Hobbs v. Buffets, L.L.C. (In re Buffets, L.L.C.)

• Decision Date: 03 November 2020
• Docket Number: No. 19-50765,19-50765
• Citation: 979 F.3d 366
• Parties: In the MATTER OF: BUFFETS, L.L.C., Doing Business as Old Country Buffet, Doing Business as JJ North's Grand Buffet, Doing Business as Country Buffet, Doing Business as Home Town Buffet, Doing Business as Ryan's, Doing Business as Ryan's Family Steakhouse, Doing Business as Fire Mountain, Doing Business as Granny's, Doing Business as Tahoe Joe's, Doing Business as Tahoe Joe's Famous Steakhouse, Doing Business as Roadhouse Grill, Doing Business as Buffets, Incorporated, Doing Business as Ovation Brands, Doing Business as Soup 'N Salad Unlimited ; Ocb Restaurant Company, L.L.C.; Fire Mountain Restaurants, L.L.C.; Tahoe Joe's, Incorporated; Ocb Purchasing Company; Hometown Buffet, Incorporated; Ryan's Restaurant Group, L.L.C., Debtors, Henry G. Hobbs, Jr., Appellant Cross—Appellee, v. Buffets, L.L.C., Doing Business as Old Country Buffet, Doing Business as Country Buffet, Doing Business as Home Town Buffet, Doing Business as Ryan's, Doing Business as Ryan's Family Steakhouse, Doing Business as Fire Mountain, Doing Business as Granny's, Doing Business as Tahoe Joe's, Doing Business as Tahoe Joe's Famous Steakhouse, Doing Business as Roadhouse Grill, Doing Business as JJ North's Grand Buffet, Doing Business as Buffets, Inc., Doing Business as Ovation Brands, Doing Business as Soup 'N Salad Unlimited ; Hometown Buffet, Incorporated; Ocb Restaurant Company, L.L.C.; Ocb Purchasing Company; Ryan's Restaurant Group, L.L.C.; Fire Mountain Restaurants, L.L.C.; Tahoe Joe's, Incorporated, Appellees Cross-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

979 F.3d 366

In the MATTER OF: BUFFETS, L.L.C., Doing Business as Old Country Buffet, Doing Business as JJ North's Grand Buffet, Doing Business as Country Buffet, Doing Business as Home Town Buffet, Doing Business as Ryan's, Doing Business as Ryan's Family Steakhouse, Doing Business as Fire Mountain, Doing Business as Granny's, Doing Business as Tahoe Joe's, Doing Business as Tahoe Joe's Famous Steakhouse, Doing Business as Roadhouse Grill, Doing Business as Buffets, Incorporated, Doing Business as Ovation Brands, Doing Business as Soup 'N Salad Unlimited ; Ocb Restaurant Company, L.L.C.; Fire Mountain Restaurants, L.L.C.; Tahoe Joe's, Incorporated; Ocb Purchasing Company; Hometown Buffet, Incorporated; Ryan's Restaurant Group, L.L.C., Debtors,Henry G. Hobbs, Jr., Appellant Cross—Appellee,

v.Buffets, L.L.C., Doing Business as Old Country Buffet, Doing Business as Country Buffet, Doing Business as Home Town Buffet, Doing Business as Ryan's, Doing Business as Ryan's Family Steakhouse, Doing Business as Fire Mountain, Doing Business as Granny's, Doing Business as Tahoe Joe's, Doing Business as Tahoe Joe's Famous Steakhouse, Doing Business as Roadhouse Grill, Doing Business as JJ North's Grand Buffet, Doing Business as Buffets, Inc., Doing Business as Ovation Brands, Doing Business as Soup 'N Salad Unlimited ; Hometown Buffet, Incorporated; Ocb Restaurant Company, L.L.C.; Ocb Purchasing Company; Ryan's Restaurant Group, L.L.C.; Fire Mountain Restaurants, L.L.C.; Tahoe Joe's, Incorporated, Appellees Cross-Appellants.

No. 19-50765

United States Court of Appeals, Fifth Circuit.

FILED November 3, 2020

Jeffrey Eric Sandberg, Attorney, U.S. Department of Justice, Civil Division, Appellate, Washington, DC, for Appellant Cross-Appellee.

David W. Parham, Esq., Akerman, L.L.P., Dallas, TX, John Eugene Mitchell, Katten Muchin Rosenman, L.L.P., Chicago, IL, for Appellees Cross-Appellants.

Before Stewart, Clement, and Costa, Circuit Judges.

Gregg Costa, Circuit Judge:

Filing fees help fund the federal judiciary. It costs $400 to file a lawsuit in federal district court; an appeal costs $505. See Schedule of Fees , U.S. DIST. & BANKR. COURT: S. DIST. OF TEX. , https://www.txs.uscourts.gov/page/FeeSchedule; see also 28 U.S.C. §§ 1913, 1914. Bankruptcy court can be more expensive. Chapter 11 debtors pay not only a filing fee of $1717 but also quarterly fees until the bankruptcy ends. Id. ; see also 28 U.S.C. § 1930(a)(6). A 2017 law imposed a temporary but substantial increase in those quarterly fees for large Chapter 11 debtors. The fee increase is an attempt to shore up the United States Trustee Program, so it went into immediate effect only in the eighty-eight judicial districts that use trustees. It took nine months for a similar fee adjustment to apply in the other six judicial districts.

Debtors nationwide have challenged the increased fees on numerous grounds, including a claim that delayed implementation in the non-Trustee districts means the fee amendment did not "establish ... uniform Laws on the subject of Bankruptcies throughout the United States." U.S. CONST. art. I, § 8, cl.4. Bankruptcy courts have disagreed on the constitutionality of the fee increase, with a majority allowing it. We conclude that the fee increase is constitutional and applies in this case.

I.

A.

Bankruptcy courts fall into two categories: those that are part of the United States Trustee Program and those that use Bankruptcy Administrators. Congress created this dual system in 1978 when it launched a trustee pilot program within the Department of Justice. Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549, 2662–65 (1978). Until then, bankruptcy judges had shouldered many "administrative functions" on top of their substantive work. Trustees absorbed those administrative duties and began "serv[ing] as bankruptcy watch-dogs." H.R. REP. NO. 95-595, at 88 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6049. The program was a success, so Congress made it permanent in 1986. Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, Pub. L. No. 99-554, 100 Stat. 3088, 3090–95 (1986).

But not for every district. Eighty-eight judicial districts participate in the Trustee Program. See In re Clinton Nurseries, Inc. , 608 B.R. 96, 108–09 (Bankr. D. Conn. 2019). The six districts in Alabama and North Carolina fall under the Bankruptcy Administrator program, which the Judicial Conference oversees.¹ Id.

The programs have different funding sources. The judiciary's general budget funds the Administrators. See In re Clayton Gen., Inc. , 2020 Bankr. LEXIS 842, at *23–24 (Bankr. N.D. Ga. Mar. 30, 2020). But debtors primarily fund the Trustee Program. Id. Although annual appropriations technically bankroll the program, Congress expected that debtor fees would fully offset the cost. See Consolidated Appropriations Act of 2019, Pub. L. No. 116-6, div. C., tit. II, 133 Stat. 13, 103–04 (2019). Such debtor-paid fees include Chapter 11 quarterly fees. 28 U.S.C. § 1930(a)(6) ; see also id. § 589a(b)(5). The fees are based on all quarterly "disbursements" that debtors make until their cases are "converted or dismissed."² Id. § 1930(a)(6).

At first, debtors in Administrator districts were not required to pay quarterly fees. The Ninth Circuit held that to be unconstitutional, reasoning that Congress’ imposition of fees in some districts but not others—without justification—violated the Bankruptcy Clause. St. Angelo v. Victoria Farms, Inc. , 38 F.3d 1525, 1529, 1531–32 (9th Cir. 1994), amended by 46 F.3d 969 (9th Cir. 1995).

Congress fixed that problem with a law empowering the Judicial Conference to set fees in Administrator districts that were "equal to those imposed" in Trustee districts. 28 U.S.C. § 1930(a)(7). Those fees go to a fund offsetting general judicial branch appropriations rather than the U.S. Trustee System Fund. Id. (citing id. § 1931). The Judicial Conference soon exercised the authority Congress gave it, charging quarterly fees in Administrator districts "in the amounts specified in 28 U.S.C. § 1930, as those amounts may be amended from time to time." JUDICIAL CONFERENCE OF THE U.S., REPORT OF THE PROCEEDINGS OF THE JUDICIAL CONFERENCE OF THE UNITED STATES: SEPT./OCT. 2001, at 45–46 (2001), https://www.uscourts.gov/sites/default/files/2001-09_0.pdf.

All was well with the two systems until just a few years ago. By the mid-2010s, a decline in bankruptcy filings meant the Trustee Program was no longer self-sustaining. H.R. REP. NO. 115-130, at 7 (2017), reprinted in 2017 U.S.C.C.A.N. 154, 159. Congress attempted to remedy the shortfall in the Bankruptcy Judgeship Act of 2017 (a law we will call the "2017 Amendment"). Pub. L. No. 115-72, 131 Stat. 1224, 1229–34 (2017). The law amended section 1930(a)(6) to increase the possible quarterly fees in Chapter 11 cases.³ Id. § 1004, 131 Stat. at 1232. The increase is temporary; it only applies during the five fiscal years from 2018 through 2022. The increase is conditional; it kicks in only if the Trustee System Fund's balance was less than $200 million "as of September 30 of the most recent full fiscal year." Id. And the increase is only for debtors with disbursements of $1 million or more in a quarter. Id . If all of those criteria apply, the quarterly fee is "the lesser of 1 percent of such disbursements or $250,000." Id. The new potential fee is a substantial increase from the old maximum fee of $30,000. See 28 U.S.C. § 1930(a)(6) (2008) (charging a $30,000 fee for quarterly disbursements exceeding $30 million).

Initially, only debtors in Trustee districts faced the fee increase. Many courts in Trustee districts applied the new fees to any quarterly disbursements that postdated the effective date of the 2017 Amendment, even if the bankruptcy case had been pending before the fee increase. In these courts, if a debtor disbursed $1 million or more starting in the first quarter of 2018, it owed the higher fees. But debtors in Administrator districts did not.

The Judicial Conference waited until September 2018 to adopt the increased fee schedule. JUDICIAL CONFERENCE OF THE U.S., REPORT OF THE PROCEEDINGS OF THE JUDICIAL CONFERENCE OF THE UNITED STATES: SEPT. 13, 2018, at 11–12 (2018), https://www.uscourts.gov/sites/default/files/2018-09_proceedings.pdf. In doing so, it applied the new fees only to cases in Administrator districts "filed on or after October 1, 2018." Id. So a debtor in an Administrator district that filed for bankruptcy before the final quarter of 2018 does not owe the increased fees no matter how long the case remains pending.

B.

That brings us to this case. Buffets, L.L.C. and its affiliates (collectively Buffets) operate buffet-style restaurants throughout the country. Old Country Buffet and Ryan's Family Steakhouse are examples. In 2016, after a series of misfortunes, Buffets filed a Chapter 11 petition in the Western District of Texas, which is a Trustee district. The bankruptcy court confirmed Buffets’ plan in 2017. But the bankruptcies were still pending in 2018, after the new law went into effect.

In each of the first three quarters of 2018, Buffets reported over $1 million in total disbursements. Because the balance of the U.S. Trustee System Fund was below $200 million, the Trustee assessed quarterly fees of $250,000.

Buffets refused to pay. Instead, it asked the bankruptcy court to include in "disbursements" only payments made under the plan—that is, payments to creditors, administrative expenses, etc. Buffets contended that its normal operating expenses—things like food and napkins—should not count as disbursements even though they were included on its quarterly schedule. That would have allowed Buffets to avoid the new fees as disbursements made "under the plan" were less than $1 million/quarter. The Trustee objected.

In response, Buffets claimed that classifying operating expenses as "disbursements" violated the Constitution's "Fundamental Fairness Clause" (if nothing...