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The state of California is pushing back against the controversial bankruptcy sale of 23andMe’s DNA database, urging a Missouri federal judge to unravel the $305 million transaction that transferred genetic data of nearly 2 million Californians to a nonprofit linked to the company’s co-founder.

In a sharply worded appellate brief filed Friday, California accused 23andMe Holding Co. of sidestepping the state’s Genetic Information Privacy Act (GIPA) by selling genetic profiles without the affirmative consent of customers.

A Sale Built on Legal Fault Lines

The deal, approved in June by U.S. Bankruptcy Judge Brian C. Walsh, allowed 23andMe to funnel customer DNA data into a newly created affiliate, then sell that entity’s equity to TTAM Research Institute—a nonprofit established by former CEO Anne Wojcicki.

California argues this so-called equity toggle structure was engineered to skirt GIPA’s strict requirements on DNA sharing.

“There is no exemption for affiliates,” the state wrote. “The court erred by reading in an implicit loophole where none exists.”

Bankruptcy vs. Privacy Law

At the heart of the case lies a thorny legal question: Can state privacy laws constrain federal bankruptcy sales?

California says yes, warning that Judge Walsh’s decision sets a dangerous precedent. “This appeal is about the failure of 23andMe and its debtors to comply with GIPA in their transfer of nearly 2 million Californians’ genetic information,” the filing states.

The state also blasted the transaction as too complex for Section 363 sales, arguing it resembled a full-blown Chapter 11 reorganization disguised as a sale.

Millions of DNA Profiles at Stake

23andMe, once a Silicon Valley darling known for its at-home DNA kits, filed for Chapter 11 in March amid financial turmoil. With a database of over 15 million genetic profiles, the bankruptcy ignited national debate on whether consumer DNA—among the most sensitive personal information—should be treated like any other asset.

Privacy watchdogs had already raised alarms in June, warning that genetic data should not be sold without explicit customer approval. Still, Judge Walsh allowed the transfer to TTAM, which has since rebranded itself the 23andMe Research Institute.

California Doubles Down

California insists both the affiliate and TTAM fail the “good faith purchaser” standard under bankruptcy law. The state says TTAM’s involvement from the start proves the sale was engineered to keep data under control of insiders while bypassing consent rules.

“This looks like a complex corporate maneuver that can only be done through a Chapter 11 plan of reorganization,” the state wrote. “Section 363 does not authorize such a transaction.”