Czyzewski v. Jevic Holding Corp. Case Brief

Facts of the Case

Respondent Jevic Transportation filed for Chapter 11 bankruptcy after being purchased in a leveraged buyout. The bankruptcy prompted two lawsuits. In the first, a group of former Jevic truckdrivers, petitioners here, was awarded a judgment against Jevic for Jevic’s failure to provide proper notice of termination in violation of state and federal Worker Adjustment and Retraining Notification (WARN) Acts. Part of that judgment counted as a priority wage claim under, entitling the workers to payment ahead of general unsecured claims against the Jevic estate. In the second suit, a court-authorized committee representing Jevic’s unsecured creditors sued Sun Capital and CIT Group, respondents here, for fraudulent conveyance in connection with the leveraged buyout of Jevic. These parties negotiated a settlement agreement that called for a structured dismissal of Jevic’s Chapter 11 bankruptcy. Under the proposed structured dismissal, petitioners would receive nothing on their WARN claims, but lower-priority general unsecured creditors would be paid. Petitioners argued that the distribution scheme accordingly violated the Code’s priority rules by paying general unsecured claims ahead of their own. The Bankruptcy Court nevertheless approved the settlement agreement and dismissed the case, reasoning that because the proposed payouts would occur pursuant to a structured dismissal rather than an approved plan, the failure to follow ordinary priority rules did not bar approval. The District Court and the Third Circuit affirmed.

Question

“1. Did Gamble’s pro se complaint that the Walls unit subjected him to cruel and unusual punishment raise a constitutional question or state a claim upon which relief can be granted?2. Did the Fifth Circuit err in reversing the district court’s summary dismissal of Gamble’s complaint because the complaint rested on a disagreement between licensed physicians about Gamble’s injury?”

CONCLUSION

“Bankruptcy courts cannot authorize distributions of settlement proceeds that do not follow the priority distribution scheme established in the Bankruptcy Code without the consent of the affected creditors. Justice Stephen G. Breyer delivered the opinion of the 6-2 majority. The Court held that, although the Bankruptcy Code does not explicitly state that the priority distribution rules apply to structured dismissal settlements, the priority system is so integral to the Bankruptcy Code that it should be presumed to apply absent an affirmative expression of Congress’ intent to do otherwise. Although the dismissal sections of the Bankruptcy Code grant judges some flexibility, that flexibility should be interpreted in the larger context of the statute as limited to orders that protect the reliance interests in the bankruptcy case, including those based on the priority rules. Although there have been lower court holdings that have allowed for settlement distributions that violated the priority scheme, those were interim dispositions, rather than final dispositions as in this case. Allowing a settlement distribution to deviate from the priority distribution scheme at the final distribution stage would circumvent the Bankruptcy Code’s procedural safeguards and therefore is impermissible.Justice Clarence Thomas wrote a dissent in which he argued that the parties briefed and argued a narrower issue than they had first presented to the Court. While the original question had been the subject of multiple cases in the lower courts that had come out different ways, the narrower formulation of the question has not been extensively addressed by the lower courts and the Court should have declined to answer it. Justice Alito joined in the dissent.”

Case Information

Citation: 580 US (2017)
Granted: Jun 28, 2016
Argued: Dec 7, 2016
Decided: Mar 22, 2017
Case Brief: 2017