Supreme Court Hears Bankruptcy Case That Could Impact Structured Settlements

WASHINGTON—The U.S. Supreme Court heard oral arguments Wednesday on a case vital to the interests of trade creditors in bankruptcy cases, the ultimate ruling for which could potentially have wide-ranging effects on the rules governing litigation settlements in commercial bankruptcies.

The case, Casimir Czyzewski, et al. v. Jevic Holding Corp., et al., addresses the question of whether a bankruptcy court can authorize a distribution of settlement proceeds that violates the priority scheme in the Bankruptcy Code, despite the objection of priority creditors whose rights are impaired by the proposed distribution.

If the Court rules against the Third Circuit Court of Appeals and the United States Bankruptcy Court for the District of Delaware’s affirmation of a structured settlement in the case, it could be detrimental to unsecured creditors or those suppliers or vendors with 503(b)(9) claims, said Bruce Nathan, Esq., of Lowenstein, Sandler LLP of New York. A ruling to uphold the lower courts’ decisions would at least afford unsecured creditors in administratively insolvent cases the ability to hold on to some form of payment.

Czyzewski’s side argued that Congress made categorical judgments about the priority of distribution of estate assets to unsecured creditors in all bankruptcy cases. “No provision of the Code permits a court to circumvent those judgments via settlement, ‘structured dismissal,’ or any other mechanism outside a confirmed plan,” they said.

Jevic’s side argued that there’s nothing in the Bankruptcy Code that subjects settlements (as opposed to reorganization plans) to the absolute priority rule and that the circuit court conflict in the case is “illusory.” “There is not a single reported decision from any circuit holding that any provision of the Bankruptcy Code extends the absolute priority rule to settlements,” Jevic’s attorneys argued in briefs to the Supreme Court.

– Nicholas Stern, editorial associate

For more of NACM staff’s onsite coverage from Supreme Court arguments in the Czyzewski v. Jevic case, read this week’s edition of NACM eNews (available late Thursday afternoon by clicking here).

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