Bankruptcy Judge Mark X. Mullin of Fort Worth, Tex., joined the parade of judges holding that the increase in U.S. Trustee fees in 2018 does not apply to chapter 11 cases that were already pending and is unconstitutional if it does apply.
The issue will soon be tested in the Fifth Circuit.
In February, Bankruptcy Judge Ronald B. King of San Antonio ruled that the increase in fees does not apply to pending cases because the amended statute, 27 U.S.C. § 1930(a)(6)(B), is not retroactive. He went on to hold that the statute violates the Bankruptcy, Uniformity, and Due Process Clauses of the Constitution. In re Buffets LLC, 597 B.R. 588 (Bankr. W.D. Tex. 2019). To read ABI’s discussion of Buffets, click here.
Judge King authorized a direct appeal to the Fifth Circuit. The appeals court accepted the direct appeal on August 16.
The new case before Judge Mullin also involved a chapter 11 debtor whose plan was confirmed and consummated before the U.S. Trustee fee increase became effective. Principally following Buffets, he ruled that the statute was not retroactive by its terms and would violate the Due Process Clause if it were. He also held that the higher fee violates the Uniformity and Bankruptcy Clauses for cases pending when the increase was adopted on October 26, 2017.
The fee increase had a major effect on the debtor in Judge Mullin’s court. For all of 2017, before the increase went into effect, total U.S. Trustee fees were $56,000. Following the increase, the debtor was paying almost $655,000 just for the first three quarters of 2018.
Judge Mullin ruled that the debtor is liable to pay U.S. Trustee fees at the rate in effect before the 2017 amendment. However, the decision is not ripe for appeal, because Judge Mullin still must determine the amount of the debtor’s liability and whether the debtor is entitled to a refund.
Judge Mullin also followed the reasoning of Bankruptcy Judge Kevin R. Huennekens of Richmond, Va. Judge Huennekens held that the increased fee violates the Uniformity Clause if the fee is seen as a tax, and violates the Bankruptcy Clause if the fee is considered a user fee. In a case pending when the fee rose, he ruled that the debtor was only liable to pay the lower rate under the prior version of the statute. In re Circuit City Stores Inc., 08-35653, 2019 BL 264824, 2019 Bankr. Lexis 2121 (Bankr. E.D. Va. July 15, 2019).
Judge Huennekens adopted Judge King’s rationale in Buffets. To read ABI’s discussion of Circuit City, click here.
Bankruptcy Judge Mark X. Mullin of Fort Worth, Tex., joined the parade of judges holding that the increase in U.S. Trustee fees in 2018 does not apply to chapter 11 cases that were already pending and is unconstitutional if it does apply.
The issue will soon be tested in the Fifth Circuit.
In February, Bankruptcy Judge Ronald B. King of San Antonio ruled that the increase in fees does not apply to pending cases because the amended statute, 27 U.S.C. § 1930(a)(6)(B), is not retroactive. He went on to hold that the statute violates the Bankruptcy, Uniformity, and Due Process Clauses of the Constitution. In re Buffets LLC, 597 B.R. 588 (Bankr. W.D. Tex. 2019). To read ABI’s discussion of Buffets, click here.
Judge King authorized a direct appeal to the Fifth Circuit. The appeals court accepted the direct appeal on August 16.
The new case before Judge Mullin also involved a chapter 11 debtor whose plan was confirmed and consummated before the U.S. Trustee fee increase became effective. Principally following Buffets, he ruled that the statute was not retroactive by its terms and would violate the Due Process Clause if it were. He also held that the higher fee violates the Uniformity and Bankruptcy Clauses for cases pending when the increase was adopted on October 26, 2017.