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SCOTUS Grants Certiorari, Remands U.S. Trustee Price Dispute to Second Circuit


The ramifications of uneven will increase to charges in chapter 11 bankruptcies proceed to ripple by federal courts. 

As we mentioned beforehand, Congress enacted laws in 2017 that quickly elevated U.S. Trustee charges chapter 11 debtors needed to pay in just about each district within the U.S.  The rise was meant to offset the prices of the U.S. Trustee program, particularly in massive chapter instances.  The utmost quantity for big debtors elevated dramatically, from $30,000 to $250,000 quarterly.

Authorized challenges to the rise arose all through the nation, together with within the huge Circuit Metropolis chapter case.  The trustee there challenged the payment hike as a result of it didn’t apply in districts that make use of Chapter Directors as a substitute of U.S. Trustees, i.e., these in Alabama and North Carolina.  As a result of the rise was not utilized identically in each district, the Supreme Court docket dominated that it violated the uniformity requirement within the U.S. Structure’s Chapter Clause.  Siegel v. Fitzgerald, 142 S. Ct. 1770 (2022).  Per the Chapter Clause, Congress might solely set up “uniform Legal guidelines with regards to Bankruptcies all through america.”  U.S. Const. artwork. I, § 8, cl. 4 (emphasis added).  As a result of the payment improve was not uniform, it was unconstitutional.  The Supreme Court docket remanded the matter to the Fourth Circuit to contemplate what aid was acceptable.

In a Could 2021 opinion—earlier than the Supreme Court docket weighed in—the Second Circuit equally dominated that the disparate payment improve violated the Chapter Clause’s uniformity requirement.  The court docket of appeals remanded the case to the chapter court docket to offer “a refund of the quantity of quarterly charges paid in in extra of the quantity [the petitioner] would have paid in a [Bankruptcy Administrator] District throughout the identical time interval.”  In re Clinton Nurseries, Inc., 998 F.3d 56, 70 (2nd Cir. 2021).

In February 2022, america petitioned for certiorari after the Second Circuit’s ruling in Clinton Nurseries.  In June, the Supreme Court docket determined Seigel, addressing the identical basic query.  Then, on October 11, 2022, the Supreme Court docket granted the federal government’s petition for certiorari in Clinton Nurseries.  The Court docket concurrently vacated the judgment and remanded the case for additional consideration in gentle of Siegel v. Fitzgerald.  See Harrington v. Clinton Nurseries, Inc., No. 21-1123, 2022 WL 6571659, at *1 (U.S. Oct. 11, 2022).

In Siegel, the Supreme Court docket remanded to the Fourth Circuit (the circuit the place North Carolina is situated) to handle the vary of treatments urged, from a payment improve for these in Chapter Administrator districts (urged by the federal government) to a full refund of U.S. Trustee charges paid (urged by the debtor’s trustee).  In In re Clinton Nurseries, however, the Second Circuit merely ordered the chapter court docket to refund the overpayment over what would have been paid in North Carolina or Alabama.  We’ll see if the Second Circuit reevaluates that strategy on remand and the way this problem continues to influence bankruptcies all through the nation.

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