This morning, the U.S. Supreme Court granted the U.S. Solicitor General’s petition for a writ of certiorari in Office of the U.S. Trustee v. John Q. Hammons Fall 2006 LLC, 22-1238 (Sup. Ct.), to decide whether chapter 11 debtors are entitled to refunds for overpayment of fees for the U.S. Trustee System.
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. To read ABI’s report on Siegel, click here.
The Court in Siegel explicitly left open the question of remedy. The government had been contending that prospective relief was sufficient. In other words, the government believes it is enough for the Court to have ruled that fees must be uniform throughout the country in the future. Alternatively, the government wants courts to rule that someone should retroactively collect underpayments from debtors in Bankruptcy Administrator districts.
The grant of certiorari came as a surprise to this writer, because there was no split of circuits. Indeed, all four circuits to have considered the issue have ruled that chapter 11 debtors are entitled to refunds. However, the “grant” is less surprising when one realizes that the Court grants certiorari more than half the time when the government is the petitioner.
The Ninth Circuit most recently called for a refund in USA Sales Inc. v. Office of the U.S. Trustee, 76 F.4th (9th Cir. Aug. 10, 2023). To read ABI’s report, click here. Similar decisions came from the Tenth Circuit in John Q. Hammons Fall 2006 LLC v. U.S. Trustee (In re John Q. Hammons Fall 2006 LLC), 20-3203, 2022 WL 3354682 (10th Cir. Aug. 15, 2022), reinstating 15 F.4th 1011, 1025-26 (10th Cir. Oct. 5, 2021) [to read the report, click here]; the Second Circuit in Clinton Nurseries Inc. v. Harrington (In re Clinton Nurseries Inc.), 53 F.4th 15, 29 (2d Cir. 2022), amending and reinstating 998 F.3d 56, 69-70 (2d Cir. 2021) [to read the report, click here]; and the Eleventh Circuit in U.S. Trustee Region 21 v. Bast Amron LLP (In re Mosaic Management Inc.), 71 F.4th 1341 (11th Cir. June 23, 2023) [to read the report, click here].
There will be practical significance to the Supreme Court’s decision in Hammons Fall. A class action is pending in the Court of Federal Claims in Washington, D.C., seeking a refund for debtors nationwide. See Acadiana Management Group LLC v. U.S., 19-496 (Ct. Cl.). Briefing on a motion for class certification will be completed this fall.
If the Supreme Court upholds the Tenth Circuit in Hammons Fall, the outcome in Acadiana might mean refunds for all debtors who overpaid, even those who have not sued for refunds on their own.
Already, there are two bankruptcy cases on the Supreme Court’s calendar for the term that begins next week. In August, the Supreme Court granted certiorari in Harrington v. Purdue Pharma LP, 23-124 (Sup. Ct.), to decide whether chapter 11 plans can confer so-called nonconsensual, nondebtor, third-party releases. Purdue will be argued in December. No date has been set yet for argument in Hammons Fall.