The U.S. Supreme Court has granted a petition for a writ of certiorari to determine whether Chapter 11 debtors should receive refunds for their overpayment of fees to the United States Trustee’s Office (see Office of the U.S. Trustee v. John Q. Hammons Fall 2006 LLC, 22-1238 (Sup. Ct.)). At stake is the possible return of approximately $326 million in fees from the U.S. Trustee’s Office to these debtors.

These fees emanated from a 2018 increase in fees, which Chapter 11 debtors paid to the U.S. Trustee’s Office. The issue came to a head when six bankruptcy districts in North Carolina and Alabama failed to match the fee hike for most of 2018. This failure caused a major disparity and created a circuit court split. Congress remedied this in 2020 which required the Alabama and North Carolina Debtors to pay the same fees as the rest of the country but failed to address fees which had already been paid.

Previously, in Siegel v. Fitzgerald, 142 S. Ct. 1770 (Sup. Ct. June 6, 2022), the Court unanimously held that the 2018 increase in fees paid by Chapter 11 debtors to the U.S. Trustee System was unconstitutional because it was not immediately applicable in the two states with Bankruptcy Administrators rather than U.S. Trustees. But the Siegel court did not resolve the issue of identifying the proper relief.

Herein, the U.S. government posits that relief in the future will be sufficient in that the Court has ruled that fees must be uniform throughout the country hereinafter. In the alternative, the government asks that Courts rule that someone should retroactively collect underpayments from the debtors in Bankruptcy Administrator districts.

The preeminent bankruptcy commentator, Bill Rochelle, has echoed the sentiment of many bankruptcy practitioners that the grant of certiorari was unexpected as there was no split of circuits as the four circuit courts (Ninth, Tenth, Second and Eleventh Circuits) that considered the issue already ruled that Chapter 11 debtors are entitled to refunds. Rochelle believes that the decision was less surprising when “one realizes that the Court grants certiorari more than half the time when the government is the petitioner.” Rochelle also notes that there will be a true practical significance to the U.S. Supreme Court’s decision in the Tenth Circuit case of John Q. Hammons Fall 2006 LLC v. U.S. Trustee, in that, if the Supreme Court upholds the Tenth Circuit in Hammons Fall, the outcome in other cases such as one currently pending in Washington D.C. in the Court of Federal Claims (Acadiana Management Group LLC v. US, 19-496 ( Ct. Cl.)) may result in refunds for all debtors who overpaid, even those who have not sued for refunds on their own.

I will keep you posted as to all future developments on this issue. To discuss the issues raised herein or any other issues involving creditors’ rights and bankruptcy, please contact Leslie Beth Baskin, Esquire at 215-241-8926 or at lbaskin@sgrvlaw.com.