## Facts

- Jevic Transportation, a trucking company, was acquired in a leveraged buyout financed by CIT; financial performance deteriorated and Jevic prepared for Chapter 11.
- Before filing, Jevic ceased operations and terminated drivers without advance notice, prompting WARN Act litigation by former drivers.
- The drivers obtained liability rulings and estimated about $12.4 million in damages, including approximately $8.3 million in priority wage claims under 11 U.S.C. § 507(a)(4).
- The unsecured creditors’ committee sued Sun and CIT for fraudulent conveyance related to the buyout; the litigation was costly and became the main potential recovery source.
- With estate resources depleted, Jevic, the committee, CIT, and Sun reached a global settlement tied to dismissal of the Chapter 11 case:
  - CIT funded $2 million for certain administrative expenses and committee professionals.
  - Sun assigned its lien on remaining cash (about $1.7 million) for distribution to general unsecured creditors.
  - The case would be dismissed on terms altering ordinary dismissal consequences so the agreed distributions would occur.
- The settlement provided no recovery to the drivers, despite their asserted priority wage claims.
- The drivers and the U.S. Trustee objected, arguing the settlement and dismissal distributed value to junior creditors while skipping higher-priority claims.
- The bankruptcy court approved the settlement and entered a “structured dismissal,” finding no feasible plan and no meaningful recovery in Chapter 7; the district court affirmed.

## Issues

1. Whether the Bankruptcy Code permits dismissal of a Chapter 11 case on structured terms that depart from ordinary dismissal effects under 11 U.S.C. § 349(b).
2. Whether a bankruptcy court may approve, in connection with such a dismissal, a settlement distribution that skips Code priorities outside a confirmed plan.
3. If permissible, what standard limits priority-deviating structured dismissals.

## Decision

- The Third Circuit affirmed the approval of the settlement and structured dismissal.
- The court held structured dismissals are not categorically barred and may be authorized under §§ 1112(b) and 349(b) when “cause” exists.
- The court held that in rare cases a structured dismissal may include distributions that deviate from ordinary priority rules if supported by specific, credible justification and if no better alternative exists.
- Applying that standard, the court upheld the distribution to general unsecured creditors while providing nothing to the drivers’ priority wage claims, based on findings that plan confirmation was not achievable and Chapter 7 would yield no distribution to unsecured creditors.

## Legal Principles

- A Chapter 11 case may conclude by plan confirmation, conversion, or dismissal; dismissal ordinarily restores the prepetition status quo, but § 349(b) allows a court, for cause, to order otherwise.
- “Structured dismissal” may be used to implement negotiated terms (including survival of certain settlements, liens, or distributions) where cause supports modifying normal dismissal consequences.
- Priority rules strongly inform distributions, but the court treated them as not invariably controlling for every court-approved settlement outside a plan.
- A priority-deviating structured dismissal was permitted only in a “rare case,” requiring specific and credible grounds for deviation and a showing that it is the only viable means to preserve value for creditors given realistic alternatives.

## Conclusion

The Third Circuit held that bankruptcy courts may, for cause, approve structured dismissals and, in rare circumstances, allow settlement distributions that do not follow ordinary priority ordering when justified by case-specific findings that plan confirmation is not feasible and conversion would produce no meaningful recovery.


In re Jevic Holding Corp., 787 F.3d 173 (3d Cir. 2015)