By: Donald L Swanson
The bankruptcy clause of the U.S. Constitution focuses on a requirement of uniformity. Here’s the Constitution’s language:
- “The Congress shall have power . . . To establish . . . uniform Laws on the subject of Bankruptcies throughout the United States” [Article I, Section 8, Clause 4 (emphasis added)].
Example of Uniformity
One manner in which the uniformity requirement finds frequent expression is this:
- the U.S. Supreme Court grants certiorari in bankruptcy cases to resolve splits among the U.S. circuit courts of appeals on bankruptcy laws—i.e., to maintain “uniform Laws on the subject of Bankruptcies throughout the United States.”
Little-Used & Exceptions
The Constitution’s uniformity requirement for bankruptcy laws has been little-used over the years.
Often, it seems, a primary focus on uniformity is to identify circumstances in which it does NOT apply. For example:
- the Bankruptcy Code properly incorporates laws of the various states into the bankruptcy system—even though laws of the various states can be far from uniform;
- the Bankruptcy Code’s system of exemptions properly allows some states to adopt federal exemptions, while other states can choose to use their own exemption laws—there is a great deal of non-uniformity in such an approach; and
- an old Supreme Court opinion upholds a regionalized bankruptcy law to address a railroad problem—and there is nothing uniform about a regionalized law.
A Comeback
But the uniformity requirement of the Constitution’s bankruptcy clause seems to be making a comeback.
That’s particularly true in the recent dispute over non-uniform fees charged to Chapter 11 debtors in the U.S. Trustee districts (there are 88 of those districts), compared to similar-but-lesser fees charged to Chapter 11 debtors in the Bankruptcy Administrator districts (there are only 6 of those districts).
Two U.S. Supreme Court opinions are involved in this non-uniform fees dispute.
- the first is Siegel v. Fitzgerald, 596 U.S. 464 (2022), in which the U.S. Supreme Court declares such disparate fees to be unconstitutional, in violation of the Constitution’s uniformity requirement for bankruptcy laws; and
- the second is U.S. Trustee v. John Q. Hammons, Case No. 22-1238 (decided June 14, 2024), in which the remedy for the disparate fees violation of the Constitution’s uniformity requirement is the prospective-only relief that Congress previously authorized.
Trustee v. Hammons on Uniformity
–Majority Opinion
The importance of the Constitution’s uniformity requirement is emphasized by these comments in the six-Justice majority opinion for the U.S. Supreme Court’s Trustee v. Hammons case (emphases are added):
- “Two Terms ago, in Siegel v. Fitzgerald, 596 U. S. 464 (2022), we held that a statute violated the Bankruptcy Clause’s uniformity requirement because it permitted different fees for Chapter 11 debtors depending on the district where their case was filed”;
- “The Bankruptcy Clause empowers Congress ‘[t]o establish . . . Laws on the subject of Bankruptcies throughout the United States,” but it requires that such laws be ‘uniform’”;
- “the violation we identified (in Siegel) was nonuniformity, not high fees”;
- “The constitutional issue arose only because the fee statute’s permissive language effectively ‘exempted debtors in’ Bankruptcy Administrator districts from paying the new rates, resulting in a disparity in fees between the two types of bankruptcy districts”;
- “the fee disparity at issue here was short lived. . . . Due to these policy shifts by the Judicial Conference and Congress, a large Chapter 11 debtor was subject to, at most, three years and three months of nonuniform treatment”;
- “even when the statute unconstitutionally permitted the complained-of fee disparity, 98% of the relevant class of debtors still paid uniform fees”;
- “respondents are among the 98% of large Chapter 11 debtors who paid higher fees starting in 2018, just as Congress wanted. By refunding them, we would add to the past nonuniformity by increasing the tiny percentage of debtors—currently 2%— who paid lower fees”;
- “with the 2021 Act, Congress evinced a clear desire to comply with the constitutional mandate of uniformity by requiring prospective parity, but it reasonably chose not to impose higher fees retrospectively in Bankruptcy Administrator districts”; and
- “Faced with the unconstitutional nonuniformity we recognized in Siegel, Congress would have provided for uniform fees going forward. That remedy cures the constitutional violation, and due process does not require another result.”
–Dissenting Opinion
The three-Justice dissent also focuses on the non-uniformity violation of the Constitution’s bankruptcy clause, like this (emphases are added):
- “What’s a constitutional wrong worth these days? The Court’s answer today seems to be: not much.”
- “Between 2018 and 2020, the government charged fees to bankruptcy debtors that varied arbitrarily from region to region, leaving some debtors millions of dollars worse off than others.”
- “Two years ago, we held that this geographically discriminatory treatment violated the Constitution’s Bankruptcy Clause—a provision that, we stressed, was not ‘toothless’”;
- “Today, however, the Court performs a remedial root canal, permitting the government to keep the cash it extracted from its unconstitutional fee regime”;
- “The path the Court follows is as striking as its destination”:
- “Never mind that a refund is the traditional remedy for unlawfully imposed fees”;
- “Never mind that the government promised to supply precisely that relief if the debtors in this case prevailed, as they have, in their constitutional challenge”;
- “Never mind that backtracking on that promise raises separate due process concerns”; and
- “As the majority sees it, supplying meaningful relief is simply not worth the effort.”
Conclusion
It’s good to see the U.S. Supreme Court focusing on the U.S. Constitution’s uniformity requirement for bankruptcy laws.
Hopefully, that same focus will carry over into other contexts.
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