SCOTUS Punts on Remedy for Unconstitutional Chapter 11 Quarterly Fee Increase

July 12, 2022

Earlier this year, we highlighted the US Supreme Court’s grant of certiorari in Siegel v. Fitzgerald (In re Circuit City Stores, Inc.) to determine whether a 2017 statute that increased Chapter 11 quarterly fees was constitutional. The Supreme Court has spoken and deemed the increase unconstitutional under the Bankruptcy Clause, which requires that bankruptcy laws be uniform.

Rather than focus on how the statute was unconstitutional, we are focusing instead on the part of this case that was not resolved—the remedy. The Circuit City liquidating trustee argued that the trust should get a full refund of fees paid during the period when the statute was not applied uniformly. The US Trustee, in turn, argued that any remedy should be prospective only or result in fee increases for those debtors that paid less in the bankruptcy administrator districts (i.e., those in Alabama and North Carolina). Noting the various concerns with implementing each proposal, the Supreme Court remanded to the US Court of Appeals for the Fourth Circuit to consider the remedial issue in the first instance.

A week after the Court issued its decision in Siegel, it granted certiorari in another case that addressed the fee increase, Office of US Trustee v. John Q. Hammons Fall 2006, LLC, and summarily vacated the judgment, remanding the case to the US Court of Appeals for the Tenth Circuit for further consideration in light of Siegel. Interestingly, the Tenth Circuit had decided the remedial issue. After holding the fee increase unconstitutional, the Tenth Circuit ordered a remand to the bankruptcy court for a refund of any fees paid that exceeded what would have been paid in a bankruptcy administrator district. Among the considerations for this remedy was the fact that the Tenth Circuit “lack[s] authority over quarterly fees assessed in districts outside our circuit, and thus in Alabama or North Carolina.”

Although this summary vacatur of John Q. Hammons may suggest that the Supreme Court is not satisfied with the Tenth Circuit’s remedy determination, it could also mean that the Supreme Court wants the Tenth Circuit (and other courts wrestling with the issue) to take a harder look post-Siegel and generate more case law on the appropriate remedy before taking up the issue again in a future case.