Office of the United States Trustee v. John Q. Hammons Fall 2006, LLC

In the U.S., bankruptcy proceedings are administered through two systems: the Trustee Program managed by the Department of Justice for 88 judicial districts, and the Bankruptcy Administrator Program for six districts in Alabama and North Carolina, overseen directly by the courts. This dual system originated in 1978, with Alabama and North Carolina eventually gaining a permanent exemption from the Trustee Program in 2000. Both programs have different funding models, with the Trustee Program financed primarily through debtor fees and the Administrator Program funded through the general judicial budget. Over the years, Congress has enacted various amendments to balance the fee structures between the two systems, but disparities have remained, most notably with the 2017 Amendment which significantly raised fees in Trustee districts.

Seventy-six Chapter 11 debtors associated with John Q. Hammons Hotels & Resorts (Debtors) filed for bankruptcy in the District of Kansas, a Trustee district, in June 2016. Their cases were still pending when a 2017 Amendment took effect in January 2018, which significantly increased their quarterly Chapter 11 disbursement fees. By the end of December 2019, they had paid over $2.5 million more in fees than they would have if they had filed in a Bankruptcy Administrator district, such as those in North Carolina and Alabama.

The Debtors challenged the fee increase in bankruptcy court, arguing it was unequally applied and retroactive without clear congressional intent. The bankruptcy court rejected these arguments, and the U.S. Court of Appeals for the Tenth Circuit reversed.