trustee in this case is has not proven you know there was there was a proposition raised about suing  the the the insiders whose fraud was sort of responsible for all of this mess and how you could avoid the payment as to them and then recover from the united states that's not how avoidance actions work avoidance and when you avoid an action you are when you avoid a transfer you are stripping the defendant of any rights with respect to that transfer or subordinating that defendant's rights to to the creditor you have to do that against the united states in order to obtain recovery of a tax payment so the united states would have to be a defendant to an action to avoid a tax payment as to us now you can you can avoid swenson's rights to the payment without bringing the united states and then  recover from swenson in fact that's what we think the trustee should have done but they're not going after the fraudsters they're going to the united states we have an unlimited fiske for the money that's where the money is  i do want to say something quickly about the the cross appeal so if the court determines that the government is correct in its appeal that the trustee does not have to satisfy the triggering creditor requirement of section five forty four b then it doesn't have to decide the trustees cross appeal but assuming that the actual creditor requirement is to be determined without regard to defenses available to government units outside of bankruptcy then the government should not be the transfer of tax overpayments that was obligated to and did refund to the taxpayer the salient point is that the government didn't have any discretion to retain the overpayments i mean i think  that's why it's different then the ninth circuit case where it was clear in that case that that was because the administrator of that fun had discretion over if and when to make distributions the government didn't have any disk discretion here and i just want to say that this actually brings in a lot of i mean people overpay loans they overpay all kinds of things all the time and if this is a problem not unique to the united states this is the problem of overpayments the recipient doesn't get any benefit for the payment because you know it got the funds but it's got a it's obligated by contractor law to reimburse the funds to the extent that it later on turns out that the these transactions are automated i mean we get we get millions of payments a week response to check each and every one of them but i'm saying that theoretically they could it would be larger than the rest of the federal government in that taxpayers that when they ask for over from they ask for three million dollars i mean how many taxpayers ask for three million dollars or over one point when their liability was you know some fourteen million dollars that's actually not a that doesn't rais i don't think that kind of you know we some people live in a different world and i understand so anyway you know i'm just some fries by saying the only circuit court president on both of these issues is in our favor and so we ask that this court vacate and remain on the case with instructions to enter a judgment in accordance with the seven circuits decision and thank you thank you very much we thank both counsel