Czyzewski v. Jevic: priority cannot be skipped through structured dismissal

A settlement proposed an unusual final distribution

The Jevic bankruptcy involved a settlement and structured dismissal that would distribute value while bypassing employees with priority wage claims. The affected employees did not consent. The lower courts approved the arrangement, reasoning in part that it was attached to dismissal rather than confirmation of a plan.

The Supreme Court examined whether that procedural route permitted a departure from the Bankruptcy Code’s ordinary priority system. The employees’ potential opportunity to obtain value through a different settlement or litigation also supported their standing to challenge the result.

The Court rejected a nonconsensual priority departure

The Court held that bankruptcy courts may not approve structured dismissals providing distributions that depart from ordinary priority rules without the consent of affected creditors. It found no affirmative statutory basis for such a major exception to the priority system.

The authority to order otherwise for cause under section 349(b) did not supply a general power to authorize final distributions that would be impermissible under a plan or liquidation. Nor did describing the circumstances as rare provide a workable exception.

Distinguish a final payout from interim case administration

The opinion discussed interim payments serving significant bankruptcy objectives and distinguished them from the final distribution before it. Readers should therefore examine the transaction’s function, timing, and treatment of affected creditors. It is inaccurate to turn Jevic into a ruling that every payment outside ordinary priority is forbidden in every procedural setting.

For a proposed dismissal settlement, a useful review maps who receives value, who is skipped, what priority each claimant asserts, and whose consent is documented. Calling an arrangement a settlement does not remove the need for that analysis.

Decision and limits

The March 22, 2017 decision reversed and remanded. This note addresses that opinion, not later proceedings or every issue involving gifting and settlements. Specific arrangements require current research into their statutory basis and subsequent controlling decisions.