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.
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[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.
