Unconstitutionality of Bankruptcy Administrator Fees; A Remedies Debacle; & No Accountability For Those Responsible (U.S. Trustee v. John Q. Hammons)

By: Donald L Swanson

This isn’t going to end well. 

Looks like our bankruptcy system in these United States is about to take a big hit—to the tune of hundreds of millions of dollars (projected to be around $350 million).  And those responsible for creating the debacle are going to skate.

Here’s how.

U.S. Trustee v. John Q. Hammons

On September 29, 2023, the U.S. Supreme Court grants certiorari in Office of the United States Trustee v. John Q. Hammons Fall 2006, LLC, Case No. 22-1238.

The case deals with this debacle:

• Back when the U.S. Trustee system was being established, politicians in Congress from Alabama and North Carolina threw a hissy fit and got a Bankruptcy Administrator system for themselves—instead of the U.S. Trustee system that all other 48 states and all U.S. territories got;
• Then, Alabama and North Carolina decided to give themselves a special deal by charging lower quarterly fees than what Congress required the U.S. Trustee system to charge—which gave those two states a competitive advantage in getting good cases filed there; but
• Then, Alabama and North Carolina had to stop their special fees deal when the Ninth Circuit Court of Appeals declared their special fees deal to be unconstitutional—under the uniformity requirement in the U.S. Constitution’s bankruptcy clause; but
• Later, Alabama and North Carolina liked that special lower-fees deal so much, they did the lower-fees thing again, despite knowing of its previously-declared unconstitutionality; and
• In recent times, the U.S. Supreme Court has confirmed the unconstitutionality of Alabama’s and North Carolina’s special lower-fees deal.

The Issue and Likely Outcome

So, the issue is now this: what is the remedy for Alabama’s and North Carolina’s unconstitutionality?

The most-likely outcome appears to be this:

• U.S. taxpayers will have to refund the amount of quarterly fee payments made by debtors in the U.S. Trustee system that exceeded what a debtor in the Bankruptcy Administrator system would have paid—this amount is what’s projected around $350 million; and
• Such an expenditure from the U.S. Treasury will put financial pressure upon funding for the entire bankruptcy system in general and for the U.S. Trustee system in particular—which is already dealing with shortfalls; but
• In their usual we’re-truly-special posture, Alabama’s and North Carolina’s Bankruptcy Administrator system will be largely unaffected—because they won’t have to refund anything for their unconstitutional behavior.

No Accountability

What I’ll never understand is this:

• How can Alabama and North Carolina and the Judicial Conference of the United States escape accountability for their knowingly-unconstitutional actions? [Note: the Judicial Conference supervises the Bankruptcy Administrator system in Alabama and North Carolina (see Official Comment to Fed.R.Bankr.P. 9035).]

How can that be?!

On top of everything, Alabama and North Carolina and the Judicial Conference aren’t even involved in any of the litigation on any part of this issue—never have been.

Judicial Conference

And the Judicial Conference of the United States is rarely even mentioned in any of the litigation on this.  Nor is its insider/conflicts problem fully disclosed.

–Insider/Conflcits Problem?

Notably, the Judicial Conference, in supervising Alabama’s and North Carolina’s Bankruptcy Administrator system, functions within the U.S. courts system: 

• The Chief Justice of the United States is the presiding officer of the Judicial Conference; and
• Membership of the Judicial Conference is comprised of:
  • the chief judge of each judicial circuit;
  • the chief judge of the Court of International Trade; and
  • a district judge from each regional judicial circuit.

–Absolution

So, its not surprising that the U.S. Supreme Court’s unconstitutionality opinion on the special bankruptcy fees deal for Alabama and North Carolina has already absolved the Judicial Conference of responsibility—by laying blame squarely on Congress alone. 

Here’s an abbreviated version of what the Supreme Court’s unanimous opinion in Fitzgerald v. Siegel says, in footnote 2, about responsibility for the unconstitutional fee disparities:

• “Respondent further argues that any uniformity violation should be attributed to the Judicial Conference and not to Congress”;
• “As respondent sees it, it is the Judicial Conference’s failure to implement the fee increase that is responsible for the disparate fees, not the 2017 Act itself” because Congress had “ample evidence to believe” that the Judicial Conference would respond in a constitutionally proper manner; but
• “It is that congressional decision [the 2021 amendment] that led to the [unconstitutional] disparities at issue here”—not the Judicial Conference’s unconstitutional actions.

Conclusion

I call “foul” on all this!

Alabama and North Carolina and the Judicial Conference are all directly responsible for the debacle before us.

But the three of them will skate—all of them.  They will avoid responsibility and accountability.

U.S. taxpayers deserve better.  They deserve a true and full accounting and disclosure of who is responsible for the unconstitutionality—and of the insider/conflicts problem with the entire judiciary that’s inherent in this debacle. 

But that isn’t going to happen.

Moreover, this very insider/conflcits connection and dealing is the sort of thing the U.S. courts will rail against as requiring close scrutiny and as an abuse of the bankruptcy system.  But the same standard doesn’t apply to their actions?!

Seems crazy to me.

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