In re Pharmacy Distrib. Serv. Inc.

• Decision Date: 17 August 2011
• Docket Number: Adversary No. 11–01844–EPK.,Bankruptcy No. 08–27284–EPK.
• Citation: 23 Fla. L. Weekly Fed. B 127,55 Bankr.Ct.Dec. 88,455 B.R. 817
• Parties: In re PHARMACY DISTRIBUTOR SERVICES, INC., Debtor.Robert C. Furr, Trustee for the Bankruptcy Estate of Pharmacy Distributor Services, Inc., Plaintiff,v.United States Department of Treasury Internal Revenue Service, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Florida

455 B.R. 817

55 Bankr.Ct.Dec. 88

23 Fla. L. Weekly Fed. B 127

In re PHARMACY DISTRIBUTOR SERVICES, INC., Debtor.Robert C. Furr, Trustee for the Bankruptcy Estate of Pharmacy Distributor Services, Inc., Plaintiff,

v.United States Department of Treasury Internal Revenue Service, Defendant.

Bankruptcy No. 08–27284–EPK.

Adversary No. 11–01844–EPK.

United States Bankruptcy Court, S.D. Florida,West Palm Beach Division.

Aug. 17, 2011.

Marc P. Barmat, Boca Raton, FL, for Plaintiff.Thomas K. Vanaskie, William E. Farrior, Washington, DC, for Defendant.

ORDER DENYING MOTION TO DISMISS [ECF No. 15]

ERIK P. KIMBALL, Bankruptcy Judge.

In its Motion to Dismiss the Amended Complaint [ECF No. 15] (the “Motion to Dismiss”), the United States of America (the “United States”) argues that the trustee's fraudulent conveyance action brought under section 544 ¹ is not subject to waiver of sovereign immunity in spite of the fact that section 106 explicitly waives sovereign immunity for actions under section 544. The United States argues that a rule of Florida law prohibiting claims for refund of Florida taxes that were voluntarily paid should be extended to bar the trustee's claims in connection with federal taxes, citing two decisions construing Maryland law that have been repeatedly questioned, in spite of the fact that the so-called voluntary payment doctrine is a defense applicable only to taxes imposed by the State of Florida and only to refund claims brought by the payor and not fraudulent conveyance claims. The United States argues that this action was not timely commenced in spite of the fact that it was filed within the period explicitly provided in section 546 as construed by numerous published decisions. Each of these arguments falls along a path now familiar to the United States. Each of these arguments lacks merit.

The Court considered the Motion to Dismiss, the Plaintiff/Trustee's Response to Defendant's Motion to Dismiss First Amended Complaint [ECF No. 18], the Reply to Plaintiff's Response to the United States' Motion to Dismiss the Amended Complaint [ECF No. 19], and the record in this adversary proceeding, and is otherwise fully advised in the premises. For the reasons set forth below, the Court will deny the Motion to Dismiss.

On November 13, 2008, Pharmacy Distributor Services, Inc. (the “Debtor”) filed a voluntary chapter 11 petition. On April 13, 2010, the Court granted the Debtor's motion to convert its chapter 11 reorganization case to a chapter 7 liquidation case. On April 15, 2010, Robert C. Furr (the “Trustee”) was appointed the interim chapter 7 trustee pursuant to section 701. A meeting of creditors was held on May 13, 2010, at which point the Trustee became the permanent chapter 7 trustee in this case.

On March 29, 2011, the Trustee filed this adversary proceeding. The United States filed a motion to dismiss, resulting in entry of an Agreed Order Dismissing Adversary Proceeding without Prejudice and Allowing for Ten (10) Days to File an Amended Complaint. Thereafter, the Trustee filed a First Amended Complaint to Avoid Fraudulent Transfers [ECF No. 10] (the “Complaint”). On June 13, 2011, the United States filed the instant Motion to Dismiss, requesting dismissal of this adversary proceeding for lack of subject-matter jurisdiction under Fed.R.Civ.P. 12(b)(1) made applicable to this adversary proceeding by Fed. R. Bankr.P. 7012.

The United States Waived Sovereign Immunity for the Trustee's Claims

The United States argues that while Congress waived sovereign immunity under section 106 for actions under section 544, Congress did not explicitly waive sovereign immunity for the Trustee's underlying fraudulent conveyance claims under Florida statutes. The Complaint here contains three counts, each of which relies on section 544 and Florida's Uniform Fraudulent Transfer Act, Florida Statutes sections 726.101 et seq. (“FUFTA”). The Trustee alleges that the Debtor made a single payment to the United States on account of federal taxes owing by the Debtor's two principals and the Trustee requests judgment against the United States in the amount paid by the Debtor under sections 544 and 550. The United States argues that without an explicit waiver of sovereign immunity for claims under FUFTA, the Trustee's claims are barred.

“The United States, as sovereign, is immune from suit save as it consents to be sued ... and the terms of its consent to be sued in any court define that court's jurisdiction to entertain the suit.” United States v. Sherwood, 312 U.S. 584, 586, 61 S.Ct. 767, 85 L.Ed. 1058 (1941) (citation omitted). “A waiver of the Federal Government's sovereign immunity must be unequivocally expressed ... and will not be implied.” Lane v. Pena, 518 U.S. 187, 192, 116 S.Ct. 2092, 135 L.Ed.2d 486 (1996).

Section 106 abrogates sovereign immunity for, inter alia, all avoidance actions that may be pursued by a trustee under the Bankruptcy Code. Section 106 explicitly includes actions under section 544.

Section 544(b)(1) provides: “Except as provided in paragraph (2), the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title.” For purposes of section 544(b)(1), “applicable law” is almost always state fraudulent conveyance law. Section 544(b)(1) empowers a trustee to take advantage of state fraudulent conveyance law for the benefit of the estate.

The United States concedes, as it must, that section 106 waives sovereign immunity for actions under section 544. But the United States argues that this is only the first of two hoops the Trustee must jump through to bring the claims presented in the Complaint. The United States argues that there must be a separate, explicit waiver of sovereign immunity as to any “applicable law” used to bring an action under section 544. That is, if a trustee wishes to pursue a fraudulent conveyance action under section 544 relying on state fraudulent conveyance law, there must be a specific waiver of sovereign immunity for actions under that state fraudulent conveyance law. Obviously, such a waiver cannot stem from state statute, as only Congress may waive sovereign immunity for the United States to be sued. According to the United States, Congress has not explicitly waived sovereign immunity for actions under FUFTA, and so the Trustee's Complaint must be dismissed.

The argument offered by the United States leads to an absurd result and thus fails. The Court is unable to ascertain any claim that would constitute “applicable law” under section 544 for which Congress has explicitly waived sovereign immunity independent of section 106. To require that there be a separate waiver of sovereign immunity as to a state law claim underlying a section 544 action, which state law claim is a necessary component of the claim under section 544, would eviscerate the abrogation of sovereign immunity for section 544 actions. Under the argument presented by the United States, the reference to section 544 in section 106 would be meaningless. Why would Congress explicitly waive sovereign immunity for all other avoidance actions under the Bankruptcy Code, and include a waiver of sovereign immunity for actions under section 544 knowing that section 544 encompasses state law theories, but then require a separate waiver of sovereign immunity for the necessary state law component in actions under section 544? The argument offered by the United States defies logic. Sections 106 and 544, together, lead to the inescapable conclusion that Congress intended to waive sovereign immunity for any action that may be brought under section 544. See Equip. Acquisition Res., Inc. v. United States (In re Equip. Acquisition Res., Inc.), 451 B.R. 454 (Bankr.N.D.Ill.2011); Zazzali v. Swenson (In re DBSI, Inc.), 2011 WL 607442, 2011 Bankr.LEXIS 791 (Bankr.D.Del. Feb. 11, 2011); Menotte v. United States (In re Custom Contractors, LLC), 439 B.R. 544 (Bankr.S.D.Fla.2010); Tolz v. United States (In re Brandon Overseas, Inc.), 2010 WL 2812944, 2010 Bankr.LEXIS 2326 (Bankr.S.D.Fla. July 16, 2010); Sharp v. United States (In re SK Foods, L.P.), 2010 WL 6896448, 2010 Bankr.LEXIS 5254 (Bankr.E.D.Cal. July 14, 2010); Liebersohn v. IRS (In re C.F. Foods, L.P.), 265 B.R. 71 (Bankr.E.D.Pa.2001). The United States waived sovereign immunity for all claims addressed in the Complaint.

Florida's “Voluntary Payment Rule” Does Not Bar the Trustee's Claims

The United States argues that the Trustee may not obtain a judgment against the United States under sections 544 and 550 for federal taxes paid by the Debtor on behalf of others because the Florida Voluntary Payment Rule (“VPR”) bars the Trustee from obtaining a “refund” of such taxes voluntarily paid by the Debtor. “Florida's VPR ‘generally prohibits actions for refunds of taxes voluntarily paid, absent a specific statutory remedy.’ ” Menotte v. United States (In re Custom Contractors., LLC), 439 B.R. 544, 547 (Bankr.S.D.Fla.2010) (citation omitted). The VPR does not apply to this case for two reasons.

First, the VPR is a rule of Florida law applicable solely to claims for refund of taxes levied by the State of Florida. The United States is unable to cite a single decision applying Florida's VPR to claims arising from payment of federal taxes. This is because federal law, unlike Florida law, permits a refund claim even if the subject tax has already been paid. 26 U.S.C. § 7422(b) (providing that a taxpayer may pursue a claim for refund and then file suit for a refund “whether or not such tax, penalty, or sum has been paid under protest or duress”); In re Custom Contractors, LLC, 439 B.R. at 547.

The United States cites two bankruptcy decisions applying Maryland's voluntary payment rule to bar claims under section 544 and Maryland...