U.S. Supreme Court Bankruptcy Roundup

• Published date: 29 July 2022
• Subject Matter: Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Trials & Appeals & Compensation
• Law Firm: Jones Day
• Author: Mr Christopher DiPompeo, Mark Douglas and Jane Rue Wittstein

Supreme Court Unanimously Strikes Down 2017 U.S. Trustee Fee Hike as Unconstitutional

On June 6, 2022, the U.S. Supreme Court issued a much-awaited decision, Siegel v. Fitzgerald, No. 21-441, __. U.S. __, 2022 WL 1914098 (U.S. June 6, 2022), holding unconstitutional certain aspects of Congress's 2017 amendment to 28 U.S.C. ' 1930(a)(6) (the "2017 Amendment"). The 2017 Amendment dramatically increased the quarterly fees charged by the United States Trustee ("UST") in chapter 11 cases.

The roots of this dispute go back to the creation of the UST program in the U.S. Department of Justice in the mid-1980s. For political reasons, when Congress created the UST, it established the program in only 88 of the 94 judicial districts across the country ("UST districts"). In the six judicial districts in North Carolina and Alabama ("BA districts"), however, Congress continued to allow bankruptcy cases to be administered by Bankruptcy Administrators ("BAs"), which are a department of the Judicial Branch and overseen by the Judicial Conference.

In 2017, Congress sought to address funding problems with the UST program by enacting the 2017 Amendment, which raised the quarterly fees payable by large chapter 11 debtors in UST districts from a maximum of $30,000 per quarter per debtor to a maximum of $250,000 per quarter per debtor'an increase of more than 700%. In UST districts, the 2017 Amendment's fees took effect in both new and pending chapter 11 cases on January 1, 2018. However, in the six BA districts, the fees did not take effect until the Judicial Conference adopted them in September 2018. And even then, the Judicial Conference decided to apply the fees only prospectively for new chapter 11 cases filed after October 1, 2018. As a result, debtors whose cases were filed in a UST district prior to October 1, 2018, were required to pay significantly higher quarterly fees than they would have if their cases were pending in a BA district.

Several debtors in various UST districts who were required to pay the higher fees challenged the 2017 Amendment. Among their arguments was that by making debtors in UST districts pay significantly higher fees than similarly situated debtors in BA districts, the 2017 Amendment violated the Constitution's requirement that bankruptcy laws be geographically uniform throughout the country. The Fourth, Fifth, and Eleventh Circuits rejected the debtors' uniformity arguments, but the Second and Tenth Circuits agreed with the debtors and ordered a refund of fees. The Supreme Court granted certiorari in Siegel to resolve the circuit split.

In a 9-0 decision written by Justice Sotomayor, the Supreme Court determined that the 2017 Amendment violates Congress's constitutional authority under the "Bankruptcy Clause ... to establish 'uniform Laws on the subject...