Fallout And Follow-Up From Siegel v. Fitzgerald

Fallout and follow-up? (Photo by Marilyn Swanson)

In its Siegel v. Fitzgerald opinion, the U.S. Supreme Court declares that disparate quarterly fee amounts between U.S. Trustee and Bankruptcy Administrator districts are unconstitutional, under the uniformity requirement of the U.S. Constitution’s bankruptcy clause.

The most recent fallout from that opinion is the following docket entry by the U.S. Supreme Court in a different case with the same issues:

“Petition GRANTED. Judgment VACATED and case REMANDED for further consideration in light of Siegel v. Fitzgerald, 596 U.S. ___ (2022).”
- This is an October 11, 2022, entry on the U.S. Supreme Court’s electronic docket for Case No. 21-1123, Harrington v. Clinton Nurseries, Inc., et al.

Clinton Nurseries Case—Second Circuit

The Clinton Nurseries case is before the U.S. Supreme Court on a petition for writ of certiorari from an opinion of the Second Circuit Court of Appeals.

In Clinton Nurseries, the Second Circuit considers whether the U.S. Trustee’s quarterly fees are constitutional, when debtors in Bankruptcy Administrator districts (of Alabama and North Carolina) pay lower fees.

The Second Circuit declares, in Clinton Nurseries:

Clinton Nurseries has standing to raise the issue, as a Chapter 11 debtor who paid the higher quarterly fees in a U.S. Trustee district;
The law requiring higher quarterly fees in U.S. Trustee districts is a bankruptcy law subject to the Constitution’s uniformity requirement; and
Disparities in quarterly fees, based on geographical location, are unconstitutional, and the “geographically isolated problem” exception does not apply.

The Second Circuit concludes as follows:

On constitutionality—the disparate-fees law in question is “unconstitutional on its face insofar as it charged higher fees to debtors” in U.S. Trustee districts; and
On remedy—“To the extent that Clinton has already paid the unconstitutional fee increase, it is entitled to a refund of the amount in excess of the fees it would have paid in a [Bankruptcy Administrator district] during the same time period.”

Consistency with Siegel v Fitzgerald Opinion

The Second Circuit’s Clinton Nurseries ruling is entirely consistent with the U.S. Supreme Court’s Siegel v. Fitzgerald opinion on the constitutionality issue—there is no substantive or material difference . . . at all.

In Siegel v. Fitzgerald, the U.S. Supreme Court rules:

The question . . . is whether Congress’ enactment of a significant fee increase that exempted debtors in two States violated the [Constitution’s] uniformity requirement”; and
“Here, it did.”

In reaching its Siegel conclusion, the U.S. Supreme Court finds:

The statute in question is a bankruptcy law that is “subject to” the “Bankruptcy Clause’s uniformity requirement”;
The Bankruptcy Clause of the Constitution “does not permit the arbitrary, disparate treatment of similarly situated debtors based on geography”; and
The “nonuniform fee increase violated the uniformity requirement.”

Q&A

–Question

So . . . the question is this:

given the similarities between the Supreme Court’s and Second Circuit’s reasoning and conclusion on constitutionality;
what, exactly, is the Supreme Court asking the Second Circuit to do on remand “for further consideration in light of Siegel v. Fitzgerald”?

–Answer

The answer is this: the Supreme Court wants the Second Circuit to develop and explain the rationale behind its remedy decision.

That’s because, in reaching its Clinton Nurseries remedy decision, the Second Circuit provides no supporting rationale. Here is the sum total of the Second Circuit’s remedy ruling and explanation:

“To the extent that Clinton has already paid the unconstitutional fee increase, it is entitled to a refund of the amount in excess of the fees it would have paid in a BA District during the same time period”;
“In directing this refund, however, we note that our ruling is limited to the particular debtors who brought this appeal, who, as discussed above, clearly have standing to seek reimbursement”; and
“We therefore . . . direct that the Bankruptcy Court provide Clinton with a refund of the amount of quarterly fees paid in in excess of the amount Clinton would have paid in a [Bankruptcy Administrator district] during the same time period.”

Siegel: Remedy Remand to Fourth Circuit

Similarly, remanding for development of a remedy ruling and rationale is precisely what happened in Siegel.

–Reversal

In Siegel, the Supreme Court considered a Fourth Circuit decision declaring that the law in question “does not contravene the uniformity mandate of either the Uniformity Clause or the Bankruptcy Clause.” And the Supreme Court reversed.

–Remand

In Siegel, the Supreme Court also remanded the case to the Fourth Circuit to address remedy issues, with the following explanation:

The parties dispute the appropriate remedy:
- Petitioner seeks a full refund of fees that it paid during the nonuniform period;
- Respondent argues that any remedy should apply only prospectively, or should result in a fee increase for debtors who paid less in the Administrator Program districts.
The parties raise a host of legal and administrative concerns with each of the remedies proposed, including the practicality, feasibility, and equities of each proposal; their costs; and potential waivers by nonobjecting debtors.
The court below, however, has not yet had an opportunity to address these issues or their relevancy to the proper remedy.
Mindful that we are a court of review, not of first view, . . . this Court remands for the Fourth Circuit to consider these questions in the first instance.

-Response from Fourth Circuit

In response, the Fourth Circuit, on July 20,2022, rules: “this case is remanded to the bankruptcy court” in the Eastern District of Virginia.

On remand, back in the Eastern Virginia Bankruptcy Court (Case No. 08-35653, In re Circuit City Stores, Inc.), things are progressing like this:

disputes exist over a briefing schedule (see Doc. 14329 & 14330); and
a motion to dismiss a Siegel v. Fitzgerald adversary proceeding is pending (see Doc. 45 & 46, Adv. Pr. 19-03091).

Fallout in Other Circuits

–Response from Tenth Circuit

On October 5, 2021, (many months before the Supreme Court’s June 6, 2022, Siegel opinion) the Tenth Circuit Court of Appeals rules in the case of Hammons v. U.S. Trustee, 15 F.4th 1011 (10th Cir. Oct. 5, 2022):

“We hold that the . . . fee disparities fail under the uniformity requirement of the Bankruptcy Clause”; and
“we remand to the bankruptcy court for a refund of the amount of quarterly fees paid exceeding the amount that Debtors would have owed in a Bankruptcy Administrator district during the same period.”

Following issuance of the Supreme Court’s Siegel v. Fitzgerald opinion, the Tenth Circuit:

recalls its mandate from the bankruptcy court; and
orders the parties to file supplemental briefs regarding the impact of Siegel on this appeal.

After receiving the supplemental briefs, the Tenth Circuit reinstates its prior opinion. Such opinion places the remedy on a refund of fees in U.S. Trustee districts because:

“we lack authority” to impose a remedy up Alabama and North Carolina”;
“which is why the constitutional infirmity persists and we are having this debate today.”

The last entry on the Tenth Circuit’s electronic docket for this case is:

“09/23/2022 Order . . . granting appellee’s motion for 30-day extension of time to file petition for rehearing until 10/31/2022.”

–Response from Eleventh Circuit

On January 14, 2022, the Eleventh Circuit rules, in its U.S. Trustee Region 21 v. Bast Amron LLP opinion (Case No. 20-12547), that the increased fees in U.S. Trustee districts “applied to this pending bankruptcy case without a due process violation and without offending a uniformity requirement, the only source of which is the Bankruptcy Uniformity Clause.”

On a petition for writ of certiorari from this Eleventh Circuit opinion, the U.S. Supreme Court makes the following docket entry dated June 27, 2022: “Petition GRANTED. Judgment VACATED and case REMANDED for further consideration in light of Siegel v. Fitzgerald, 596 U.S. ___ (2022).”

Back in the Eleventh Circuit, docket entries dated October 19, 2022, declare that oral arguments on this case are scheduled in the Eleventh Circuit for “02/13/2023.”

–Response from Federal Circuit

A pending appeal before the U.S. Court of Appeals for the Federal Circuit is from this November 30, 2020, ruling by the U.S. Court of Federal Claims:

“Because plaintiff has not—and cannot—plead that the increased [quarterly fees in U.S. Trustee districts] violated the Constitution, a statute or a regulation, plaintiffs cannot state an illegal exaction claim upon which relief can be granted”;
“Therefore, plaintiffs’ complaint must be dismissed.”
Such ruling is in the case of Acadiana Management Group, LLC v. U.S., Case No. 19-496C (Doc. 42; and reconsideration denied on May 6, 2021, Doc. 55).

On September 16, 2022, the Court of Appeals for the Federal Circuit rules in such case that, (i) the dismissal order and the reconsideration denial order “are vacated,” and (ii) “the case is remanded for proceedings consistent with the Supreme Court’s decision in Siegel.”

Conclusion

Lots of post-Siegel activity is occurring out there.

The most recent activity is the remedy remand to the Second Circuit in Clinton Nurseries discussed above. It will be interesting to see what the Second Circuit does in response to the Supreme Court’s remand:

Will it punt, like the Fourth Circuit and Federal Circuit, by further remanding the remedy issues to the bankruptcy court for development; or
Will it respond, like the Tenth Circuit and Eleventh Circuit, with with its own development of remedy issues in the Circuit Court of Appeals?

Only time will tell.

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