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Bankruptcy trustees clamor for high court ground control on skyrocketing fees

The challenge takes aim at a law that has divided lower federal courts with millions of dollars in bankruptcy fees hanging in the balance.

WASHINGTON (CN) — The Supreme Court took up a challenge Monday to a new federal law that massively hiked up quarterly bankruptcy fees across most of the United States.

As recounted by trustees of the bankrupt electronics retailer Circuit City, the Bankruptcy Judgeship Act of 2017 set an 833% hike on the maximum fee that Chapter 11 debtors, companies or corporations undergoing reorganization must pay to stay afloat. For all pending and future cases in every district outside of North Carolina and Alabama, the maximum quarterly fee could go up to $250,000 in place of the old max of $30,000.

"This disparity has left identically situated debtors paying drastically different fees based solely on the happenstance of where their bankruptcy was filed," Circuit City trustee Alfred Siegel wrote in his petition for a writ of certiorari.

Represented by Haynes and Boone, Siegel argues that the court's input is needed to settle circuit conflict. While both the Second and 10th U.S. Circuit Courts of Appeal rejected the law as unconstitutional, the Fourth Circuit ruled against Siegel, adopting a split decision of the Fifth Circuit.

Millions of dollars in workers' compensation meanwhile is at stake in a second case that the Supreme Court included in its Monday list of orders.

The U.S. government is the petitioner in this case, taking aim at the expansion of workers' compensation by state officials for the 10,000 federal contractors tasked with cleaning up a decommissioned nuclear site in Hanford, Washington — work that began in 1989 and is expected to last six more decades.

"The practical consequences of the panel’s mistake are far-reaching," the petition states. "Even if the Hanford site is considered in isolation, the decision is likely to cost the United States tens of millions of dollars annually for the remainder of the 21st century. And the panel’s logic opens the door to discriminatory state legislation targeting other federal facilities throughout the Nation’s largest circuit. This court should intervene to forestall the 'sweeping implications' of the panel’s 'egregious error.'"

Washington state adopted the legal change to its workers' comp scheme in 2018, establishing a presumption that certain medical conditions and cancers are classified as occupational diseases if they are exhibited by any workers from the Hanford site.

After the Ninth Circuit rejected its challenge to the scheme, the U.S. government is seeking a reversal.

Finally on Monday, the Supreme Court granted a writ of certiorari to federal prisoner Dexter Earl Kemp, who asks whether the federal rules of civil procedure authorize relief from a final judgement in a criminal case if the district court has made a mistake.

Kemp was sentenced to 35 years in prison in 2012, but federal public defender Andrew Adler says his motion for post-conviction relief was improperly dismissed as untimely after the district court categorized it incorrectly as a different type of motion.

Both the Southern District of Florida and by the 11th Circuit have previously ruled against Kemp.

Per the court’s custom, it did not issue any comment Monday on the cases it has decided to hear. The Monday order list also contains dozens of denied cases, including one that sought clarity on federal sentencing guidelines that mandate longer sentences for people considered "career offenders," either because they have histories of violent crimes or possession of controlled substance offenses.

Thomas Guerrant, who is serving 10 years for drug charges, urged the Supreme Court in his petition to settle what has become a nationwide dispute between circuit courts over the definition of "controlled substances" in the federal guidelines.

In Virginia, where Guerrant was convicted, state law says marijuana charges can be classified as controlled substance charges and can contribute to his classification as a "career offender."

Some circuit courts have interpreted the statute to mean substances controlled under federal law, but some circuit courts, including the Fourth Circuit where Guerrant's case was rejected, have said the guidelines apply to drugs classified as "controlled" by state law.

Though the high court turned Guerrant down, Justice Sonya Sotomayor, joined by Justice Amy Coney Barrett, called out to the U.S. Sentencing Commission in a statement, saying it should clarify the statute for the sake of uniform sentencing between states.

Sotomayor noted that for three years the commission has not had the number of voting members necessary to take action on the guidelines.

"As the instant petition illustrates, the resultant un-resolved divisions among the Courts of Appeals can have direct and severe consequences for defendants’ sentences. I hope in the near future the Commission will be able to resume its important function in our criminal justice system," Sotomayor wrote.

Guerrant's federal public defender Randy Cargill said he was disappointed in the court's refusal to hear the case, but remains hopeful that changes to how courts understand the guidelines will be made.

"Mr. Guerrant would not have received  this lengthy sentence in the many federal courts that follow the sensible rule that federal law controls — in federal court," Cargill said.

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