On Friday September 28, 2023, the U.S. Supreme Court agreed to review the United States Trustee’s appeal from the Tenth Circuit Court of Appeal’s holding that the Office of the United States Trustee should refund overpayments made by chapter 11 debtors under the United States Trustee System Fund (Pub. L. 115-72, Div. B, 131 Stat. 1229) (the “2017 Act”), which the Supreme Court held violated the uniformity requirement of the Bankruptcy Clause set forth in Article I, § 7, cl. 4 of the United States Constitution. The Supreme Court’s ruling in Siegel v. Fitzgerald, 596 U.S. ___, 142 S.Ct. 1770, 213 L.Ed.2d 39 (2022), which struck down the 2017 Act as unconstitutional, and the Tenth Circuit’s ruling in John Q. Hammons Fall 2006 LLC, et al. v. Office of the U.S. Trustee (In re John Q. Hammons Fall 2006 LLC), 15 F.4th 1011 (10th Cir. 2021), which was reaffirmed in August 2022, are addressed in prior blog posts. See, e.g., Keith C. Owens, The Circuit City Landmine (Siegel v. Fitzgerald): Supremes Declare Bankruptcy Fee Hike Under United States Trustee Program Unconstitutional –What Happens Next? | In Solvency (foxrothschild.com) (June 9, 2022); Keith C. Owens, The Aftermath of Siegel v. Fitzgerald: The Tenth Circuit Orders United States Trustee Program to Refund Chapter 11 Debtors’ Overpayment of United States Trustee Fees | In Solvency (foxrothschild.com) (Sept. 26, 2022).
The Supreme Court will now decide whether the remedy of a refund due to former debtor John Q Hammons Hotel & Resorts in the amount of $2.5 million resulting from overpayments made under the 2017 Act, is the appropriate remedy. Although the Supreme Court in Siegel v. Fitzgerald held that the disparate treatment between the fees charged under the U.S. Trustee System and the fees charged in the six Bankruptcy Administrator Districts as a result of Congresses’ enactment of the 2017 Act violated the uniformity requirement of the Bankruptcy Clause set forth in Article I, § 7, cl. 4 of the United States Constitution, the Court left it to the lower courts to decide what remedies were appropriate.
Until now, Courts of Appeals have unanimously concluded that refunding overpayments under the unconstitutional scheme is the appropriate remedy. Courts have rejected the Office of the United States Trustee’s argument that that the 2021 amendments corrected the problem, and its alternative argument that the appropriate remedy is to retroactively charge higher fee rates to debtors in the Bankruptcy Administrator Districts.
We will continue to monitor the case and keep you posted.