In re: EXIDE TECHNOLOGIES, Reorganized Debtor.
Case No. 13-11482 (MFW)
IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
January 9, 2020
Chapter 11
OPINION1
I. BACKGROUND
On June 10, 2013, Exide filed a voluntary petition under
More than two years later, on October 26, 2017, Congress amended
On June 12, 2019, Exide filed its Motion, asserting that the amended fee schedules did not apply to Exide based on several statutory and constitutional arguments. On July 15, 2019, the UST responded opposing the motion and asserting that Exide‘s desired relief could only be obtained through an adversary proceeding. Additional briefs and replies were filed on August 5 and August 30, 2019. Oral argument was held on September 18, 2019. The matter is ripe for decision.
II. JURISDICTION
This Court has jurisdiction over this core matter which involves administration of the bankruptcy case.
III. DISCUSSION
A. Applicability of Amendment to Pending Cases
Exide maintains that the increased fees are inapplicable to it because there is no express language in the 2017 Amendment making the increase in fees applicable to pending chapter 11 cases. Exide contrasts the lack of express language for chapter 11 cases with the express language with respect to chapter 12 cases in that same Amendment.3 Exide observes that,
Further, Exide notes that the 1996 quarterly fee amendment contained express language making the new fees applicable to pending cases.4 Exide argues that the omission of any express language in the 2017 Amendment making it applicable to pending post-confirmation cases renders it inapplicable by negative inference. See, e.g., In re Life Partners Holdings, Inc., Bankr. No. 15-40289, 2019 WL 3987707, at *5 (Bankr. N.D. Tex. Aug. 22, 2019).
The UST asserts that the 2017 Amendment applied to all cases when it went into effect and did not exempt cases filed prior to fiscal year 2018. According to the UST, the conduct that triggers liability under
In interpreting a statute, the Court must begin its analysis with the plain meaning of the statute. Lamie v. U.S. Trustee, 540 U.S. 526, 534 (2004). The plain meaning of a statutory provision “is determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole.” Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997). “[I]n matters of statutory interpretation, the plain meaning of statutory language is often illuminated by considering not only the particular statutory language at issue, but also the structure of the section in which the key language is found, and the design of the statute as a whole and its object.” Pellegrino v. United States Transp. Sec. Admin., 896 F.3d 207, 216 n.10 (3d Cir. 2018) reh‘g en banc granted, 904 F.3d 329 (3d Cir. 2018).
In this case, the 2017 Amendment changed
During the fiscal years 2018 through 2022, if the balance of the United States Trustee System Fund as of September 30 of the most recent full fiscal year is less than $200,000,000, the quarterly fee payable for a quarter in which disbursements equal or exceed $1,000,000 shall be the lesser of 1 percent of such disbursements or $250,000.
The language of the subsection indicates that the object of the amendment is not cases, but disbursements. As the UST correctly notes, the conduct that triggers liability under that section is the making of a disbursement of $1 million or more. Similarly, the temporal reach of the amendment is also expressly defined, not through case dates, but through fiscal years: 2018 through 2022. The application of the increased fees is not a function of when a case was filed or a plan confirmed; rather, the application of the increased fees is a function of the amount and timing of a disbursement and the health of the UST fund.
The legislative history supports this interpretation. “The amendments made by this section shall apply to quarterly fees payable under
The fact that the 2017 Amendment provides express language with respect to its application to chapter 12 cases supports this conclusion, rather than refutes it as Exide argues. The express language provides an exception (for chapter 12 cases) to the general rule that the Amendment‘s increased fees will apply to all pending cases including post-confirmation cases. In this regard, the 2017 Amendment states that “[t]he amendments . . . shall apply to (1) any bankruptcy case that is pending on the date of this Act; in which the plan under chapter 12 of title 11, United States Code, has not been confirmed on the date of enactment of this Act . . . and (2) any bankruptcy case that commences on or after the date of enactment of this Act.” Pub. L. No. 115-72, § 1005, 131 Stat. 1224, 1232-34 (2017) (emphasis added). If the 2017 Amendment did not generally apply to pending, post-confirmation cases, as Exide asserts, there would have been no need for Congress to say that it did not apply to pending, post-confirmation chapter 12 cases.
This conclusion is bolstered by the introduction to
Except as provided in subparagraph (B), in addition to the filing fee paid to the clerk, a quarterly fee shall be paid to the United States Trustee, for deposit in the Treasury, in each case under chapter 11 of title 11 for each quarter until the case is converted or dismissed, whichever occurs first.
B. Due Process
Exide asserts that applying the amended fee schedules in its case violates the Due Process Clause of the
The UST counters that the 2017 Amendment does not violate the Due Process Clause because it seeks to achieve a lawful legislative purpose by rational means. In addition, the UST asserts that Exide has failed to meet its burden of proving that Congress acted in an arbitrary manner when it amended section 1930(a)(6).
The Due Process Clause states that “[n]o person shall be deprived of life, liberty, or property without due process of law.”
1. Retroactivity
Exide contends that the 2017 Amendment should not apply to it because doing so would violate the presumption against retroactive application of legislation. While it concedes that the Amendment does not apply the increased fee schedules retroactively to quarters prior to its enactment, Exide asserts that applying the increased fees in this case would constitute “secondary retroactivity” by changing the legal consequences of actions taken before the Amendment‘s enactment. Specifically, Exide argues that applying the 2017 Amendment would impair the rights Exide and its creditors possessed at the time they agreed to the Plan by dramatically increasing Exide‘s liability.
While retroactivity arguments are essentially statutory construction ones, the retroactive application of a statute implicates constitutional principles, including the Due Process Clause. Landgraf, 511 U.S. at 266.
It is a fundamental principle of statutory construction that statutes are presumed not to have retroactive effect. Id. at 265. Courts apply a two-part test to determine whether a new federal statute should apply to pending cases. First, courts inquire “whether Congress has expressly prescribed the statute‘s proper reach.” Id. at 280. Second, if Congress has not expressly prescribed the statute‘s proper reach, then courts examine whether the statute has an impermissible retroactive effect. Id.
If Congress has expressly stated that the new statute does not apply retroactively, then the legislature‘s intent controls and it does not offend the presumption against retroactivity. Id. Provisions simply stating a statute‘s effective date without expressly stating that it is or is not retroactive, however, may not be conclusive. Id. at 257 (where statute did not state it applied retroactively, the Court nonetheless considered textual and other arguments that it was effectively retroactive); Ctr. for Biological Diversity v. U.S. Dept. of Agric., 626 F.3d 1113, 1118 (9th Cir. 2010) (finding effective date provision did not resolve whether statute applied to pending cases).
If there is no express congressional directive on the statute‘s retroactive effect, though, the court must determine whether the statute does actually have retroactive effect. Landgraf, 511 U.S. at 280.
A statute does not operate retroactively merely because it is applied in a case arising from conduct antedating the statute‘s enactment, or upsets expectations based in prior law. Rather, the court must ask whether the new provision attaches new legal consequences to events completed before its enactment.
Applying a new law to pending cases has retroactive effect if the new statute “impair[s] rights a party possessed when he acted, increase[s] a party‘s liability for past conduct, or impose[s] new duties with respect to transactions already completed.” Id. at 280. Retroactivity analysis should be guided by “considerations of fair notice, reasonable reliance, and settled expectations.” Id. at 270.
In this case, the 2017 Amendment does not state that it applies retroactively. Rather, it simply states that the increased fee will apply to disbursements made after the Amendment‘s effective date. Exide argues though that the Amendment has retroactive effect where it is applied to pending cases, such as its case, which have had a plan confirmed on the assumption that the debtor would have to pay only the quarterly fees set forth in the prior fee schedule.
Bankruptcy courts are split on whether the 2017 Amendment as applied to pending cases is impermissibly retroactive. Compare In re Circuit City Stores, Inc., Case No. 08-35653, 2019 WL 3292293 (Bankr. E.D. Va. July 5, 2019) (holding amended fees are not impermissibly retroactive) with In re Buffets, LLC, 597 B.R. 588, 596 (Bankr. W.D. Tex. 2019) (holding that applying amended fees to pending case would be impermissibly retroactive because the debtor had no advance notice and it would adversely affect the feasibility of the confirmed plan) and Life Partners, 2019 WL 3987707, at *8 (finding that 2017 Amendment violated due process because of the magnitude of the fee increase which occurred after plan confirmation). The Court concludes that neither lack of notice nor unexpected increases in post-confirmation liability supports the conclusion that the 2017 Amendment is violative of due process. Pension Ben. Guar. Corp., 467 U.S. at 729; Carlton, 512 U.S. at 33-35. See also U.S. Trustee v. Gryphon at Stone Mansion, Inc., 166 F.3d 552, 557 (3d Cir. 1999) (finding that 1996 amendment which imposed new post-confirmation quarterly fees was not unconstitutional despite there being no notice of it before confirmation).
The Court agrees with the reasoning of the Circuit City Court that imposing increased quarterly fees does not attach new legal consequences to completed transactions. “A mere increase in the quarterly UST fee is not substantively retroactive. It is more akin to ‘taxes arising post confirmation, or any similar post-confirmation expenses.‘” Circuit City, 2019 WL 3292293, at *5.
This conclusion is consistent with courts’ interpretation of the 1996 fee amendment. Prior to the 1996 amendment, debtors in chapter 11 cases only had to pay quarterly fees until a plan was confirmed. In re A.H. Robins Co., 219 B.R. 145, 146 (Bankr. E.D. Va. 1998). In 1996, Congress amended
2. Legitimate Legislative Purpose Furthered by Rational Means
Even if the 2017 Amendment were retroactive as applied to Exide, that would not lead inevitably to the conclusion that it violates the Due Process Clause. Retroactive application of a federal statute, which impacts a person‘s property, does not violate the Fifth Amendment “provided that the retroactive application of a statute is supported by a legitimate legislative purpose furthered by rational means.” Carlton, 512 U.S. at 30-31 (quoting Pension Ben. Guar. Corp., 467 U.S. at 729). The party alleging a violation of due process bears the burden of establishing that Congress‘s actions were arbitrary and irrational. Eastern Enterprises v. Apfel, 524 U.S. 498, 537 (1998); Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15 (1976).
Even a retroactive statute that imposes liability on conduct that occurred before the statute‘s enactment has been upheld when challenged on due process grounds, where the statute furthers a rational legislative purpose. For example, imposition of liability for past transactions may be rational as a cost-spreading measure. Usery, 428 U.S. at 18 (finding that the imposition of liability on former employers of coal miners was constitutional as a rational means to spread the costs of the miners’ disabilities). See also Pension Ben. Guar. Corp., 467 U.S. at 730 (holding that Congress’ decision to apply pension withdrawal liability on employers withdrawing during the five-month period before enactment of the law was supported by a rational legislative purpose because the liability was for employee benefits that had already vested at the time of the employers’ withdrawal). Similarly, preventing significant and unanticipated revenue loss is a legitimate legislative purpose justifying retroactive application of a statute. Carlton, 512 U.S. at 31 (upholding constitutionality of statute amending tax code to plug unexpected loophole).
Congress originally adopted the fee schedule in
Due to declining bankruptcy filings and fee collections over the past seven years, Congress amended the fee schedule in 2017. Immediately prior to the 2017 Amendment, the UST projected that it
The Court also concludes that Congress‘s decision to impose higher fees on larger pending chapter 11 cases is rationally related to that goal. It is logical for Congress to assume that “larger cases tax the UST system more than smaller cases and that the size of the case can be determined by the amount of disbursements made by the particular debtor.” In re Kindred Healthcare, Inc., No. 99-3199, 2003 WL 22327933, at *4 (Bankr. D. Del. Oct. 9, 2003) (holding that the 1996 amendment which imposed quarterly fees on post-confirmation disbursements did not violate the Takings Clause). In addition, applying the increased fees to pending cases, including confirmed cases, is rational as it spreads the costs among more chapter 11 debtors and allows Congress‘s funding goal to be met more quickly. See Usery, 428 U.S. at 18 (upholding statute which spread cost of coal miners’ disabilities to former employers).
Lastly, the Court concludes that the deposit of 2% of fees collected into the general fund of the U.S. Treasury is rational. The increased fees are meant to offset not only the UST appropriations but also the costs of the 18 new bankruptcy judgeships created by the 2017 Amendment. See Bankruptcy Judgeship Act of 2017, Pub. L. No. 115-72, div. B, § 1004(b), 131 Stat. 1224, 1232 (2017); H.R. Rep. No. 115-130, at 7-9. The efficient administration of justice is a legitimate legislative purpose and creating new judgeships is rationally related to that purpose.
Thus, even if the 2017 Amendment were retroactive, the Court concludes that application of it to Exide does not violate the Due Process Clause because: 1) Congress had a legitimate legislative purpose of preventing revenue loss and preserving the UST Program‘s self-funded character, and 2) imposing the fees on larger pending confirmed chapter 11 cases is rationally related to this purpose.
C. Impermissible Taking and Excessive User Fee
Exide also argues that the increased quarterly fees are an excessive user fee, and therefore, constitute a taking of property in violation of the
The UST responds that the quarterly fees are not impermissibly excessive user fees. In percentage terms, the increased fees are less onerous than user fees that the Supreme Court has upheld as non-excessive. See United States v. Sperry, 493 U.S. 52, 58 (1989) (upholding 1.5% ad valorem fee imposed on users of Iran-United States Claims Tribunal). Furthermore, the UST responds that the $200 million floor set by the 2017 Amendment is not a surplus but is in fact less than the annual appropriations for the Program. The UST contends that the Fund balance is meant to cover shortfalls between fees collected and annual appropriations.
UST quarterly fees are user fees associated with the debtors’ use of the bankruptcy system. Gryphon, 166 F.3d at 554 (noting that
The proper inquiry for whether a user fee is excessive is whether the user fee formula adopted by Congress reflects a “fair approximation of the costs of benefits supplied.” Sperry, 493 U.S. at 60 (quoting Massachusetts, 435 U.S. at 463). To pass muster, a user fee need not precisely reflect an individual party‘s use of government services. Sperry, 493 U.S. at 60; Kindred, 2003 WL 22327933, at *5.
In fashioning the “fair approximation” inquiry, the Supreme Court was sensitive to the administrative complexity of imposing user fees on large classes and acknowledged that some users will be charged more or less under its standard than they would if user fees were “precisely calibrated.” Sperry, 493 U.S. at 61 (recognizing “that when the Federal Government applies user charges to a large number of parties, it probably will charge a user more or less than it would under a perfect user-fee system, but we declined to impose a requirement that the Government ‘give weight to every factor affecting appropriate compensation for . . . use.‘“) (quoting Massachusetts, 435 U.S. at 468).
The Court concludes that the amended quarterly fees under
Exide argues, however, that it should not have to pay the increased fees because, as a post-confirmation debtor, it receives no benefits from the UST. Exide‘s contention is really an argument against any imposition of post-confirmation quarterly fees. This argument was rejected when the 1996 amendment first imposed quarterly fees on post-confirmation debtors. See Gryphon, 166 F.3d at 557, n.7 (finding Takings Clause challenge to the 1996 amendment‘s imposition of quarterly fees on post-confirmation debtors was without merit); Kindred, 2003 WL 22327933, at *4-5 (same). In addition, this argument ignores the benefits that Exide has received (and continues to receive) from the bankruptcy system in its totality. See A.H. Robins, 219 B.R. at 148, n.8 (holding that debtor had to pay post-confirmation quarterly fees because although the UST had done little in the case post-confirmation, the debtor “benefitted from the Court‘s continued involvement in this still-open case“). Further, there is no requirement that the UST provide any services to Exide so long as those services are available to it. Sperry, 493 U.S. at 395-96 (finding that imposition of tribunal fees on party who settled its claim before tribunal held any proceedings was constitutionally permissible).
charged smaller chapter 11 debtors. The Court rejects this argument. It is permissible for Congress to impose higher user fees on large chapter 11 debtors to reflect both a fair approximation of the benefits conferred and Congress‘s assumption that larger, more complex cases tax the system more than smaller ones. Kindred, 2003 WL 22327933, at *4.
The Court also rejects Exide‘s argument that the creation of a surplus of $200 million is impermissible. While Congress intends for the UST Program to be self-funded, the Program receives appropriations from Congress every year. The fees collected in any year are used to offset those appropriations from Congress. As the UST notes, the $200 million floor set by the 2017 Amendment is not a surplus at all; it is actually less than the annual appropriations for the UST Program. See
D. Bankruptcy Clause
Exide finally argues that the 2017 Amendment violates the Bankruptcy Clause because the amendment is a non-uniform law “on the subject of bankruptcies.” According to Exide, the 2017 Amendment is not uniform because the new quarterly fees were not imposed on debtors in Bankruptcy Administrator (“BA“) districts for cases filed prior to October 2018.
The UST counters that the 2017 Amendment is not a law “on the subject of bankruptcies” and that the fee schedules contained therein are uniform. According to the UST,
1. Historical Context
Before addressing the parties’ arguments regarding the uniformity of the amended quarterly fees, it is first necessary to understand the historical context. In 1978, the UST Program was established as a division within the Department of Justice (the executive branch) on a trial basis in select judicial districts.5 In 1986,
While Alabama and North Carolina were intended to join the UST Program eventually, the 1986 statute authorized the Judicial Conference of the United States to establish the BA Program in the interim period to perform administrative duties similar to those conducted by the UST.
Congress initially gave Alabama and North Carolina a deadline of October 1, 1992, to join the UST Program. In 1990, Congress extended the deadline, and in 2000 the deadline was eliminated.
In 1994, the Ninth Circuit found that Congress violated the uniformity requirement when it exempted Alabama and North Carolina from the UST Program. St. Angelo v. Victoria Farms, Inc., 38 F.3d 1525, 1531-32 (9th Cir. 1994). The debtor in that case had argued, as Exide does, that the quarterly fees imposed in UST districts were unconstitutionally non-uniform because they were not imposed in BA districts. Instead of striking down those fees, however, the Ninth Circuit chose to strike down the provision that excluded Alabama and North Carolina from the UST Program.6
In response to Victoria Farms, the Judicial Conference requested that Congress amend
When Congress amended the quarterly fee schedule in 2017, the amended fees applied in all cases in UST districts pending as of January 1, 2018. The Judicial Conference, however, imposed the amended fees in BA districts only to cases filed on or after October 1, 2018.
2. Laws on the Subject of Bankruptcy
The United States Constitution provides Congress with the power to establish “uniform laws on the subject of bankruptcies throughout the United States.”
The subject of bankruptcies is incapable of final definition. The concept changes. It has been recognized that it is not limited to the connotation of the phrase in England or the States, at the time of the formulation of the Constitution.
Wright v. Union Central Life Ins. Co., 304 U.S. 502, 513-14 (1938). See also Railway Labor Execs.’ Ass‘n v. Gibbons, 455 U.S. 457, 466 (1982).
Although the “subject of bankruptcies” is a fluid concept that is incapable of final definition, the Supreme Court has noted that bankruptcy is “nothing less than the subject of the relations between an insolvent or nonpaying or fraudulent debtor and his creditors, extending to his and their relief.” Wright, 304 U.S. at 513-14. See also Gibbons, 455 U.S. at 466.
The Supreme Court has explained that the bankruptcy power “extends to all cases where the law causes to be distributed, the property of the debtor among his creditors.” Hanover Nat‘l Bank v. Moyses, 186 U.S. 181, 186 (1902). See also Gibbons, 455 U.S. at 466. Furthermore, the bankruptcy power “includes the power to discharge the debtor from his contracts and legal liabilities, as well as to distribute his property. The grant to Congress involves the power to impair the obligation of contracts, and this the States were forbidden to do.” Moyses, 186 U.S. at 188. See also Gibbons, 455 U.S. at 466.
Noting the Supreme Court‘s broad understanding of the bankruptcy power, courts have held that
The Court agrees with this conclusion. The UST‘s argument that a law on the subject of bankruptcies is limited to laws that specifically govern relations between debtors and creditors or relate to the debtor‘s discharge is too narrow a reading of the bankruptcy power. The cases cited by the UST do not support such a constricted definition. On the contrary, these cases describe the Bankruptcy Clause‘s breadth and counsel against a narrow approach. Gibbons, 455 U.S. at 466 (describing the bankruptcy power‘s scope using non-exhaustive language); Wright, 304 U.S. at 513-14 (stating that the subject of bankruptcies is not limited to connotation of that phrase in England or in the States at the time that the Constitution was written, and that the meaning of the phrase changes over time); Cont‘l Ill. Nat‘l Bank & Tr. Co. v. Chicago, Rock Island & Pac. Ry. Co., 294 U.S. 648, 668 (1935) (observing that “[f]rom the beginning, the tendency of legislation and of judicial interpretation has been uniformly in the direction of progressive liberalization in respect of the operation of the bankruptcy power“).
In light of the expansive nature of the inquiry, the Court concludes that
3. Requirement of Uniformity
Laws enacted under the Bankruptcy Clause must apply uniformly. To be uniform for the purposes of the Bankruptcy Clause, laws must apply uniformly to a defined class of debtors and must be geographically uniform. Gibbons, 455 U.S. at 473; Moyses, 186 U.S. at 188.
a. Class of debtors
“To survive scrutiny under the Bankruptcy Clause, a law must at least apply uniformly to a defined class of debtors.” Gibbons, 455 U.S. at 473. Thus, private bankruptcy laws that apply only to one debtor violate the uniformity requirement and are impermissible under the Bankruptcy Clause. Id. (finding that law violated the uniformity requirement because, by its own terms, it applied to only one regional bankrupt railroad).
In this case, the law does uniformly apply to a class of debtors. The amended fees in
b. Geographic Reach
In addition to the class uniformity requirement, laws passed pursuant to Congress‘s bankruptcy power must be geographically uniform. Moyses, 186 U.S. at 188; Vanston Bondholders Protective Committee v. Green, 329 U.S. 156, 172 (1946) (Frankfurter J., concurring).
In upholding the 1898 Bankruptcy Act‘s incorporation of state law exemptions, however, the Supreme Court explained that:
the system is, in the constitutional sense, uniform throughout the United States, when the trustee takes in each state whatever would have been available to the creditor if the bankrupt law had not been passed. The general operation of the law is uniform although it may result in certain particulars differently in different states.
Moyses, 186 U.S. at 190. See also Stellwagen v. Clum, 245 U.S. 605, 613 (1918) (holding the Bankruptcy Act‘s incorporation of state fraudulent transfer statutes did not violate Bankruptcy Clause‘s uniformity requirement). Thus, the uniformity requirement does not require that debtors receive identical treatment or outcomes as similarly situated debtors in other states.
In addition, the uniformity requirement does not prohibit Congress from writing laws that apply to a statutorily defined region if the legislation addresses a geographically isolated problem. Blanchette v. Connecticut General Ins. Corp., 419 U.S. 102, 160 (1974) (holding that the Rail Act, which applied to a statutorily defined geographic region, was uniform because all bankrupt railroads operating in the United States at that time were located within the defined region and it addressed a geographically isolated problem caused by the railroads’ distress).
The core of the dispute between Exide and the UST with respect to the geographic uniformity of amended
The parties dispute whether
Exide argues that the use of the word “may” in
The UST argues that
The Court concludes that the proper focus is whether amended
Even if the fees charged in BA districts were relevant, the
Court concludes that the fees, as enacted by Congress, are uniform. Congress, in implementing fees for UST districts, acknowledged
Consequently, the Court concludes that the quarterly fees imposed on Exide as a result of the 2017 Amendment are uniform and constitutional.
IV. CONCLUSION
For the foregoing reasons, the Court will deny the Reorganized Debtor‘s motion.
An appropriate Order is attached.
Dated: January 9, 2020
BY THE COURT:
Mary F. Walrath
United States Bankruptcy Judge