Czyzewski v. Jevic Holding Corp.
The Supreme Court ruled that bankruptcy courts cannot approve a 'structured dismissal' that pays some creditors ahead of others in violation of the bankruptcy code's normal priority order, unless the skipped creditors agree.
The ruling closes off a workaround some courts had allowed in the final stages of a bankruptcy case, reinforcing that the code's priority rules for who gets paid first apply even when a case ends by dismissal rather than through a formal reorganization plan or liquidation.
“A distribution scheme ordered in connection with the dismissal of a Chapter 11 case cannot, without the consent of the affected parties, deviate from the basic priority rules that apply under the primary mechanisms the Code establishes for final distributions of estate value in business bankruptcies.”
The Court's core holding that priority rules cannot be bypassed without creditor consent.
How it got here: A bankruptcy court approved the settlement and dismissal; the district court and the Third Circuit affirmed; the truck drivers asked the Supreme Court to review the priority-skipping distribution.
The Case in Depth
What happened
A group of truck drivers won a multimillion-dollar judgment against Jevic Transportation for failing to give required notice before mass layoffs, giving them a mid-level priority wage claim. Separately, a creditors' committee sued the private equity firm and lender behind Jevic's leveraged buyout for allegedly saddling the company with unsustainable debt. Those parties settled that lawsuit through an arrangement that paid low-priority general unsecured creditors while giving the truck drivers nothing.
The question before the Court
Could a bankruptcy court end a company's bankruptcy through a special deal that paid lower-priority creditors while skipping over higher-priority workers who never agreed to it?
Why it matters
Workers, tax authorities, and other priority creditors gain assurance that a company's remaining assets can't be funneled around them to lower-ranked creditors just because the case ends in dismissal rather than a plan or liquidation. Businesses and creditors negotiating end-of-case settlements must now structure deals that respect statutory priority or get every affected creditor's consent.
What changes now
The case returns to the lower courts for further proceedings consistent with the Court's ruling that the structured dismissal cannot stand as approved. The settlement and dismissal arrangement will need to be reworked to respect ordinary priority rules or secure the truck drivers' consent. This is a final merits decision, not a temporary order, and it will guide how bankruptcy courts nationwide handle similar end-of-case settlements going forward.
What this does not decide
The Court expressly said it was not deciding whether structured dismissals are lawful in general — only that they cannot include priority-skipping distributions without affected creditors' consent. It also did not rule on whether the truck drivers' underlying claims would ultimately succeed.
Concurrences and dissents
Dissent — Justice Thomas
“In light of that switch, I would dismiss the writ of certiorari as improvidently granted.”Thomas's objection that the Court decided a question different from the one it agreed to hear.
Justice Thomas argued the Court should not have decided the merits at all. He objected that the petitioners changed their question after the Court granted review, leaving the case without lower-court guidance on the actual issue decided and without full briefing from the other side. He would have dismissed the case as improvidently granted rather than reward what he called 'bait-and-switch tactics.'
How the Court got there
The legal reasoning, step by step
- The Court first addressed whether the truck drivers had legal standing to sue, applying the requirement that a plaintiff show a real injury that a favorable ruling could fix. It found the drivers had lost either a chance at a settlement respecting their priority or the ability to pursue the underlying lawsuit themselves, both of which counted as a redressable injury.
- Turning to the merits, the Court noted that the bankruptcy code's priority system — the fixed order in which different types of creditors get paid — is treated as a fundamental feature of business bankruptcy law, applying strictly in liquidations and, with limited flexibility, in reorganization plans.
- Because bypassing that priority system in a case-ending dismissal would be such a major departure from the code's structure, the Court looked for a clear, affirmative sign that Congress intended to allow it, reasoning that Congress does not hide major changes in vague statutory language.
- The Court found no such sign: the dismissal provisions of the code aim only to restore the situation as it was before the bankruptcy began or to protect reliance interests, not to authorize final distributions that skip favored creditors without their consent.
- The Court distinguished cases allowing priority deviations for interim payments, such as paying critical suppliers to keep a business running, because those served ongoing bankruptcy goals like preserving the company as a going concern — unlike the final, one-time payout here.
- The Court also rejected a 'rare case' exception for situations with 'sufficient reasons' to skip priority, concluding that such a vague standard would invite abuse and undermine the certainty the priority system is meant to provide.
Doctrinal impact
Cases affected by this decision
Distinguishes In re Iridium Operating LLC (478 F. 3d 452)
The Court said this case involved a mid-case settlement, not a final dismissal, so it doesn't support skipping priority rules here.