Term: 2016
Docket: 15-649
Czyzewski v. Jevic Holding Corp.
- Pro
15-649 CZYZEWSKI V. JEVIC HOLDING CORP. DECISION BELOW: 787 F.3d 173 CERT. GRANTED 6/28/2016 QUESTION PRESENTED: Section 507 of the Bankruptcy Code grants payment priority to some unsecured claims, including claims for certain wages and employee benefits earned before the bankruptcy filing. 11 U.S.C. § 507(a)(4), (5). Such priority claims must be paid in full before other unsecured claims may be paid from estate assets. The debtor in this chapter 11 case agreed to settle a cause of action belonging to the estate. Rather than distributing the settlement proceeds under a confirmed plan of reorganization, the debtor then sought a "structured dismissal" of the bankruptcy case. The dismissal order provided that the settlement proceeds would be paid to general unsecured creditors, rather than to petitioners, former employees of the debtor whose claims have priority over those of general unsecured creditors under § 507(a)(4) and (5). The question presented, on which the courts of appeals are divided, is: Whether a bankruptcy court may authorize the distribution of settlement proceeds in a manner that violates the statutory priority scheme. LOWER COURT CASE NUMBER: 14-1465
The U.S. Supreme Court case Czyzewski v. Jevic Holding Corp., 2016, revolved around the issue of structured dismissals in bankruptcy cases and whether they can deviate from the absolute priority rule. The employees of Jevic Transportation filed a lawsuit against their former employer for violating federal and state Worker Adjustment and Retraining Notification (WARN) Acts when it declared bankruptcy without warning its workers. While this suit was pending, two other entities - Sun Capital Partners (a private equity firm) and CIT Group (a lender), both accused by unsecured creditors of hastening Jevic's bankruptcy - proposed a settlement that would bypass WARN Act claimants entirely despite their higher priority status under standard Chapter 11 procedure rules. This led to an appeal reaching the Supreme Court which ruled in favor of the employees, stating that such structured dismissals cannot violate basic priority rules unless there are compelling reasons to do so.
In the dissenting opinion for Czyzewski v. Jevic Holding Corp., Justice Thomas argued that the majority's decision was based on a misinterpretation of bankruptcy law and precedent. He contended that there is no explicit prohibition in the Bankruptcy Code against structured dismissals that deviate from standard priority rules, as long as they serve to maximize estate value for all creditors. Furthermore, he pointed out previous cases where courts approved interim distributions violating absolute priority rule during Chapter 11 proceedings without any objections. Thus, he believed it should be left to Congress to amend the code if such deviations are deemed inappropriate rather than having judiciary create new prohibitions not explicitly stated in law itself.
