In re Circuit City Stores, Inc.

• Decision Date: 15 July 2019
• Docket Number: Case No. 08-35653-KRH (Jointly Administered)
• Citation: 606 B.R. 260
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: IN RE: CIRCUIT CITY STORES, INC., et al., Debtors.

606 B.R. 260

IN RE: CIRCUIT CITY STORES, INC., et al., Debtors.

Case No. 08-35653-KRH (Jointly Administered)

United States Bankruptcy Court, E.D. Virginia, Richmond Division.

Signed July 15, 2019

Sarah Beckett Boehm, Dion W. Hayes, Joseph S. Sheerin, McGuireWoods LLP, Richmond, VA, for Debtor.

Paula S. Beran, David N. Tabakin Lynn L. Tavenner, Tavenner & Beran, PLC, Richmond, VA, for Trustee.

Douglas M. Foley, McGuireWoods LLP, Washington, DC, for Debtor and Trustee.

MEMORANDUM OPINION

Kevin R. Huennekens, UNITED STATES BANKRUPTCY JUDGE

This matter comes before the Court upon the Motion of the Liquidating Trustee to Determine Extent of Liability for Post-Confirmation Quarterly Fees Payable to the United States Trustee Pursuant to 28 U.S.C. § 1930(a)(6) and Memorandum in Support [ECF No. 14197] (the "Motion to Determine") filed by Alfred H. Siegel (the "Liquidating Trustee"), Trustee of the Circuit City Stores, Inc. Liquidating Trust (the "Liquidating Trust") and upon the United States Trustee's Motion for Summary Judgment on the Motion of the Liquidating Trustee to Determine Extent of Liability for Post-Confirmation Quarterly Fees Payable to the United States Trustee Pursuant to 28 U.S.C. § 1930(a)(6) and Memorandum in Support [ECF No. 14202] (the "Motion for Summary Judgment") filed by the Office of the United States Trustee (the "U.S. Trustee" and, together with the Liquidating Trustee, the "Parties"). At issue is the proper amount of quarterly fees assessable against the Liquidating Trust due to the recent amendment of section 1930 of title 28 of the United States Code. The Court has subject-matter jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the General Order of Reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A). Venue is appropriate in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. After considering the applicable statutory authority, the case law, the pleadings, and the arguments of counsel, the Court denies the relief requested in Motion for Summary Judgment and grants the relief requested in the Motion to Determine for the reasons set forth below.¹

On November 10, 2008 (the "Petition Date"), Circuit City Stores, Inc. ("Circuit City") and certain affiliates (collectively, the "Debtors") filed voluntary petitions under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). On September 14, 2010, the Court confirmed the Debtors' Modified Second Amended Joint Plan of Liquidation of Circuit City Stores, Inc. and Its Affiliated Debtors and Debtors in Possession and Its Official Committee of Creditors Holding General Unsecured Claims [ECF No. 8555, Ex. A] (the "Liquidating Plan").² The Liquidating Plan provided for the formation of the Liquidating Trust, overseen by the Liquidating Trustee, to collect, administer, distribute, and liquidate all of the Debtors' remaining assets.³ Under the terms of the Liquidating Plan,

[a]ll fees then due and payable pursuant to 28 U.S.C. § 1930, as determined by the Court at the Confirmation Hearing, shall be paid on or before the Effective Date by the Debtors. All such fees that become due and payable thereafter by a Debtor shall be paid by the Liquidating Trustee. The Liquidating Trustee shall pay quarterly fees to the U.S. Trustee until the Chapter 11 Cases are closed or converted and/or the entry of final decrees.⁴

At the time the Liquidating Plan was confirmed in 2010, section 1930 of title 28 provided that the payment of quarterly fees to the U.S. Trustee would range between $6,500 and $30,000.⁵ In no event would the quarterly fee ever exceed $30,000 regardless of the amount of the disbursements for any given calendar quarter.

In October 2017, Congress amended section 1930 of title 28 of the United States Code to provide:

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.

Bankruptcy Judgeship Act of 2017, Pub. L. No. 115-72, § 1004, 131 Stat. 1224, 1232 (codified as amended at 28 U.S.C. § 1930(a)(6)(B) (2018) ) (the "Bankruptcy Judgeship Act").⁶ The amendment increased the amount of the quarterly fees payable to the U.S. Trustee System from a minimum of $10,000 to a maximum of $250,000 for quarters where disbursements met or exceeded $1 million. Id. From January 1, 2018, onward, the U.S. Trustee program has assessed and continues to assess fees based upon the increased fee schedule for all pending chapter 11 cases.⁷

But the increase in quarterly fees does not apply to all debtors in all chapter 11 cases throughout the country. Unlike chapter 11 debtors in areas that are part of the U.S. Trustee program, chapter 11 debtors in the six federal judicial districts in Alabama and North Carolina that operate under the Bankruptcy Administrator Program (the "BA Districts") may only now be subject to the increased fees, but only under certain circumstances.⁸ The statute governing quarterly fees provides that "the Judicial Conference of the United States may require the debtor in a case under chapter 11 of title 11 [in the BA Districts] to pay fees equal to those imposed by paragraph (6) of this subsection." 28 U.S.C. § 1930(a)(7) (emphasis added). In 2001, the Judicial Conference of the United States (the "JCUS"), acting according to this statutory authorization, approved a recommendation from its Bankruptcy Committee that quarterly fees be imposed in BA districts in the amounts specified in section 1930(a)(6).⁹ But after Congress amended section 1930(a)(6) in October 2017, the BA Districts did not simultaneously increase the quarterly fees payable under section 1930(a)(7).¹⁰ It was not until almost a year after Congress amended section 1930(a)(6), on September 13, 2018, that the JCUS Executive Committee approved imposing the increased quarterly fees in BA Districts "in the amounts specified in 28 U.S.C. § 1930(a)(6)(B) for cases filed on or after October 1, 2018."¹¹ The resulting increase in quarterly fees payable in BA Districts "does not have retroactive application to pending cases."¹² Debtors that filed chapter 11 petitions prior to October 2018 do not have to pay the increased amount of the quarterly fees.

The Liquidating Trust's quarterly disbursements exceeded $1 million for every quarter of 2018. The U.S. Trustee program assessed and the Liquidating Trust paid the increased amount of the quarterly fees for each of those quarters in accordance with section 1930(a)(6)(B).¹³ On March 28, 2019, the Liquidating Trustee filed the Motion to Determine, asking the Court to order "the actual amount of UST Fees due since January 1, 2018 ... be determined based on the statutory rates in effect as of the Petition Date in this Case."¹⁴ The Motion to Determine advanced two primary arguments in support of its contention: (i) section 1930(a)(6)(B) "is unconstitutional as applied to this Case due to its lack of uniformity for the first three quarters of 2018"; and (ii) section 1930(a)(6)(B) "cannot be retroactively applied to the Trust for any relevant years."¹⁵ On May 9, 2019, the U.S. Trustee filed the Motion for Summary Judgment and its Response. The Motion for Summary Judgment asked the Court to dismiss the Motion to Determine because "the Motion [to Determine] seeks relief that can only be sought through an adversary complaint under Rule 7001" of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules").¹⁶ On June 5, 2019, the Liquidating Trustee filed the Liquidating Trust's Response to United States Trustee's Motion for Summary Judgment [ECF No. 14209]. On June 12, 2019, the Court conducted a hearing (the "Hearing") on the foregoing matters, at which time the Court denied the relief requested in the Motion for Summary Judgment and took the Motion to Determine under advisement.¹⁷

The Motion for Summary Judgment arguing for dismissal of the Motion to Determine on the grounds that it seeks "relief that can only be pursued through an adversary proceeding" exalts form over substance. Mot. Summ. J. ¶ 16. Bankruptcy Rule 2020, which provides for a proceeding against the U.S. Trustee to be brought as a contested matter, most likely applies to the Motion to Determine.¹⁸ Furthermore, Bankruptcy Rule 9014, which governs contested matters, makes most of the procedural rules included in Part VII of the Bankruptcy Rules, which governs adversary proceedings, applicable to contested matters. Fed. R. Bankr. P. 9014(c). That list is not exhaustive. The Court is authorized to "direct that one or more of the other rules in Part VII shall apply" in any particular contested matter. Id. No lack of formality need be suffered by any party in any contested matter.

On the other hand, the Motion to Determine does seek the type of relief included in Bankruptcy Rule 7001, which must ordinarily be brought by complaint. The Motion to Determine requests a determination about the amount of quarterly fees due, a holding that section 1930(a)(6)(B) is unconstitutionally non-uniform, and a holding that section 1930(a)(6)(B) cannot not be retroactively applied to these cases. Mot. Summ. J. ¶¶ 1-2. The first form of relief is an attempt to "determine the validity of the government's ‘interest in property,’ " which falls within the gambit of Bankruptcy Rule 7001(2). Mot. Summ. J. ¶ 15 (quoting Fed. R. Bankr. P. 7001(2) ). The two other two requests seek "declaratory relief relating to [the Liquidating Trustee's] upcoming proceeding to ‘recover money or property’ " and are covered by Bankruptcy Rules 7001(1) and 7001(9). Id. ¶ 14 (quoting Fed. R. Bankr. P. 7001(1) ).

But notwithstanding the U.S. Trustee's assertions to the contrary, this procedural conundrum does...