Czyzewski v. Jevic Holding Corporation

Whether a bankruptcy court may authorize the distribution of settlement proceeds in a manner that violates the statutory priority scheme?

Petitioners are former truck drivers for Respondents. They were fired as a result of Respondents entering chapter 11 bankruptcy. Petitioners brought claims that, based on the Bankruptcy Code, they should be given priority of payments in unpaid wages and benefits over other unsecured creditors. They received nothing while the lower priority creditors received their payments. The bankruptcy court approved a “structured dismissal,” which subsequently dismissed Petitioners’ claims while distributing the remaining assets. Petitioners appealed to the Third Circuit arguing that the Fifth Circuit had previously held that approval of a distribution plan that violates the statutory payment priorities is impermissible under the Bankruptcy Code. The Third Circuit rejected this argument and affirmed the bankruptcy court’s ruling. Petitioner first argues that it is urgent that the Court determines this circuit split because the Third Circuit has denied petitioners motion for a rehearing and the Second and Fifth Circuits have been split on this issue for nearly a decade. Second, Petitioners argue that the Third Circuit incorrectly allowed creditors to evade the Bankruptcy Code’s absolute priority of the chapter 11 distribution scheme. Lastly, Petitioners contend that this issue is likely to reoccur because this risk of the settlements approved in this decision will loom over every chapter 11 bankruptcies.