Circuit City Trustee is seeking the Supreme Court review of the bankruptcy fee increase

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A Circuit City retail store in San Diego, California is shown here on March 6, 2009. There are still three days left before the electronics retailer finally closes its doors. REUTERS / Mike Blake

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(Reuters) – The trustee overseeing the Circuit City liquidation process has asked the US Supreme Court to come up with a dispute over fee increases imposed by the US Department of Justice’s bankruptcy regulator, the US trustee.

In one petition Published on the Supreme Court File on Wednesday, Circuit City liquidation administrator Alfred Siegel said a 2017 law that increased US Chapter 11 debtor trustee fees in most states does not do so for two states who use another government agency known as the Bankruptcy Trustee Program to perform similar duties in overseeing large corporate bankruptcies.

Siegel, represented by Pachulski Stang Ziehl & Jones and Haynes and Boone, says alleged inequality forced the Circuit City Liquidation Trust to pay significantly higher U.S. trustee fees than in previous years while debtors under Chapter 11 in North Carolina and Alabama, the two states, passed several months on the alternative program without incurring the same fee increases. The inconsistency between state bankruptcy oversight programs violates the US Constitution’s requirement for uniform bankruptcy laws, Siegel said.

North Carolina and Alabama chose the Administrator rather than the US Trustee program in 1986.

Although Circuit City in Virginia filed for bankruptcy in 2008 and closed its businesses in 2009, the trust established as part of its liquidation plan spent more than a decade managing the late electronics retailer’s remaining assets to creditors. During this time, the trust continued to pay quarterly fees to the US trustee.

The 2017 law provided for a five-year increase in quarterly fees for Chapter 11 debtors in U.S. trustee districts for each year in which the program’s fund fell below $ 200 million. Debtors would have to pay the lesser of 1% of the quarterly “payouts” over $ 1 million, or $ 250,000. The term “disbursements” has not been defined, but has been interpreted by the courts to mean, according to the petition, all of the debtor’s expenses, including ordinary business expenses.

Siegel says the Administrator program was initially not subject to these requirements and any fee increase was at the discretion of the U.S. Justice Conference. The Justice Conference eventually imposed the same fee increase but only applied it to bankruptcies filed on or after October 1, 2018, while the U.S. trustee fee increases were introduced nine months earlier, according to the petition. The inequality led to inconsistent treatment between the two programs, Siegel says.

The 2017 law has been challenged in several counties. The 4th US Court of Appeals upheld the bill in response to Siegel’s challenge, and the 5th District Court also signed it in a separate case, while the 2nd District dismissed it as unconstitutional.

Siegel called the circuit sharing an invitation to “confusion and uncertainty, as debtors with identical seats in different parts of the country have to pay different fees”.

The US trustee’s office declined to comment. The ministry argued before the 4th district that the law did not violate the unity requirement as it was an administrative measure and not a new bankruptcy law.

The U.S. trustee also said the Circuit City trustee misunderstood the statute by saying that the county fees must match the U.S. trustee’s fees and the judiciary conference’s failure to see the county fee increases for nine months implementing it was a violation of the law itself.

The U.S. trustee has until October 22nd to respond to Siegel’s petition.

The case is Alfred Siegel v John Fitzgerald III, US Supreme Court, No. 21-441.

For Circuit City’s Liquidating Trustee: Jeffrey Pomerantz, Andrew Caine and Robert Feinstein from Pachulski Stang Ziehl & Jones and Daniel Geyser and Ben Mesches from Haynes and Boone

For the US Trustee: General Counsel Ramona Elliott, Associate General Counsel Matt Sutko, Assistant Attorney General Joseph “Jody” Hunt, Trial Attorney Beth Levene, and Appellate Staff Attorneys Mark Stern and Jeffrey Sandberg


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