ANALYSIS OF THE OPINION
By Ronald Mann
on June 6, 2022
The court ruled that Congress issuing a significant bankruptcy tax increase that excluded two states violated the bankruptcy clause. (Elena Erskine)
The judges took the easy and simple route seal of Fitzgeraldunanimously agreeing on Monday that a statute that imposes higher fees on bankruptcy registrants in 48 states than in the other two states is so far from “uniform” as to violate the Constitution’s requirement that Congress provides for “uniform laws on bankruptcies across the United States. “
The dispute concerned the administrative costs of insolvency proceedings, which are quite large in the cases of large companies. Since 1986, in all states other than Alabama or North Carolina, those cases have been administered by the United States Trust Program in the Department of Justice. That office has always been required by law to charge failed firms with fees that cover the costs of administering their cases. In Alabama and North Carolina, however, the cases were handled by administrators appointed by the judicial branch. On various occasions, those trustees have charged far less fees than those charged by the US trust program, with the deficit resulting from the general judiciary’s budget. In this case, for example, Circuit City Stores, which filed its bankruptcy lawsuit in Virginia, paid over $ 500,000 more in commissions than it would have paid if it had filed a few hundred miles south of Carolina. North.
Judge Sonia Sotomayor’s brief opinion for the court treated the case as simple. First, you addressed the government’s argument that the relevant law is an administrative law not subject to the bankruptcy clause of the Constitution. You rejected this argument, explaining that “[n]Nothing in the language of the bankruptcy clause… suggests a distinction between substantive law and administrative law ”, and that the court pointed out that the clause has a“ broad ”scope. Above all, he stressed that “[i]The increase in mandatory taxes paid by the debtor’s assets reduces the funds available for payment to creditors “, which affects the core substance of the bankruptcy procedure:” the obligations between creditors and debtors are changed “.
He also rejected the idea that the need for a local variation should allow for different rates in different parts of the country. On this point, he drew a distinction between “uniform laws allowing local determination of the rules of government”, which are quite common in the bankruptcy arena, and the statute here. Rather than “confer[ring] discretion on bankruptcy districts to establish regional policies based on regional needs “, he” exonerated debtors in only 2 states from a commission … which applied to debtors in 48 states “.
Sotomayor then turned to assess whether the statute that allowed the tariff disparity “was a permitted exercise of this clause”. He briefly summarized the court’s three previous cases by interpreting the clause, concluding that “they represent the claim that the bankruptcy clause offers flexibility to Congress, but does not allow for geographically disparate arbitrary treatment of debtors.” Applied to this case, the clause “does not give Congress free rein to subject debtors with a similar position in different states to different fees because it chooses to pay the costs for some, but not for others.” Consequently, the opinion considers the framework allowing for disparity to be inadmissible.
Sotomayor closed his opinion by refusing to define the appropriate remedy. The lower courts had not considered this issue, as they ruled that the distinction was admissible and the judges refused to examine it at the first instance.
The unanimity and brevity of the opinion suggest that the judges were directly influenced by the specter raised in the oral discussion of influential members of congressional committees who obtained favorable treatment for businesses in their districts, a plausible explanation for the disparity rejected in Siegel. That said, the likelihood of future disputes in the area seems relatively slim, as Congress does not normally go out of its way to create such stark disparities as the one that drove this controversy.