ANALYSIS OF THE OPINION
By Ronald Mann
on June 6, 2022
The court ruled that the adoption by Congress of a significant increase in the insolvency fee, which excludes two states, violates the insolvency clause. (Elena Erskin)
The judges took the easy and simple path Fitzgerald sealAgreeing unanimously Monday that a law imposing higher fees on insolvency practitioners in 48 states than in the other two states is so far from “equal” that it violates the Constitution’s requirement that Congress provide ” the same bankruptcy laws across the United States. “
The dispute is related to the administrative costs of insolvency proceedings, which are quite significant in large business cases. Since 1986, in all states other than Alabama or North Carolina, these cases have been administered by the U.S. Department of Justice Trustees Program. This service has always been required by law to charge bankruptcies to cover the costs of administering their cases. In Alabama and North Carolina, by contrast, cases are administered by trustees appointed by the judiciary. At various times, these administrators have charged fees much lower than those charged by the US Trustees Program, with the shortfall coming from the general budget of the judiciary. In this case, for example, Circuit City Stores, which filed for bankruptcy in Virginia, paid more than $ 500,000 more in fees than it would have paid if it had filed several hundred miles south of North Carolina.
Judge Sonia Sotomayor’s brief opinion of the court treated the case as ordinary. First, she referred to the government’s argument that the law in question was an administrative law that was not subject to the insolvency clause of the Constitution. She inadvertently rejected this argument, explaining that “[n]something in the language of the insolvency clause … implies a distinction between substantive and administrative law ”and that the court has emphasized that the clause has a“ wide ”scope. Most importantly, she pointed out that “[i]the increase in compulsory fees paid by the debtor’s mass reduces the means available to pay creditors’, which affects the central nature of insolvency proceedings – ‘the obligations between creditors and debtors change’.
She also rejected the idea that the need for local variations should allow for different charges in different parts of the country. In this regard, she distinguished between “uniform laws allowing local rules of governance”, which are quite common in the bankruptcy arena, and the statutes here. Instead of “conference[ring] the right of the insolvency district to determine regional policies based on regional needs “, it” exempts debtors in only 2 countries from a fee … which applies to debtors in 48 countries “.
Sotomayor then turned to assessing whether the status, which allows for non-compliance with fees, “is permissible to apply this clause.” She summarized the three previous court cases, interpreting the clause, concluding that they “support the proposal that the insolvency clause offers flexibility to Congress but does not allow arbitrarily geographically different treatment of debtors.” Attached to this case, the clause “does not give Congress the freedom to subject debtors in a similar situation in different states to different fees because it chooses to pay for some but not others.” Accordingly, the opinion finds the framework for non-compliance to be inadmissible.
Sotomayor closed his opinion, refusing to determine the right remedy. The lower courts did not consider this issue, as they ruled that the distinction was admissible, and the judges refused to consider it at first instance.
The unanimity and brevity of the opinion suggest that the judges were directly influenced by the specter raised in the oral arguments of influential members of congressional committees receiving favorable treatment for business in their areas, a plausible explanation for the discrepancy rejected in Siegel. With this in mind, the likelihood of future disputes in the area seems relatively small, as Congress does not usually seek to create such serious differences as the one that caused the dispute.