In re Buffets, LLC

• Decision Date: 08 February 2019
• Docket Number: Case No. 16-50557-RBK
• Citation: 597 B.R. 588
• Parties: IN RE: BUFFETS, LLC, et al., Debtors
• Court: U.S. Bankruptcy Court — Western District of Texas

597 B.R. 588

IN RE: BUFFETS, LLC, et al., Debtors

Case No. 16-50557-RBK

United States Bankruptcy Court, W.D. Texas, San Antonio Division.

Signed February 8, 2019

Tiffany L. Cox, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., San Antonio, TX, Katherine C. Fackler, Andrea S. Hartley, Amy M. Leitch, Esther A. McKean, Akerman, LLP, Miami, FL, Jennifer K. Oldvader, Ogletree, Deakins, Nash, Smoak & Stewart, Kansas City, MO, Scott D. Lawrence, John E. Mitchell, David W. Parham, Akerman LLP, Rachael L. Smiley, Law Offices of Judith W. Ross, Dallas, TX, for Debtors.

Michael J.D. Sweeney, Getman, Sweeney & Dunn, PLLC, Kingston, NY, for Plaintiff.

Kara E. Casteel, Brigette G. McGrath, Ask LLP, Bethany J. Rubis, St. Paul, MN, Jennifer Christian, Marianna Udem, Ask LLP, New York, NY, David B. Kurzweil, Greenberg Traurig LLP, Atlanta, GA, for Trustee.

OPINION

Ronald B. King, Chief United States Bankruptcy Judge

Buffets, LLC, and its affiliates^* ("Debtors" or, post-confirmation, "Reorganized Debtors") filed voluntary chapter 11 petitions on March 7, 2016. On April 27, 2017, the Debtors confirmed a plan and were substantively consolidated. The plan and confirmation order provide for payment of quarterly fees to the United States trustee (UST). In October 2017, Congress amended Title 28, section 1930, to provide for an 833 percent increase in the maximum post-confirmation quarterly fees payable by certain chapter 11 debtors with disbursements that equal or exceed $ 1 million when the UST System Fund balance is less than $ 200 million. 28 U.S.C. § 1930(a)(6)(B) (2018). The UST System Fund balance currently is less than $ 200 million, and the Reorganized Debtors' 2018 disbursements exceed $ 1 million in every quarter. See U.S. DEP'T OF JUSTICE, EXEC. OFFICE OF U.S. TRUSTEES, CHAPTER 11 QUARTERLY FEES , https://www.justice.gov/ust/chapter-11-quarterly-fees.

The principals of the Reorganized Debtors were shocked by the quarterly fee increase. The Reorganized Debtors filed a motion requesting an order establishing the quarterly-fee liability in the amount of $ 4,875 and determining the word "disbursements" in § 1930(a)(6) is limited to funds disbursed as priority and administrative expense claims, claims of creditors, and interests of equity security holders pursuant to the plan.

In response, the UST filed an objection to the motion. The UST argued that the Reorganized Debtors' interpretation of the term "disbursements" contravenes the word's plain meaning and relevant case law. The UST asked the Court to deny the Reorganized Debtors' motion and set liability for the quarterly fees at $ 250,000. The Court held a hearing and heard argument from the Reorganized Debtors and the UST. After the hearing, but before the ruling, the UST filed a supplemental brief in support of the objection. The Reorganized Debtors filed a supplemental brief, arguing that the amendment amounts to an unconstitutional violation of the Due Process Clause.

The Court later made findings of fact and conclusions of law, which were stated on the record pursuant to FED. R. BANKR. P. 7052 and 9014, and rendered an order denying the Reorganized Debtors' motion. The Court held that the quarterly fees should be calculated based upon all disbursements made during the quarter. The Reorganized Debtors filed a motion to reconsider the order in light of constitutional violations and a recent opinion from the Western District of Wisconsin, In re Cranberry Growers Coop. , 592 B.R. 325 (Bankr. W.D. Wis. 2018) (direct appeal filed).

On October 18, 2018, this Court issued a Notice and Certification of Constitutional Questions under 28 U.S.C. § 2403 and FED. R. CIV. P. 5.1. On November 7, 2018, this Court entered an Order Granting Request to File Brief in Response to Constitutional Challenges.

On November 9, 2018, the UST filed "The United States Trustee's Motion to Vacate the Court's November 7, 2018 Order or in the Alternative, to Adjust the Briefing Schedule so the Government can Meaningfully Address the Debtors' Attempt to Invalidate a Federal Statute." On November 16, 2018, the Court entered an order granting the motion, in part, setting forth a briefing schedule, and identifying issues to be addressed in the parties' briefs.

On December 7, 2018, the Reorganized Debtors filed "Reorganized Debtors' Memorandum of Law in Support of its Motion to Determine Extent of Liability for Post-Confirmation Quarterly Fees Payable to United States Trustee Pursuant to 28 U.S.C. § 1930(a)(6)." The Debtors argued that the statute violates the Uniformity Clause of Article I of the United States Constitution, and the retroactive effect of the amendment on the Reorganized Debtors violates the constitutional protections of due process and prohibition against takings. Further, the Debtors argued that UST fees are a form of user-fee rather than a tax; therefore, the user-fees are grossly disproportionate to the services that the UST provides to the Debtors. The UST filed its response brief on December 21, 2018.

The Court finds that it has jurisdiction to render a final order in this core proceeding pursuant to 28 U.S.C. §§ 157(b) and 1334. Venue is proper under 28 U.S.C. §§ 1408 and 1409. This opinion constitutes the findings of fact and conclusions of law of the Court pursuant to FED. R. BANKR. P. 7052 and 9014.

The issue before the Court is whether 28 U.S.C. § 1930(a)(6)(B) requires the Reorganized Debtors to pay $ 250,000 in quarterly fees to the United States trustee for each quarter of 2018. The amendment codified in § 1930(a)(6)(B) provides the following:

During each of fiscal years 2018 through 2022, if the balance in 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.

BACKGROUND

A discussion of the events that led to this statutory provision and its amendment is instructive. In 1986, after the completion of a pilot program, Congress established the UST program. The Attorney General was directed to appoint USTs in all districts, including Alabama and North Carolina; however, Congress excluded Alabama and North Carolina from the program. Instead, Alabama and North Carolina utilize the Bankruptcy Administrator (BA) program, which reports to the Administrative Office of the United States Courts. The BA program is part of the judicial branch while the UST program is part of the executive branch. Congress mandated that the UST program be implemented in Alabama and North Carolina either upon the districts electing to join or by October 1, 1992, later extended to October 1, 2002. See P.S.L. No. 101-650, Dec. 11, 1990, title III, § 317(a) & (c), 104 Stat. 5115, 5116. Despite Congress's original intent to implement the UST program nationwide, it has never been implemented in Alabama and North Carolina. The six districts in Alabama and North Carolina continue to operate under the BA program.

The UST and BA programs are a necessary component of the chapter 11 system in that they provide post-petition supervision of chapter 11 cases in their respective districts. In 1992, the General Accounting Office (GAO) filed a report recommending the UST program absorb the BA program because there was no need to continue two separate programs. GAO Report No. GAO/GGD-92-133, "Bankruptcy Administration: Justification Lacking for Continuing Two Parallel Programs" (Sept. 28, 1992). "Accordingly, because of the advantages in oversight and funding provided by the UST program and to make bankruptcy administration consistent across the country, we recommend that Congress incorporate the BA program into the UST program now rather than in 2002 as currently scheduled under statute." Id. at 2. The report indicated that the purpose of the UST System Fund was to create a self-funding mechanism. Originally, chapter 11 debtors in UST districts paid filing and quarterly fees, but debtors in BA districts were not charged quarterly fees. The report indicated that the UST program had a surplus because the fee revenues exceeded program funding by millions of dollars. Id. The Bankruptcy Reform Act of 1994 remedied several differences between the two programs, but it did not apply uniform fee requirements . See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, 103d Cong. (2d Sess.) (Oct. 6, 1994).

QUARTERLY FEES

Quarterly fees are based on the total amount of disbursements in each quarter. 28 U.S.C. § 1930(a)(6)(A). The term "disbursements" is not defined in the statute, but a majority of courts interpret the term broadly to include all transfers from the estate, including payments made in the ordinary course of business. See In re Danny's Markets, Inc. , 266 F.3d 523, 526 (6th Cir. 2001) (defining disbursements as "all payments to third parties directly attributable to the existence of the bankruptcy proceeding"); In re Celebrity Home Entm't, Inc. , 210 F.3d 995, 998 (9th Cir. 2000) (describing disbursements as an "expansive term that captures ‘all payments’ "); In re Jamko, Inc. , 240 F.3d 1312, 1315–16 (11th Cir. 2001) (holding post-confirmation quarterly fees include all post-confirmation disbursements); In re Pars Leasing, Inc. , 217 B.R. 218 (Bankr. W.D. Tex. 1997) (holding disbursements include not only the debtor-in-possession's cash disbursements, but also payments made by third parties for the benefit of the debtor-in-possession); In re R&K Fabricating, Inc. , 2013 WL 5493161, at *3–4 (Bankr. S.D. Tex. Sept. 30, 2013) (holding disbursements include both payments under a plan and "all other amounts paid out by a reorganized debtor"). Certainly, this issue could be resolved if Congress amended the statute with a definition of the term "disbursements."

On September 21, 2018, Judge Catherine J. Furay in In re Cranberry Growers Coop. excluded repayments on a revolving line of credit from disbursements because the...