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The U.S. Supreme Court yesterday heard oral arguments yesterday in the case of Office of the United States Trustee v. John Q. Hammons Fall 2006, LLC on whether the federal government should refund additional fees collected from bankrupt companies under a fee-hike law that was later deemed unconstitutional, WSJ Pro Bankruptcy reported. In 2017, Congress passed a law raising the fees charged in bankruptcy cases overseen by the Justice Department’s U.S. Trustee Program, which covers 48 states. Two states — Alabama and North Carolina — fund their own bankruptcy administrators through the courts’ own budgets. The Supreme Court ruled in 2022 that the fee-increase law was unconstitutional because it applied to bankruptcy cases filed in only 48 states. By that time, Congress had already amended the law, making the higher fees applicable in Alabama and North Carolina as well. But the question remained as to whether the fees that had already been collected should be returned or not. John Q. Hammons Hotels & Resorts, a privately owned Missouri-based hotel company that filed for bankruptcy protection in 2016 in Kansas City, Kan., challenged the fees it had paid while in chapter 11, arguing that the higher amount that came into effect under the 2017 law should be refunded because the statute was unconstitutional. In 2022, the U.S. Court of Appeals for the Tenth Circuit ruled that the company and its affiliates should get a refund of $2.5 million from the federal government. The Justice Department challenged that ruling. In arguments before the Supreme Court on Tuesday, Masha Hansford, a Justice Department attorney, said Congress raised the fees to fund the U.S. Trustee Program under its belief that the bankruptcy system should be self-funded at no cost to taxpayers. Forcing the government to refund fees to companies that used the bankruptcy system goes against the intent of Congress, she said. If the high court sides with the hotel company, the decision is likely to put taxpayers on the hook for returning about $326 million in fees paid in roughly 2,100 bankruptcy cases, according to a DOJ court filing. Daniel Geyser, a lawyer representing the hotel group, told the justices that his client, along with thousands of other debtors, is entitled to receive a refund for the fees collected by the government during the time the original law was in effect. Read more.

Click here to read the transcript from yesterday's oral argument in Office of the United States Trustee v. John Q. Hammons Fall 2006, LLC.

A Texas bankruptcy judge recommended against a government request to move a case challenging fees paid to a law firm that were approved by a former judge who was in an undisclosed relationship with one of the firm’s lawyers, WSJ Pro Bankruptcy reported. The U.S. Trustee, a division of the Justice Department that functions as a watchdog for the nation’s bankruptcy system, is challenging roughly $13 million of fees earned by Texas law firm Jackson Walker in 17 bankruptcy cases over which former bankruptcy judge David R. Jones presided. One of Jackson Walker’s partners, Elizabeth Freeman, lived with Jones during that time and owned a house with him in the Houston area, which neither Jones, Freeman nor Jackson Walker revealed at the time. Jones resigned from the bench in October after the Fifth Circuit Court of Appeals started an investigation and filed a complaint stating it had found probable cause of misconduct. Southern District of Texas Chief Bankruptcy Judge Eduardo Rodriguez, who consolidated the government’s 17 motions to transfer the Jackson Walker fee matters under his watch, said the request didn’t meet the standard that allows such a move. He determined the motions weren’t filed in a timely manner, and that the trustee didn’t establish that the transfer would benefit the progress of the 17 bankruptcy cases. Instead, Judge Rodriguez said, the matter should stay in his court. This consolidated approach would mostly alleviate the concerns over efficiency raised by the government and Jackson Walker, the judge said.