Government urges the Supreme Court to review the $ 324 million bankruptcy fee dispute


The sun sets on November 29, 2021 on the US Supreme Court building in Washington. REUTERS / Leah Millis

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(Reuters) – The US Department of Justice’s bankruptcy regulator is calling on the US Supreme Court to resolve a dispute over bankruptcy fees. Chapter 11 debtors must pay the government, which has divided the supreme appeals courts across the country.

Attorney General Elizabeth Prelogar said Wednesday on behalf of the U.S. trustee program that the Supreme Court should review the matter to clear up confusion about the fees created by the conflicting judgments. She also argued that the court should find that a 2017 law to increase the state fees many Chapter 11 debtors must pay complies with the bankruptcy clause of the U.S. Constitution, which provides for unitary bankruptcy legislation.

The imposition of higher fees by the law in most, but not all, US bankruptcy courts has created uncertainty about the legal status of approximately $ 324 million in fees charged under the 2017 law, according to the US trustee.

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The dispute stems from a lawsuit brought by Alfred Siegel, the trustee who oversaw the Circuit City liquidation process. He claims the law violated uniformity requirements by increasing U.S. Chapter 11 debtor trustee fees in most states, but not doing so for two states that have a different government agency called the Bankruptcy Administrator program, use to perform similar tasks in monitoring large corporate bankruptcies.

Siegel argued in a petition to the Supreme Court in September that alleged inequality had forced the Circuit City Liquidation Trust to pay much higher fees than in previous years while Chapter 11 debtors in North Carolina and Alabama, the states were dealing with the alternative program, went on for several months without being subject to the same fee increases.

North Carolina and Alabama signed up for the Administrator program in 1986.

The U.S. trustee disagrees with Siegel’s legal view, but agrees that the Supreme Court should review the case. The law has been challenged in several counties with conflicting results – the 4th and 5th U.S. appeals courts upheld the law, while the 2nd and 10th counties ruled it unconstitutional.

The government argued that the constitution’s uniformity requirements did not restrict Congress’ ability to change US trustee fees. In addition, the bankruptcy clause gives Congress flexibility in creating new statutes that govern the administration of bankruptcy courts.

“There is no basis on which to conclude that any of these administrative changes are unconstitutional,” the government said in Wednesday’s filing.

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: Solicitor General Elizabeth Prelogar, Assistant Attorney General Brian Boynton, DOJ Attorneys Mark Stern and Jeffrey Sandberg, US Trustee General Counsel Ramona Elliott, Associate General Counsel Matt Sutko, Litigation Lawyers Beth Levene and Wendy Cox

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

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