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Circuit City trustee seeks Supreme Court review of bankruptcy fee hikes

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  • Pachulski Stang Ziehl & Jones
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  • Haynes and Boone, LLP
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(Reuters) – The trustee who oversaw the Circuit City liquidation course of has requested the U.S. Supreme Court to weigh in on a dispute over fee hikes imposed by the U.S. Department of Justice’s bankruptcy watchdog, the U.S. Trustee.

In a petition made public on the excessive court docket’s docket on Wednesday, Circuit City liquidating trustee Alfred Siegel mentioned a 2017 legislation that elevated the U.S. Trustee charges for Chapter 11 debtors in most states didn’t do the identical for 2 states that use a distinct governmental entity, generally known as the Bankruptcy Administrator program, to carry out comparable duties in overseeing massive company bankruptcies.

Siegel, represented by Pachulski Stang Ziehl & Jones and Haynes and Boone, says the alleged disparity pressured the Circuit City liquidating belief to pay considerably increased U.S. Trustee charges than it had in prior years, whereas Chapter 11 debtors in North Carolina and Alabama, the 2 states with the choice program, went a number of months with out being topic to the identical fee will increase. The inconsistency throughout the federal government bankruptcy overseer packages violates the U.S. Constitution’s requirement that bankruptcy legal guidelines be uniform, Siegel alleged.

North Carolina and Alabama opted in 1986 for the Administrator, somewhat than the U.S. Trustee, program.

Though Circuit City filed for bankruptcy in Virginia in 2008 and closed its shops in 2009, the belief arrange beneath its liquidation plan spent greater than a decade to manage the defunct digital retailer’s remaining belongings to collectors. During that point, the belief continued paying quarterly charges to the U.S. Trustee.

The 2017 legislation imposed a five-year improve on quarterly charges for Chapter 11 debtors in U.S. Trustee districts for any yr through which this system’s fund fell under $200 million. Debtors must pay the lesser of 1% of quarterly “disbursements” over $1 million or $250,000. The time period “disbursements” was not outlined however has been interpreted by courts to imply any spending by the debtor, together with atypical enterprise bills, in accordance with the petition.

Siegel says that originally, the Administrator program was not topic to these necessities and any fee improve was left as much as the discretion of the U.S. Judicial Conference. The Judicial Conference ultimately imposed the identical fee hike however solely utilized it to bankruptcies filed on or after Oct. 1, 2018, whereas the U.S. Trustee fee will increase had been carried out 9 months earlier, in accordance with the petition. The disparity led to non-uniform therapy between the 2 packages, Siegel says.

The 2017 legislation has been challenged in a number of districts. The 4th U.S. Circuit Court of Appeals upheld the legislation in response to Siegel’s problem and the fifth Circuit additionally signed off on it in a separate case, whereas it was struck down as unconstitutional by the 2nd Circuit.

Siegel known as the circuit cut up an invite for “confusion and uncertainty as identically situated debtors face different fees in different parts of the country.”

The U.S. Trustee’s workplace declined to remark. The division argued earlier than the 4th Circuit that the statute doesn’t violate the uniformity requirement partially as a result of it’s an administrative measure, not a brand new bankruptcy legislation.

The U.S. Trustee additionally mentioned that the Circuit City trustee misunderstood the statute, saying it does require the Administrator district charges be equal to U.S. Trustee charges, and the failure of the Judicial Conference to implement the fee hikes within the Administrator districts for 9 months was a violation of the statute itself.

The U.S. Trustee has till Oct. 22 to file a reply to Siegel’s petition.

The case is Alfred Siegel v. John Fitzgerald III, U.S. Supreme Court, No. 21-441.

For the Circuit City liquidating trustee: Jeffrey Pomerantz, Andrew Caine and Robert Feinstein of Pachulski Stang Ziehl & Jones and Daniel Geyser and Ben Mesches of Haynes and Boone

For the U.S. Trustee: General Counsel Ramona Elliott, Associate General Counsel Matt Sutko, Assistant Attorney General Joseph “Jody” Hunt, Trial Attorney Beth Levene and Appellate Staff Attorneys Mark Stern and Jeffrey Sandberg

Maria Chutchian

Maria Chutchian stories on company bankruptcies and restructurings. She might be reached at maria.chutchian@thomsonreuters.com.

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