Henry Hobbs, Jr. v. Buffets, L.L.C., et al

Dissenter in the Fifth Circuit believes that having both U.S. Trustees and bankruptcy administrators violates the Uniformity Clause.

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Case Type:
Business
Case Status:
Reversed and Remanded
Citation:
19-50765 (5th Circuit, Nov 03,2020) Not Published
Tag(s):
Ruling:
(1) Disbursements, for quarterly U.S. Trustee fee purposes, includes all payments made by the debtor, not just bankruptcy-related expenses. (2) The 2017 amendment that temporarily, but substantially, increased quarterly fees applies to cases that were pending when the amendment took effect, but only to post-enactment disbursements. (3) The 2017 amendment does not violate the Constitution's uniformity requirements even though it was not applicable in districts with bankruptcy administrators. (4) The quarterly fee increase does not violate due process.
Procedural context:
The Debtor commenced a chapter 11 reorganization in 2016. Its plan was confirmed in 2017. Congress temporarily increased the U.S. Trustee's quarterly fees later that year, after the Debtor's plan was confirmed. Under the 2017 amendment, quarterly fees for quarterly "disbursements" in excess of $1 million would be equal to the lesser of 1% or $250,000. The U.S. Trustee assessed the Debtor quarterly fees of $250,000. The Debtor argued to the Bankruptcy Court that: (1) disbursements, for quarterly US Trustee fee purposes, does include all payments made by the debtor, only bankruptcy-related expenses; (2) the 2017 amendment applied only to cases commenced after its enactment; (3) the 2017 amendment violated the Constitution's uniformity requirements because it was not applicable in districts with bankruptcy administrators; and (4) the quarterly fee increase violated due process. The Bankruptcy Court concluded that disbursements, for quarterly U.S. Trustee fee purposes, includes all payments made by the debtor, not just bankruptcy-related expenses. However, the Bankruptcy Court agreed that the fee increase was unconstitutional because it was only applicable in districts with U.S. Trustees and not those with bankruptcy administrators. The Bankruptcy Court also ruled that 2017 amendment violated due process. A direct appeal to the Fifth Circuit was taken. The Fifth Circuit affirmed in part, and reversed in part.
Facts:
The Debtor commenced a chapter 11 reorganization in 2016. Its plan was confirmed in 2017. Congress temporarily increased the U.S. Trustee's quarterly fees later that year, but after the Debtor's plan was confirmed. Under the 2017 amendment, quarterly fees for quarterly "disbursements" in excess of $1 million would be equal to the lesser of 1% or $250,000. The U.S. Trustee assessed the Debtor quarterly fees of $250,000. (1) The Fifth Circuit quickly addressed whether "disbursements" includes only bankruptcy-related payments. It does not. Accordingly to the plain language of the statute, "disbursement" means money paid out, which includes all payments made by a debtor, not just bankruptcy-related payments. The Fifth Circuit thus affirmed the Bankruptcy Court. (2) The Fifth Circuit held that the 2017 quarterly fee increase applied to cases commenced prior to its enactment. But also, the quarterly fees only applied to disbursements made after the amendments enactment. (3) The Fifth Circuit then turned to the "main event" - whether the fee increase violates the Constitution's uniformity requirements. It does not. The Fifth Circuit noted that the Constitution's uniformity requirements forbids arbitrary regional differences in provisions of the Bankruptcy Code. The Fifth Circuit further reasoned that the Constitution does not deny Congress the ability to take into account geographical distinctions. Only when Congress sought to establish railroad bankruptcy courts in the midwest and northeast, has a bankruptcy law been found to violate the uniformity requirement. (4) Finally, the Fifth Circuit held that the fee increase does not violate due process. The 2017 amendment survives rational basis review because it addresses a shortfall in the U.S. Trustee System Fund. Dissent: Judge Clement dissented in part. Although Judge Clement concurred with the majority regarding retroactivity and due process, she dissented from the majority's analysis concerning uniformity. Judge Clement would have held that the 2017 amendment's different treatment between U.S. Trustee and bankruptcy administrator district violated the uniformity requirement.
Judge(s):
Stewart, Clement and Costa, Circuit Judges

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