Nelson Mullins Riley & Scarborough LLP

Back in July, Craig Eller wrote in The Bankruptcy Protector about the continuing confusion amongst courts and litigants regarding the applicability of a 2018 increase in fees payable to the Office of the United States Trustee in chapter 11 cases. You can find that discussion here. At the time of that post, Craig speculated that the issue was likely going to have to be resolved by the U.S. Supreme Court at some point in the near future. Now, roughly three months later, that proposition seems even more likely in the wake of a decision from the Tenth Circuit issued this week (Oct. 5th).

With the Tenth Circuit’s recent decision, in which it joined the Second Circuit in finding violations of the Bankruptcy Clause because the increase did not apply immediately to chapter 11 debtors in two states with bankruptcy administrators rather than U.S. Trustees, there is now a 2/2 split among the circuits on this issue.

As previously discussed in July, the fee increase became effective in January 2018 in 48 states with U.S. Trustees. It applied to pending cases, even those with confirmed chapter 11 plans. In the two states with bankruptcy administrators, the Judicial Conference didn’t make the increase effective until nine months later, and even then, the increase in those two states did not apply to pending cases.

The Second and Tenth Circuits found violations of the uniformity aspect of the Bankruptcy Clause. See Clinton Nurseries Inc. v. Harrington (In re Clinton Nurseries Inc.), 998 F.3d 56 (2d Cir. May 24, 2021), and John Q. Hammons Fall 2006 LLC v. U.S. Trustee (In re John Q. Hammons Fall 2006 LLC), 20-3203 (10th Cir. Oct. 5, 2021).

The Fourth and Fifth Circuits found no constitutional infirmity. See Siegel v. Fitzgerald (In re Circuit City Stores Inc.), 996 F.3d 156 (4th Cir. April 29, 2021), and Hobbs v. Buffets LLC (In re Buffets LLC), 979 F.3d 366 (5th Cir. Nov. 3, 2020).

But the circuit split does not end here. Two other cases are headed for the circuits raising the same question. The Court of Federal Claims adopted the analysis of the Fifth Circuit and dismissed a class action that could have meant refunds for chapter 11 debtors nationwide whose cases were pending before the increase in bankruptcy administrator districts. See Acadiana Management Group LLC v. U.S., 19-496, 151 Fed. Cl. 121 (Ct. Cl. Nov. 30, 2020). The case is on appeal to the Federal Circuit. And in July, a bankruptcy court in Ohio upheld the increased fees. See Pidcock v. U.S. (In re ASPC Corp.), 19-2120, 2021 BL 262969, 2021 Bankr. Lexis 1857 (Bankr. S.D. Ohio July 13, 2021). An opposed motion for direct appeal to the Sixth Circuit is pending.

Notably, the issue is already before the Supreme Court. Raising the circuit split, the debtor from the Fourth Circuit filed a petition for certiorari on September 20, 2021. See Siegel v. Fitzgerald, 21-441 (Sup. Ct.). It is likely that the Justices will decide on granting or denying certiorari around the beginning of 2022, allowing time for argument in 2022 and a decision before the end of the term that began October 2021.

The outcome in the Supreme Court at a minimum will affect chapter 11 debtors nationwide whose cases were pending between January 2018 and October 2018, when the rate increased in bankruptcy administrator districts. The Bankruptcy Protector will continue to monitor the develops in this area and post updates as they arise.