Supreme Court Alert: Supreme Court Finds U.S. Trustee Fee Increase Unconstitutional

• Published date: 14 July 2022
• Subject Matter: Government, Public Sector, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Constitutional & Administrative Law
• Law Firm: Caplin & Drysdale
• Author: Mr Kevin Maclay, Todd Phillips, Kevin M. Davis and Shamara R. James

In a decision rendered on June 6, 2022, Justice Sotomayor authored the Supreme Court's unanimous decision in the case Siegel v. Fitzgerald, holding that a statutory increase in United States Trustee's fees violated the 'uniformity' requirement of the Bankruptcy Clause set forth in Article I, ' 7, cl. 4 of the United States Constitution, which empowers Congress to establish 'uniform Laws on the subject of Bankruptcies throughout the United States.'¹

As the Court explained, Congress implemented the United States Trustee Program, whereby the United States Trustee's Office monitors bankruptcy cases.² Federal districts in North Carolina and Alabama, however, opted out of the program, each state choosing instead to have a state-wide bankruptcy administrator monitor bankruptcy cases (the 'Administrator Program').³ While the Trustee Program and the Administrator Program conduct the same core administrative functions, the two programs are funded differently. The Trustee Program is funded entirely by quarterly fees paid by debtors to the United States Trustee System Fund pursuant to 28 U.S.C. ' 1930(a); the Administrator Program is funded by the general judiciary budget of its relevant jurisdictions.⁴

In 2017, Congress amended 28 U.S.C. ' 1930(a) to impose a statutory fee increase in large chapter 11 cases in Trustee Program jurisdictions, which took effect in 2018 and resulted in some debtors paying over eight times more in trustee fees per quarter.⁵ Pursuant to a standing order adopted in 2001, the Administrator Program jurisdictions could choose to adopt fee increases equal to those imposed in Trustee Program jurisdictions, but were not required to do so.⁶ Ultimately, the Administrator Program jurisdictions adopted the new fee increase, but only applied it to newly filed cases.⁷ In contrast, the fee increase applied to all pending and newly filed cases in Trustee Program jurisdictions.⁸ In 2021, Congress amended 28 U.S.C. ' 1930(a) to require the Trustee Program and Administrator Program jurisdictions to adopt the same quarterly fee structure.⁹ Nonetheless, between 2018 and 2021, many debtors in Trustee Program jurisdictions were required to pay significantly higher quarterly fees than similarly situated debtors in Administrator Program jurisdictions.

The Supreme Court granted certiorari to resolve a split that had developed in the lower courts over the constitutionality of the 2017 amendment.¹⁰ The United States raised two arguments in support of the 2017...