Official Committee of Unsecured Creditors v. CIT Group/Business Credit Inc. (In re Jevic Holding Corp.)

Official Committee of Unsecured Creditors v. CIT Group/Business Credit Inc. (In re Jevic Holding Corp.), No. 14-1465 (3d Cir. May 21, 2015)
The United States Court of Appeals for the Third Circuit held where there is no showing that a structured dismissal of a chapter 11 case "has been contrived to evade the procedural protections and safeguards of the plan confirmation or conversion processes, a bankruptcy court has discretion to order such a disposition.”
Procedural context:
This appeal was from an order of the United States District Court for the District of Delaware affirming the order of the United States Bankruptcy Court for the District of Delaware approving the structured dismissal of the debtors' cases.
Employees of debtor Jevic brought class action suit against Jevic and Sun Capital alleging violations of the WARN Acts. The allegations stated Jevic failed to comply with the requirement that 60-day notice was to be sent to employees before laying them off. On or around May 16, 2008, Jevic sent its employees termination notices pursuant to the WARN Act. On May 20, 2008, Jevic filed a voluntary petition for relief in the bankruptcy court under Chapter 11. In May 2012, the Debtors and all its major constituents convened to negotiate a settlement of the Committee’s fraudulent conveyance suit. The Committee believed that in light of the “risk and the rewards of ligation… and the lack of estate funds sufficient to finance that litigation,” that a settlement was the best option for the creditors. This appeal stems from the settlement agreement that allowed tax and administrative creditors to be paid first and then the general unsecured creditors on the pro rata basis. The Drivers estimated their claim to have been worth $12.4 million, of which $8.3 million was classified as a priority claim pursuant to §507(a) (4) and was excluded from the deal. The Drivers argued that the settlement agreement violated the Bankruptcy Code by evading the absolute priority rule.
Hardiman, Scirica, and Barry, Circuit Judges

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