Czyzewski v. Jevic Holding Corp.

2017-03-22

Headline: Bankruptcy courts cannot approve 'structured dismissals' that skip mid-priority creditors; the Court blocks nonconsensual priority-skipping distributions and protects ordinary creditor priority rules.

Holding: The Court held that a bankruptcy court lacks authority to order final distributions that skip higher-priority creditors in a Chapter 11 dismissal unless those affected creditors consent.

Real World Impact:

Prevents courts from approving dismissals that skip higher-priority creditors without their consent.
Preserves wage and tax priority protections for mid-priority claimants like former employees.
May reduce use of settlements tied to dismissals and alter creditor bargaining dynamics.

Topics: bankruptcy payouts, creditor priority, employee wage claims, structured dismissals

Summary

Background

A group of former truckdrivers held mid-priority wage claims after Jevic’s shutdown, and a committee sued Sun and CIT over a leveraged buyout that allegedly harmed creditors. With limited assets left, the parties proposed a settlement tied to a "structured dismissal" that would pay secured creditors and general unsecured creditors but skip the truckdrivers’ mid-priority WARN claims. The Bankruptcy Court and lower courts approved that settlement and dismissal despite objections from the truckdrivers and the U.S. Trustee.

Reasoning

The Court considered whether a bankruptcy court, when dismissing a Chapter 11 case, may order final distributions that depart from the Bankruptcy Code’s statutory priority order without the consent of the affected creditors. The majority explained that the Code’s priority system is fundamental and that dismissals typically restore the prebankruptcy status quo under §349(b). Although §349(b) allows courts to act "for cause" in limited ways, the Court found no statutory authorization to permit nonconsensual distributions that skip higher‑priority creditors. The Court reversed the Third Circuit and held such priority‑violating structured dismissals unlawful.

Real world impact

The ruling means courts may not use dismissals as a backdoor to pay some creditors ahead of others without consent, protecting statutory payment order for creditors including wage claimants. It may reduce certain settlement-driven dismissals and change how parties negotiate distributions at the end of business bankruptcies. The case is reversed and remanded for further proceedings.

Dissents or concurrances

Justice Thomas, joined by Justice Alito, would have dismissed the writ as improvidently granted and criticized deciding the novel question without broader appellate input.