Facts of the Case

Provided by Oyez

In the U.S., bankruptcy proceedings are administered through two systems: the Trustee Program managed by the Department of Justice for 88 judicial districts, and the Bankruptcy Administrator Program for six districts in Alabama and North Carolina, overseen directly by the courts. This dual system originated in 1978, with Alabama and North Carolina eventually gaining a permanent exemption from the Trustee Program in 2000. Both programs have different funding models, with the Trustee Program financed primarily through debtor fees and the Administrator Program funded through the general judicial budget. Over the years, Congress has enacted various amendments to balance the fee structures between the two systems, but disparities have remained, most notably with the 2017 Amendment which significantly raised fees in Trustee districts.

Seventy-six Chapter 11 debtors associated with John Q. Hammons Hotels & Resorts (Debtors) filed for bankruptcy in the District of Kansas, a Trustee district, in June 2016. Their cases were still pending when a 2017 Amendment took effect in January 2018, which significantly increased their quarterly Chapter 11 disbursement fees. By the end of December 2019, they had paid over $2.5 million more in fees than they would have if they had filed in a Bankruptcy Administrator district, such as those in North Carolina and Alabama.

The Debtors challenged the fee increase in bankruptcy court, arguing it was unequally applied and retroactive without clear congressional intent. The bankruptcy court rejected these arguments, and the U.S. Court of Appeals for the Tenth Circuit reversed.

Questions

  1. Must the U.S. Trustee issue refunds for the extra fees paid by debtors in certain districts to address the lack of uniformity identified in Siegel v. Fitzgerald?

Conclusions

  1. Refunds are not required; rather, prospective parity—i.e., requiring equal fees for otherwise identical Chapter 11 debtors going forward—is the appropriate remedy for the short-lived and small disparity created by the fee statute held unconstitutional in Siegel v. Fitzgerald, 596 U. S. 464 (2022). Justice Ketanji Brown Jackson authored the 6-3 majority opinion of the Court.

    To determine the appropriate remedy, the Court considers what Congress would have intended had it known about the constitutional problem. Congress has demonstrated a strong commitment to keeping the U.S. Trustee program self-funded through user fees, as evidenced by the 2017 fee increase and the 2021 Act maintaining elevated fees. Providing refunds would significantly disrupt the statutory scheme by transforming the self-funded U.S. Trustee program into a $326 million bill for taxpayers. It would also likely exacerbate the existing fee disparity. Moreover, Congress chose not to impose higher fees retroactively on Bankruptcy Administrator districts when it amended the fee statute in 2021, indicating it did not intend such a remedy. Thus, Congress would have wanted prospective fee parity, which is what Congress itself implemented in the 2021 Act.

    Justice Neil Gorsuch authored a dissenting opinion, in which Justices Clarence Thomas and Amy Coney Barrett joined, arguing that the Court’s decision undermines the importance of constitutional remedies and may have far-reaching negative consequences beyond the bankruptcy context. Justice Gorsuch would conclude that under traditional remedial principles, Hammons should receive a refund for the unconstitutional fees it paid.