Late yesterday, the U.S. Solicitor General urged the Supreme Court to grant certiorari, resolve a circuit split and decide whether the increase in fees payable to the U.S. Trustee system in 2018 violated the uniformity aspect of the Bankruptcy Clause of the Constitution because it was not immediately applicable in the two states that have bankruptcy administrators rather than U.S. Trustees. See Siegel v. Fitzgerald, 21-441 (Sup. Ct.) (cert. pending).
The Solicitor General was responding to the petition for certiorari filed in September by the liquidating trustee of Circuit City Stores Inc., who is seeking to overturn the decision by the Fourth Circuit finding no constitutional violation. See Siegel v. Fitzgerald (In re Circuit City Stores Inc.), 996 F.3d 156 (4th Cir. April 29, 2021). Naturally, the Solicitor General believes that the Fourth Circuit was correct in finding no constitutional infirmity. The Fifth Circuit reached the same conclusion in Hobbs v. Buffets LLC (In re Buffets LLC), 979 F.3d 366 (5th Cir. Nov. 3, 2020). To read ABI’s discussions of Siegel and Buffets, click here and here.
The Solicitor General said that Siegel was an “appropriate vehicle” for review because a federal statute has been held unconstitutional in two circuits, and the circuit split is “unlikely to be resolved without review by this Court.” In addition, the government’s advocate in the Supreme Court said that the constitutional question was “unobstructed by threshold issues or factual complications that could prevent the Court from reaching the question presented.”
The government’s decision to seek Supreme Court review is no surprise given the two other circuits that found violations of the Bankruptcy Clause. See Clinton Nurseries Inc. v. Harrington (In re Clinton Nurseries Inc.), 998 F.3d 56 (2d Cir. May 24, 2021), and John Q. Hammons Fall 2006 LLC v. U.S. Trustee (In re John Q. Hammons Fall 2006 LLC), 20-3203, 2021 BL 380406 (10th Cir. Oct. 5, 2021). To read ABI’s reports on Clinton Nurseries and Hammons Fall, click here and here.
The government obtained an extension until January 14, 2022, of its time for filing a certiorari petition challenging the Second Circuit’s finding of a constitutional violation in Clinton Nurseries. See Harrington v. Clinton Nurseries Inc., 21-A-207 (Sup. Ct.). Opposing certiorari in Siegel would have prejudiced the government’s ability to petition successfully for a review of Clinton Nurseries.
In addition, the government is facing an appeal in the Federal Circuit from a decision by the Court of Federal Claims adopting the analysis of the Fifth Circuit. If it were to reverse, the Federal Circuit would reinstate a class action that could mean refunds for chapter 11 debtors nationwide whose cases were filed before the increase went into effect in bankruptcy administrator districts. See Acadiana Management Group LLC v. U.S., 19-496, 151 Fed. Cl. 121 (Ct. Cl. Nov. 30, 2020). The last brief in the Federal Circuit was filed in mid-September. For ABI’s report on Acadiana, click here.
The Government’s Brief in the Supreme Court
The brief of the Solicitor General urging a grant of certiorari gives a preview of the arguments that the government will make on the merits, assuming the petition is granted.
The legal issues revolve around the increase in fees in U.S. Trustee districts that became effective as of January 1, 2018. The increase was not trivial. For the largest companies reorganizing in chapter 11, the maximum quarterly fee rose from $30,000 to $250,000.
Challenges arose throughout the country because the increase did not become effective until nine months later in Alabama and North Carolina, where there are bankruptcy administrators rather than U.S. Trustees. In the 48 states where the fees were higher, some chapter 11 debtors argued that the unequal fee structure violated the Bankruptcy Clause for lack of uniformity.
The government makes several arguments to uphold the dual fee structure. First, the Solicitor General’s brief contends that the Bankruptcy Clause does not apply because the fees are governed by 28 U.S.C. § 1930(a)(6), not the Bankruptcy Code.
In the government’s opinion, Section 1930 “does not regulate or alter the debtor-creditor relationship, and thus does not hinge on Congress’s bankruptcy power. Rather, it is a user-fee provision that funds the administrative machinery erected by Congress to aid the exercise of its enumerated Section 8 powers, including its power to constitute inferior tribunals.”
The contention that Section 1930 is not a “law of the subject of Bankruptcies” has been rejected even by the circuits that found the increase otherwise constitutionally valid.
Next, the government contends that the law was uniform as a matter of fact. Although Section 1930 at the time said that the Judicial Conference “may” raise the fees in bankruptcy administrator districts, the statute should have been interpreted as being mandatory, according to the Solicitor General.
The Solicitor General weds her principal argument to Regional Rail Reorganization Act Cases, 419 U.S. 102 (1974), where the Supreme Court upheld a railroad reorganization law that applied only to railroads in a specific region of the country where Congress saw financial problems. The government argues that Section 1930’s unequal treatment falls within the “broad flexibility” granted by the Constitution to Congress to deal with “program-specific” financial issues.
Finally, the government contends that ordering a refund of overpayments would not be the proper remedy even if there is a constitutional violation. The Solicitor General believes that “declaratory relief” is enough.
The Solicitor General believes that “a remedy that requires refunds in 88 districts would contravene what Congress would have intended.”
Argument Possible This Term
According to the Supreme Court’s docket, the Siegel certiorari petition is not yet on the calendar for consideration at a conference among the Supreme Court justices. The justices hold a conference tomorrow. It is nonetheless possible that the Court could grant certiorari either tomorrow or on Monday, December 13, when the justices issue orders.
If the Court grants certiorari, whenever that happens, there will be sufficient time for briefing and argument to permit a decision before the current term ends in June.
Late yesterday, the U.S. Solicitor General urged the Supreme Court to grant certiorari, resolve a circuit split and decide whether the increase in fees payable to the U.S. Trustee system in 2018 violated the uniformity aspect of the Bankruptcy Clause of the Constitution because it was not immediately applicable in the two states that have bankruptcy administrators rather than U.S. Trustees. See Siegel v. Fitzgerald, 21-441 (Sup. Ct.) (cert. pending).
The Solicitor General was responding to the petition for certiorari filed in September by the liquidating trustee of Circuit City Stores Inc., who is seeking to overturn the decision by the Fourth Circuit finding no constitutional violation. See Siegel v. Fitzgerald (In re Circuit City Stores Inc.), 996 F.3d 156 (4th Cir. April 29, 2021). Naturally, the Solicitor General believes that the Fourth Circuit was correct in finding no constitutional infirmity. The Fifth Circuit reached the same conclusion in Hobbs v. Buffets LLC (In re Buffets LLC), 979 F.3d 366 (5th Cir. Nov. 3, 2020). To read ABI’s discussions of Siegel and Buffets, click here and here.
The Solicitor General said that Siegel was an “appropriate vehicle” for review because a federal statute has been held unconstitutional in two circuits, and the circuit split is “unlikely to be resolved without review by this Court.” In addition, the government’s advocate in the Supreme Court said that the constitutional question was “unobstructed by threshold issues or factual complications that could prevent the Court from reaching the question presented.”