U.S. Trustee Fee Unconstitutional

By William Houston Brown, Editor/Adviser, Academy for Consumer Bankruptcy Education

On June 6, the Supreme Court’s unanimous opinion in Siegel v. Fitzgerald1 held that the increase in U.S. Trustee fees in Chapter 11 cases violated the uniformity requirement of the Constitution’s Bankruptcy Clause,2 because the fee increase in 2017 only applied to in the U.S. Trustee districts and didn’t apply to the Bankruptcy Administrator districts in Alabama and North Carolina. Although the Judicial Conference of U.S. Courts adopted the fee increase for those Administrator districts in 2018, the increase applied only to newly filed Chapter 11 cases, while the congressional increase had applied to pending and newly filed cases.

The opinion by Justice Sotomayor reviews prior Supreme Court authority on uniformity under the Bankruptcy Clause, including Hanover National Bank v. Moyses,3 in which the Court held that application of exemptions based on variations in state law satisfied the uniformity requirement because it satisfied “geographical” uniformity. The Hanover decision led to holdings of constitutionality of the current “opt out” system for exemptions in bankruptcy cases.4

In contrast to Hanover and other Supreme Court decisions on uniformity, with regard to the U.S. Trustee fee, there was “no support for respondent’s argument that the uniformity requirement does not apply where Congress sets different fee structures with different funding mechanisms for debtors in different states.” Although Congress could, as with exemptions, “account for differences that exist between different parts of the country,” Congress violated the uniformity requirement when it subjected debtors in some districts to higher fees than debtors in North Carolina and Alabama.

The case was remanded to the Fourth Circuit to consider an appropriate remedy, which potentially could include refund of the excess fee to the Chapter 11 debtor. Any remedy could potentially be sought by other Chapter 11 debtors who were required to pay the increased fees.

The opinion notes that the Court was not ruling upon the constitutionality of the separate U.S. Trustee and Bankruptcy Administrator system, which only means that the Court didn’t address the issue.

________________________

[1] Siegel v. Fitzgerald, ___ S.Ct. ___ (June 6, 2022).

[2] U.S. Constitution, Art. 1, § 8, cl. 4.

[3] Hanover National Bank v. Moyses, 186 U.S. 181 (1902).

[4] See Brown, Ahern & MacLean, Bankruptcy Exemption Manual, chapter 4, for discussion of the Hanover decision and opt out.

________________________

Bill-Brown-colorThe Honorable William Houston Brown retired in 2006 as a United States Bankruptcy Judge for the Western District of Tennessee, and he had been designated to sit also in the Middle District of Tennessee, Southern District of Florida, Eastern District of Michigan and Western District of Kentucky. Judge Brown served a four-year term on the Bankruptcy Appellate Panel for the Sixth Circuit from 1999 through 2002. He received his law degree from the University of Tennessee College of Law, where he was Order of the Coif. Judge Brown is a member of the American Bankruptcy Institute, having served on its Board and Executive Committee, and he is a Fellow in the American College of Bankruptcy. He is the author or co-author of several texts, including Bankruptcy Exemption Manual, 2005 Bankruptcy Reform Legislation with Analysis 1st and 2d editions, Bankruptcy and Domestic Relations Manual, The Law of Debtors and Creditors, as well as bankruptcy form books, all published by Thomson West. He is also a principal contributing editor for Norton Bankruptcy Law and Practice 3rd, published by Thomson West. Judge Brown prepares a quarterly update of consumer cases for the Federal Judicial Center, which distributes those materials to all bankruptcy judges, and he is a speaker at the Federal Judicial Center’s annual seminars for bankruptcy judges. He also speaks regularly at seminars throughout the United States, on consumer bankruptcy topics. Judge Brown co-authors Chapter 13 Bankruptcy 4th ed., a digital publication, available at ch13online.com. Judge Brown also acts as a mediator in bankruptcy-related disputes, has conducted mock trials, and has testified as an expert witness in bankruptcy court proceedings.

Leave a Reply

 

 

 

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>