__ U.S. __ (2017), 15-649, Czyzewski v. Jevic Holding Corp.

Docket Nº:15-649
Citation:__ U.S. __, 137 S.Ct. 973, 197 L.Ed.2d 398, 85 U.S.L.W. 4115, 26 Fla.L.Weekly Fed. S 495
Opinion Judge:Breyer, Justice
Party Name:CASIMIR CZYZEWSKI, et al., Petitioners v. JEVIC HOLDING CORP., et al
Attorney:Danielle Spinelli argued the cause for petitioners. Sarah E. Harrington argued the cause for the United States, as amicus curiae, by special leave of court. Christopher Landau argued the cause for respondents.
Judge Panel:Breyer, J., delivered the opinion of the Court, in which Roberts, C. J., and Kennedy, Ginsburg, Sotomayor, and Kagan, JJ., joined. Thomas, J., filed a dissenting opinion, in which Alito, J., joined. Justice Thomas, with whom Justice Alito joins, dissenting.
Case Date:March 22, 2017
Court:United States Supreme Court
SUMMARY

Jevic filed for Chapter 11 bankruptcy after its purchase in a leveraged buyout. Former Jevic drivers were awarded a judgment for violations of state and federal Worker Adjustment and Retraining Notification (WARN) Acts, part of which was a priority wage claim under 11 U.S.C. 507(a)(4), entitling them to payment ahead of general unsecured claims. In another suit, a court-authorized committee representing unsecured creditors sued Sun... (see full summary)

 
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Page 973

137 S.Ct. 973 (2017)

197 L.Ed.2d 398, 85 U.S.L.W. 4115, 26 Fla.L.Weekly Fed. S 495

CASIMIR CZYZEWSKI, et al., Petitioners

v.

JEVIC HOLDING CORP., et al

No. 15-649

United States Supreme Court

March 22, 2017

Argued December 7, 2016

Page 974

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Reversed and remanded.

DECISION: Bankruptcy Courts were not allowed, without affected creditors' consent, to approve structured dismissals that provided for distributions that did not follow ordinary priority rules.

LAWYERS' EDITION HEADNOTES:

[197 L.Ed.2d 399]

Bankruptcy 352

DISMISSAL -- CHAPTER 11 -- PRIORITIES

Headnote: 1

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 Bankruptcy Code establishes for final distributions of estate value in business bankruptcies. (Breyer, J., joined by Roberts, Ch. J., and Kennedy, Ginsburg, Sotomayor, and Kagan, JJ.)

Bankruptcy 332

CHAPTER 11 -- OUTCOMES

Headnote: 2

Chapter 11 foresees three possible outcomes. The first is a bankruptcy-court-confirmed plan. Such a plan may keep the business operating but, at the same time, help creditors by providing for payments, perhaps over time. 11 U.S.C.S. sects; 1123, 1129, and 1141. The second possible outcome is conversion of the case to a Chapter 7 proceeding for liquidation of the business and a distribution of its remaining assets. 11 U.S.C.S. sects; 1112(a) and (b), 726. That conversion in effect confesses an inability to find a plan. The third possible outcome is dismissal of the Chapter 11 case. 11 U.S.C.S. § 1112(b). A dismissal typically revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case; in other words, it aims to return to the pre-petition financial status quo. 11 U.S.C.S. § 349(b)(3). (Breyer, J., joined by Roberts, Ch. J., and Kennedy, Ginsburg, Sotomayor, and Kagan, JJ.)

Bankruptcy 333

CHAPTER 11 -- DISMISSAL -- CONSEQUENCES

Headnote: 3

Recognizing that conditions may have changed in ways that make a perfect restoration of the status quo difficult or impossible, the Bankruptcy Code permits the bankruptcy court, for cause, to alter a Chapter 11 dismissal's ordinary restorative consequences. 11 U.S.C.S. § 349(b). A dismissal that does so (or which has other special conditions attached) is often referred to as a structured dismissal, defined by the American Bankruptcy Institute as a hybrid dismissal and confirmation order that typically dismisses the case while, among other things, approving certain distributions to creditors, granting certain third-party releases, enjoining certain conduct by creditors, and not necessarily vacating orders or unwinding transactions undertaken during the case. (Breyer, J., joined by Roberts, Ch. J., and Kennedy, Ginsburg, Sotomayor, and Kagan, JJ.)

Bankruptcy 147

ASSET DISTRIBUTION -- PRIORITIES

Headnote: 4

The Bankruptcy Code sets forth a basic system of priority, which ordinarily determines the order in which the bankruptcy court will distribute assets of the estate. Secured creditors are highest on the priority list, for they must receive the proceeds of the collateral that secures their debts. 11 U.S.C.S. § 725. Special classes of creditors, such as those who hold certain claims for taxes or wages, come next in a listed order. 11 U.S.C.S. sects; 507, 726(a)(1). Then come low-priority creditors, including general unsecured creditors. 11 U.S.C.S. § 726(a)(2). The Code places equity holders at the bottom of the priority list. They receive nothing until all previously listed creditors have been paid in full. 11 U.S.C.S. § 726(a)(6). (Breyer, J., joined by Roberts, Ch. J., and Kennedy, Ginsburg, Sotomayor, and Kagan, JJ.)

[197 L.Ed.2d 400]

Bankruptcy 147Bankruptcy 352

CHAPTERS 7 AND 11 -- PRIORITIES

Headnote: 5

The Bankruptcy Code makes clear that distributions of assets in a Chapter 7 liquidation must follow this prescribed order. 11 U.S.C.S. sects; 725, 726. It provides somewhat more flexibility for distributions pursuant to Chapter 11 plans, which may impose a different ordering with the consent of the affected parties. But a bankruptcy court cannot confirm a plan that contains priority-violating distributions over the objection of an impaired creditor class. 11 U.S.C.S. § 1129(a)(7) and (b)(2). (Breyer, J., joined by Roberts, Ch. J., and Kennedy, Ginsburg, Sotomayor, and Kagan, JJ.)

Parties 3

STANDING -- MONETARY INJURY

Headnote: 6

For standing purposes, a loss of even a small amount of money is ordinarily an injury. (Breyer, J., joined by Roberts, Ch. J., and Kennedy, Ginsburg, Sotomayor, and Kagan, JJ.)

Bankruptcy 147

ASSET DISTRIBUTION -- PRIORITIES

Headnote: 7

Can a Bankruptcy Court approve a structured dismissal that provides for distributions that do not follow ordinary priority rules without the affected creditors' consent? The simple answer to this complicated question is no. (Breyer, J., joined by Roberts, Ch. J., and Kennedy, Ginsburg, Sotomayor, and Kagan, JJ.)

Bankruptcy 147Bankruptcy 352

CHAPTERS 7 AND 11 -- PRIORITIES

Headnote: 8

The Bankruptcy Code's priority system constitutes a basic underpinning of business bankruptcy law. Distributions of estate assets at the termination of a business bankruptcy normally take place through a Chapter 7 liquidation or a Chapter 11 plan, and both are governed by priority. In Chapter 7 liquidations, priority is an absolute command: lower priority creditors cannot receive anything until higher priority creditors have been paid in full. 11 U.S.C.S. sects; 725, 726. Chapter 11 plans provide somewhat more flexibility, but a priority-violating plan still cannot be confirmed over the objection of an impaired class of creditors. 11 U.S.C.S. § 1129(b). (Breyer, J., joined by Roberts, Ch. J., and Kennedy, Ginsburg, Sotomayor, and Kagan, JJ.)

Bankruptcy 352

DISMISSAL -- CHAPTER 11 -- PRIORITIES

Headnote: 9

The Bankruptcy Code gives a Bankruptcy Court the power to dismiss a Chapter 11 case. 11 U.S.C.S. § 1112(b). But the word dismiss itself says nothing about the power to make non-consensual 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. (Breyer, J., joined by Roberts, Ch. J., and Kennedy, Ginsburg, Sotomayor, and Kagan, JJ.)

Bankruptcy 352

CHAPTER 11 -- TRANSFER OF ASSETS

Headnote: 10

Insofar as the dismissal sections of Chapter 11 foresee any transfer of assets, they seek a restoration of the pre-petition financial status quo.11 U.S.C.S. § 349(b)(1), (b)(2), and (b)(3). (Breyer, J., joined by Roberts, Ch. J., and Kennedy, Ginsburg, Sotomayor, and Kagan, JJ.)

[197 L.Ed.2d 401]

Bankruptcy 147Bankruptcy 352

DISTRIBUTION OF ASSETS -- CHAPTERS 7 AND 11 -- PRIORITIES

Headnote: 11

11 U.S.C.S. § 349(b) says that a bankruptcy judge may, for cause, order otherwise. But, read in context, this provision appears designed to give courts the flexibility to make the appropriate orders to protect rights acquired in reliance on the bankruptcy case. Nothing else in the Bankruptcy 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. That being so, the word cause is too weak a reed upon which to rest so weighty a power. (Breyer, J., joined by Roberts, Ch. J., and Kennedy, Ginsburg, Sotomayor, and Kagan, JJ.)

Statutes 109

CONSTRUCTION AS WHOLE

Headnote: 12

Statutory construction is a holistic endeavor. A court should select a meaning that produces a substantive effect that is compatible with the rest of the law. (Breyer, J., joined by Roberts, Ch. J., and Kennedy, Ginsburg, Sotomayor, and Kagan, JJ.)

Bankruptcy 58

RARE CASES

Headnote: 13

Congress did not authorize a rare case...

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