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The Bankruptcy Protector

December 31, 2019

Applying Jevic (Part 3): How Courts Are Interpreting and Applying the Supreme Court’s Ruling on Structured Dismissals and Priority Skipping

By Shane G. Ramsey, John T. Baxter

The Bankruptcy Protector has previously provided a succinct summary of all cases decided post-Jevic here and here. In this update, we discuss the cases decided between May 10, 2019 and November 27, 2019.

The chart below includes the case name, date, and citation; a brief description of the nature of the case; and a brief description of how the Court applied the Jevic.

Please note that this chart focuses only on cases where Jevic priority skipping issues are raised and adjudicated.  The intent of the Jevic Files is to focus only on cases that directly relate to priority skipping issues, not decisions that merely cite Jevic.

Case

Description

Application of Jevic

In re Veg Liquidation, Inc., 931 F.3d 730 (8th Cir. 2019)

Chapter 7 trustee argued that a section 363 sale order was “void” in light of Jevic because certain creditors with unsecured claims received value while others with identical priority did not.

 

 

 

The 8th Circuit held:

 

Jevic does not win the day for Fulmer. For one thing, Jevic involved a structured dismissal and did not hold that § 363 sales must conform to normal priority rules. In fact, the Court noted that some courts in other contexts have approved priority-violating distributions where they serve “significant Code-related objectives,” such as maximizing the value of the bankruptcy estate. Id. at 985. But even if the reasoning of Jevic on priority rules were extended to § 363 sales, it would not apply in the context of a consummated sale. Whatever force the Bankruptcy Code’s priority rules might have at a sale approval hearing or on direct review of a § 363 sale, see id. at 986, a deviation from those rules does not render final judgments “void.” See Espinosa, 559 U.S. at 273-76, 130 S.Ct. 1367 (holding confirmed bankruptcy plan was not void for purposes of Rule 60(b)(4) despite failing to comply with statutory requirement); cf. In re Old Cold LLC, 879 F.3d 376, 388 (1st Cir. 2018) (holding that Jevic did not add an exception to the text of § 363(m) concerning validity of a sale).”

 

In re ACI Concrete Placement of Kansas, LLC, 604 B.R. 400, 401 (Bankr. D. Kan. 2019)

Debtors ACI Concrete Placement of Kansas, LLC, and related entities filed for bankruptcy relief in September 2017 and operated under the protection of Chapter 11 until the spring of 2019, when the bank holding perfected security interests in substantially all of Debtors’ assets declared a default as defined by the cash collateral order. Debtors are now out of business, and the cases may be administratively insolvent. The Fund Creditors held administrative claims which had not been paid in full. They moved to disgorge professional fees paid to Debtors’ counsel and to counsel for the Unsecured Creditors Committee so that these funds can be allocated among administrative creditors.

 

The bankruptcy court held:

 

“The Court rejects the Fund Creditors’ argument that enforcing the carve-out is contrary to the Supreme Court's decision in Jevic.42 In that case, the Supreme Court held that a bankruptcy court cannot approve ‘a structured dismissal that ... provides for distributions that do not follow ordinary priority rules without the affected creditors consent.’ Contrary to the Fund Creditors’ argument, denying disgorgement in this case because of the carve-out does not violate the Code's established priority system. The carve-out funds are Equity Bank’s collateral to which it is entitled under the Code's priority rules. If the carve-out funds were not distributed for the payment of carve-out fees, they would be distributed to Equity Bank, but Equity Bank has consented to the distribution to the professionals. The attorneys for Debtors and the Unsecured Creditors Committee are not being paid with estate funds, the distribution of which must comply with the Code’s priority rules.

 

The Fund Creditors argue that they are situated similarly to counsel for the Debtors and the Unsecured Creditors Committee because the cash collateral order provided for payment on an ongoing basis of its claims, as well as the Professional Fees. While the cash collateral orders were operative, the payments were from the same source. The Fund Creditors, counsel for the Debtors and the Committee, and others providing services to the Debtors were paid with cash collateral and Equity Bank was granted a replacement lien and a super-priority claim to the extent of the diminution of the value of its collateral. But a change occurred when Equity Bank gave notice of a default under the cash collateral orders. That notice triggered the carve-out under which the unpaid fees of the professionals were paid from funds carved out of the collateral securing Equity Bank's replacement lien and/or its super-priority claim. After the notice of default, the Fund Creditors and the Professionals were no longer paid from the same source of funds and are not similarly situated.”



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