USA Sales, Inc. v. Office of The United States Trustee

• Court: District Court, C.D. California
• Decided: December 17, 2024
• Docket: 5:19-cv-02133
• Status: Unknown

Opinion

1 O 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE CENTRAL DISTRICT OF CALIFORNIA 10 11 USA SALES, INC., a California Case No. 5:19-cv-02133-JWH-KK Corporation dba Statewide 12 Distributors, ORDER DENYING 13 Plaintiff, DEFENDANT’S MOTION FOR JUDGMENT ON THE PLEADINGS 14 v. [ECF No. 69]

15 OFFICE OF THE UNITED STATES TRUSTEE, 16 Defendant. 17 18 19 20 21 22 23 24 25 26 27 1 Before the Court is the motion of Defendant Office of the United States 2 Trustee (the “U.S. Trustee”) for judgment on the pleadings.1 The Court 3 concludes that this matter is appropriate for resolution without a hearing. See 4 Fed. R. Civ. P. 78; L.R. 7-15. For the reasons detailed below, the Motion is 5 DENIED, and the Judgment in this case is AMENDED. 6 I. BACKGROUND 7 Plaintiff USA Sales, Inc.—a California tobacco distributor—filed a 8 Chapter 11 bankruptcy petition in May 2016.2 At that time, the relevant 9 statute—28 U.S.C. § 1930(a)(6)—capped the fees payable by a Chapter 11 10 debtor to the U.S. Trustee at $30,000 per quarter.3 In late 2017, Congress 11 amended that statute to increase the quarterly fees applicable to debtors such as 12 USA Sales.4 13 USA Sales commenced this civil case in November 2019.5 USA Sales 14 challenged the constitutionality of the statute, and it argued that, as a matter of 15 statutory interpretation, the quarterly fee increase should not apply to USA 16 Sales.6 In April 2021, this Court concluded that the amendment to the quarterly 17 fee schedule did not apply to Chapter 11 cases that were commenced on or 18 before the amendment was enacted.7 This Court further concluded that, even if 19 the amendment did apply to USA Sales’s Chapter 11 case, the amendment to 20 the fee schedule violated the Bankruptcy Clause of the United States 21 1 Def.’s Mot. for J. on the Pleadings (the “Motion”) [ECF No. 69]. 22 2 See Mem. Op. on Cross-Motions for Summ. J. (the “Memorandum 23 Opinion”) [ECF No. 49] 9:2-5. 24 3 See id. at 3:3-5. 25 4 See id. at 3:5-20. 26 5 See id. at 4:1. 27 6 See id. at 4:1-8. 1 Constitution.8 This Court granted summary judgment to USA Sales and ruled 2 that USA Sales was entitled to a refund from the U.S. Trustee.9 3 In June 2022, the U.S. Supreme Court issued its opinion in Siegel v. 4 Fitzgerald, 596 U.S. 464 (2022). In Siegel, the Supreme Court held that the 2017 5 amendments to the fee statute were unconstitutional, but it declined to decide 6 the proper remedy for that violation. See id. at 480-81. Following that decision, 7 the Ninth Circuit issued an opinion affirming this Court’s determination that 8 USA Sales was entitled to a refund. See USA Sales, Inc. v. Office of the U.S. 9 Trustee, 76 F.4th 1248, 1255-56 (9th Cir. 2023). 10 In June 2024, the Supreme Court decided Office of the United States 11 Trustee v. John Q. Hammons Fall 2006, LLC, 144 S. Ct. 1588 (2024). In John Q. 12 Hammons, the Supreme Court held that prospective parity, and not a refund of 13 unconstitutional fees, was the proper remedy for the constitutional violation. 14 See id. at 1600. The Supreme Court also vacated the Ninth Circuit’s USA Sales 15 opinion and remanded for further consideration in view of John Q. Hammons.10 16 On remand from the Supreme Court, the Ninth Circuit issued an order 17 reversing and remanding this Court’s Judgment that USA Sales was entitled to a 18 refund.11 19 On October 9, 2024, this Court ordered the parties to meet and confer 20 regarding the posture of the case and to file a joint status report.12 On 21

22 8 See id. at 36:3-5. 23 9 See Judgment [ECF No. 52]. 24 10 See Order on Petition for Writ of Certiorari (the “Supreme Court Order”) [ECF Nos. 64 & 65]. 25 11 Order from Ninth Circuit Court of Appeals (the “Ninth Circuit Order”) 26 [ECF No. 66]; Mandate of Ninth Circuit Court of Appeals (the “Mandate”) 27 [ECF No. 67]. 1 October 25, 2024, the U.S. Trustee filed the instant Motion,13 which USA Sales 2 opposes.14 3 II. LEGAL STANDARD 4 At any time after the pleadings close and before the trial commences, a 5 party may move for judgment on the pleadings. See Fed. R. Civ. P. 12(c). A 6 motion under Rule 12(c) of the Federal Rules of Civil Procedure is substantively 7 identical to a motion to dismiss under Rule 12(b)(6); it tests the legal sufficiency 8 of the claims asserted in the complaint. See Erickson v. Boston Sci. Corp., 846 9 F. Supp. 2d 1085, 1089 (C.D. Cal. 2011) (internal citations omitted). In ruling 10 on a Rule 12(c) motion, the court accepts all allegations of the non-moving party 11 as true. See id. The court then determines “whether the complaint at issue 12 contains sufficient factual matter, accepted as true, to state a claim of relief that 13 is plausible on its face.” PersonalWeb Techs. LLC v. Google LLC, 8 F.4th 1310, 14 1314 (Fed. Cir. 2021) (applying Ninth Circuit procedural law) (internal 15 quotation marks omitted). 16 III. ANALYSIS 17 The parties dispute how this Court should proceed in view of the Ninth 18 Circuit mandate and the Supreme Court’s decision in John Q. Hammons. The 19 U.S. Trustee contends that this case must be dismissed because the Ninth 20 Circuit reversed this Court’s determination that USA Sales is entitled to a 21 refund.15 USA Sales, however, contends that it may continue to seek a refund 22 because its case is distinguishable from John Q. Hammons.16 23 24

25 13 See Motion. 26 14 See Opposition re: Motion (the “Opposition”) [ECF No. 73]. 27 15 See generally Motion. 1 The Court rejects both parties’ contentions. As an initial matter, it would 2 be inappropriate to dismiss the Complaint and to grant judgment in favor of the 3 U.S. Trustee because the Supreme Court and the Ninth Circuit have both held 4 that the fees at issue here were unconstitutional. See Siegel, 596 U.S. at 478; 5 USA Sales, 76 F.4th at 1255-56. USA Sales thus asserted a viable—and 6 successful—claim for relief, and the U.S. Trustee is not entitled to judgment in 7 its favor. Cf. Health Freedom Defense Fund, Inc. v. Carvalho, 104 F.4th 715, 722 8 (9th Cir. 2024) (noting that judgment on the pleadings in favor of a defendant is 9 proper only if a plaintiff’s “claims fail as a matter of law”). 10 However, it would also be inappropriate to permit USA Sales to continue 11 to seek a refund. According to USA Sales, it may continue to seek a refund 12 because the Supreme Court noted in John Q. Hammons that the petitioners “had 13 the opportunity to challenge their fees before they paid them,” but USA Sales 14 did not have a prepayment opportunity to challenge the unconstitutional fees at 15 issue here.17 See John Q. Hammons, 144 S. Ct. at 1600. USA Sales overreads the 16 importance of a prepayment opportunity to challenge fees. Although the 17 majority in John Q. Hammons referred to the availability of a prepayment 18 challenge, it made that reference to rebut due process arguments regarding prior 19 tax cases. See id. The remainder of the opinion is clear that, for various reasons 20 unrelated to any bankruptcy petitioner’s ability to contest the fees before 21 repaying them, “prospective parity . . . is sufficient to address the small, short- 22 lived disparity caused by” the nonuniform fees imposed here. See id. at 1598. 23 And even if that were not true, the Ninth Circuit Order and Mandate clearly 24 state that the remedy in this case is prospective parity, not a refund. See Firth v. 25 United States, 554 F.2d 990, 993 (9th Cir. 1977) (“[A] mandate is controlling as 26 to all matters within its compass . . . .”). 27 1 IV. DISPOSITION 2 For the foregoing reasons, the Court hereby ORDERS as follows: 3 1. The U.S. Trustee’s instant Motion for judgment on the pleadings 4|| [ECF No. 69] is DENIED. 5 2. The Judgment [ECF No. 52] will be AMENDED to reflect that the 6|| remedy in this case is prospective parity. 7 IT ISSO ORDERED.

_—ecember 2h ee MO 9|| Dated:_December 17, 2024 ° 10 {SNITED STATES DISTRICT TUDGE 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28