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Category: Trustee Fees

USTP Wants SCOTUS to Wait on Trustee Fee Ruling

July 24, 2023

A recent Law 360 story by Vince Sullivan, “Trustee Asks High Court To Wait On Petition For Fee Remedy”, reports that the Office of the U.S. Trustee asked the U.S. Supreme Court to hold off on its petition for certiorari until other cases seeking rulings on how to address trustee fee overpayments under an overturned fee schedule can be adjudicated, saying it hopes to achieve a nationwide remedy to the issue.  U.S. Trustee William K. Harrington said the Second Circuit was wrong to order the refund of $375,000 in payments made to the U.S. Trustee's Office by debtor Clinton Nurseries between 2018 and 2020, when the fees were increased by an amendment that was later found to be unconstitutionally non-uniform by the Supreme Court in Siegel v. Fitzgerald.

The petition cites other rulings on this issue finding that refunding overpayments is preferred over seeking increased fee payments from debtors who benefited from the lower fee schedule, or in doing nothing and only changing the payment program prospectively.  The trustee argues that while there is no split among circuit courts yet, resolving the question left open by Siegel would create a remedy that could be deployed nationwide.

"If the court, however, prefers to await the potential development of a circuit split, it should, at a minimum, hold this petition, as well as those in other cases presenting the same question, for as long as that question remains pending before other courts of appeals," the petition said.  "That would preserve the court's ability to effectuate a nationwide remedy if it later grants review."

A petition seeking similar relief in the case of debtor John Q. Hammons Hotels & Resorts has already been accepted by the high court, and there are hundreds of cases with the same issue of finding an appropriate remedy currently in the Second Circuit, where the Clinton Nurseries case originated.

During oral arguments in the Siegel case, attorneys for the trustee's office said the total amount of excess fees paid by debtors during the relevant period was as high as $324 million.  The trustee fee schedule was altered by a 2017 law designed to bolster the account used to fund the trustee program, which is sustained mostly by fees paid by Chapter 11 debtors.

The increase initially applied only to the 88 districts that employ the U.S. Trustee system, which is funded by the U.S. Department of Justice primarily through the fees charged to Chapter 11 debtors.  The hike was designed to help sustain the department's trustee fund and was triggered in the first quarter of 2018 because the fund balance dropped below the $200 million threshold established in the law.

Bankruptcy administrator districts in North Carolina and Alabama are funded by the judiciary, and rules in place before the hike permitted — but did not require — the administrator districts to charge the same fees as trustee districts.  It wasn't until October 2018 that these six districts adopted the fee increase.  Congress amended the governing statute in 2021 to require the same fee structure regardless of whether a debtor filed in a trustee or administrator district.

The trustee fees are charged based on the amount of disbursements made by a debtor to its creditors in a given quarter.  Before the increase, a debtor's maximum fee bill could only be $30,000 per quarter, but the 2017 law raised that cap to $250,000 per quarter.