Contributing Author:
Stanley Chow
University of Minnesota Law School
Juris Doctor Candidate, 2025
Judicial Extern to U.S. Bankruptcy Judge Kesha Tanabe
Even a brief summary of Office of United States Trustee v. John Q. Hammons Fall 2006, LLC, 144 S. Ct. 1588, 1590 (2024), requires some background storytelling.
Before 1978, bankruptcy judges used to handle both administrative and judicial functions in bankruptcy cases, such as appointing and supervising private trustees when needed. To some, this created an appearance of bias. Addressing this issue, Congress piloted the United States Trustee Program (the “UST”) in 1978, and subsequently expanded it nationwide in 1986, to separate the administrative responsibilities from judges. See H. R. Rep. No. 95–595, p. 115 (1977); Siegel v. Fitzgerald, 596 U.S. 464 (2022).
However, due to various reasons, the six judicial districts in North Carolina and Alabama have continued the judicial appointment of bankruptcy administrators, referring to it as the Administrator Program. For our purpose, the difference is that Congress requires the UST to be self-funded, whereas the Administrator Program is funded by the Judiciary’s general budget. See 28 U.S.C. § 1930(a)(6)(A).
Although the Administrator Program traditionally followed the fees set by the UST, it failed to adopt a UST fee-hike caused by its strained budget during 2018 and 2021. See 28 U.S.C. § 1930(a)(7); In re Cir. City Stores, Inc., 996 F.3d 156 (4th Cir. 2021). This led to Siegel v. Fitzgerald, 596 U.S. 464, 142 S. Ct. 1770, 213 L. Ed. 2d 39 (2022), which held that the asynchrony in fees violated the “uniformity” requirement of the Bankruptcy Clause of the Constitution. U.S. Const. art. I, § 8, cl. 4. Here, the parties who paid more to the UST during the period seek a fees refund remedy. Off. of United States Tr. v. John Q. Hammons Fall 2006, LLC, 144 S. Ct. 1588 (2024).
In a 6-3 decision, the Court held that a prospective parity remedy was appropriate, rather than a refund. Writing for the majority, Justice Jackson explained that Congress made it clear that the UST program shall be self-funded. Refunding $300 million to affected parties would undermine this intent. She also doubted the practicality of issuing refunds to entities that were no longer in existence. Thus, the constitutional violation identified in Siegel was sufficiently remedied by prospective parity of fees. Id.
Hammons likely finished the final chapter of the line of cases concerning the fee difference between the UST and Administrator Program. The precedential effect of this case was aptly questioned by the dissents, as the majority framed the constitutional violation as “short-lived and small”. Id. No matter–––the UST may now be relieved from paying for the Administrator Program’s failure to update the fee schedule.
To read the Court’s full decision, click here.
Editors-in-Chief:
C.J. Harayda, Stinson LLP
David M. Tanabe, Messerli Kramer P.A.