The U.S. Supreme Court ruled on Friday that bankrupt companies are not entitled to refunds to compensate for a disparity in bankruptcy fees between 2018 and 2020. The decision prevents U.S. taxpayers from bearing the cost, which would have amounted to $326 million.
In a 6-3 opinion, the court determined that Congress intended to raise bankruptcy rates uniformly across all states. This ruling addressed a disparity that had briefly allowed North Carolina and Alabama to charge lower fees than the other 48 states, where 98% of large bankruptcies were filed. Justice Ketanji Brown Jackson, writing for the majority, stated that issuing refunds would cause “extreme disruption” to bankruptcy courts nationwide.
The issue originated from a 2017 law that increased the quarterly fees large companies pay to support the U.S. Trustee program, part of the Department of Justice’s bankruptcy oversight. North Carolina and Alabama, which opted out of the U.S. Trustee program, did not immediately implement the fee increase, resulting in the fee disparity deemed unconstitutional by the Supreme Court in 2022.
Although the Supreme Court previously ruled the disparity unconstitutional, it did not address whether refunds should be issued. Lower courts had granted refunds, including a $2.5 million award to John Q. Hammons Hotels & Resorts, which filed for Chapter 11 protection in 2016 and paid the higher fees post-2017. This led the Justice Department to seek Supreme Court review.
In a dissenting opinion, Justice Neil Gorsuch, joined by Justices Clarence Thomas and Brett Kavanaugh, argued that the unconstitutional fees warranted refunds, noting that “refund is the traditional remedy for unlawfully imposed fees.” Gorsuch criticized the majority’s decision, stating, “What’s a constitutional wrong worth these days? The Court’s answer today seems to be: not much.”
