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(Reuters) – The administrator who oversaw Circuit City’s liquidation process has asked the United States Supreme Court to rule on a dispute over fee hikes imposed by the U.S. department’s bankruptcy watchdog of Justice, the US Trustee.
In a petition released to the High Court roster on Wednesday, Circuit City liquidation trustee Alfred Siegel said a 2017 law that increased US trustee fees for Chapter 11 debtors in most states had failed the same is not done for two states that use a different government entity, known as the bankruptcy administrator program, to perform similar tasks in the supervision of large corporate bankruptcies.
Siegel, represented by Pachulski Stang Ziehl & Jones and Haynes and Boone, says the alleged disparity has forced the Circuit City liquidation trust to pay significantly higher U.S. trustee fees than in previous years, while Chapter 11 debtors in North Carolina and Alabama, the two states with the alternative program, spent several months without being subject to the same fee increases. The inconsistency between government bankruptcy monitoring programs violates the U.S. Constitution’s requirement that bankruptcy laws be uniform, Siegel said.
North Carolina and Alabama opted in 1986 for the Administrator program rather than the US Trustee program.
Although Circuit City had file bankruptcy in Virginia in 2008 and closed its stores in 2009, the trust created as part of its liquidation plan has spent more than a decade administering the remaining assets of the late electronics retailer to creditors. During this time, the trust continued to pay quarterly fees to the US trustee.
The 2017 law imposed a five-year increase in quarterly fees for Chapter 11 debtors in U.S. trusteeship districts for any year in which the program fund fell below $ 200 million. Debtors are expected to pay the lesser of 1% of quarterly “disbursements” over $ 1 million or $ 250,000. The term “disbursement” has not been defined but has been interpreted by the courts to mean any expense of the debtor, including ordinary business expenses, according to the petition.
Siegel says that initially the Administrator program was not subject to these requirements and that any increase in fees was left to the discretion of the US Judicial Conference. The court conference ultimately imposed the same fee increase, but only applied it to bankruptcies filed on or after October 1, 2018, while the U.S. trustee fee increases were implemented nine months earlier, according to the petition. The disparity led to inconsistent treatment between the two programs, says Siegel.
The 2017 law has been contested in several districts. The US 4th Circuit Court of Appeals upheld the law in response to Siegel’s challenge and the 5th Circuit also approved it in a separate case, when it was declared unconstitutional by the 2nd Circuit.
Siegel called the split circuit an invitation to “confusion and uncertainty, as identically located debtors face different costs in different parts of the country.”
The US trustee’s office declined to comment. The department argued before the 4th Circuit that the law does not violate the uniformity requirement in part because it is an administrative measure and not a new bankruptcy law.
The US trustee also said the Circuit City trustee misunderstood the law, saying it required the administrator’s district fees to be equal to the US trustee’s fees, and that the failure of the court conference to implementing the fee increases in the administrator’s districts for nine months was a violation of the law itself.
The US trustee has until October 22 to file a response to Siegel’s petition.
The case is Alfred Siegel v. John Fitzgerald III, United States Supreme Court, No. 21-441.
For the liquidating trustee of Circuit City: Jeffrey Pomerantz, Andrew Caine and Robert Feinstein of Pachulski Stang Ziehl & Jones and Daniel Geyser and Ben Mesches of Haynes and Boone
For the US Trustee: General Counsel Ramona Elliott, Deputy General Counsel Matt Sutko, Deputy Attorney General Joseph “Jody” Hunt, Trial Counsel Beth Levene, and Appeals Staff Lawyers Mark Stern and Jeffrey Sandberg