Court Opinion

ID: 9554955
Source: CourtListenerOpinion
Date Created: 2023-08-10 16:00:38.339295+00
Date Added: 2024-06-11T15:39:21.331060
License: Public Domain

FOR PUBLICATION

    UNITED STATES COURT OF APPEALS
         FOR THE NINTH CIRCUIT

USA SALES, INC., DBA Statewide                   No. 21-55643
Distributors, a California Corporation,
                                                   D.C. No.
                Plaintiff-Appellee,             5:19-cv-02133-
    v.                                             JWH-KK

OFFICE OF THE UNITED STATES
TRUSTEE,                                           OPINION

                Defendant-Appellant.

         Appeal from the United States District Court
            for the Central District of California
         John W. Holcomb, District Judge, Presiding

             Argued and Submitted June 7, 2023
                   Pasadena, California

                     Filed August 10, 2023

    Before: Susan P. Graber and John B. Owens, Circuit
       Judges, and John R. Tunheim, * District Judge.

                   Opinion by Judge Owens

*
 The Honorable John R. Tunheim, United States District Judge for the
District of Minnesota, sitting by designation.
2         USA SALES, INC. V. OFFICE OF THE U.S. TRUSTEE

                          SUMMARY **

                           Bankruptcy

    Affirming the district court’s refund order, the panel held
that USA Sales, Inc., was entitled to a refund for the
unconstitutional statutory fees it paid as a bankruptcy debtor
under the Bankruptcy Judgeship Act of 2017.
    A provision of the 2017 Act increased the quarterly
statutory fees for certain Chapter 11 debtors in all but the six
judicial districts in which Bankruptcy Administrators, rather
than the Office of the United States Trustee, administratively
manage bankruptcy proceedings. In Siegel v. Fitzgerald,
142 S. Ct. 1770 (2022), the Supreme Court held that this
provision, by not including those six districts, violated the
uniformity requirement of the Bankruptcy Clause.
    The panel held that the 2017 Act applied to USA Sales’s
bankruptcy proceeding, even though its case was already
pending when the Act took effect. Turning to the remedy,
and agreeing with other circuits, the panel held that U.S.
Trustee district debtors are entitled to a refund of excess fees
paid during the nonuniform period of statutory
rates. Accordingly, USA Sales was entitled to a refund of
the unconstitutional fees it paid in excess of those it would
have paid in a Bankruptcy Administrator district from
January 2018, when the 2017 Act fee provision took effect,
to November 2019, when the bankruptcy court approved a
structured dismissal of USA Sales’s case.

**
  This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
          USA SALES, INC. V. OFFICE OF THE U.S. TRUSTEE             3

                           COUNSEL

Jeffrey E. Sandberg (argued) and Mark B. Stern, Appellate
Staff Attorneys; Sumi Sakata and Wendy Cox, Trial
Attorneys; P. Matthew Sutko, Associate General Counsel;
Ramona D. Elliott, Deputy Director/General Counsel;
Executive Office for United States Trustees; Martin Estrada,
United States Attorney; Brian M. Boynton, Principal Deputy
Assistant Attorney General; Civil Division, United States
Department of Justice, Washington, D.C.; Jasmin Yang,
Assistant United States Attorney, United States Attorney’s
Office, Los Angeles, California; for Defendant-Appellant.
A. Lavar Taylor (argued) and Lisa O. Nelson, Taylor Nelson
Amitrano LLP, Santa Ana, California, for Plaintiff-
Appellee.

                            OPINION

OWENS, Circuit Judge:

    A provision of the Bankruptcy Judgeship Act of 2017
dramatically increased the statutory fees for certain debtors
in all but six judicial districts. In Siegel v. Fitzgerald, 142 S.
Ct. 1770, 1775 (2022), the Supreme Court held that the
provision, by not including those six districts, violated the
uniformity requirement of the Bankruptcy Clause, U.S.
Const. art I, § 8, cl. 4. 1 This case requires us to address the
question that the Court left open: are debtors who paid these

1
  The Bankruptcy Clause empowers Congress to pass “uniform Laws on
the subject of Bankruptcies throughout the United States.” U.S. Const.
art I, § 8, cl. 4.
4        USA SALES, INC. V. OFFICE OF THE U.S. TRUSTEE

unconstitutional fees entitled to a refund? Or can the
government take the money and run? As has every other
court to address this issue, we hold that debtors are entitled
to a refund of excess fees paid during the nonuniform period
of statutory rates.
    I. Background
    The Office of the United States Trustee (“UST”)
administratively manages bankruptcy proceedings for the
vast majority of the country. Siegel, 142 S. Ct. at 1775-76.
An older system of Bankruptcy Administrators (“BA”)
performs the same function in six districts in Alabama and
North Carolina. Id. Initially, the BA system did not charge
user fees to debtors. Id. at 1776. But after we held this fee
differential unconstitutional, St. Angelo v. Victoria Farms,
Inc., 38 F.3d 1525, 1531-32 (9th Cir. 1994), amended by 46
F.3d 969 (9th Cir. 1995), Congress authorized equivalent
fees in BA districts, and fees remained uniform in the two
systems until 2017. Siegel, 142 S. Ct. at 1776-77.
    In 2017, Congress drastically increased the quarterly fees
for Chapter 11 debtors that have large disbursements in UST
districts. Bankruptcy Judgeship Act of 2017, Pub. L. No.
115-72, div. B, § 1004(a), 131 Stat. 1229, 1232 (codified at
28 U.S.C. § 1930(a)(6)(B) (2018)) (“2017 Act”). The fees
went into effect in January 2018 in UST districts. Siegel,
142 S. Ct. at 1777. BA districts did not raise quarterly fees
to match until October 2018, and even then did not apply the
increase to debtors with pending filings as in UST districts.
Id. In response, litigation sprang up across the country,
culminating last year in Siegel, in which the Supreme Court
held that nonuniform fees between UST and BA districts
violated the uniformity requirement of the Bankruptcy
Clause of the Constitution. Id. at 1778-83. The Court
         USA SALES, INC. V. OFFICE OF THE U.S. TRUSTEE     5

expressly avoided determining the appropriate remedy for
debtors who had paid the unconstitutional fees. Id. at 1783.
In 2020, while litigation was ongoing, Congress stepped in
to mandate equivalent fees in UST and BA districts
statutorily but made no mention of debtors who had already
paid the higher fees.          Bankruptcy Administration
Improvement Act of 2020, Pub. L. No. 116-325, sec. 3,
§ (d)(2), 134 Stat. 5086, 5088 (codified at 28 U.S.C.
§ 1930(a)(7)) (“2020 Act”).
    In the instant case, USA Sales, a California tobacco
distributor, filed for Chapter 11 bankruptcy in 2016. As a
Chapter 11 debtor in a UST district, federal law required
USA Sales to pay quarterly fees to the UST. 28 U.S.C.
§ 1930(a)(6). Failure to pay such fees risked liquidation and
dismissal of the case. 11 U.S.C. § 1112(b)(1), (b)(4)(K).
Before 2018, USA Sales’ disbursement fees were $13,000
per quarter. Under the 2017 Act, the disbursement fees
skyrocketed to around $87,000 per quarter. From January
2018 through November 2019, when the bankruptcy court
approved a structured dismissal of the case, the UST
assessed $595,849 in fees in excess of what USA Sales
would have paid in a BA district.
    USA Sales sued for a refund of all excess fees paid,
arguing that the 2017 Act violated the Bankruptcy Clause
and also that the 2017 Act did not apply because USA Sales
had filed for bankruptcy before the Act took effect. The
district court agreed with both arguments and ordered a
refund. The district court entered a stay, and the UST timely
appealed. After the stay was entered and the notice of appeal
filed, the Supreme Court issued its decision in Siegel, which
confirmed that the 2017 Act violated the Bankruptcy
Clause’s uniformity requirement. 142 S. Ct. at 1775. We
have jurisdiction under 28 U.S.C. § 1291 and review this
6          USA SALES, INC. V. OFFICE OF THE U.S. TRUSTEE

appeal de novo. See In re DBSI, Inc., 869 F.3d 1004, 1007
n.2 (9th Cir. 2017).
    II. Discussion
    As an initial matter, we disagree with the district court
and hold that the 2017 Act applied to USA Sales’ bankruptcy
proceeding even though its case was already pending when
the Act took effect. 2 The 2017 Act is not retroactive, let
alone impermissibly so. Although USA Sales’ obligation to
pay quarterly fees arose from its 2016 bankruptcy filing, the
2017 Act applied only to disbursements made after the Act’s
effective date.      And a “statute does not operate
‘retrospectively’ merely because it is applied in a case
arising from conduct antedating the statute’s enactment, or
upsets expectations based in prior law.” Landgraf v. USI
Film Prods., 511 U.S. 244, 269 (1994) (citation omitted).
“Just as a homeowner must honor property tax laws enacted
after she purchases a home, [USA Sales] must abide by the
statutory fee schedule enacted after the court confirmed its
plan.” Buffets, 979 F.3d at 376.

2
  We thus join every other circuit to have answered this question. See In
re Mosaic Mgmt. Grp., Inc., 22 F.4th 1291, 1297-1303 (11th Cir. 2022),
vacated sub nom. Bast Amron LLP v. U.S. Tr. Region 21, 142 S. Ct. 2862
(2022); In re John Q. Hammons Fall 2006, LLC, 15 F.4th 1011, 1019-
21 (10th Cir. 2021), vacated sub nom. Off. of the U.S. Tr. v. John Q.
Hammons Fall 2006, LLC, 142 S. Ct. 2810 (2022), and reinstated by No.
20-3203, 2022 WL 3354682 (10th Cir. Aug. 15, 2022), petition for cert.
filed sub nom. Off. of the U.S. Tr. v. John Q. Hammons Fall 2006, LLC,
No. 22-1238, 2023 WL 4201139 (U.S. June 23, 2023); In re Circuit City
Stores, Inc., 996 F.3d 156, 167-69 (4th Cir. 2021), rev’d on other
grounds and remanded, Siegel, 142 S. Ct. at 1781; In re Buffets, LLC,
979 F.3d 366, 374 (5th Cir. 2020), abrogated on other grounds by Siegel,
142 S. Ct. at 1781.
           USA SALES, INC. V. OFFICE OF THE U.S. TRUSTEE               7

     Because the 2017 Act applied to USA Sales, we turn to
the question of remedy, as the UST collected nearly
$600,000 in excess fees from USA Sales under a statute that
the Supreme Court unanimously declared unconstitutional
more than a year ago. Siegel, 142 S. Ct. at 1775. Not
surprisingly, this case is not the first to consider the proper
remedy. And, even less surprisingly, every court to address
the proper remedy (including the district court here) has held
that the government must refund the excess money it
collected. In re Mosaic Mgmt. Grp., Inc., 71 F.4th 1341,
1353-54 (11th Cir. 2023) (“[W]e hold that the appropriate
remedy in this case for the constitutional violation identified
in Siegel is the refunds that the Debtors . . . seek.”). 3 “As a
general rule, ‘we decline to create a circuit split unless there
is a compelling reason to do so.’” Padilla-Ramirez v. Bible,
882 F.3d 826, 836 (9th Cir. 2018) (citation omitted)).
    Yet, according to the UST, USA Sales has received its
remedy even though it has not received any refund. To
support this conclusion, the UST relies on two theories.
First, it contends that the forward-looking relief provided by
the 2020 Act’s mandate of equal collection of quarterly fees
is remedy enough. 28 U.S.C. § 1930(a)(7). Second,
assuming that retrospective relief is required, the UST
argues that the remedy should be retroactively imposing
additional fees on debtors in BA districts (“clawbacks”)

3
  See also In re Clinton Nurseries, Inc., 53 F.4th 15, 29 (2d Cir. 2022),
petition for cert. filed sub nom. Harrington v. Clinton Nurseries, Inc.,
No. 23-47 (U.S. July 17, 2023); Hammons, 15 F.4th at 1026; In re Circuit
City Stores, Inc., No. 08-35653, 2022 WL 17722849, at *5 (Bankr. E.D.
Va. Dec. 15, 2022); In re VG Liquidation, Inc., No. 18-11120, 2023 WL
3560414, at *7 (Bankr. D. Del. May 18, 2023).
8        USA SALES, INC. V. OFFICE OF THE U.S. TRUSTEE

instead of refunding debtors in UST districts the excess fees
they paid (“refunds”).
     a. Prospective relief is not a sufficient remedy.
    To start, “[p]rospective relief alone provides no relief”
and instead serves “to cement the unconstitutional
treatment.” Circuit City, 2022 WL 17722849, at *3; see also
McKesson Corp. v. Div. of Alcoholic Beverages & Tobacco,
Dep’t of Bus. Regul. of Fla., 496 U.S. 18, 31 (1990). Simply
put, promising not to take the money again is not the same
as giving the money back.
    We agree with the Eleventh Circuit that the Supreme
Court’s case law regarding remedies for unconstitutionally
discriminatory taxes guides our analysis. See Mosaic Mgmt.,
71 F.4th at 1350-53 (“[W]e conclude that Reich, Newsweek,
Bennett, McKesson, and the long line of similar state tax
cases are closely analogous to the instant case and provide
strong precedent supporting the refund remedy urged upon
us by the Debtors.”). As here, the tax cases involved a
monetary injury inflicted by the government pursuant to an
unconstitutionally discriminatory statute and a decision by a
court or legislature to extend the tax burden prospectively
(here, the higher quarterly fees) to those who had been
exempt (here, debtors in BA districts who had lower fees).
Id. at 1351; McKesson, 496 U.S. at 22; Newsweek, Inc. v.
Fla. Dep’t of Revenue, 522 U.S. 442, 442-43 (1998); Reich
v. Collins, 513 U.S. 106, 108 (1994); see also Iowa-Des
Moines Nat’l Bank v. Bennett, 284 U.S. 239, 240-44 (1931).
Each of these cases held that the state owed the taxpayer
retrospective relief even though it had already fixed the
constitutional problem going forward. See McKesson, 496
U.S. at 22, 31, 51 (ordering “meaningful backward-looking
relief”); Reich, 513 U.S. at 114 (same); Newsweek, 522 U.S.
         USA SALES, INC. V. OFFICE OF THE U.S. TRUSTEE       9

at 444-45 (ordering that the petitioner must have access to
Florida tax refund procedures); Bennett, 284 U.S. at 247
(granting a refund and rejecting the possibility of clawbacks
because a taxpayer cannot be expected to collect retroactive
taxes from the previously exempt taxpayers or wait for the
state to do so); see also Mont. Nat’l Bank of Billings v.
Yellowstone County, 276 U.S. 499, 504-05 (1928) (granting
a refund and rejecting the possibility of clawbacks because
state tax officials had not indicated that they would collect
retroactive taxes).
    For instance, in McKesson, the Florida Supreme Court
had declared a liquor excise tax scheme unconstitutional
because it favored local products in violation of the
Commerce Clause. 496 U.S. at 22. The state court enjoined
the favorable treatment of local products but did not grant
relief to the petitioner who had already paid the higher,
illegal tax. Id. The Court reversed, holding:

       The question before us is whether
       prospective relief, by itself, exhausts the
       requirements of federal law. The answer is
       no: If a State places a taxpayer under duress
       promptly to pay a tax when due . . . the Due
       Process Clause . . . obligates the State to
       provide meaningful backward-looking relief
       to rectify any unconstitutional deprivation.

Id. at 31. The Court further explained that “a taxpayer pays
under duress when he proffers a timely payment merely to
avoid a serious disadvantage in the assertion of his legal
rights.” Id. at 38 n.21 (cleaned up). Here, just as the Florida
Office of the Comptroller collected an illegal tax under
“duress,” the UST collected illegal excess quarterly fees
10       USA SALES, INC. V. OFFICE OF THE U.S. TRUSTEE

from USA Sales, paid to avoid the “serious disadvantage” of
liquidation or dismissal of the bankruptcy proceeding. The
Due Process Clause therefore “obligates [the UST] to
provide meaningful backward-looking relief.” Id. at 31.
    The UST attempts to distinguish the tax cases by limiting
their holding to circumstances in which the plaintiff had no
meaningful opportunity to challenge the tax before paying it.
See id. at 22. However, the Supreme Court has explained
that due process requires post-payment relief unless a
“reasonable taxpayer would have thought that [the pre-
payment remedy] represented . . . the exclusive remedy for
unlawful taxes.” Reich, 513 U.S. at 111; see also Newsweek,
522 U.S. at 444-45. “[E]xcept in the unusual context of a
clear, exclusive predeprivation remedy, the past inequality
must be accounted for and the disfavored taxpayer is entitled
to appropriate refunds.” Mosaic Mgmt., 71 F.4th at 1350.
Here, USA Sales “could have challenged the increased fee
before paying . . . in early 2018 (predeprivation) . . . . [but]
it certainly was not clear that the available predeprivation
process was exclusive.” Id. Because it was reasonable for
USA Sales to pay the quarterly fees to avoid liquidation or
dismissal and to challenge them only later, retrospective
relief is warranted.
     The UST argues that we should follow other
constitutional remedies cases rather than the tax cases. First,
it contends that St. Angelo, 38 F.3d at 1531-32, confronted a
similar violation of the Bankruptcy Clause and “expressly
rejected the debtor’s contention that the proper remedy was
to relieve it from paying the disputed quarterly fees.” But
that argument overreads St. Angelo because, there, the debtor
did not seek a refund; rather, the UST sought higher fees due
to a dispute over the calculation of the debtor’s
disbursements. 38 F.3d at 1528; see also Circuit City, 2022
         USA SALES, INC. V. OFFICE OF THE U.S. TRUSTEE     11

WL 17722849, at *3 n.6 (rejecting the UST’s reliance on St.
Angelo because it is not “on point”).
    The other cases on which the UST depends are no more
helpful to our analysis. Although the Supreme Court
departed from the “normal rule of retroactive application”
and granted prospective-only relief in Sessions v. Morales-
Santana, 582 U.S. 47, 72-77 (2017), and Barr v. American
Ass’n of Political Consultants, 140 S. Ct. 2335, 2354-56
(2020) (“AAPC”), neither case involved monetary injuries.
Mosaic Mgmt., 71 F.4th at 1353 (citation omitted). Nor did
either case provide an “explanation on the basis of which we
could be sure of a governing principle of law defining when
prospective application is appropriate.” Id. at 1352 & n.11.
And for good reason—the plaintiff in AAPC did not request
retrospective relief and the court barely addressed it, see
AAPC, 140 S. Ct. at 2355 n.12, and Morales-Santana is
“hardly the typical case,” Morales-Santana, 582 U.S. at 77.
Retrospective relief in Morales-Santana involved conferring
or withdrawing citizenship, and “it is far from clear whether
any court, even the Supreme Court, has the power to confer
or withdraw citizenship on a basis other than as prescribed
by Congress.” Mosaic Mgmt., 71 F.4th at 1352. For these
reasons, we agree with the Eleventh Circuit that these cases
do not govern our analysis.
     b. USA Sales is entitled to a refund.
    Having established that retrospective relief is necessary,
we turn to the form that relief should take. According to the
UST, “the proper course would be to establish equal
treatment by pursuing recovery of additional fees from
debtors in the six BA districts.” We are not persuaded.
    First and foremost, we are a court of limited
jurisdiction. We have no power to order districts in the
12         USA SALES, INC. V. OFFICE OF THE U.S. TRUSTEE

Fourth and Eleventh Circuits to collect fees from debtors
who may have closed their cases long ago. Accord
Hammons, 15 F.4th at 1026 (“We lack authority over
quarterly fees assessed in districts outside our circuit, and
thus in Alabama or North Carolina.”); Circuit City, 2022 WL
17722849, at *4. The UST has conceded as much in a nearly
identical case. See Hammons, 15 F.4th at 1025 (“Though
raising fees in Alabama and North Carolina might solve this
problem, the Trustee recognizes that we lack authority to do
that.”).
    Second, the UST’s plan violates one of the core tenets of
the bankruptcy code—finality. Federal courts have
repeatedly stressed “the particular need for finality in
bankruptcy” in doctrines such as equitable mootness. In re
Onouli-Kona Land Co., 846 F.2d 1170, 1172 (9th Cir. 1988)
(internal quotation marks omitted); see also Suter v.
Goedert, 504 F.3d 982, 986 (9th Cir. 2007). As we have
explained, bankruptcies can be very complex, with extensive
reliance on certainty by debtors, creditors, and third parties.
See In re Mortgs. Ltd., 771 F.3d 1211, 1215 (9th Cir. 2014).
“The principal purpose of the Bankruptcy Code is to grant a
fresh start to the honest but unfortunate debtor.” Marrama
v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007) (cleaned
up). The UST’s proposed solution—creating a regime in
which the government potentially could track down
bankrupt and dissolved entities after more than half a decade
to seek much larger fees (and presumably interest)—runs
counter to this primary purpose. 4

4
 The UST’s suggestion also may violate the due process rights of debtors
in BA districts. See Mosaic Mgmt., 71 F.4th at 1355 (Brasher, J.,
concurring).
           USA SALES, INC. V. OFFICE OF THE U.S. TRUSTEE              13

    Finally, although congressional intent is normally the
touchstone for determining the remedy for this type of
constitutional violation, Morales-Santana, 582 U.S. at 73-
74, our choice of remedy is constrained by USA Sales’ due
process rights, which demand retrospective relief, as well as
by our own jurisdictional limitations. Mosaic Mgmt., 71
F.4th at 1348, 1352; McKesson, 496 U.S. at 31. So even if
the 2020 Act granting prospective relief reflects
congressional intent that such relief should be exclusive or
that Congress would prefer clawbacks, that intent does not
control our analysis. As our colleagues on the Eleventh
Circuit explained:

         [L]egislative intent cannot overcome the
         requirements of due process. . . . [I]n the
         instant case, our result—requiring refunds,
         but recognizing future application of the fee
         increase, as mandated by Congress in the
         2020 Act—implements as much of the
         congressional intent as due process permits.

Mosaic Mgmt., 71 F.4th at 1352. In short, the UST cannot
avoid providing refunds because the 2020 Act fixed the
constitutional problem prospectively by raising fees in BA
districts.
    Accordingly, we hold that USA Sales is entitled to a
refund of the unconstitutional fees it paid in excess of those
it would have paid in a BA district from January 2018 to
November 2019. 5

5
 The UST briefly argues that any refund should not include excess fees
paid from January to October 2018 because, during that time, the Judicial
14         USA SALES, INC. V. OFFICE OF THE U.S. TRUSTEE

     AFFIRMED.

Conference had a standing order, which was inexplicably ignored, that
fees in BA districts should match those in UST districts. As the
bankruptcy court succinctly explained on remand from Siegel: “[T]he
crux of the issue is not what the BA Districts did. It is what Congress
did. Congress passed a statute that allowed for non-uniform fees. That
unconstitutional statute . . . is what the Supreme Court identified as the
source of the constitutional injury.” Circuit City, 2022 WL 17722849,
at *5. Thus, the constitutional violation existed, and a refund is due, for
the whole period with nonuniform statutory rates.