The U.S. Supreme Court will hear a group of truck drivers’ challenge to the dismissal of a chapter 11 bankruptcy case that was designed to avoid paying the drivers’ claims. The truck drivers are appealing the Third Circuit’s ruling in In re: Jevic Holding Corp., which held that a company in bankruptcy may seek a “structured dismissal” of its case even when the terms of dismissal deviate from the Bankruptcy Code’s priority system.
The debtor in Jevic, along with other key constituents, sought the Bankruptcy Court’s approval of a settlement that allowed for the dismissal of the bankruptcy case and payments to certain creditors, but excluded the payment of the truck drivers’ claims under the WARN Act. The truck drivers took issue with this proposal because their claims took priority over some of the claims that were to be paid under the settlement. The Bankruptcy Court overruled the truck drivers’ objections and approved the structured dismissal.
On appeal before the Third Circuit, the truck drivers argued that the Bankruptcy Court had no legal authority to approve structured dismissals that deviate from the priority scheme set forth in the Bankruptcy Code. The Third Circuit disagreed, holding that, in rare instances, the Bankruptcy Court may approve structured dismissals that do not strictly adhere to the Bankruptcy Code. The Third Circuit found that the structured dismissal was justified under the circumstances because it was the “least bad alternative,” as there was no prospect of confirming a plan and conversion to a chapter 7 liquidation would result in only secured creditors receiving payment.
The Supreme Court’s ruling will have wide implications on bankruptcy cases throughout the country and will dictate whether priority creditors – such as truck drivers in certain cases – must be paid before general unsecured creditors when a court is considering a structured dismissal.
The Third Circuit’s opinion can be found here.