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USTP Asks Supreme Court to Review $324M Bankruptcy Fee Matter

December 11, 2021 | Posted in : Bankruptcy Fees / Expenses, Fee Issues on Appeal, Fee Jurisprudence, Practice Area: Bankruptcy / Restructuring, SCOTUS, USTP

A recent Reuters story by Marla Chutchian, “Government Asks Supreme Court to Review $324M Bankruptcy Fee Fight,” reports that the U.S. Department of Justice’s bankruptcy watchdog is urging the U.S. Supreme Court to take up a dispute over bankruptcy fees Chapter 11 debtors are required to pay the government that has divided top appellate courts across the country.

Solicitor General Elizabeth Prelogar said in a brief on behalf of the U.S. Trustee program that the high court should review the matter to resolve confusion over the fees created by the conflicting rulings.  She also argued the court should find that a 2017 law increasing government fees that many Chapter 11 debtors must pay complies with the U.S. Constitution’s Bankruptcy Clause, which requires bankruptcy laws to be uniform.  The law's imposition of higher fees in most, but not all, U.S. bankruptcy courts has caused uncertainty about the legal status of around $324 million in fees imposed under the 2017 law, according to the U.S. Trustee.

The dispute stems from a lawsuit filed by Alfred Siegel, the trustee who oversaw Circuit City's liquidation process.  He claims the law violated the uniformity requirement by increasing U.S. Trustee fees for Chapter 11 debtors in most states but failed to do the same for two states that use a different government entity, known as the Bankruptcy Administrator program, to perform similar duties in overseeing large corporate bankruptcies.

Siegel argued in a September petition to the Supreme Court that the alleged disparity forced the Circuit City liquidating trust to pay substantially higher fees than it had in prior years, while Chapter 11 debtors in North Carolina and Alabama, the states with the alternative program, went several months without being subject to the same fee increases.  North Carolina and Alabama opted in 1986 for the Administrator program.

While the U.S. Trustee opposes Siegel’s view of the law, it agrees that the Supreme Court should review the case.  The law has been challenged in several districts with conflicting outcomes – the 4th and 5th U.S. Circuit Courts of Appeal have upheld the law while the 2nd and 10th Circuits have deemed it unconstitutional.

The government argued that the constitution’s uniformity requirement does not restrict Congress’s ability to amend U.S. Trustee fees.  Additionally, it said, the bankruptcy clause gives Congress flexibility in creating new statutes that govern bankruptcy court administration.  “There is no basis for concluding that any of those administrative variations are unconstitutional,” the government said in Wednesday’s filing.

The case is Alfred Siegel v. John Fitzgerald III, U.S. Supreme Court, No. 21-441.