The U.S. Supreme Court is scheduled to hear arguments on a case that experts say could have far-reaching implications.
In the case of Czyzewski v. Jevic Holding Corporation, the court will determine how much power bankruptcy courts have to deviate from the priority rules established in the federal bankruptcy laws. Jevic Transportation Company was a New Jersey trucking firm that filed for bankruptcy protection in 2008. Employees of the company, including 1,785 drivers, say the bankruptcy was the direct result of fraud that was perpetrated as part of a leveraged buyout of the company in 2006. The employees sued for back wages under a federal law that mandates a 60 day notice when a company engages in mass layoffs.
The drivers and other creditors also filed a lawsuit alleging fraud, which the defendants settled, but only with the other creditors, leaving the drivers with nothing. As a part of the settlement, the bankruptcy action was dropped.
Under the bankruptcy code, creditors have the following priority:
- Lenders with secured debt have top priority
- Lawyers and other professionals who work on the bankruptcy are next
- So-called junior creditors come next, starting with employees who are owed wages
- All other creditors have less priority than employees to whom wages are owed
Advocates for the drivers say that, if the Supreme Court allows the settlement to stand, it could lead to situations where more powerful creditors in a bankruptcy collude to exclude other creditors, such as workers. Opponents argue, though, that it has long been the practice of the bankruptcy courts to permit these types of payments during the course of a bankruptcy proceeding and that forcing the courts to follow the priority rules would eliminate the flexibility often needed to resolve a bankruptcy without substantial loss of assets.
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