606 B.R. 277
Bankr. N.D. Tex.2019Background
- Life Partners Holdings, Inc. and subsidiaries filed Chapter 11 in 2015; a Plan was confirmed Nov. 1, 2016 and became effective Dec. 9, 2016, creating the Position Holder Trust (PHT).
- Confirmation Order required payment of 28 U.S.C. § 1930 fees and continued post-confirmation reporting by the Position Holder Trustee.
- Prior to the 2017 statutory change, § 1930(a)(6) capped quarterly U.S. Trustee fees at $30,000; the PHT paid modest fees in 2017.
- Congress amended § 1930(a)(6) in Oct. 2017 (effective Jan. 1, 2018), dramatically increasing quarterly fees when certain disbursement and Fund-balance thresholds were met; the U.S. Trustee began assessing higher fees in 2018 in U.S. Trustee districts.
- PHT filed a motion (Feb. 2019) arguing the 2017 Amendment (a) does not apply to cases filed before enactment or (b) is unconstitutional; the U.S. Trustee moved for summary judgment arguing relief requires an adversary proceeding.
- The court (Aug. 22, 2019) ruled: the 2017 Amendment does not apply to these pre-enactment cases; alternatively, the statute is unconstitutional as applied; the contested matter is converted to an adversary proceeding for calculation and disgorgement issues.
Issues
| Issue | Plaintiff's Argument (PHT) | Defendant's Argument (U.S. Trustee) | Held |
|---|---|---|---|
| Whether 2017 Amendment applies to Chapter 11 cases filed before enactment | Amendment does not apply to pending cases; plain text and history show no retroactive intent | Amendment applies to disbursements on/after enactment and thus applies to all open Chapter 11 cases in U.S. Trustee districts | Held: Amendment does not apply to these Life Partners cases (adopting In re Buffets analysis) |
| Whether relief must be sought in an adversary proceeding | Contested matter under Rule 9014 governs challenges to U.S. Trustee acts; contested factual calculations can proceed here | Bankruptcy Rule 7001 requires adversary proceeding to recover money, determine property interest, or obtain declaratory relief | Held: Court converts remaining issues to an adversary proceeding out of caution |
| Whether the 2017 Amendment violates constitutional uniformity (Bankruptcy and Uniformity Clauses) | Non-uniform: U.S. Trustee districts charged higher fees for pre-enactment filings while BA districts are not; violates constitutional uniformity whether viewed as tax or fee | Increased fees are uniform because Congress authorized parity and differences are rationally justified by district program differences | Held: Amendment is unconstitutionally non-uniform as applied to pre-enactment cases |
| Whether applying the 2017 Amendment to pending cases violates due process | Massive, unexpected 833% increase after plan confirmation and extensive negotiations deprives parties of fair notice and impairs settled expectations | Debtors have no vested right to static fees; Congress may change statutory fee regime | Held: Even if uniform, retroactive application would violate Due Process for these cases |
Key Cases Cited
- In re Buffets, LLC, 597 B.R. 588 (Bankr. W.D. Tex. 2019) (court concluding amendment does not apply to pending cases and finding constitutional defects)
- St. Angelo v. Victoria Farms, Inc., 38 F.3d 1525 (9th Cir. 1994) (§ 1930 funds and U.S. Trustee functions are integral to bankruptcy administration)
- In re Prines, 867 F.2d 478 (8th Cir. 1989) (upholding non-uniform fee timing for pilot districts as rationally justified)
- Ry. Labor Execs.’ Ass’n v. Gibbons, 455 U.S. 457 (1982) (defining the Bankruptcy Clause’s subject matter as relations between debtors and creditors)