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The Bankruptcy StrategistFeaturesBankruptcyLitigationUnited States Supreme Court

SCOTUS: Prospective Relief Is Only Remedy Necessary to Resolve Unconstitutional U.S. Trustee Fee Scheme

By Francis J. Lawall and Tori L. Remington
August 01, 2024

In a recent decision, the U.S. Supreme Court addressed the appropriate remedy for the prior discriminatory application of U.S. Trustee quarterly fees in Chapter 11 cases. See, Office of the United States Trustee v. John Q. Hammons Fall 2006, 144 S. Ct. 1588 (2024). In its ruling, the Court held that the government was not required to refund millions of dollars paid by a Chapter 11 debtor pursuant to an unconstitutional fee scheme between the judicial districts. Citing congressional intent, the Court determined that "prospective relief" was the only remedy necessary to resolve the "short lived" and "small" constitutional violation found in Siegel. See, Siegel v. Fitzgerald, 596 U.S. 464 (2022).

The Constitutional Violation In Siegel

In most judicial districts, Chapter 11 bankruptcy cases are administered through the U.S. Trustee program, a program within the Department of Justice. Created by Congress, the U.S. Trustee program was designed to be self-funded by fees paid by debtors so that the taxpayers are not burdened. In the remaining jurisdictions, Chapter 11 bankruptcy cases are administered through the bankruptcy administrator program, which is run by the Administrative Office of the U.S. Courts. This program is largely funded by Congress through its general appropriation powers and is supplemented by debtor fees.

In 2017, Congress substantially increased the fees imposed on Chapter 11 debtors (for both newly filed and pending cases) in districts administered by the U.S. Trustee program when it faced a shortfall in funding. The increase in fees took effect in January 2018. However, the fees for debtors in districts administered by the bankruptcy administrator program were not similarly increased until October 2018 for newly filed debtors and 2021 for already pending debtors. This gap in time in implementing the increased fees led to a large disparity between the amount of fees paid under each program. Following a constitutional challenge of this fee disparity, the U.S. Supreme Court in Siegel v. Fitzgerald ruled that the fee disparity resulting from the programs' different fee structure violated the bankruptcy clause of the Constitution, which requires that bankruptcy laws be "uniform." Though the Supreme Court held that the nonuniformity of the statutes was unconstitutional, it did not identify an appropriate remedy.

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