Czyzewski v. Jevic Holding Corp.

PETITIONER: Casimir Czyzewski, et al.
RESPONDENT: Jevic Holding Corp., et al.
LOCATION: U.S. Bankruptcy Court for the District of Delaware

DOCKET NO.: 15-649
DECIDED BY:
LOWER COURT: United States Court of Appeals for the Third Circuit

CITATION: US ()
GRANTED: Jun 28, 2016
ARGUED: Dec 07, 2016

ADVOCATES:
Christopher Landau - for respondents
Danielle Spinelli - for petitioners
Sarah E. Harrington - for United States as amicus curiae

Facts of the case

Jevic Transportation, Inc. was a trucking company headquartered in New Jersey that in 2006 was purchased by a subsidiary of Sun Capital Partners. In 2008, Jevic filed for bankruptcy under Chapter 11 of the Bankruptcy Code; at that point, it owed about $53 million to its first-priority senior secured creditors and about $20 million to its tax and general unsecured creditors. Two lawsuits ensued in bankruptcy court: one was the truck drivers suing Jevic for violating federal and state Worker Adjustment and Retraining Notification Acts, which required 60 days’ notice to workers before they were laid off, and the other was a fraudulent conveyance action on behalf of the unsecured creditors. In March 2012, the parties to the fraudulent conveyance action negotiated a structured dismissal settlement that disposed of many of the claims, but left out the drivers. The drivers objected to the settlement because it distributed property to creditors of lower priority than the drivers, according to the priorities established in the Bankruptcy Code. The bankruptcy court rejected the objections and approved the proposed settlement. The federal district court and the U.S. Court of Appeals for the Third Circuit affirmed and held that the bankruptcy court had the discretion to approve a settlement scheme outside of the Chapter 11 proceedings that did not comply with the Bankruptcy Code’s distribution scheme.

Question

Can a bankruptcy court authorize a distribution of settlement proceeds in a manner that does not comply with the Bankruptcy Code’s priority distribution scheme?

Media for Czyzewski v. Jevic Holding Corp.

Audio Transcription for Oral Argument - December 07, 2016 in Czyzewski v. Jevic Holding Corp.

John G. Roberts, Jr.:

We'll hear argument this morning in Case 15-649, Czyzewski v. Jevic Holding Corporation. Ms. Spinelli.

Danielle Spinelli:

Mr. Chief Justice, and may it please the Court: Chapter 11 provides one way to distribute estate assets to creditors on account of their prepetition claims through a confirmed plan that adheres to the code's priority scheme.

If a Chapter 11 plan can't be confirmed, the bankruptcy court can convert the case to Chapter 7, which also requires that creditors be paid in order of priority, or it can simply dismiss the case without distributing assets to creditors at all, returning all parties to their prebankruptcy position. No provision of the Bankruptcy Code permits what happened here: an order dismissing a Chapter 11 case that distributed all the estate's assets to creditors, but deliberately skipped over our clients' priority claims.

Sonia Sotomayor:

May I ask you: Did the settlement bar you from suing the debtor for the WARN Act claims?

Danielle Spinelli:

No, it did not.

Sonia Sotomayor:

And there was no money left to the debtor.

So did it bar you from suing Sun Life for a fraudulent transfer, which --

Danielle Spinelli:

It did.

Sonia Sotomayor:

It did.

Danielle Spinelli:

It did, Justice Sotomayor, and I think that's -- that's critical.

What this settlement did is it took away our client's right to pursue either the debtor or Sun and CIT on account of their undisputed WARN Act claims, which were in the area of $12 million.

Sonia Sotomayor:

All right.

In the court below, I understand that the -- that you represented that if this settlement went through, that you would have -- I'm sorry -- that if -- without the settlement, you would really have nothing, because there was no money in the estate. So are you representing that your client intends to sue Sun Life? Because that's the only way to get money here.

Danielle Spinelli:

Well, let me -- let me respond to that, Justice Sotomayor.

There are a few things that could happen if this Court reverses the order below and the case is remanded.

Sonia Sotomayor:

That's fine.

Tell me which one you're going to do.

Danielle Spinelli:

Well, that's really up to the bankruptcy court.

Sonia Sotomayor:

All right.

So what do you -- are you going to ask them to do?

Danielle Spinelli:

What we had asked for before, and what may well make the most sense, is conversion to Chapter 7, in which case either the Chapter 7 trustee could pursue the fraudulent-transfer claim --

Sonia Sotomayor:

But there is no money in the estate to do that.

So how will the trustee do that?

Danielle Spinelli:

The trustee would have to retain contingency counsel, and that does happen.

I was involved in a Chapter 7 case where the trustee pursued an avoidance action successfully with contingency counsel. Failing that, if the trustee decided not to do that, after the bankruptcy is over, the fraudulent-transfer claim would revest in the creditors, and our clients could then bring that claim themselves.

Samuel A. Alito, Jr.:

There is a difference -- there seems to be a difference between what you have said on this point in your briefs and in your argument this morning and what you told the Third Circuit or what -- did you -- did your firm represent -- appear in the Third Circuit?

Danielle Spinelli:

Not until the rehearing stage.

Samuel A. Alito, Jr.:

Well, in the Third Circuit oral argument, it was said over and over, well, we just want to make sure that the law is filed -- is followed. That's what we are interested in. Isn't that right?

Danielle Spinelli:

We certainly do want to make sure that the law is followed.

I mean, we --

Sarah from Law Aspect

Hi there, would you like to get such a paper? How about receiving a customized one? Check it out https://goo.gl/9aavBA