Second Circuit Reaffirms that Debtor Can Obtain Refund for Non-Uniform Bankruptcy Fees

Second Circuit Reaffirms that Debtor Can Obtain Refund for Non-Uniform Bankruptcy Fees

We have previously blogged about Siegel v. Fitzgerald, the Supreme Court decision last June that invalidated the 2018 difference in fees between bankruptcy cases filed in Bankruptcy Administrator judicial districts and U.S. Trustee judicial districts.  As we explained, the parties in that case disputed whether, if the fee difference were to be held unconstitutional, the appropriate remedy would be a refund for the debtors charged the higher fee or additional fees imposed on the debtors charged the lower fee.  The Supreme Court did not resolve that question, leaving the question to be resolved on remand.

Before the Supreme Court decided Siegel, however, the Second Circuit addressed this question in a similar case.  Clinton Nurseries operates plant nurseries in Connecticut, Florida, and Maryland.  In 2011, it filed for bankruptcy in the District of Connecticut, a U.S. Trustee district, and when the fee increase for U.S. Trustee districts went into effect, Clinton Nurseries was subject to it.  In 2019, Clinton Nurseries challenged the fees as violative of the Constitution’s uniformity requirement for bankruptcy laws.  The bankruptcy court ruled that the higher fees were subject to the uniformity requirement but did not violate it, and the district court certified a direct appeal to the Second Circuit. 

In Clinton Nurseries of Md., Inc. v. Harrington (In re Clinton Nurseries, Inc.), 998 F.3d 56 (2d Cir. 2021), the Second Circuit ruled in favor of Clinton Nurseries.  Along similar lines to the Supreme Court’s later ruling in Siegel, the Second Circuit reasoned that the statute authorizing the fee increase was a bankruptcy law, found that it was not a uniform law under the Constitution, and held it unconstitutional.  As to a remedy, the Second Circuit briefly concluded that Clinton Nurseries was entitled to a refund, though noting that this ruling was limited to those debtors that had standing to challenge the fee increase.

The United States Trustee petitioned for certiorari, asking the Supreme Court to hold the petition pending the decision in Siegel and then to dispose of it in line with that decision.  The Supreme Court decided Siegel in June.  On October 11, the Supreme Court granted the petition for certiorari, vacated the Second Circuit’s decision, and remanded for further consideration in light of Siegel.

On November 10, the Second Circuit issued an amended opinion in Clinton Nurseries in light of Siegel.  2022 U.S. App. LEXIS 32677 (2d Cir. Nov. 10, 2022).  The amended opinion noted that the Supreme Court’s ruling aligns with the Second Circuit’s prior ruling, and as such most of the opinion is unchanged.  On the issue of remedy, the Second Circuit noted that while Siegel did not decide the issue, the issue was briefed at the Second Circuit before the Second Circuit’s earlier ruling in Clinton Nurseries, and nothing about the Siegel decision called the Second Circuit’s previous remedial ruling into question.  As such, the Second Circuit reaffirmed that Clinton Nurseries and similarly-situated debtors are entitled to a refund. 

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Amer Mustafa

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