How Alabama and North Carolina Defy The U.S. Constitution — And Get Away With It (US Trustee v. Bast Amron)

A disconnect? (photo by Marilyn Swanson)

By Donald L. Swanson

Every now and then, (i) something is blatantly obvious, but (ii) those in charge insist that what seems obvious is actually false.  Such a disconnect breeds distrust.  

That’s precisely what exists in our bankruptcy system.  The U.S. Constitution requires that bankruptcy laws be “uniform . . . throughout the United States”:

  • it’s obvious that a separate-and-different bankruptcy system for two states (Alabama and North Carolina) is not a “uniform” bankruptcy law “throughout the United States”; yet
  • Congress and many of our highest courts insist that the separate-and-different system is actually uniform.   

The latest opinion on the subject illustrates the disconnect: United States Trustee Region 21 v. Bast Amron LLP (In re Mosaic Management Group, Inc.), Case No. 20-12547 (11th Cir., January 14, 2022).

Rejecting the Main Issue

The opinion starts by declaring that it will not address the main uniformity issue:

  • “we do not address whether there is a constitutional nonuniformity problem as a result of the mere fact of the existence of the bankruptcy administrator program in the BA districts of Alabama and North Carolina and the U.S. Trustee program in every other district” (at 28); and
  • Appellant “did not ask our Court or the bankruptcy court to strike down any law based on an argument that the existence of two trustee systems is nonuniform, and thus we will not address this additional constitutional question” (id.).

Nevertheless, in a bizarre twist, it declares that the bankruptcy law in question “fully complies with the requirements” of the U.S. Constitution’s Bankruptcy Clause.

Gobbledygook

A hallmark of a poor opinion is that it can’t express its rationale clearly.  Check out this gobbledygook masquerading as the Court’s summary of its rationale:

  • “the 2017 Amendment is uniform and fully complies with the requirements of the Bankruptcy Clause because the flexibility inherent in the Clause cautions us against a strict inquiry that would make dispositive Congress’ use of two different statutory vehicles to impose quarterly fees—i.e., § 1930(a)(6) to mandate the fees in UST districts and § 1930(a)(7) to permit them in BA districts—and requires that we consider the historical operation of the two vehicles together to set equal fees in UST and BA districts for nearly two decades.” (at 28).

Translation: Fees were the same for nearly 20 of the last 36 years, and that’s good enough for bankruptcy uniformity.

Concurring Opinion

A concurring opinion holds out hope by identifying the constitutional defect:

  • The Constitution’s uniformity requirement is violated because the law in question “treat(s) two groups of Chapter 11 creditors and debtors differently, even though they are ‘identical in all respects save the geographic locations in which they filed for bankruptcy.’”

But then the concurring opinion bails:

  • “That said, I cannot agree with the remedy the investment group requests here—a retrospective refund of their fees”;
  • “The Second Circuit did not address the proper remedy, but the Tenth Circuit rejected my analysis because bankruptcy courts in Alabama or North Carolina are outside its jurisdiction”; and
  • “Ultimately, the Supreme Court will resolve this issue.”

Pending Supreme Court Case

Unfortunately, the U.S. Supreme Court is also likely to bail on the main uniformity issue (i.e., the separate-and-different system for Alabama and North Carolina). 

That’s because the “Question Presented” to the U.S. Supreme Court in the pending Siegel v. Fitzgerald case (No. 21-441) is only this:   

  • “Whether the Bankruptcy Judgeship Act violates the uniformity requirement of the Bankruptcy Clause by increasing quarterly fees solely in U.S. Trustee districts.”

That question does not specify the underlying issue of a separate-and-different system. 

Conclusion

The bankruptcy system, and those who practice within it, deserve a clear and consistent application of laws. 

The special bankruptcy treatment for Alabama and North Carolina creates a disconnect with the U.S. Constitution’s requirement of “uniform” bankruptcy laws “throughout the United States.” 

Pretending that the separate-and-different system satisfies the Constitution’s uniformity requirement—and letting that pretense continue for decades—is a bad thing for bankruptcy jurisprudence. 

Those in charge should know—and do—better.      

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