Court ponders constitutionality of disparate fees in business bankruptcy cases

Monday’s argument in Siegel v. Fitzgerald was a meandering exercise that shed little direct light on how the justices will dispose of this matter. As I explain below, my best guess is that the protracted questioning about what the court should do if it holds the challenged provision unconstitutional suggests that most of the justices are seriously considering that outcome.

As my preview explains in more detail, Siegel is a rare case under the Constitution’s bankruptcy clause. The question is whether the system for administering business bankruptcy cases failed to provide “uniform Laws on the subject of Bankruptcies throughout the United States” – as the Constitution requires – during a period when a separate system for administering business bankruptcy cases imposed markedly lower fees in Alabama and North Carolina than in the remainder of the nation.

Daniel Geyser presented argument for the estate of failed retailer Circuit City, which paid about $600,000 more in fees while it was in bankruptcy than it would have had it filed in Alabama or North Carolina. Much of his argument was spent deflecting questions about minor administrative variations. Justice Stephen Breyer asked what would happen if “bankruptcy judges somewhere say we want to start court at 11,” but “other states say no, [we want to start at] 9.” Chief Justice John Roberts was preoccupied with what would happen under Geyser’s position if “one district decides they’re going to buy computers from computer company A and another says no, we’re going to buy them from B.”

Geyser maintained a steady position that the question was whether Congress established the disuniformity. So, under his argument, there would be no problem if Congress permitted all districts to pick their starting time or their computer supplier; it would start to be problematic, though, if Congress required some districts to start at 9 and permitted others to choose when they started. Even then, he emphasized, the court might hold that choosing the time when hearings begin is not a “Law[] on the subject of Bankruptcies.”

Several lines of questioning indicate a disparate group of justices reconciled to the idea that the differential system of administration cannot pass constitutional scrutiny. Justice Sonia Sotomayor, for example, suggested to Geyser a reluctance to “announce a rule that says your laws have to be uniform all the time,” paired with a “gut feeling” that Congress shouldn’t be able to say “this state is going to let the taxpayers pay for something, and the other 48 states don’t have that choice” because businesses must pay the costs themselves.

Justice Elena Kagan was even more pointed, describing the challenged arrangement as “a top-down imposition of a fee structure that predictably can’t help but disadvantage both debtors and creditors in 48 states as compared to two states.” When Curtis Gannon, arguing for the federal government, tried to defend it, she posed a hypothetical: