U.S. Tr. Region 21 v. Bast Amron LLP (In re Mosaic Mgmt. Grp., Inc.)

22 F.4th 1291

IN RE: MOSAIC MANAGEMENT GROUP, INC., Debtor.

United States Trustee Region 21, Plaintiff-Appellee Cross-Appellant,

v.Bast Amron LLP, Defendant-Appellant Cross-Appellee.

No. 20-12547

United States Court of Appeals, Eleventh Circuit.

Filed January 14, 2022

Jeffrey Eric Sandberg, U.S. Department of Justice, Civil Division, Appellate Staff, Washington, DC, Jill Ellen Kelso, United States Department of Justice, Office of the United States Trustee, Orlando, FL, Ariel Rodriguez, Office of the United States Trustees, Miami, FL, for Plaintiff-Appellee Cross-Appellant.

Jeffrey P. Bast, AT, Jaime B. Leggett, Bast Amron, LLP, MIAMI, FL, for Defendant-Appellant Cross-Appellee.

Before Jordan, Brasher, and Anderson, Circuit Judges.

Anderson, Circuit Judge:

Quarterly fees are collected pursuant to 28 U.S.C. § 1930 in each quarter of a chapter 11 bankruptcy based on the amount of disbursements made. The United States Trustee collects the fees in most districts in the country, while an arm of the Judicial Conference does so in six. This case is a challenge to the 2017 legislation that increased the quarterly fee chargeable for the largest chapter 11 bankruptcies, those distributing $1 million or more in a given quarter. We must determine whether this increase applied to disbursements in a case pending at the time the law was enacted, whether the law violated due process rights, and whether the law is one on the subject of bankruptcies or is a tax such that a constitutional uniformity requirement applies, which in turn requires us to consider whether the law is nonuniform. The bankruptcy court determined that the increased fees applied to the instant case and that the only constitutional violation was a partial uniformity issue. After thorough review and with the benefit of oral argument, we conclude that the 2017 legislation applied to this pending bankruptcy case without a due process violation and without offending a uniformity requirement, the only source of which is the Bankruptcy Uniformity Clause.

I. BACKGROUND

Debtors Mosaic Management Group, Inc., Mosaic Alternative Assets, Ltd., and Paladin Settlements, Inc. operated in the life settlement industry, buying life insurance policies from insureds, and then selling interests in those policies to investors. In 2008, the debtors filed for chapter 11 bankruptcy in the Southern District of Florida, a "UST district" in which the U.S. Trustee program operates. "The six federal judicial districts in Alabama and North Carolina are the only districts in the country that have a Bankruptcy Administrator" ("BA districts") and are not a part of the U.S. Trustee program, though the Administrator (part of the judicial branch) performs similar tasks as the U.S. Trustee (part of the executive branch). L. Sols. of Chi. LLC v. Corbett , 971 F.3d 1299, 1307 n.3 (11th Cir. 2020).

On June 6, 2017, the bankruptcy court entered an order confirming a joint chapter 11 plan. Under the plan, virtually all the debtors’ assets were transferred to an "Investment Trust" to which Margaret J. Smith, predecessor to Appellant in this case, was appointed as "Investment Trustee." Smith, as Investment Trustee, managed the Mosaic Investment Trust for the benefit of investors and creditors with allowed claims. Pursuant to the bankruptcy plan and confirmation order, the debtors were required to "pay the United States Trustee the appropriate sum required pursuant to 28 U.S.C. § 1930(a)(6) for post-confirmation periods within the time period set forth in 28 U.S.C. § 1930(a)(6), based upon all post-confirmation disbursements." Such payments would be required until the earlier of the closing of the case or the entry of an order dismissing the case or converting it to another chapter under the Bankruptcy Code.

At the time the bankruptcy plan was confirmed in June 2017, Section 1930(a)(6) provided,

In addition to the filing fee paid to the clerk, a quarterly fee shall be paid to the United States trustee, for deposit in the Treasury, in each case under chapter 11 of title 11 for each quarter (including any fraction thereof) until the case is converted or dismissed, whichever occurs first.... The fee shall be payable on the last day of the calendar month following the calendar quarter for which the fee is owed.

28 U.S.C. § 1930(a)(6) (2012). The minimum fee set by the statute was "$325 for each quarter in which disbursements total less than $15,000," and gradually increased based on the larger the amount of disbursements up to "$30,000 for each quarter in which disbursements total more than $30,000,000."¹ Id. Section 1930(a)(7) stated that "[i]n districts that are not part of a United States trustee region," i.e. , BA districts, "the Judicial Conference of the United States may require the debtor in a case under chapter 11 of title 11 to pay fees equal to those imposed by paragraph (6) of this subsection." 28 U.S.C. § 1930(a)(7) (2012).

A few months later, on October 26, 2017, Congress enacted the Bankruptcy Judgeship Act of 2017 (the "2017 Amendment"), which temporarily increased fees for the largest debtors in chapter 11 cases to address a dwindling U.S. Trustee program budget resulting from declining bankruptcy filings and to fund bankruptcy judgeships. Bankruptcy Judgeship Act of 2017, Pub. L. No. 115-72, sec. 1004(a), § 1930(a)(6), 131 Stat. 1224, 1232; H.R. Rep. No. 115-130, at 7–9 (2017). From 2018 through 2022, if the U.S. Trustee System Fund had a balance of less than $200 million in the prior fiscal year, the 2017 Amendment provided that the "quarterly fee payable for a quarter in which disbursements equal or exceed $1,000,000 shall be the lesser of 1 percent of such disbursements or $250,000." Pub. L. No. 115-72, sec. 1004(a), § 1930(a)(6), 131 Stat. at 1232. Otherwise, the existing fee schedule remained.

In BA districts, where the Judicial Conference was authorized to "require the debtor in a case under chapter 11 of title 11 to pay fees equal to those imposed by paragraph (6)," 28 U.S.C. § 1930(a)(7) (2012), the 2017 Amendment's fee increase was not immediately implemented. In September 2018, the Conference approved the new quarterly fee provision "for cases filed on or after October 1, 2018 for any fiscal year in which the U.S. Trustee Program exercises its authority under that statute, and pursuant to any future extensions of that or similar authority." Judicial Conference of the U.S., Report of the Proceedings of the Judicial Conference of the United States 11–12 (Sept. 2018).

The Investment Trust paid the increased fees imposed by the 2017 Amendment, having distributed between $750,000 and $10,000,000 for each of the quarters in fiscal year 2018 and the first two quarters of 2019. The increased fees resulted in $125,816.69 or 3.5 times more in fees paid than would have been required pursuant to § 1930(a)(6) prior to the 2017 Amendment.

In September 2019, Smith filed a motion requesting a determination of the Investment Trust's quarterly fee liability under § 1930(a)(6) and reimbursement of already paid fees that exceeded the amount that would have been owed prior to the 2017 Amendment. Smith argued that the Amendment did not apply to cases that had been filed or had their plans confirmed before the Amendment took effect, that it violated the Due Process Clause of the Fifth Amendment, and that it violated the constitutional tax and bankruptcy uniformity requirements because the increased fees had only been imposed in UST districts and not in BA districts. Nancy J. Gargula, the United States Trustee for Region 21,² opposed the motion.

The bankruptcy court largely denied Smith's motion but granted it in part. The court held that § 1930(a)(6) as amended was mostly uniform—whether either the tax or bankruptcy constitutional requirement applied—because the overarching purpose of the 2017 Amendment was to eliminate a funding shortfall in the UST system and develop a reasonable reserve, and it did so by only effecting a fee increase in UST districts. The court explained that the Amendment created a partial uniformity problem, however, because 2% of the fees collected in UST districts were to be paid to the general U.S. Treasury fund (hereinafter the "2% allocation"), which offset the cost of a temporary bankruptcy judgeship in a BA district. As a remedy, the court ordered the U.S. Trustee to credit Smith as Investment Trustee a sum equal to 2% of the quarterly fees paid since January 1, 2018. Otherwise, the court rejected Smith's other challenges to the increased quarterly fees, holding that the 2017 Amendment applied prospectively to disbursements made after the effective date of the Amendment regardless of when the case had been filed or if a plan had been confirmed and that there was no due process violation.

On May 20, 2020, the parties filed a joint certification for direct appeal in the district court pursuant to 28 U.S.C. § 158(d)(2)(A) and Federal Rule of Bankruptcy Procedure 8006(c). This Court authorized direct appeal of the matter on July 10, 2020.

During the pendency of this appeal, Smith, the Trustee of the Mosaic Investment Trust (pursuant to the order of the bankruptcy court), has assigned all of the Investment Trust's rights, title, and interests in the current appeal to an investment group, Bast Amron, LLP. See D.E. 68. Pursuant to an order in this court, Bast Amron, LLP, has been substituted as the Appellant-Cross Appellee in this appeal. See D.E. 69. Accordingly, in this opinion, we will hereinafter refer to this party as Appellant-Cross Appellee (or simply as Appellant) or as Bast Amron. Similarly, Gargula, the United States Trustee for Region 21, has now been succeeded in office and her successor, Mary Ida Townson, has become the Appellee-Cross Appellant in this appeal. See D.E. 63; see also Fed. R. App. P. 43(c)(2). In this opinion, we will hereinafter refer to this party as Appellee-Cross Appellant (or simply as Appellee) or as Region 21 United States Trustee.

II. DISCUSSION

Each of the...