Supreme Court hears arguments over remedy for unconstitutional bankruptcy fees

WASHINGTON — The Supreme Court on Tuesday heard argument in case No. 22-1238, the Office of the United States Trustee v. John Q. Hammond’s Fall 2006 LLC, over what remedy should follow a constitutional uniformity violation in bankruptcy-fee administration.

Petitioner’s counsel told the justices the question is what “appropriate remedy” follows the Court’s Siegel decision and argued that Congress’s intent favors a uniform increase in quarterly fees nationwide. "That means the appropriate remedy in this case is a mandate of higher fees nationwide," counsel told the Court, adding that limited retrospective collections could recoup about $3,800,000 that BA debtors collectively underpaid. Counsel warned that a refund approach, applied nationwide, would require taxpayers to "foot the bill for approximately $326,000,000," creating windfalls for some debtors who paid what Congress intended.

The arguments quickly turned on two linked issues: which form of remedial relief satisfies due process and constitutional precedent, and how a court-ordered remedy would be implemented in practice. Several justices pressed how a court could order retroactive collections from closed or final bankruptcy cases and whether judges could compel nonparty administrators to extract funds years after confirmation orders became final.

Respondent counsel argued that meaningful backward-looking relief requires refunds. "If the government unlawfully collects funds, it is required to rectify that violation with meaningful backward-looking relief," counsel said, characterizing a court-ordered clawback program as legally and practically infeasible and contending that Congress, not the courts, should impose a retroactive collection regime if it prefers that approach.

Justices asked whether the availability of predeprivation remedies affects the appropriate remedy and whether cases such as McKesson, Morales-Santana, Levin v. Department of Commerce and others govern the remedial choice of "leveling up" (collection) or "leveling down" (refund). Petitioner emphasized that the due-process inquiry looks to whether a meaningful predeprivation opportunity to challenge fees was available; respondent stressed precedent requiring meaningful backward relief when money was exacted under an unconstitutional scheme.

Practical questions threaded the argument: petitioner's counsel said many past underpayments were small and would be collectible by sending collection notices or following plan provisions for post-confirmation assets, while respondent's counsel said the government's proposal would conflict with multiple provisions of the bankruptcy code and risk disturbing final confirmation orders.

The parties also debated the significance of congressional action. Petitioner's lawyer pointed to later congressional fixes that made fee administration uniform prospectively, arguing courts should consider congressional intent for remedy design. Respondent countered that Congress declined to impose retroactive collections in the 2020 fix and that a judicially imposed large-scale retroactive collection would raise separation-of-powers and statutory-authority concerns.

The bench heard extensive back-and-forth on feasibility and fairness, including a justice's observation that “the clawback is what's troubling me” because it could leave people who relied on available remedies in a worse position. After rebuttal from petitioner, the Court declared the case submitted.

The decision will determine whether the remedy for the constitutional uniformity violation in the bankruptcy-fee scheme requires refunds to affected debtors, additional collections from administrator-district debtors, a prospective-only fix, or some combination of those remedies.