In bankruptcy practice, courts are often faced with situations where a global solution to the case is presented that benefits most—even substantially all—but not all constituencies. Under these circumstances, lawyers attempt to craft creative solutions to implement such deals. The question arises: do the ends justify the means?
Two years ago, we reported on the U.S. Court of Appeals for the Third Circuit’s decision in the matter of In re Jevic Holding, No. 14-1465 slip op. (3d Cir. May 21, 2015). In a split 2–1 decision, the Third Circuit held that an emerging vehicle to implement settlement of claims in a bankruptcy case by dismissing the proceeding (referred to as a “structured dismissal”) that does not adhere to the Bankruptcy Code’s priority distribution scheme was permitted in rare instances when virtually no other option is available. At that time the authors speculated the issue may be taken up for review by the U.S. Supreme Court. In fact, that did occur, and in a widely reported opinion, the U.S. Supreme Court recently reversed the Third Circuit’s decision, and rejected the concept that a “rare case” exception which violates the Bankruptcy Code’s priority scheme can be applied in these structured dismissals. The opinion, titled Czyzewski v. Jevic Holding, 580 U.S. ___ (2017), was issued on March 22.
