Everything you need to know about ranked-choice voting in one spot. Click to learn more!

Czyzewski v. Jevic Holding Corp.

From Ballotpedia
Jump to: navigation, search



Supreme Court of the United States
Czyzewski v. Jevic Holding Corp.
Reference: 15-649
Issue: Bankruptcy
Term: 2016
Important Dates
Argued: December 7, 2016
Decided: March 22, 2017
Outcome
Third Circuit Court of Appeals reversed and remanded
Vote
6-2 to reverse and remand
Majority
Chief Justice John G. Roberts • Anthony Kennedy • Ruth Bader Ginsburg • Stephen Breyer • Sonia Sotomayor • Elena Kagan
Concurring
None
Dissenting
Clarence Thomas • Samuel Alito


Czyzewski v. Jevic Holding Corp. is a case argued during the October 2016 term of the U.S. Supreme Court. Argument in the case was held on December 7, 2016. The case came on a writ of certiorari to the United States Court of Appeals for the 3rd Circuit. On March 22, 2017, in a 6-2 opinion by Justice Stephen Breyer, the court reversed and remanded the judgment of the Third Circuit Court of Appeals. The court held that a bankruptcy court does not have the authority to authorize asset distribution to creditors in a structured bankruptcy dismissal outside of the priority order established by the U.S. Bankruptcy Code absent the consent of the creditors.

HIGHLIGHTS
  • The case: A class of drivers was excluded from a structured settlement resulting from their former employer's Chapter 11 bankruptcy. Under the payment priority scheme of § 507 of the U.S. Bankruptcy Code, the drivers held higher priority claims than some of the creditors that received payouts under the settlement. A federal bankruptcy court approved the settlement, which a federal district court and the Third Circuit Court of Appeals affirmed on appeal.
  • The issue: Can a bankruptcy court authorize a distribution of settlement proceeds in a way that violates the U.S. Bankruptcy Code's priority scheme?
  • The outcome: On March 22, 2017, in a 6-2 opinion by Justice Stephen Breyer, the court reversed and remanded the judgment of the Third Circuit Court of Appeals.


    • In brief: After Jevic Holding Corporation entered Chapter 11 bankruptcy, a settlement was reached between Jevic's first-priority secured creditors and a committee assigned to represent Jevic's unsecured creditors. One other group of potential claimants however, Jevic's drivers, were omitted from the settlement despite the fact that the drivers had higher-priority claims under § 507 of the U.S. Bankruptcy Code. The bankruptcy court, citing the "dire circumstances" in the bankruptcy, approved the settlement. A federal district court and the United States Court of Appeals for the 3rd Circuit affirmed the settlement on appeal, though the Third Circuit admitted in their opinion that "it is a close call." Oral argument in the case was held on December 7, 2016.

    You can review the Third Circuit's opinion here.[1]

    Click on the tabs below to learn more about this Supreme Court case.

    Case


    Background

    On May 20, 2008, Jevic Holding Corporation (Jevic), the respondent, filed a voluntary Chapter 11 petition for bankruptcy. Jevic owed approximately $53 million dollars to its "first-priority senior secured creditors" CIT Group (CIT) and Sun Capital Partners (Sun). Sun Capital, a private equity firm, acquired Jevic in 2006 in a leveraged buyout financed by a group of lenders including CIT Group. In addition to Sun Capital and CIT, Jevic owed "over $20 million to its tax and general unsecured creditors." In June 2008, an official committee of unsecured creditors (Committee) was appointed to represent the unsecured creditors. During bankruptcy proceedings, two lawsuits were filed. One class-action lawsuit, filed by a class of terminated drivers for Jevic, alleged violations of the Worker Adjustment and Retraining Notification Acts (WARN), under which Jevic was required to provide 60 days notice, in writing, before laying off the drivers. The second lawsuit, called a fraudulent conveyance suit, was filed by the Committee against CIT and Sun alleging that Sun, with CIT's assistance, acquired Jevic with "virtually none of its own money" and "hastened Jevic's bankruptcy by saddling it with debts that it couldn't service." The Committee's lawsuit alleged that Jevic's bankruptcy was "the foreseeable end of a reckless course of action in which Sun and CIT bore no risk but all other constituents did."[1]

    In March 2012, the Committee, CIT, Sun, and the drivers, began settlement proceedings. The Committee, Sun, CIT, and the remnants of Jevic reached a settlement agreement that did the following:[1]

    “

    First, those parties would exchange releases of their claims against each other and the fraudulent conveyance action would be dismissed with prejudice. Second, CIT would pay $2 million into an account earmarked to pay Jevic’s and the Committee’s legal fees and other administrative expenses. Third, Sun would assign its lien on Jevic’s remaining $1.7 million to a trust, which would pay tax and administrative creditors first and then the general unsecured creditors on a pro rata basis. Lastly, Jevic’s Chapter 11 case would be dismissed. [2]

    		”

    This type of settlement in bankruptcy law is known as a structured settlement. In a structured settlement, the bankruptcy is completed with certain conditions attached instead of dismissing the bankruptcy case and restoring the parties' legal standing as it was prior to the initiation of bankruptcy proceedings. According to the opinion of the Third Circuit Court of Appeals, however, "There was just one problem with the settlement: it left out the Drivers ... The Drivers never got the chance to present a damages case in the Bankruptcy Court ... The record is not explicit as to why the settlement did not provide for any payment to the Drivers even though they held claims of higher priority than the tax and trade creditors' claims." According to the circuit opinion, it appeared that the drivers were omitted from the settlement because the drivers and the other parties could not come to a settlement on the WARN lawsuit. Also, the Committee had an interest in settling quickly "because a settlement that paid the Drivers' priority claim would have left the Committee's constituents with nothing."[1]

    The Drivers and a U.S. trustee objected to the settlement on three separate grounds:

    • 1. The settlement distributed property to creditors of lower priority than the drivers in violation of § 507 of the U.S. Bankruptcy Code.
    • 2. The Bankruptcy Code does not permit structured settlements.
    • 3. The Committee breached its fiduciary duty by agreeing to a settlement that did not include the drivers.

    In sustaining the settlement, the bankruptcy court noted that while the Bankruptcy Code did not have a provision for the type of settlement distribution and dismissal that was used in this case, the court held that the "dire circumstances" justified the relief sought by the other parties. On appeal, the United States District Court for the District of Delaware affirmed the bankruptcy court's actions. The drivers appealed to the Third Circuit Court of Appeals. [1]

    Rather than challenge the propriety of the settlement, the drivers claimed that the bankruptcy court lacked the legal authority to approve a structured settlement to the extent that the settlement deviated from § 507's priority system. The Third Circuit acknowledged that "the Drivers' argument is not without force" and that "two of our sister circuits have grappled with whether the priority scheme of § 507 must be followed when settlement proceeds are distributed in Chapter 11 cases." The key principle, according to the Third Circuit, was that if settlements were fair and equitable, then bankruptcy courts could approve settlements that deviate from § 507's priority scheme provided the court has "specific and reasonable grounds to justify [the] deviation." In this case, the Third Circuit held that the bankruptcy court met the standards for fairness and equability and that the grounds for deviating from the Bankruptcy Code were specific and reasonable, although the circuit panel admitted "it is a close call."[1]

    Petitioner's challenge

    The class of drivers, led by the lead named petitioner, Casimir Czyzewski, are challenging the holding that the Bankruptcy Code permits a bankruptcy court to authorize distribution of settlement proceeds in a manner that violates the Code's priority scheme.[3]

    Certiorari granted

    On November 16, 2015, Casimir Czyzewski et al., the petitioners, initiated proceedings in the Supreme Court of the United States in filing a petition for a writ of certiorari to the United States Court of Appeals for the 3rd Circuit. The U.S. Supreme Court granted Czyzewski's certiorari request on June 28, 2016. Oral argument in the case was held on December 7, 2016.

    Arguments


    Question presented

    Question presented:

    "Whether a bankruptcy court may authorize the distribution of settlement proceeds in a manner that violates the statutory priority scheme."[3]


    Audio

    • Audio of oral argument:[4]



    Transcript

    • Transcript of oral argument:[5]

    Outcome

    Decision

    In a 6-2 decision by Justice Stephen Breyer, the Supreme Court reversed and remanded the judgment of the Third Circuit Court of Appeals. Justice Clarence Thomas wrote a dissenting opinion which was joined by Justice Samuel Alito. In the opinion, the court held that a bankruptcy court does not have the authority to authorize asset distribution to creditors in a structured bankruptcy dismissal outside of the priority order established by the U.S. Bankruptcy Code absent the consent of the creditors.[6]

    Opinion

    In his opinion for the court, Justice Breyer held that the Constitution does not recognize a rare case exception to the priority order established by the U.S. Bankruptcy Code in a structured bankruptcy dismissal. Justice Breyer wrote,[6]

    “

    The importance of the priority system leads us to expect more than simple statutory silence if, and when, Congress were to intend a major departure ... we would expect to see some affirmative indication of intent if Congress actually meant to make structured dismissals a backdoor means to achieve the exact kind of nonconsensual priority-violating final distributions that the Code prohibits in Chapter 7 liquidations and Chapter 11 plans. We can find nothing in the statute that evinces this intent. The Code gives a bankruptcy court the power to 'dismiss' a Chapter 11 case. But the word 'dismiss' itself says nothing about the power to make nonconsensual priority-violating distributions of estate value. Neither the word 'structured,' nor the word 'conditions,' nor anything else about distributing estate value to creditors pursuant to a dismissal appears in any relevant part of the Code. ... Nothing else in the Code authorizes a court ordering a dismissal to make general end-of-case distributions of estate assets to creditors of the kind that normally take place in a Chapter 7 liquidation or Chapter 11 plan—let alone final distributions that do not help to restore the status quo ante or protect reliance interests acquired in the bankruptcy, and that would be flatly impermissible in a Chapter 7 liquidation or a Chapter 11 plan because they violate priority without the impaired creditors’ consent. ... We recognize that the Third Circuit did not approve nonconsensual priority-violating structured dismissals in general. To the contrary, the court held that they were permissible only in those 'rare case[s]' in which courts could find “sufficient reasons” to disregard priority. ... Despite the 'rare case' limitation, we still cannot agree. ... and ... we conclude that Congress did not authorize a 'rare case' exception. [2]

    		”

    Concurring opinions

    There were no concurring opinions filed.

    Dissenting opinions

    Justice Clarence Thomas filed a dissenting opinion which was joined in full by Justice Samuel Alito. In his view, the court answered the wrong question in the case. Originally, the court granted certiorari to decide the question of whether a bankruptcy court could authorize the distribution of settlement proceeds in a manner that violated the statutory priority scheme. However, after certiorari was granted, Justice Thomas stated that the petitioners reframed the question to ask whether a Chapter 11 bankruptcy case could be terminated by a structured dismissal that distributed estate property in violation of the statutory priority scheme. In Justice Thomas' view, certiorari was improvidently granted and the appeal should have been dismissed. In his words,[6]

    “

    I think it is unwise for the Court to decide the reformulated question today, for two reasons. First, it is a 'novel question of bankruptcy law' arising in the rapidly developing field of structured dismissals. ... Experience shows that we would greatly benefit from the views of additional courts of appeals on this question. We also would have benefited from full, adversarial briefing. In reliance on this Court’s Rules prohibiting parties from changing the substance of the question presented ... respondents declined to brief the question that the majority now decides. ... Second, deciding this question may invite future petitioners to seek review of a circuit conflict only then to change the question to one that seems more favorable. 'I would not reward such bait-and-switch tactics.' [2]

    		”


    The opinion

    Filings

    The court granted Czyzewski's certiorari request on June 28, 2016.

    Merits filings

    Parties' filings

    • Casimir Czyzewski et al., the petitioners, filed a merits brief on August 26, 2016.
    • Jevic Holding Group, the respondents, filed a merits brief on October 12, 2016.
    • Czyzewski et al. filed a reply brief on the merits on November 14, 2016.

    Amicus curiae filings

    The following groups filed amicus curiae brief in support of the petitioners, Casimir Czyzewski et al.

    • Brief of the Loan Syndications and Trading Association
    • Brief of the National Employment Law Project et al.
    • Brief of the United States of America
    • Brief of various law professors


    The following groups filed amicus curiae brief in support of the respondents, Jevic Holding Group.

    • Brief of Professor Jagdeep S. Bhandari et al.
    • Brief of Professors David Gray Carlson, Jack F. Williams, and David R. Kuney

    Certiorari filings

    Parties' filings

    • Casimir Czyzewski et al., the petitioners, filed a petition for certiorari on November 16, 2015.
    • Jevic Holding Corp. et al., the respondents, filed a brief in opposition to certiorari on January 19, 2016.

    Amicus curiae filings

    The following groups filed amicus curiae briefs in support of granting certiorari.

    • Brief of the National Employment Law Project and National Consumers League
    • Brief of the United States of America
    • Brief of various law professors

    See also

    Footnotes

    1. ↑ 1.0 1.1 1.2 1.3 1.4 1.5 U.S. Court of Appeals for the Third Circuit, In re: Jevic Holding Corp. et al. v. CIT Group et al. and Casimir Czyzewski et al., May 21, 2015
    2. ↑ 2.0 2.1 2.2 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
    3. ↑ 3.0 3.1 Supreme Court of the United States, Czyzewski v. Jevic Holding Corp., June 28, 2016
    4. ↑ Supreme Court of the United States, Czyzewski v. Jevic Holding Corp., argued December 7, 2016
    5. ↑ Supreme Court of the United States, Czyzewski v. Jevic Holding Corp., argued December 7, 2016
    6. ↑ 6.0 6.1 6.2 Supreme Court of the United States, Casimir Czyzewski et al. v. Jevic Holding Corp., decided March 22, 2017
    Retrieved from "https://ballotpedia.org/wiki/index.php?title=Czyzewski_v._Jevic_Holding_Corp.&oldid=8891637"