Supreme Court Says Government Doesn’t Have to Refund Bankruptcy Fees

Supreme Court Says Government Doesn’t Have to Refund Bankruptcy Fees
The U.S. Supreme Court in Washington on May 29, 2024. (Madalina Vasiliu/The Epoch Times)

The Supreme Court on June 14 rejected on a 6–3 vote a bankrupt company’s claim that excessive court fees it paid should be refunded after the nation’s highest court struck down the law authorizing the fee schedule in 2022.

Justice Ketanji Brown Jackson wrote the majority opinion in Office of the U.S. Trustee v. John Q. Hammons Fall 2006 LLC.

Three conservative justices dissented.

The U.S. Department of Justice (DOJ) runs the U.S. Trustee Program, which it describes as “the component of the Department of Justice responsible for overseeing the administration of bankruptcy cases and private trustees.”

A group of hotels argued that it was treated unfairly when it filed for Chapter 11 bankruptcy in Kansas.

Bankruptcy courts in every judicial district outside Alabama and North Carolina operate under the DOJ program.

The Supreme Court ruled unanimously in Siegel v. Fitzgerald in 2022 that Congress violated a uniformity requirement in the U.S. Constitution when it boosted bankruptcy fees in 2017 for large companies, but authorities exempted filers in Alabama and North Carolina from the higher fees.

The company involved, Circuit City, a now-defunct technology retail chain, filed in 2008 for Chapter 11 bankruptcy in the Eastern District of Virginia, and its trustee argued that the company wasn’t treated fairly in the process, as compared with bankruptcy filers in Alabama and North Carolina.

The 2022 ruling didn’t address the issue of whether any fees already paid should be refunded because of the disparity.

However, various courts of appeal have held in the ruling’s aftermath that overcharged bankruptcy filers deserve refunds.

In the Hammons case, the DOJ asked the Supreme Court to review the $2.5 million refund given to lead respondent John Q. Hammons Hotels and Resorts, which sought Chapter 11 protection in 2016 in Kansas and paid the increased bankruptcy fees after 2017.

The legal issue was whether the appropriate remedy for the lack of uniformity in the program was to issue refunds of the higher fees paid by some bankruptcy filers.

During oral arguments on Jan. 9, Hammons’ attorney Daniel L. Geyser told the justices that his client was “entitled to a refund for the unconstitutional fees paid under the 2017 Act.”

“Under a century of this Court’s jurisprudence, prospective-only relief is insufficient to redress a past monetary injury.

“If the government unlawfully collects funds, it is required to rectify that violation with meaningful backward-looking relief.

“It cannot simply keep the unconstitutional fees and promise not to do it again.”

The government is wrong to argue that the client forfeited its rights by “failing to invoke a pre-deprivation remedy,” according to Mr. Geyser.

“Due process requires retrospective relief unless an exclusive pre-deprivation remedy is both clear and certain,” he said.

The government’s suggestion that the Court should authorize “a clawback program seeking 800 percent higher fees in administrator districts over a half decade after the fact” is misguided, Mr. Geyser said.

“[The] extreme proposal invites chaos in bankruptcy courts and promises an administrative morass,” he said.

Justice Jackson’s opinion was joined by Chief Justice John Roberts, along with Justices Samuel Alito, Brett Kavanaugh, Sonia Sotomayor, and Elena Kagan.

She noted that in Siegel v. Fitzgerald, the Court held that the statute concerned ran afoul of the uniformity requirement in the Constitution because it allowed different fees for Chapter 11 debtors depending on the district where their case was filed.

The appropriate remedy for the constitutional violation is “prospective parity,” which means that going forward identical Chapter 11 debtors will pay the same fees.

The respondents argued they are entitled to a refund but conceded that providing a refund “would require us to undercut congressional intent and transform, by judicial fiat, a program that Congress designed to be self-funding into an estimated $326 million bill for taxpayers,” Justice Jackson wrote.

“Neither remedial principles nor due process requires that incongruous result. We reverse.”

The Supreme Court overturned the judgment of the U.S. Court of Appeals for the 10th Circuit and remanded the case to that court “for further proceedings consistent with this opinion.”

In his dissenting opinion, Justice Neil Gorsuch said in this case the Court’s majority lacked the will to do the right thing.

The dissent was joined by Justices Clarence Thomas and Amy Coney Barrett.

“What’s a constitutional wrong worth these days?” Justice Gorsuch wrote.

“The Court’s answer today seems to be: not much.

“Between 2018 and 2020, the government charged fees to bankruptcy debtors that varied arbitrarily from region to region, leaving some debtors millions of dollars worse off than others.”

Then in Siegel v. Fitzgerald, the Court held that this geographically discriminatory treatment violated the Bankruptcy Clause, a constitutional provision that the decision stressed was not “toothless.”

Yet in the new decision the Court “performs a remedial root canal, permitting the government to keep the cash it extracted from its unconstitutional fee regime,” Justice Gorsuch wrote.

Even though a refund is “the traditional remedy for unlawfully imposed fees,” and the government vowed to provide “precisely that relief if the debtors in this case prevailed,” the court’s majority views providing meaningful relief “is simply not worth the effort.”

“Respectfully, that alien approach to remedies has no place in our jurisprudence,” the justice wrote.

From The Epoch Times