Siegel v. Fitzgerald

142 S.Ct. 1770

Alfred H. SIEGEL, Trustee of the Circuit City Stores, Inc. Liquidating Trust, Petitioner

v.John P. FITZGERALD, III, Acting United States Trustee for Region 4

No. 21-441

Supreme Court of the United States.

Argued April 18, 2022

Decided June 6, 2022

Daniel L. Geyser, Los Angeles, CA, for the petitioner.

Curtis E. Gannon, Deputy Solicitor General, for the respondent.

Jeffrey N. Pomerantz, Andrew W. Caine, Pachulski Stang Ziehl & Jones LLP, Los Angeles, CA, Robert J. Feinstein Pachulski Stang Ziehl & Jones LLP, New York, NY, Daniel L. Geyser, Counsel of Record, Ben L. Mesches, Kelli Bills, Haynes and Boone, LLP, Dallas, TX, Angela M. Oliver, Haynes and Boone, LLP, Washington, DC, for petitioner.

Elizabeth B. Prelogar, Solicitor General, Counsel of Record, Brian M. Boynton, Principal Deputy Assistant Attorney General, Curtis E. Gannon, Deputy Solicitor General, Masha G. Hansford, Assistant to the Solicitor General, Mark B. Stern, Jeffrey E. Sandberg, Department of Justice, Washington, D.C., Ramona D. Elliott, Deputy Director/General Counsel, P. Matthew Sutko, Associate General Counsel, Beth A. Levene, Wendy Cox, Andrew Beyer, Trial Attorneys, Executive Office for United States Trustees, Washington, D.C., for respondent.

Justice SOTOMAYOR delivered the opinion of the Court.

The Bankruptcy Clause empowers Congress to establish "uniform Laws on the subject of Bankruptcies throughout the United States." U. S. Const., Art. I, § 8, cl. 4. The Clause's requirement that bankruptcy laws be "uniform" is not a straitjacket: Congress retains flexibility to craft legislation that responds to different regional circumstances that arise in the bankruptcy system. Nor, however, is this uniformity requirement toothless. The question in this case is whether Congress’ enactment of a significant fee increase that exempted debtors in two States violated the uniformity requirement. Here, it did.

I

A

Bankruptcy cases involve both traditional judicial responsibilities and extensive administrative ones. Until 1978, bankruptcy judges handled both. This meant that, in addition to their traditional judicial function of ruling on disputed matters in adversarial proceedings, bankruptcy judges dealt with an array of administrative tasks, such as appointing private trustees where appropriate; organizing creditors’ committees; supervising the filing of required reports, schedules, and taxes; and monitoring cases for signs of abuse and fraud. See H. R. Rep. No. 99–764, p. 17 (1986).

Concerned that these dual roles were overloading bankruptcy judges and creating an appearance of bias, particularly because judges were responsible for supervising trustees that they themselves had appointed, Congress in 1978 piloted the United States Trustee Program (Trustee Program) in 18 of the 94 federal judicial districts. See id. , at 17–18; Bankruptcy Reform Act of 1978, 92 Stat. 2549. To "rende[r] the separation of administrative and judicial functions complete," the pilot program transferred the administrative functions previously handled by the bankruptcy courts to newly created U. S. Trustees, housed within the Department of Justice rather than the Administrative Office of the U. S. Courts. H. R. Rep. No. 95–595, p. 115 (1977).

In 1986, Congress sought to make the pilot Trustee Program permanent and to expand it nationwide, but met resistance from stakeholders in North Carolina and Alabama. See The United States Trustee System: Hearing on S. 1961 before the Subcommittee on Courts of the Senate Committee on the Judiciary, 99th Cong., 2d Sess., 129 (1986). As a result, Congress opted to expand mandatorily the Trustee Program to all federal judicial districts except for the six judicial districts in North Carolina and Alabama. Congress permitted only those six districts to continue judicial appointment of bankruptcy administrators, referring to that system as the Administrator Program. §§ 111–115, 302(d)(3), 100 Stat. 3090–3095, 3121–3123. The Administrator Program was scheduled to phase out in 1992, but Congress extended it by 10 years. § 317(a), 104 Stat. 5115. At the end of those 10 years, however, Congress did not phase out the Administrator Program. Instead, it eliminated the sunset period and permanently exempted the six districts from the requirement to transition to the Trustee Program, while providing that each district could individually elect to do so. § 501, 114 Stat. 2421–2422 (2000 Act); § 302(d)(3), 100 Stat. 3121–3123. Each of the six districts continues to participate in the Administrator Program.

The Trustee Program and the Administrator Program handle the same core administrative functions, but have different funding sources. Congress requires that the Trustee Program be funded in its entirety by user fees paid to the United States Trustee System Fund (UST Fund), the bulk of which are paid by debtors who file cases under Chapter 11 of the Bankruptcy Code. 28 U.S.C. § 589a(b)(5). Those debtors pay a fee in each quarter of the year that their case remains pending at a rate set by Congress. The fee varies according to the amount of funds paid out ("disbursed") from the bankruptcy estate to creditors, suppliers, and other parties during that quarter. See § 1930(a).

In contrast, Congress does not require the Administrator Program to fund itself. Instead, the Administrator Program is funded by the Judiciary's general budget. In re Circuit City Stores, Inc. , 996 F.3d 156, 160 (CA4 2021). Initially, Congress did not require Administrator Program district debtors to pay user fees at all. After the Ninth Circuit held that system unconstitutional, see St. Angelo v. Victoria Farms, Inc. , 38 F.3d 1525, 1532–1533 (1994), amended, 46 F.3d 969 (1995), Congress provided that " ‘the Judicial Conference of the United States may require the debtor in a case under chapter 11 [filed in an Administrator Program district] to pay fees equal to those imposed’ " in Trustee Program districts, 2000 Act § 105, 114 Stat. 2412 (enacting 28 U.S.C. § 1930(a)(7) ). Congress directed that any such fees be deposited into a fund that offsets appropriations to the Judicial Branch. Ibid. The Judicial Conference adopted a standing order in 2001 directing Administrator Program districts to charge fees "in the amounts specified in 28 U.S.C. § 1930, as those amounts may be amended from time to time." Report of the Proceedings of the Judicial Conference of the United States 46 (Sept./Oct. 2001). Under this standing order, for the next 17 years, the Judicial Conference matched all Trustee Program fee increases with equivalent Administrator Program fee increases, meaning that all districts nationwide charged similarly situated debtors uniform fees.

In 2017, concerned with a shortfall in the UST Fund, Congress enacted a temporary, but significant, increase in the fee rates applicable to large Chapter 11 cases. See Pub. L. 115–72, Div. B, 131 Stat. 1229 (2017 Act). The increase was set to take effect only if the UST Fund balance dropped below $200 million as of September 30 of the most recent fiscal year. If that condition was met, the increase applied on a quarterly basis to any debtors with a disbursement of $1 million or more during that quarter, regardless of whether their case was newly filed or already pending when the increase took effect. For those debtors, the maximum fee was increased from $30,000 a quarter to $250,000 a quarter. § 1004(a), id. , at 1232. The statute provided that the fee raise would become effective in the first quarter of 2018 and would last only through 2022.

Despite the Judicial Conference's standing order, and unlike with previous fee increases, the six districts in the two States participating in the Administrator Program did not immediately adopt the 2017 fee increase. Only in September 2018 did the Judicial Conference order Administrator Program districts to implement the amended fee schedule. Even then, however, two key differences remained between the fee increase faced by debtors in Trustee Program districts as opposed to those faced by debtors in Administrator Program districts. First, the fee increase took effect for the six Administrator Program districts as of October 1, 2018, while the increase took effect for the Trustee Program districts as of the first quarter of 2018. Second, in Administrator Program districts, the fee increase applied only to newly filed cases, while in Trustee Program districts, the increase applied to all pending cases.

In 2021, Congress amended the statute governing parity of fees between Trustee Program and Administrator Program districts, § 1930(a)(7), to replace the word "may" with "shall." See Pub. L. 116–325, 134 Stat. 5088. As a result, the statute now provides that the Judicial Conference "shall require" imposition of fees in Administrator Program districts that are equal to those imposed in Trustee Program districts. § 1930(a)(7). This change "confirm[ed] the longstanding intention of Congress that quarterly fee requirements remain consistent across all Federal judicial districts." Id. , at 5086.

B

In 2008, Circuit City Stores, Inc., filed for Chapter 11 bankruptcy in the Eastern District of Virginia, a Trustee Program district. In 2010, the Bankruptcy Court confirmed a joint-liquidation plan, overseen by a trustee (petitioner here), to collect, administer, distribute, and liquidate all of Circuit City's assets. The liquidation plan required petitioner to " ‘pay quarterly fees to the U. S. Trustee until the Chapter 11 Cases are closed or converted.’ " In re Circuit City Stores , 606 B.R. 260, 263 (2019). In 2010, when the plan was confirmed, the maximum quarterly fee was $30,000.

Circuit City's bankruptcy was still pending when Congress raised the fees for Chapter 11 debtors in Trustee Program districts through the 2017 Act. Across the first three quarters after the fee increase took effect, petitioner paid $632,542 in total fees. Id. , at 267, n. 20. Had Congress not increased fees, petitioner would have...