In Siegel this term, the Supreme Court did not decide whether chapter 11 debtors are entitled to refunds for overpayments of quarterly fees paid to the U.S. Trustee system. Siegel v. Fitzgerald, 142 S. Ct. 1770 (June 6, 2022).

The first appeals court to speak following Siegel, the Tenth Circuit adhered to its original decision in John Q. Hammons Fall 2006 LLC v. U.S. Trustee (In re John Q. Hammons Fall 2006 LLC), 15 F.4th 1011 (10th Cir. Oct. 5, 2021), by holding on Aug. 15 that the government must pay a refund to a chapter 11 debtor based on what the debtor would have paid over the same time were the case in a Bankruptcy Administrator district. To read ABI’s report on the circuit’s original decision in John Q. Hammons Fall, click here.

The Tenth Circuit decision is important for former chapter 11 debtors throughout the country because a class action is pending in the Court of Federal Claims in Washington, D.C. See Acadiana Management Group LLC v. U.S., 19-496 (Ct. Cl.). If the class action holds up and the Court of Claims and the Federal Circuit follow the Tenth Circuit, chapter 11 debtors countrywide could see refunds.

Refunds, however, were not a foregone conclusion.

Background on Siegel

The fees paid by chapter 11 debtors to the U.S. Trustee program increased in 2018, but the increase did not become effective for 10 months in the two states that have Bankruptcy Administrators rather than U.S. Trustees. In U.S. Trustee districts, the increase applied to pending cases. The increase did not apply to pending cases in Bankruptcy Administrator districts. The circuits were split 2/2 on whether the increase offended the uniformity aspect of the Bankruptcy Clause of the U.S. Constitution.

The Supreme Court resolved the split in Siegel by holding unanimously that the increase violated the Bankruptcy Clause because it was not immediately applicable in the two states with Bankruptcy Administrators rather than U.S. Trustees.

In Siegel, the Fourth Circuit had not reached the question of remedy because the appeals court saw no constitutional violation. At oral argument in the Supreme Court, Justice Sotomayor said that the “parties raise[d] a host of legal and administrative concerns with each of the remedies proposed, including the practicality, feasibility, and equities of each proposal; their costs; and potential waivers by nonobjecting debtors.” Siegel, supra, 142 S. Ct. at 1783.

Because the appeals court “has not yet had an opportunity to address . . . the proper remedy,” Justice Sotomayor remanded “for the Fourth Circuit to consider these questions in the first instance.” Id. To read ABI’s report on Siegel, click here.

The Fourth Circuit remanded Siegel to the bankruptcy court, which has yet to rule on remedy.

Hammons Fall on Remand

The Tenth Circuit ruled last year that the disparate fee increase was unconstitutional. Having lost in the circuit, the government had filed a petition for certiorari in Hammons Fall. On June 13, the Supreme Court granted the certiorari petition, vacated the judgment and “remanded for further consideration in light of Siegel.” Vacating the judgment was appropriate because the Supreme Court had not ruled on remedy.

Back in the Court of Appeals after remand, the Tenth Circuit directed the parties in Hammons Fall “to file supplemental briefs addressing the impact of Siegel on this appeal.” In other words, the parties were free once again to joust over remedy.

On remand, the government strenuously argued in the Tenth Circuit that the debtor was not entitled to a refund, saying that “retrospective monetary relief is rarely available at all.” In the government’s view, “prospective relief alone is the appropriate remedy for systemic equal-treatment violations where, as here, appellants had an adequate opportunity to challenge the fees before payment had they wished to do so.”

The government went on to say that Congress had already supplied prospective relief given a technical amendment in 2020 that mandates fee uniformity going forward in U.S. Trustee and Bankruptcy Administrator districts.

If there were to be retrospective relief, the government contended that the proper remedy would be “a good-faith effort to collect higher payments in the six [Bankruptcy Administrator] districts rather than to issue refunds in the 88 [U.S. Trustee] districts, thereby potentially resurrecting the very funding problem that Congress was explicitly trying to solve” by raising the fees in 2018.

In its August 15 order and judgment, the Tenth Circuit “reinstate[d] our original opinion,” which required the government to pay a refund based on what the debtor would have paid were it in a Bankruptcy Administrator district. In the first opinion, the Tenth Circuit mandated a refund in part because the appeals court had no jurisdiction over the two states with Bankruptcy Administrators and thus could not require debtors in those states to pay the higher fees.

The circuit’s August 15 order and judgment was nonprecedential. However, the original opinion last year was precedential and therefore may be cited by other courts in their rulings on remedy.