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In re Buffets: A Fees-t for the United States Trustee

The vacations got here early for america Trustee (the “U.S. Trustee”) on November, 3, 2020, when a three-judge panel of america Circuit Court docket for the Fifth Circuit, on direct enchantment, reversed the chapter courtroom and upheld the constitutionality of a 2017 improve to quarterly charges payable to the U.S. Trustee in Hobbs v. Buffets LLC (In re Buffets LLC), No. 19-50765, 2020 U.S. App. LEXIS 34866 (fifth Cir. Nov. 3, 2020). Though the Fifth Circuit’s opinion addresses a wide range of constitutional challenges to the current improve to U.S. Trustee charges, the “the primary occasion” was “whether or not [the] charge improve violates constitutional uniformity necessities.” Id. at *16. The courtroom’s 2-1 resolution, discovering no constitutional infirmity with the charge improve, widens the break up in authority on the problem. To that finish, it likewise sows additional uncertainty with respect to the continued viability of a decades-old “twin system:” with nearly all of jurisdictions working below america Trustee Program and a small minority utilizing Chapter Directors.

The Appetizer: Background on U.S. Trustee Charges

As a consequence of working in chapter, even after a chapter 11 plan is confirmed, part 1930 of title 28 of america Code imposes a quarterly charge, which quantity depends upon the worth of “disbursements” made by the debtor entity through the relevant quarter. See 28 U.S.C. § 1930(a)(6). Previous to 2017, $30,000 was the utmost quarterly charge for a chapter 11 debtor. See § 1930(a)(6)(A). However in 2017, Congress amended the statute to fund a funds shortfall—which gives that, throughout fiscal years 2018–2022, (i) “if the steadiness in america Trustee System Fund . . . is lower than $200,000,000,” (ii) and a debtor has disbursements exceeding $1 million per quarter, then the debtor’s most quarterly U.S. Trustee charges are the lesser of $250,000 or 1% of complete disbursements. § 1930(a)(6)(B). As a result of the U.S. Trustee System Fund was and continues to be below the statutory threshold, the modification introduced an 833% improve in most quarterly charges beginning in 2018. This set off alarm bells for debtors that filed chapter 11 earlier than the 2017 amendments however have been caught in chapter 11 after the rise. 28 U.S.C. § 1930(a)(6)(B).

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Legal Daily World by Candace Arthur and Alex Cohen. Published January 5, 2021.

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