Amicus Curiae Brief — Alfred H. Siegel, Trustee of the Circuit City Stores, Inc. Liquidating Trust, Petitioner v. John P. Fitzgerald, III, Acting United States Trustee for Region 4

No. 21-441

In the Supreme Court of the United States

__________________

A LFRED H. SIEGEL, TRUSTEE OF THE C IRCUIT C ITY

STORES, INC. LIQUIDATING TRUST,

Petitioner,

v.

JOHN P. FITZGERALD, III, A CTING UNITED STATES

TRUSTEE FOR REGION 4,

Respondent.

__________________

On Writ of Certiorari to the United States

Court of Appeals for the Fourth Circuit

__________________

BRIEF OF AMICI CURIAE JOHN Q. HAMMONS

HOTELS & RESORTS, ET AL. IN SUPPORT OF

PETITIONER

__________________

NICHOLAS J. ZLUTICKY

Counsel of Record

ZACHARY H. HEMENWAY

M ICHAEL P. PAPPAS

STINSON LLP

1201 Walnut Street

Suite 2900

Kansas City, MO 64106-2150

(816) 691-3278

nicholas.zluticky@stinson.com

Counsel for Amici Curiae

March 3, 2022

Becker Gallagher · Cincinnati, OH · Washington, D.C. · 800.890.5001

i

TABLE OF CONTENTS

TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . iii

INTEREST OF THE AMICI CURIAE . . . . . . . . . . . 1

INTRODUCTION AND SUMMARY

OF ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

I.

The 2017 Amendment Fails the Uniformity

Test the Court Established in Blanchette. . . . 4

A. The Court of Appeals in Siegel Erred

in Ignoring Blanchette’s Requirement

That a Statute Operate Uniformly on

a Defined Class of Debtors. . . . . . . . . . . . . 5

B. The Court of Appeals in Siegel Also

Erred in its Determination That

Funding the U.S. Trustee Program is

a “Geographically-Isolated Problem”

Within the Flexibility Inherent in the

Bankruptcy Clause. . . . . . . . . . . . . . . . . . 11

II.

Congress Has Failed to Resolve the

Constitutional Problem it Created and

Identified . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

A. The Dual System of Bankruptcy

Administration is Unconstitutional

and Has Been Since its Inception . . . . . . 13

B. Congress Has Previously Attempted

and Failed to Address Known

Constitutional Infirmities Within the

Bankruptcy System . . . . . . . . . . . . . . . . . 19

ii

III.

The Monetary Remedy Sought by Petitioner

is the Sole Legal and Practical Resolution to

Petitioner’s Claims . . . . . . . . . . . . . . . . . . . . 22

A. The Court’s Precedents Support

Monetary Relief and the Government

Relies on Inapposite Cases Involving

Non-Monetary Harm . . . . . . . . . . . . . . . . 22

B. The Government’s Proposed Remedy

is Akin to No Remedy Because it Fails

to Ameliorate Petitioner’s Harm and is

Not a Plausible Alternative . . . . . . . . . . . 25

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

iii

TABLE OF AUTHORITIES

CASES

Blanchette v. Connecticut Gen. Ins. Corps.,

419 U.S. 102 (1974). . . . . . . . . . . . . . . . . . . passim

Head Money Cases,

112 U.S. 580 (1884). . . . . . . . . . . . . . . . . . . . . 5, 12

In re Cir. City Stores, Inc.,

996 F.3d 156 (4th Cir. 2021). . . . . . . . . . . . . . 7, 11

In re Clinton Nurseries, Inc.,

998 F.3d 56 (2d Cir. 2021) . . . . . . . . . . . . . . . . . 11

In re John Q. Hammons Fall 2006, LLC,

15 F.4th 1011 (10th Cir. 2021) . . . . . . . . . . 1, 2, 10

In re LTL Mgmt., LLC,

Case No. 21-30589, 2022 WL 609549

(Bankr. D. N.J. Jan. 20, 2022) . . . . . . . . . . . . . . 14

In re LTL Mgmt., LLC,

Case No. 21-30589, 2022 WL 596617

(Bankr. D. N.J. Feb. 25, 2022) . . . . . . . . . . . . . . 14

In re Marshall,

600 F.3d 1037 (9th Cir. 2010). . . . . . . . . . . . . . . 20

In re Purdue Pharma, L.P.,

635 B.R. 26 (S.D.N.Y. 2021) . . . . . . . . . . . . . . . . 14

Iowa-Des Moines Nat’l Bank v. Bennett,

284 U.S. 239 (1931). . . . . . . . . . . . . . . . . . . . . . . 24

Matter of Buffets, L.L.C.,

979 F.3d 366 (5th Cir. 2020). . . . . . . . . . . . . . . . 11

iv

N. Pipeline Const. Co. v. Marathon Pipe Line Co.,

458 U.S. 50 (1982). . . . . . . . . . . . . . . . . . . . . 20, 21

St. Angelo v. Victoria Farms, Inc.,

38 F.3d 1525 (9th Cir. 1994),

amended, 46 F.3d 969 (9th Cir. 1995)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 17, 18, 19

Railway Laboratory Executives’ Ass’n v. Gibbons,

455 U.S. 457 (1982). . . . . . . . . . . . . . . . . . . 8, 9, 10

Sessions v. Morales-Santana,

137 S. Ct. 1678 (2017). . . . . . . . . . . . . . . 22, 23, 24

Stern v. Marshall,

564 U.S. 462 (2011). . . . . . . . . . . . . . . . . . . . 20, 21

Vanston Bondholders Protective Comm. v. Green,

329 U.S. 156 (1946). . . . . . . . . . . . . . . . . . . . 6, 8, 9

STATUTES

11 U.S.C. § 1102(a)(1) . . . . . . . . . . . . . . . . . . . . . . . 14

11 U.S.C. § 1102(a)(2) . . . . . . . . . . . . . . . . . . . . . . . 14

28 U.S.C. § 151(a) (Supp. IV 1981) . . . . . . . . . . . . . 20

28 U.S.C. § 157(b). . . . . . . . . . . . . . . . . . . . . . . . . . . 21

28 U.S.C. § 157(b)(2)(C) . . . . . . . . . . . . . . . . . . . . . . 21

28 U.S.C. § 1930(a)(6) . . . . . . . . . . . . . . . . . . . . . . . 16

28 U.S.C. § 1930(a)(7) . . . . . . . . . . . . . . . . . . . . . . . 18

Bankruptcy Amendments and Federal Judgeship

Act of 1984, Pub. L. No. 98-353, 98 Stat. 333

(July 10, 1984). . . . . . . . . . . . . . . . . . . . . . . . 20, 21

v

Bankruptcy Judges, United States Trustees, and

Family Farmer Bankruptcy Act of 1986, Pub. L.

No. 99-554, 100 Stat. 3088 (Oct. 27, 1986) . 15, 16

Federal Courts Improvement Act of 2000, Pub. L.

No. 106-518, § 501, 114 Stat. 2410 (Sept. 13,

2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 18

Judicial Improvements Act of 1990, Pub. L. No. 101650 § 317(a), 104 Stat. 5089 (Dec. 1, 1990) . . . . 15

RULES

Sup. Ct. R. 37.6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

OTHER AUTHORITIES

Dan J. Schulman, The Constitution, Interest

Groups, and the Requirements of Uniformity:

The United States Trustee and the Bankruptcy

Administrator Programs, 74 Neb. L. Rev. 91

(1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

U.S. Code Cong. & Admin. News 1978 . . . . . . . . . . 20

U.S. Gov’t Accountability Office, GAO/GGD-92-133,

Bankruptcy Administration: Justification

Lacking for Continuing Two Parallel Programs

(1992). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

1

INTEREST OF THE AMICI CURIAE

Amici curiae1 are comprised of seventy-six entities

operating as or associated with John Q. Hammons

Hotels & Resorts.2 Amici paid more than $2.5 million

in excess quarterly fees to the U.S. Trustee in

connection with chapter 11 bankruptcy cases in the

United States Bankruptcy Court for the District of

Kansas that they would not have been required to pay

as chapter 11 debtors in North Carolina or Alabama.

Amici paid these excess fees as a result of the same

statute at issue in the pending case.

Amici filed a motion in the bankruptcy court

seeking recovery of these excess fees based on the

argument that the statute at issue and the system that

permits it are unconstitutionally non-uniform. After

the bankruptcy court upheld the statute, Amici

appealed the decision to the Tenth Circuit Court of

Appeals. The court of appeals held that the statute was

unconstitutionally non-uniform, reversing the

bankruptcy court and remanding the case directing a

refund of the excess amounts of quarterly fees paid by

1

Pursuant to Sup. Ct. Rule 37.6, counsel for amici curiae state

that no counsel for any party authored this brief in whole or in

part, nor did any party or other person other than amici curiae or

their counsel make a monetary contribution to the brief’s

preparation or submission. All parties have consented in writing

to the filing of this brief.

2

The seventy-six individual entities comprising Amici are listed in

In re John Q. Hammons Fall 2006, LLC, 15 F.4th 1011 (10th Cir.

2021). John Q. Hammons Hotels & Resorts was an organization

that included, inter alia, thirty-five hotels across the country and

related hospitality assets.

2

Amici. In re John Q. Hammons Fall 2006, LLC, 15

F.4th 1011 (10th Cir. 2021).

In this case, the Court will be addressing the same

issue addressed by the Tenth Circuit: whether the 2017

amendment to 28 U.S.C. § 1930(a)(6) (the “2017

Amendment”) is unconstitutional because it subjected

chapter 11 debtors in the rest of the country to higher

quarterly fees than similarly situated debtors in North

Carolina and Alabama for reasons that do not and

cannot qualify as a “geographically-isolated problem.”

Amici are among the chapter 11 debtors most harmed

by the unconstitutional statute and thus have a strong

interest in this Court applying its precedents to

invalidate the unconstitutionally non-uniform statute

and affirming that refunding the excess fees is not only

the proper remedy, it is the only viable option for

ameliorating the harm caused by the statute.

INTRODUCTION AND SUMMARY

OF ARGUMENT

Amici agree with Petitioner that the 2017

Amendment is unconstitutionally non-uniform because

it imposes higher quarterly fees on chapter 11 debtors

in the rest of the country than the quarterly fees

imposed on chapter 11 debtors in North Carolina and

Alabama. Amici also agree that the 2017 Amendment

is part of an unconstitutionally non-uniform dual

bankruptcy administration system and that the proper

remedy for petitioner is a refund of the excess quarterly

fees it paid pursuant to the unconstitutional statute.

The court of appeals incorrectly applied this Court’s

holding in Blanchette v. Connecticut Gen. Ins. Corps.,

3

419 U.S. 102 (1974) because it focused on the portion of

the holding permitting Congress to solve

geographically-isolated problems but did not apply the

limitations the Blanchette Court imposed on that

authority. Under Blanchette, a geographically nonuniform statute may be constitutional only if it is

fashioned to solve a geographically-isolated problem

and operates uniformly with respect to a defined class

of debtors. The 2017 Amendment does neither.

The 2017 Amendment does not apply uniformly to

a defined class of debtors as required in Blanchette

because the applicable class of debtors is all chapter 11

debtors in the United States, and the 2017 Amendment

imposes higher quarterly fees on only a portion of those

debtors. The Second Circuit Court of Appeals and the

Tenth Circuit Court of Appeals correctly concluded that

even if the 2017 Amendment was fashioned to solve the

problem of U.S. Trustee funding and was limited to the

geographic areas where those quarterly U.S. Trustee

fees are paid, the statute is unconstitutionally nonuniform because it does not apply uniformly to chapter

11 debtors.

The 2017 Amendment also fails to fit within the

framework established in Blanchette because it was not

“fashioned” to solve the type of “geographically-isolated

problem” the Blanchette Court described. It was a

statute enacted by Congress imposing increased

quarterly fees on all debtors over whom Congress had

the authority to do so, and any supposed geographic

isolation of the problem was not a function of a problem

Congress was trying to solve but rather a problem

Congress created.

4

Finally, monetary relief is consistent with both this

Court’s prior jurisprudence and all appellate court

decisions as to remedy on this issue, and is the only

way to adequately address the harm suffered by

Petitioner as a result of the unconstitutional statute.

The cases relied upon by the government are

inapposite, and the government ignores the Court’s

more relevant holdings on similar issues. Moreover, the

remedy proposed by the government is unfeasible and

fails to make the Petitioner whole.

This Court should overturn the decision of the court

of appeals.

ARGUMENT

I.

The 2017 Amendment Fails the Uniformity

Test the Court Established in Blanchette.

All appellate courts taking on the uniformity

question as to the 2017 Amendment correctly point to

Blanchette as the seminal case on the Bankruptcy

Clause3 and its uniformity requirement. Blanchette

outlines both the scope of Congress’s flexibility under

the Bankruptcy Clause and the limitations of that

flexibility. The Siegel court and the other appellate

courts incorrectly upholding the 2017 Amendment err

by focusing on the flexibility afforded Congress while

ignoring or misconstruing the limitations to that

flexibility that were an essential part of the Court’s

holding in Blanchette.

3

All capitalized terms herein shall have the meanings ascribed to

them in Petitioner’s Brief.

5

A. The court of appeals in Siegel erred in

ignoring Blanchette’s requirement that

a statute operate uniformly on a defined

class of debtors.

In Blanchette, this Court affirmed that Congress

has the ability to pass laws on the subject of

bankruptcy that result in geographic differences

impacting debtors. The Court held that an argument

for absolute or perfect geographic uniformity “has a

certain surface appeal but is without merit because it

overlooks the flexibility inherent in the constitutional

provision.” Id. at 158. The Court then defined that

flexibility more fully, citing its holding on tax

uniformity in the Head Money Cases for its conclusion

that a constitutional requirement of uniformity “does

not deny Congress power to take into account

differences that exist between different parts of the

country, and to fashion legislation to resolve

geographically isolated problems.” Id. at 159.

The court of appeals in Siegel and other appellate

courts upholding the 2017 Amendment rely on this

language to justify their conclusions. They hold that

Congress was using the flexibility inherent in the

provision to take into account differences between

North Carolina and Alabama and the remainder of the

country, namely Congress’s decision to exempt those

states from the U.S. Trustee Program, and fashioning

legislation to resolve it in the states where the U.S.

Trustee Program exists.

Like the argument for absolute uniformity, the

Siegel court’s interpretation of Blanchette “has a

certain surface appeal,” but it is without merit. The

6

Siegel court incorrectly focuses on the portion of

Blanchette outlining Congress’s power to the exclusion

of the limitation the Court outlined in the paragraphs

immediately following that portion of its holding.

Citing Justice Frankfurter’s concurrence in Vanston

Bondholders Protective Comm. v. Green, 329 U.S. 156,

172 (1946), the Court held that “[t]he uniformity clause

requires that the Rail Act apply equally to all creditors

and all debtors.” Blanchette, 419 U.S. at 160. It then

analyzed whether the statute at issue met this test:

The national rail transportation crisis that

produced the Rail Act centered in the problems

of the rail carriers operating in the region

defined by the Act, and these were the problems

Congress addressed. No railroad reorganization

proceeding, within the meaning of the Rail Act,

was pending outside that defined region on the

effective date of the Act or during the 180-day

period following the statute’s effective date.

Thus the Rail Act in fact operates uniformly

upon all bankrupt railroads then operating in

the United States and uniformly with respect to

all creditors of each of these railroads.

Id. at 159-60.

In using Blanchette as the basis for its holding that

the 2017 Amendment is constitutional, the court of

appeals relied on the first sentence in the paragraph

above, but its interpretation of that sentence renders

the remainder of the Court’s analysis in the above

paragraph meaningless. In Blanchette, the Court did

not look at the geographically-isolated problem being

addressed (railroad bankruptcies in a particular

7

region), and evaluate whether it treated bankrupt

railroads in that region and their creditors uniformly.

Rather, it looked to whether the statute operated

“uniformly upon all bankrupt railroads then operating

in the United States and uniformly with respect to all

creditors of each of these railroads.” Id. at 160

(emphasis added).

The Siegel opinion’s description of the Blanchette

holding underscores the fact that the court of appeals

missed the second portion of the test outlined in

Blanchette entirely. The court of appeals frames

Blanchette as a case “recognizing that [an] Act of

Congress applicable only to rail carriers in certain

regions and to carriers reorganizing within certain time

period was uniform under the Bankruptcy Clause, in

that it was designed to solve specific regional problem.”

Cir. City, 996 F.3d at 165. Similarly, later in the

opinion the court of appeals references Blanchette as

the Court having “allowed Congress to establish a

special court and enact statute to benefit bankrupt rail

carriers in the northeast and Midwest, as those were

the only railroads facing the problem.” Id. at 166.

The Siegel court mistakenly interprets Blanchette

as holding that Congress can pass geographically nonuniform laws so long as they relate to a problem which

is itself geographically non-uniform. But the Blanchette

opinion makes it clear that this is only the first part of

the analysis. If solving a geographic problem and

limiting impact to those within its scope were all that

was required, the Blanchette Court would have had no

need to examine whether the Rail Act operated

uniformly on all railroads and no need to reference

8

Vanston Bondholders. The Court did so to reiterate

that even if a statute is designed to address a

geographically-isolated problem, it nevertheless must

apply uniformly to all debtors within the defined class.

Here, the defined class is all chapter 11 debtors, not all

chapter 11 debtors outside of North Carolina and

Alabama.

This Court’s holding in Ry. Lab. Executives’ Ass’n v.

Gibbons, 455 U.S. 457, 471 (1982) highlights the flaw

in the Siegel court’s Blanchette analysis. In Gibbons,

Congress was concerned with the impact of a specific

railroad bankruptcy on labor claims and enacted a

labor protection statute requiring payment of these

claims. Id. at 457. The facts in Gibbons thus match the

Siegel court’s framing of Blanchette as a situation in

which “Congress . . . enact[ed] a statute” applicable to

specific railroads which were “the only railroads facing

the problem.” Yet the Gibbons court held that the

statute violated the Bankruptcy Clause, and its

analysis shows that the second portion of the

Blanchette test is just as essential as the first.

The Gibbons Court, in citing Blanchette, noted that

in Blanchette, “[s]ince no railroad reorganization

proceeding was then pending outside of the region

defined by the [Rail Act] . . . the Act in fact operated

uniformly upon all railroads then in bankruptcy

proceedings.” Id. at 469-70. It held that as to the

statute at issue in Gibbons, because “there are other

railroads that are currently in reorganization

proceedings [to whom the statute would not apply],” it

“cannot be said to apply uniformly even to major

railroads in bankruptcy proceedings throughout the

9

United States. . . . The employee protection provisions

. . . therefore cannot be said to ‘apply equally to all

creditors and all debtors.’” Id. at 470–71 (quoting

Blanchette, 419 U.S. at 160).

Vanston Bondholders, Blanchette and Gibbons

establish that in determining whether a bankruptcy

law meets the constitutional requirement of applying

uniformly to a defined class of creditors and debtors,

the Court considers both debtors and creditors within

the reach and impact of the statute and similarly

situated debtors and creditors outside of that group. In

Blanchette, the Court looked to all railroads in

bankruptcy proceedings in the United States at the

time of the statute and during its pendency, not just

the railroads in the region impacted by the statute. The

Court determined that because there were none, the

statute did not violate any uniformity requirement.

Blanchette, 419 U.S. at 159-61. The Court took the

same approach in Gibbons, again looking at all

railroads in bankruptcy proceedings in the United

States, and found a constitutional infirmity because

there were other railroads in bankruptcy proceedings

and that statute treated those railroads differently

than the railroad that was subject to the statute.

Gibbons, 455 U.S. at 470-73.

Against this backdrop, the Second Circuit Court of

Appeals and the Tenth Circuit Court of Appeals both

correctly applied the Court’s Blanchette analysis to the

2017 Amendment. Like the Siegel court, these courts

stated that the 2017 Amendment was designed to solve

the problem of funding the U.S. Trustee Program in the

forty-eight states where it exists, and that its impact

10

was limited to chapter 11 debtors in those states.

Unlike the court in Siegel, however, the Second Circuit

and Tenth Circuit then applied the second portion of

the Blanchette test. They noted the requirement that

bankruptcy laws “apply uniformly to a defined class of

debtors,” and held that “[b]y contrast [to the statute in

Blanchette], the 2017 Amendment increased fees for all

large Chapter 11 bankruptcy debtors in U.S. Trustee

Program districts, with no showing that members of

that broad class are absent in Bankruptcy

Administrator districts.” Hammons, 15 F.4th at 1024.

They “reject[ed] the Trustee’s arguments that the

relevant class of debtors is exclusively Trustee-district

debtors.” Id. at 1025. Instead, these courts correctly

defined the class to include “debtors like those here,”

which included debtors who “had bankruptcy cases

pending in Alabama and North Carolina” in 2018

through 2020, just as this Court defined the relevant

class in Blanchette and Gibbons to be “debtors like

those” before the Court who “had bankruptcy cases

pending” outside the area impacted by the statute. Id.

at 1024.

The Siegel court’s definition of the class of debtors

impacted by the 2017 Amendment is inconsistent with

the Blanchette Court’s holding. The Siegel court’s

incorrect conclusion flows directly from this flaw in its

analysis. The Siegel court incorrectly framed

Blanchette as allowing the statute in question to

benefit rail carriers in the region impacted “as those

were the only railroads facing the problem.” Based on

this interpretation, it held that “[b]ecause only those

debtors in Trustee districts use the U.S. Trustees,

Congress reasonably solved the shortfall problem with

11

fee increases in the underfunded districts.” Cir. City,

996 F.3d at 166. Had the court of appeals read

Blanchette correctly and defined the class of debtors not

as debtors who “use the U.S. Trustees” but instead as

chapter 11 debtors in the United States, it would have

reached a different – and correct – conclusion.

B. The court of appeals in Siegel also erred

in its determination that funding the

U.S. Trustee Program is a

“geographically-isolated problem”

within the flexibility inherent in the

Bankruptcy Clause.

The Siegel court’s holding is incorrect even if the

Court finds that the 2017 Amendment is legislation

fashioned by Congress to address a “geographicallyisolated problem warranting geographic-specific

legislation” because the statute does not apply

uniformly to chapter 11 debtors. However, this

underlying premise is also incorrect.

The court in Siegel found that the 2017 Amendment

qualifies as legislation addressing a geographicallyisolated problem because the purpose of the

amendment is funding the U.S. Trustee Program and

the amendment is limited to the geographic area in

which the program exists. But using the existence of

the U.S. Trustee Program to justify the non-uniformity

of the statute perpetrates a logical fallacy, akin to

creating the “inexplicable rule” that “Congress must

enact uniform laws on the subject of bankruptcy . . .

except when Congress elects to treat debtors nonuniformly.” In re Clinton Nurseries, Inc., 998 F.3d 56,

69 (2d Cir. 2021); see also Matter of Buffets, L.L.C., 979

12

F.3d 366, 383 (5th Cir. 2020) (Clement, J., concurring

in part and dissenting in part).

In reaching this conclusion, the Siegel court relies

on Blanchette and, in turn, the holding in Head Money

Cases, 112 U.S. 580 (1884), to analogize the 2017

Amendment to the geographically discriminatory

statutes in those cases. This reliance goes past the

point of analogy and borders on farce. In both

Blanchette and the Head Money Cases, the

geographically-isolated problem, the “evil to be

remedied” (as the Head Money Cases Court described

it), was a problem that existed entirely outside of the

actions of Congress. These were contemporary,

emerging problems requiring legislative intervention in

the best interest of the country: in Head Money Cases,

an European immigration boom and in Blanchette, a

national rail crisis. Head Money Cases, 112 U.S. 580,

595 (1884); Blanchette, 419 U.S. at 108-09. Here, the

problem could not be more inapposite: Congress

excluding North Carolina and Alabama from a system

it initially required them to join simply because

powerful political factions worked to reverse that

mandate.

The other obvious flaw in this argument is in the

first portion of the Blanchette language. Here, Congress

did not “fashion legislation” to solve an isolated

problem. The 2017 amendment applies to every single

debtor within the U.S. Trustee Program, which

constitutes every debtor over whom Congress has the

authority to set fees. Framing the legislation as a

decision by Congress to focus on debtors in the U.S.

Trustee Program implies that Congress chose to

13

exclude debtors in North Carolina and Alabama when

it enacted the 2017 Amendment. In fact, as Congress

conceded when it changed the word “may” to “shall” in

Section 1930(a)(7) effective Jan. 12, 2021, Congress

limited the statute to debtors in these states not by

design, but because it could not raise fees in the other

two. It could only instruct the Judicial Conference to do

so.

II.

CONGRESS HAS FAILED TO RESOLVE

THE CONSTITUTIONAL PROBLEM IT

CREATED AND IDENTIFIED

A. The Dual System of Bankruptcy

Administration is Unconstitutional and

Has Been Since Its Inception.

While the present dispute centers on the 2017

Amendment, which itself is unconstitutional, the

Amendment and the non-uniform fees it imposes exist

within the U.S. Trustee-BA dichotomy. This dual

system is unconstitutionally non-uniform and always

has been. This unconstitutional lack of uniformity was

highlighted by the Ninth Circuit in St. Angelo v.

Victoria Farms, Inc., 38 F.3d 1525 (9th Cir. 1994),

amended, 46 F.3d 969 (9th Cir. 1995), and Congress

recognized it and took action to address it in 2000. But

even courts upholding the 2017 Amendment

acknowledge that the constitutional infirmity the

Ninth Circuit identified remained as the monetary

injury it caused was abated.

Like the 2017 Amendment, the coexistence of BA

districts and U.S. Trustee Program districts is

unconstitutional. These dual systems treat debtors

14

differently without any justification for doing so, which

puts them firmly outside the flexibility inherent in the

Bankruptcy Clause. The differences between the two

systems are not theoretical; the involvement of the

Department of Justice in bankruptcy cases through the

U.S. Trustee program can significantly impact the

shape and disposition of a debtor’s bankruptcy cases.

See, e.g., In re LTL Mgmt., LLC, Case No. 21-30589,

2022 WL 596617 (Bankr. D. N.J. Feb. 25, 2022); In re

Purdue Pharma, L.P., 635 B.R. 26 (S.D.N.Y. 2021).4

The management and disposition of a debtor’s

assets is a central component of the bankruptcy

process. The U.S. Trustee Program was created as a

pilot program in 1978 to take over the administrative

aspect of cases from judges, who prior to that time

handled both substantive and administrative functions.

The U.S. Trustee Program was successful and Congress

subsequently implemented it more fully in 1986. See

Bankruptcy Judges, United States Trustees, and

Family Farmer Bankruptcy Act of 1986, Pub. L. No. 99554, 100 Stat 3088, 3090–95 (Oct. 27, 1986) (“1986

Act”). Pursuant to the 1986 Act, in every district in the

country except for the six districts in North Carolina

4

One of the many examples of the differences in the two systems

is the right to appoint committees of unsecured creditors. Pursuant

to 11 U.S.C. § 1102(a)(1), Congress has directed that the U.S.

Trustee “shall appoint a committee of creditors . . . ”. No such

directive exists within the BA system. The appointment of a

committee in North Carolina and Alabama is an action that can

only be taken by the court, rather than a directive accomplished by

the administrator, and the court is not required to do so. 11 U.S.C.

§ 1102(a)(2). See In re LTL Mgmt., LLC, Case No. 21-30589, 2022

WL 609549 (Bankr. D. N.J. Jan. 20, 2022).

15

and Alabama, the U.S. Trustee Program permanently

took over the administrative role as a component of the

U.S. Department of Justice. In North Carolina and

Alabama, this function was the responsibility of the

Bankruptcy Administrator program, which operated as

a program within the Judicial branch.

The 1986 Act gave the judicial districts in North

Carolina and Alabama until 1992 to implement the

U.S. Trustee Program. See 1986 Act § 302(d)(3)(A) 3122

(28 U.S.C. 581 note). Neither the 1986 Act nor its

legislative history provided any justification for

treating debtors in these states differently.

The statutory plan enacted in 1986 never occurred.

Congress passed the Judicial Improvements Act of

1990, Pub. L. No. 101-650, § 317(a), 104 Stat. 5089,

5115 (Dec. 1, 1990), which pushed back the deadline for

Alabama and North Carolina to enter the U.S. Trustee

Program by ten years, then two years before the 2002

deadline, Congress removed altogether the language

requiring these judicial districts to ever join the U.S.

Trustee Program. See Federal Courts Improvement Act

of 2000, Pub. L. No. 106-518, § 501, 114 Stat. 2410,

2421–22 (Sept. 13, 2000) (“2000 Act”). Although

Congress still provided no justification whatsoever for

making the “temporary” situation from 1986

permanent, contemporaneous commenters attributed

the eschewing of the deadline to effective political

maneuvering, noting that “[b]ankruptcy judges in both

states successfully have lobbied Congress, most

particularly Senators Helms [then-Senator from North

Carolina] and Heflin [then-Senator from Alabama], to

avoid being placed within the United States Trustee

16

program.” Dan J. Schulman, The Constitution, Interest

Groups, and the Requirements of Uniformity: The

United States Trustee and the Bankruptcy

Administrator Programs, 74 Neb. L. Rev. 91, 123

(1995).

The formula for fees paid to U.S. Trustees and the

directive that debtors pay them are both part of the

Bankruptcy Code. The 1986 Act added 28 U.S.C.

§ 1930(a)(6) to the Code. The new section provided that

“a quarterly fee shall be paid to the United States

trustee, for deposit in the Treasury, in each case under

chapter 11 . . . for each quarter (including any fraction

thereof) until a plan is confirmed or the case is

converted or dismissed, whichever occurs first.” 1986

Act at § 117. Since the statute only created and took

authority over U.S. Trustee districts, it did not impose

any fee requirements on chapter 11 debtors in BA

districts.

As the GAO noted in a 1992 study, under this

system, fees were “not uniform” because “[c]hapter 11

debtors in BA districts [were] not subject to the

additional quarterly fee that is levied on Chapter 11

debtors in Trustee districts.” U.S. Gov’t Accountability

Office, GAO/GGD-92-133, Bankruptcy Administration:

Justification Lacking for Continuing Two Parallel

Programs 11 (1992). That GAO report ended with a

recommendation that “[t]o make bankruptcy

administration consistent across the country, Congress

should incorporate the BA program into the Trustee

Program.” Id. at 17.

In 1994, the Ninth Circuit held that the fee

disparity created by the BA-U.S. Trustee dual system

17

was unconstitutional. In St. Angelo, a debtor argued it

should not be required to pay a quarterly fee because

similarly situated debtors in North Carolina and

Alabama were not charged quarterly fees. St. Angelo,

38 F.3d. at 1529.

The Ninth Circuit noted that a bankruptcy law

“may have different effects in various states due to

dissimilarities in state law as long as the federal law

itself treats creditors and debtors alike” but found that

Section 1930 did not pass this threshold test. Id. at

1531. The court held that it was “federal law, rather

than state law, that causes creditors and debtors to be

treated differently in North Carolina and Alabama.” Id.

Having concluded the law was non-uniform, the court

then looked to whether any exception to the

requirement of geographic uniformity might apply. Id.

Finding none, the court determined that the lack of

uniformity identified by the debtors violated the

Bankruptcy Clause and was unconstitutional. Id.

Like courts examining the 2017 Amendment, the

Ninth Circuit’s analysis centered on Blanchette. The

Ninth Circuit distinguished the quarterly fee statute

from the statute upheld in Blanchette because unlike

the Blanchette statute, as to the quarterly fee statute

“Congress has provided no indication that the

exemption in question was intended to deal with a

problem specific to North Carolina and Alabama” and

the court could not “discern such a purpose in the

structure of the statute or the legislative history of the

amendment.” Id. The Ninth Circuit concluded that

“because creditors and debtors in states other than

North Carolina and Alabama are governed by a

18

different, more costly system for resolving bankruptcy

disputes . . . it is clear that 28 U.S.C. 1930, as currently

amended, does not apply uniformly to a defined class of

debtors.” Id. at 1531–32. It struck down the

amendments to Section 1930 that granted a 10-year

extension for North Carolina and Alabama to enter the

U.S. Trustee system. Id. at 1532–33.

Congress acknowledged the constitutional infirmity

identified in St. Angelo and passed legislation in 2000

on BA districts in an attempt to remedy the statutory

deficiencies. Congress amended Section 1930(a) by

adding a new paragraph (7), which stated that in the

BA districts “the Judicial Conference of the United

States may require the debtor in a case under chapter

11 of title 11 to pay fees equal to those imposed” by

1930(a)(6). 2000 Act at § 105 (enacting 28 U.S.C.

§ 1930(a)(7)).

Although Section 1930(a)(7) prevented the

constitutional injury of chapter 11 debtors outside the

BA districts paying quarterly fees while chapter 11

debtors inside BA districts did not, it did not address

the Ninth Circuit’s holding that debtors being governed

by a “different” and “dissimilar” system was

unconstitutional. But there were no significant

challenges to the statute because while Congress had

not required fees in the BA system to be equal, fees

were, in fact, equal. Following the enactment of Section

1930(a)(7), the Judicial Conference decided to charge

chapter 11 debtors in BA districts quarterly fees

similar to U.S. Trustee fees, and for nearly twenty

years, chapter 11 debtors across the country paid

essentially equal fees. Section 1930(a)(6) and the dual

19

systems existed in a state of constitutional purgatory,

unconstitutional but unchallenged because the

impacted parties did not suffer sufficient monetary

damages to make a challenge worthwhile.

This changed when Congress enacted the 2017

Amendment and did not make or purport to make any

change to BA district fees. Chapter 11 debtors were

subjected to 833% fee increases and paid millions more

to the U.S. Trustee while chapter 11 debtors in North

Carolina and Alabama continued with business as

usual, and the types of constitutional challenges that

led to the St. Angelo decision reemerged, leading to the

present case before the court, Amici’s case, and the

other cases referenced in the Petition.

B. Congress Has Previously Attempted and

Failed to Address Known Constitutional

Infirmities within the Bankruptcy

System.

This is not the first time Congress has been made

aware of a constitutional bankruptcy issue and

responded with an unsuccessful attempt to address it.

In one of the first challenges to the modern state of

bankruptcy law, this Court, like the court in St. Angelo,

outlined a constitutional infirmity, and just as it did

following St. Angelo, Congress changed the law in

response. In both instances the statute Congress

enacted did not address the core constitutional issue.

The Court’s prior analysis as to Congress’s

unsuccessful remedial measures also applies here.

In 1978, the Bankruptcy Reform Act created the

current system of United States Bankruptcy Courts for

20

each district and provided that these courts “shall

exercise all of the jurisdiction conferred by this section

on the district courts.” N. Pipeline Const. Co. v.

Marathon Pipe Line Co., 458 U.S. 50, 53 (1982),

(quoting 28 U.S.C. § 151(a) (Supp. IV 1981)). “Congress

knew that this provision raised serious constitutional

concerns because it permitted an Article I tribunal to

exercise the same jurisdiction bestowed upon an Article

III court, but the risk of invalidation was deemed worth

achieving the goal of setting up a faster and cheaper

method to accomplish reorganization.” In re Marshall,

600 F.3d 1037 (9th Cir. 2010) (citing U.S. Code Cong.

& Admin. News 1978, p. 5963), aff’d sub nom., Stern v.

Marshall, 564 U.S. 462 (2011).

In Northern Pipeline, a six-judge plurality of this

Court held that the bankruptcy judges could not be

constitutionally vested with jurisdiction to decide a

debtor’s state-law contract claim against a third party

because they were not Article III judges. Northern

Pipeline, 458 U.S. at 88 fn. 40 (Brennan, J., plurality)

(joined by Justices Marshall, Blackmun, and Stevens)

(citations omitted); see also Id. at 91–92 (Rehnquist, J.,

concurring) (joined by Justice O’Connor). The Court’s

holding was stayed in order to “afford Congress an

opportunity to reconstitute the bankruptcy courts or to

adopt other valid means of adjudication.” Id. at 88.

In response to Northern Pipeline, Congress enacted

the Bankruptcy Amendments and Federal Judgeship

Act of 1984, Pub. L. No. 98-353, 98 Stat. 333 (July 10,

1984) (the “1984 Act”). The 1984 Act did not provide

bankruptcy judges with Article III authority, but

described their authority as including “core proceedings

21

arising under title 11, or arising in a case under title

11.” Id. at § 104; 28 U.S.C. § 157(b).

The constitutional infirmity outlined by the Court

in Northern Pipeline remained unaddressed for

approximately thirty years, until Stern v. Marshall,

564 U.S. 462 (2011). Stern involved a bankruptcy proof

of claim asserting a defamation claim and the debtor’s

counterclaim, both of which involved substantial

financial liabilities. Id. at 470. The bankruptcy court

concluded that the counterclaim was a “core

proceeding” under Section 157(b)(2)(C), which includes

in that definition “counterclaims by the estate against

persons filing claims against the estate.” Id. at 471; 28

U.S.C. § 157(b)(2)(C). The Court held that while the

bankruptcy judge may have statutory authority to

resolve this claim, because the bankruptcy judge was

not an Article III judge, the judge did not have

constitutional authority to do so. Stern, 564 U.S. at

482. The Court noted that despite the Northern

Pipeline holding, “the bankruptcy courts under the

1984 Act exercise the same powers they wielded under

the Bankruptcy Act of 1978.” Id. In doing so, the Court

concluded that Congress had failed to resolve the

constitutional issue it had identified thirty years prior.

Both Stern and this case involve previouslyhighlighted constitutional problems where Congress

passed legislation that was intended to address those

problems but was ultimately unsuccessful. As this

Court made clear in Stern, Congress’s desire to avoid a

constitutional issue cannot act as the saving grace for

an unconstitutional statute. The continued existence of

the constitutional infirmity caused the harm to chapter

22

11 debtors like Amici and Petitioner, and this Court

can and should address that injury.

III.

THE MONETARY REMEDY SOUGHT BY

PETITIONER IS THE SOLE LEGAL AND

PRACTICAL

RESOLUTION

TO

PETITIONER’S CLAIMS

A. The Court’s Precedents Support

Monetary Relief and the Government

Relies on Inapposite Cases Involving

Non-Monetary Harm

The government has consistently argued that even

if the Court finds that Petitioner and other chapter 11

debtors were charged dramatically higher fees as a

result of an unconstitutional status, it should not

return the excess fees to these debtors. The government

contends that “a mandate of equal treatment” is

instead the appropriate remedy because the “right

invoked is that to equal treatment.” This argument

fails on multiple levels. First, the language the

government has invoked is misleading and inapplicable

here because the cited cases that involve discrimination

and equal protection – the “equal treatment” being

referenced is designed to account for non-economic

injuries and does not involve imposing monetary

penalties on parties not involved in the litigation.

Second, even within that constitutional jurisprudence

this Court has already favored monetary remedies in

situations where a party has been required to make

payments in violation of the Constitution.

The government has cited Sessions v. MoralesSantana, 137 S. Ct 1678, 1698 (2017) for the premise

23

that “a mandate of equal treatment” is appropriate

here. But even a cursory examination of Sessions shows

it is factually distinguishable and did not involve

consideration of a monetary remedy. Sessions hinged

on an exception to U.S. citizenship laws providing

citizenship rights to children of unwed mothers who

had lived in the country for one year prior to birth but

not to children of unwed fathers living in the country

for the same period of time. Sessions, 137 S.Ct. at 1682.

The litigant was a child of a father who did not fall

within the exception, and the two alternatives the

Court considered were extending benefits to the

litigant (i.e. applying the exception to fathers as well)

or withdrawing those benefits to the children of

mothers within the exception. Id. at 1698. The Court

thoroughly examined Congress’s intent in enacting

both the statute and the exception and determined that

applying the exception to unwed fathers was not the

proper remedy. Id. at 1698-1700.

Viewing Sessions as in any way instructive here

requires multiple logical leaps: equating uniformity

under the Bankruptcy Clause and non-uniform

treatment as a debtor as analogous to equal protection

and gender-based discrimination, and equating

payment of excess fees with denial of citizenship and

the rights attendant thereto. It also asks the Court to

look to a case in which no monetary remedy was even

sought in denying Petitioner monetary relief. Moreover,

to the extent the equal protection analogy is valid, in a

case far more analogous, this Court has already held

that repayment of excess funds paid is, in fact, an

appropriate remedy for a constitutional violation like

the one suffered by Petitioner.

24

In Iowa–Des Moines Nat’l Bank v. Bennett, 284 U.S.

239 (1931), the petitioners were national banks who

had paid state taxes at a higher rate than domestic

corporations based on the actions of a county tax

collector misinterpreting or defying state tax law. In

discussing the appropriate remedy, the Court noted

that equal treatment could be attained either by

reducing the taxes of the petitioners or increasing the

taxes of their competitors. Id. at 247. The Court

conceded that the state might still have the power to

“equalize the treatment” of the petitioners but found

this was “not material.” Id. Mirroring the Sessions

language upon which the government relies, the Court

held that “[t]he right invoked [by petitioners] is that to

equal treatment, and such treatment will be attained

if either their competitors’ taxes are increased or their

own reduced.” Id. The Court held that the proper

remedy was to provide the petitioners “refund of the

excess of taxes exacted from them” because “it is well

settled that a taxpayer who has been subjected to

discriminatory taxation through the favoring of others

in violation of federal law cannot be required himself to

assume the burden of seeking an increase of the taxes

which the others should have paid.” Id. Thus, even

within the framework of equal protection that the

government argues should apply, this Court’s

jurisprudence would favor refunding Petitioner the

excess funds it paid.

25

B. The Government’s Proposed Remedy is

Akin to No Remedy Because it Fails to

Ameliorate Petitioner’s Harm and is Not

a Plausible Alternative

The Second Circuit Court of Appeals and the Tenth

Circuit Court of Appeals were correct in their

conclusions that monetary relief is the sole remedy for

the constitutional harm resulting from the 2017

Amendment. Petitioner was required to pay significant

fees to the U.S. Trustee pursuant to a statute that

violates the Constitution. The only way to ameliorate

that harm is to return those funds to Petitioner.

The government’s proposed remedy of a “mandate

of equal treatment” is as nonsensical as it is

impossible. The parties subject to this “equal

treatment” would be all chapter 11 debtors in North

Carolina and Alabama whose cases were pending as of

January 1, 2018 or filed between that date and October

1 of that year that paid less in quarterly fees than they

would have if the fees outlined in the 2017 Amendment

applied. Such a resolution would stand in direct

contradiction to the actions of the Judicial Conference,

a body presided over by the Chief Justice of this Court,

which determined the amounts and timing of those

fees.

This directive would also be impossible to

implement. Most if not all of these chapter 11 cases are

long-since closed, and the funds of these bankruptcy

estates have already been distributed to creditors or

disposed of pursuant to plans confirmed by final, nonappealable orders of the bankruptcy courts in those

districts. The government is in effect asking this Court

26

to reopen all of those cases and conscript the

bankruptcy courts in those districts as a de facto

collection agency, all to avoid making debtors whole for

the constitutional harm they have suffered.

The lack of legal support and impracticality of the

government’s proposed remedy have caused every

single court that has considered it to reject it, and for

good reason. The only proper and plausible relief

available in this case is the relief requested by

Petitioner: a refund of the excess fees paid by the

Petitioner as a consequence of this unconstitutionally

non-uniform statute.

CONCLUSION

The judgment of the court of appeals should be

reversed. The Court should hold that the 2017

Amendment is unconstitutional and ameliorate

Petitioner’s harm by ordering the U.S. Trustee to

return to Petitioner the excess fees it paid as a result of

the statute.

Respectfully submitted,

NICHOLAS J. ZLUTICKY

Counsel of Record

ZACHARY H. HEMENWAY

MICHAEL P. PAPPAS

STINSON LLP

1201 Walnut Street, Suite 2900

Kansas City, MO 64106-2150

(816) 691-3278

nicholas.zluticky@stinson.com

Counsel for Amici Curiae