Czyzewski v. Jevic Holding Corp.

(Slip Opinion) OCTOBER TERM, 2016 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
CZYZEWSKI ET AL. v. JEVIC HOLDING CORP. ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE THIRD CIRCUIT
No. 15–649. Argued December 7, 2016—Decided March 22, 2017
There are three possible conclusions to a Chapter 11 bankruptcy. First,
debtor and creditors may negotiate a plan to govern the distribution
of the estate’s value. See, e.g., 11 U. S. C. §§1121, 1123, 1129, 1141.
Second, the bankruptcy court may convert the case to Chapter 7 for
liquidation of the business and distribution of its assets to creditors.
§§1112(a), (b), 726. Finally, the bankruptcy court may dismiss the
case. §1112(b). A court ordering a dismissal ordinarily attempts to
restore the prepetition financial status quo. §349(b)(3). Yet if perfect
restoration proves difficult or impossible, the court may, “for cause,”
alter the dismissal’s normal restorative consequences, §349(b)—i.e., it
may order a “structured dismissal.” The Bankruptcy Code also estab-
lishes basic priority rules for determining the order in which the
court will distribute an estate’s assets. The Code makes clear that
distributions in a Chapter 7 liquidation must follow this prescribed
order. §§725, 726. Chapter 11 permits some flexibility, but a court
still cannot confirm a plan that contains priority-violating distribu-
tions over the objection of an impaired creditor class. §§1129(a)(7),
(b)(2). The Code does not explicitly state what priority rules—if
any—apply to the distribution of assets in a structured dismissal.
Respondent Jevic Transportation filed for Chapter 11 bankruptcy
after being purchased in a leveraged buyout. The bankruptcy
prompted two lawsuits. In the first, a group of former Jevic truck-
drivers, petitioners here, was awarded a judgment against Jevic for
Jevic’s failure to provide proper notice of termination in violation of
state and federal Worker Adjustment and Retraining Notification
(WARN) Acts. Part of that judgment counted as a priority wage
claim under §507(a)(4), entitling the workers to payment ahead of
general unsecured claims against the Jevic estate. In the second
2 CZYZEWSKI v. JEVIC HOLDING CORP.
Syllabus
suit, a court-authorized committee representing Jevic’s unsecured
creditors sued Sun Capital and CIT Group, respondents here, for
fraudulent conveyance in connection with the leveraged buyout of
Jevic. These parties negotiated a settlement agreement that called
for a structured dismissal of Jevic’s Chapter 11 bankruptcy. Under
the proposed structured dismissal, petitioners would receive nothing
on their WARN claims, but lower-priority general unsecured credi-
tors would be paid. Petitioners argued that the distribution scheme
accordingly violated the Code’s priority rules by paying general unse-
cured claims ahead of their own. The Bankruptcy Court nevertheless
approved the settlement agreement and dismissed the case, reason-
ing that because the proposed payouts would occur pursuant to a
structured dismissal rather than an approved plan, the failure to fol-
low ordinary priority rules did not bar approval. The District Court
and the Third Circuit affirmed.
Held:
1. Petitioners have Article III standing. Respondents argue that
petitioners have not “suffered an injury in fact,” or at least one “likely
to be redressed by a favorable judicial decision,” Spokeo, Inc. v. Rob-
ins, 578 U. S. ___, ___, because petitioners would have gotten nothing
even if the Bankruptcy Court had never approved the structured
dismissal and will still get nothing if the structured dismissal is un-
done now. That argument rests upon the assumptions that (1) with-
out a violation of ordinary priority rules, there will be no settlement,
and (2) without a settlement, the fraudulent-conveyance lawsuit has
no value. The record, however, indicates both that a settlement that
respects ordinary priorities remains a reasonable possibility and that
the fraudulent-conveyance claim could have litigation value. There-
fore, as a consequence of the Bankruptcy Court’s approval of the
structured dismissal, petitioners lost a chance to obtain a settlement
that respected their priorities or, if not that, the power to assert the
fraudulent-conveyance claim themselves. A decision in their favor is
likely to redress that loss. Pp. 9–11.
2. Bankruptcy courts may not approve structured dismissals that
provide for distributions that do not follow ordinary priority rules
without the consent of affected creditors. Pp. 11–18.
(a) Given the importance of the priority system, this Court looks
for an affirmative indication of intent before concluding that Con-
gress means to make a major departure. See Whitman v. American
Trucking Assns., Inc., 531 U. S. 457, 468. Nothing in the statute
evinces such intent. Insofar as the dismissal sections of Chapter 11
foresee any transfer of assets, they seek a restoration of the prepeti-
tion financial status quo. Read in context, §349(b), which permits a
bankruptcy judge, “for cause, [to] orde[r] otherwise,” seems designed
Cite as: 580 U. S. ____ (2017) 3
Syllabus
to give courts the flexibility to protect reliance interests acquired in
the bankruptcy, not to make general end-of-case distributions that
would be flatly impermissible in a Chapter 11 plan or Chapter 7 liq-
uidation. Precedent does not support a contrary position. E.g., In re
Iridium Operating LLC, 478 F. 3d 452 (CA2), distinguished. Cases in
which courts have approved deviations from ordinary priority rules
generally involve interim distributions serving significant Code-
related objectives. That is not the case here, where, e.g., the priority-
violating distribution is attached to a final disposition, does not pre-
serve the debtor as a going concern, does not make the disfavored
creditors better off, does not promote the possibility of a confirmable
plan, does not help to restore the status quo ante, and does not pro-
tect reliance interests. Pp. 11–16.
(b) Congress did not authorize a “rare case” exception that per-
mits courts to disregard priority in structured dismissals for “suffi-
cient reasons.” The fact that it is difficult to give precise content to
the concept of “sufficient reasons” threatens to turn the court below’s
exception into a more general rule, resulting in uncertainty that has
potentially serious consequences—e.g., departure from the protec-
tions granted particular classes of creditors, changes in the bargain-
ing power of different classes of creditors even in bankruptcies that
do not end in structured dismissals, risks of collusion, and increased
difficulty in achieving settlements. Courts cannot deviate from the
strictures of the Code, even in “rare cases.” Pp. 16–18.
787 F. 3d 173, reversed and remanded.
BREYER, J., delivered the opinion of the Court, in which ROBERTS,
C. J., and KENNEDY, GINSBURG, SOTOMAYOR, and KAGAN, JJ., joined.
THOMAS, J., filed a dissenting opinion, in which ALITO, J., joined.
Cite as: 580 U. S. ____ (2017) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash-
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
No. 15–649
_________________
CASIMIR CZYZEWSKI, ET AL., PETITIONERS v.
JEVIC HOLDING CORP., ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE THIRD CIRCUIT
[March 22, 2017]
JUSTICE BREYER delivered the opinion of the Court.
Bankruptcy Code Chapter 11 allows debtors and their
creditors to negotiate a plan for dividing an estate’s value.
See 11 U. S. C. §§1123, 1129, 1141. But sometimes the
parties cannot agree on a plan. If so, the bankruptcy court
may decide to dismiss the case. §1112(b). The Code then
ordinarily provides for what is, in effect, a restoration of
the prepetition financial status quo. §349(b).
In the case before us, a Bankruptcy Court dismissed a
Chapter 11 bankruptcy. But the court did not simply
restore the prepetition status quo. Instead, the court
ordered a distribution of estate assets that gave money to
high-priority secured creditors and to low-priority general
unsecured creditors but which skipped certain dissenting
mid-priority creditors. The skipped creditors would have
been entitled to payment ahead of the general unsecured
creditors in a Chapter 11 plan (or in a Chapter 7 liquida-
tion). See §§507, 725, 726, 1129. The question before us is
whether a bankruptcy court has the legal power to order
this priority-skipping kind of distribution scheme in con-
nection with a Chapter 11 dismissal.
2 CZYZEWSKI v. JEVIC HOLDING CORP.
Opinion of the Court
In our view, a bankruptcy court does not have such a
power. A distribution scheme ordered in connection with
the dismissal of a Chapter 11 case cannot, without the
consent of the affected parties, deviate from the basic
priority rules that apply under the primary mechanisms
the Code establishes for final distributions of estate value
in business bankruptcies.
I
A
1
We begin with a few fundamentals: A business may file
for bankruptcy under either Chapter 7 or Chapter 11. In
Chapter 7, a trustee liquidates the debtor’s assets and
distributes them to creditors. See §701 et seq. In Chapter
11, debtor and creditors try to negotiate a plan that will
govern the distribution of valuable assets from the debt-
or’s estate and often keep the business operating as a
going concern. See, e.g., §§1121, 1123, 1129, 1141 (setting
out the framework in which the parties negotiate).
Filing for Chapter 11 bankruptcy has several relevant
legal consequences. First, an estate is created comprising
all property of the debtor. §541(a)(1). Second, a fiduciary
is installed to manage the estate in the interest of the
creditors. §§1106, 1107(a). This fiduciary, often the debt-
or’s existing management team, acts as “debtor in posses-
sion.” §§1101(1), 1104. It may operate the business,
§§363(c)(1), 1108, and perform certain bankruptcy-related
functions, such as seeking to recover for the estate prefer-
ential or fraudulent transfers made to other persons, §547
(transfers made before bankruptcy that unfairly preferred
particular creditors); §548 (fraudulent transfers, including
transfers made before bankruptcy for which the debtor did
not receive fair value). Third, an “automatic stay” of all
collection proceedings against the debtor takes effect.
§362(a).
Cite as: 580 U. S. ____ (2017) 3
Opinion of the Court
It is important to keep in mind that Chapter 11 foresees
three possible outcomes. The first is a bankruptcy-court-
confirmed plan. Such a plan may keep the business oper-
ating but, at the same time, help creditors by providing for
payments, perhaps over time. See §§1123, 1129, 1141.
The second possible outcome is conversion of the case to a
Chapter 7 proceeding for liquidation of the business and a
distribution of its remaining assets. §§1112(a), (b), 726.
That conversion in effect confesses an inability to find a
plan. The third possible outcome is dismissal of the Chap-
ter 11 case. §1112(b). A dismissal typically “revests the
property of the estate in the entity in which such property
was vested immediately before the commencement of the
case”—in other words, it aims to return to the prepetition
financial status quo. §349(b)(3).
Nonetheless, recognizing that conditions may have
changed in ways that make a perfect restoration of the
status quo difficult or impossible, the Code permits the
bankruptcy court, “for cause,” to alter a Chapter 11 dis-
missal’s ordinary restorative consequences. §349(b). A
dismissal that does so (or which has other special condi-
tions attached) is often referred to as a “structured dismis-
sal,” defined by the American Bankruptcy Institute as a
“hybrid dismissal and confirmation order . . . that . . .
typically dismisses the case while, among other
things, approving certain distributions to creditors,
granting certain third-party releases, enjoining cer-
tain conduct by creditors, and not necessarily vacating
orders or unwinding transactions undertaken during
the case.” American Bankruptcy Institute Commis-
sion To Study the Reform of Chapter 11, 2012–2014
Final Report and Recommendations 270 (2014).
Although the Code does not expressly mention structured
dismissals, they “appear to be increasingly common.”
Ibid., n. 973.
4 CZYZEWSKI v. JEVIC HOLDING CORP.
Opinion of the Court
2
The Code also sets forth a basic system of priority,
which ordinarily determines the order in which the bank-
ruptcy court will distribute assets of the estate. Secured
creditors are highest on the priority list, for they must
receive the proceeds of the collateral that secures their
debts. 11 U. S. C. §725. Special classes of creditors, such
as those who hold certain claims for taxes or wages, come
next in a listed order. §§507, 726(a)(1). Then come low-
priority creditors, including general unsecured creditors.
§726(a)(2). The Code places equity holders at the bottom
of the priority list. They receive nothing until all previ-
ously listed creditors have been paid in full. §726(a)(6).
The Code makes clear that distributions of assets in a
Chapter 7 liquidation must follow this prescribed order.
§§725, 726. It provides somewhat more flexibility for
distributions pursuant to Chapter 11 plans, which may
impose a different ordering with the consent of the af-
fected parties. But a bankruptcy court cannot confirm a plan
that contains priority-violating distributions over the
objection of an impaired creditor class. §§1129(a)(7),
1129(b)(2).
The question here concerns the interplay between the
Code’s priority rules and a Chapter 11 dismissal. Here,
the Bankruptcy Court neither liquidated the debtor under
Chapter 7 nor confirmed a Chapter 11 plan. But the
court, instead of reverting to the prebankruptcy status
quo, ordered a distribution of the estate assets to creditors
by attaching conditions to the dismissal (i.e., it ordered a
structured dismissal). The Code does not explicitly state
what priority rules—if any—apply to a distribution in
these circumstances. May a court consequently provide
for distributions that deviate from the ordinary priority
rules that would apply to a Chapter 7 liquidation or a
Chapter 11 plan? Can it approve conditions that give
estate assets to members of a lower priority class while
Cite as: 580 U. S. ____ (2017) 5
Opinion of the Court
skipping objecting members of a higher priority class?
B
In 2006, Sun Capital Partners, a private equity firm,
acquired Jevic Transportation Corporation with money
borrowed from CIT Group in a “leveraged buyout.” In a
leveraged buyout, the buyer (B) typically borrows from a
third party (T) a large share of the funds needed to pur-
chase a company (C). B then pays the money to C’s share-
holders. Having bought the stock, B owns C. B then
pledges C’s assets to T so that T will have security for its
loan. Thus, if the selling price for C is $50 million, B
might use $10 million of its own money, borrow $40 mil-
lion from T, pay $50 million to C’s shareholders, and then
pledge C assets worth $40 million (or more) to T as secu-
rity for T’s $40 million loan. If B manages C well, it might
make enough money to pay T back the $40 million and
earn a handsome profit on its own $10 million investment.
But, if the deal sours and C descends into bankruptcy,
beware of what might happen: Instead of C’s $40 million
in assets being distributed to its existing creditors, the
money will go to T to pay back T’s loan—the loan that
allowed B to buy C. (T will receive what remains of C’s
assets because T is now a secured creditor, putting it at
the top of the priority list). Since C’s shareholders receive
money while C’s creditors lose their claim to C’s remaining
assets, unsuccessful leveraged buyouts often lead to
fraudulent conveyance suits alleging that the purchaser
(B) transferred the company’s assets without receiving fair
value in return. See Lipson & Vandermeuse, Stern, Seri-
ously: The Article I Judicial Power, Fraudulent Transfers,
and Leveraged Buyouts, 2013 Wis. L. Rev. 1161, 1220–
1221.
This is precisely what happened here. Just two years
after Sun’s buyout, Jevic (C in our leveraged buyout ex-
ample) filed for Chapter 11 bankruptcy. At the time of
6 CZYZEWSKI v. JEVIC HOLDING CORP.
Opinion of the Court
filing, it owed $53 million to senior secured creditors Sun
and CIT (B and T in our example), and over $20 million to
tax and general unsecured creditors.
The circumstances surrounding Jevic’s bankruptcy led
to two lawsuits. First, petitioners, a group of former Jevic
truckdrivers, filed suit in bankruptcy court against Jevic
and Sun. Petitioners pointed out that, just before entering
bankruptcy, Jevic had halted almost all its operations and
had told petitioners that they would be fired. Petitioners
claimed that Jevic and Sun had thereby violated state and
federal Worker Adjustment and Retraining Notification
(WARN) Acts—laws that require a company to give work-
ers at least 60 days’ notice before their termination. See
29 U. S. C. §2102; N. J. Stat. Ann. §34:21–2 (West 2011).
The Bankruptcy Court granted summary judgment for
petitioners against Jevic, leaving them (and this is the
point to remember) with a judgment that petitioners say is
worth $12.4 million. See In re Jevic Holding Corp., 496
B. R. 151 (Bkrtcy. Ct. Del. 2013). Some $8.3 million of
that judgment counts as a priority wage claim under 11
U. S. C. §507(a)(4), and is therefore entitled to payment
ahead of general unsecured claims against the Jevic
estate.
Petitioners’ WARN suit against Sun continued through-
out most of the litigation now before us. But eventually
Sun prevailed on the ground that Sun was not the work-
ers’ employer at the relevant times. See In re Jevic Hold-
ing Corp., 656 Fed. Appx. 617 (CA3 2016).
Second, the Bankruptcy Court authorized a committee
representing Jevic’s unsecured creditors to sue Sun and
CIT. The Bankruptcy Court and the parties were aware
that any proceeds from such a suit would belong not to the
unsecured creditors, but to the bankruptcy estate. See
§§541(a)(1), (6); Official Comm. of Unsecured Creditors of
Cybergenics Corp. v. Chinery, 330 F. 3d 548, 552–553 (CA3
2003) (en banc) (holding that a creditor’s committee can
Cite as: 580 U. S. ____ (2017) 7
Opinion of the Court
bring a derivative action on behalf of the estate). The
committee alleged that Sun and CIT, in the course of their
leveraged buyout, had “hastened Jevic’s bankruptcy by
saddling it with debts that it couldn’t service.” In re Jevic
Holding Corp., 787 F. 3d 173, 176 (CA3 2015). In 2011,
the Bankruptcy Court held that the committee had ade-
quately pleaded claims of preferential transfer under §547
and of fraudulent transfer under §548. In re Jevic Hold-
ing Corp., 2011 WL 4345204 (Bkrtcy. Ct. Del., Sept. 15,
2011).
Sun, CIT, Jevic, and the committee then tried to negoti-
ate a settlement of this “fraudulent-conveyance” lawsuit.
By that point, the depleted Jevic estate’s only remaining
assets were the fraudulent-conveyance claim itself and
$1.7 million in cash, which was subject to a lien held by
Sun.
The parties reached a settlement agreement. It pro-
vided (1) that the Bankruptcy Court would dismiss the
fraudulent-conveyance action with prejudice; (2) that CIT
would deposit $2 million into an account earmarked to pay
the committee’s legal fees and administrative expenses; (3)
that Sun would assign its lien on Jevic’s remaining $1.7
million to a trust, which would pay taxes and administra-
tive expenses and distribute the remainder on a pro rata
basis to the low-priority general unsecured creditors, but
which would not distribute anything to petitioners (who, by
virtue of their WARN judgment, held an $8.3 million mid-
level-priority wage claim against the estate); and (4) that
Jevic’s Chapter 11 bankruptcy would be dismissed.
Apparently Sun insisted on a distribution that would
skip petitioners because petitioners’ WARN suit against
Sun was still pending and Sun did not want to help fi-
nance that litigation. See 787 F. 3d, at 177–178, n. 4
(Sun’s counsel acknowledging before the Bankruptcy
Court that “ ‘Sun probably does care where the money goes
because you can take judicial notice that there’s a pending
8 CZYZEWSKI v. JEVIC HOLDING CORP.
Opinion of the Court
WARN action against Sun by the WARN plaintiffs. And if
the money goes to the WARN plaintiffs, then you’re fund-
ing someone who is suing you who otherwise doesn’t have
funds and is doing it on a contingent fee basis’ ”). The
essential point is that, regardless of the reason, the pro-
posed settlement called for a structured dismissal that
provided for distributions that did not follow ordinary
priority rules.
Sun, CIT, Jevic, and the committee asked the Bank-
ruptcy Court to approve the settlement and dismiss the
case. Petitioners and the U. S. Trustee objected, arguing
that the settlement’s distribution plan violated the Code’s
priority scheme because it skipped petitioners—who, by
virtue of their WARN judgment, had mid-level priority
claims against estate assets—and distributed estate money
to low-priority general unsecured creditors.
The Bankruptcy Court agreed with petitioners that the
settlement’s distribution scheme failed to follow ordinary
priority rules. App. to Pet. for Cert. 58a. But it held that
this did not bar approval. Ibid. That, in the Bankruptcy
Court’s view, was because the proposed payouts would
occur pursuant to a structured dismissal of a Chapter 11
petition rather than an approval of a Chapter 11 plan.
Ibid. The court accordingly decided to grant the motion in
light of the “dire circumstances” facing the estate and its
creditors. Id., at 57a. Specifically, the court predicted
that without the settlement and dismissal, there was “no
realistic prospect” of a meaningful distribution for anyone
other than the secured creditors. Id., at 58a. A confirm-
able Chapter 11 plan was unattainable. And there would
be no funds to operate, investigate, or litigate were the
case converted to a proceeding in Chapter 7. Ibid.
The District Court affirmed the Bankruptcy Court. It
recognized that the settlement distribution violated ordi-
nary priority rules. But those rules, it wrote, were “not a
bar to the approval of the settlement as [the settlement] is
Cite as: 580 U. S. ____ (2017) 9
Opinion of the Court
not a reorganization plan.” In re Jevic Holding Corp.,
2014 WL 268613, *3 (D Del., Jan. 24, 2014).
The Third Circuit affirmed the District Court by a vote
of 2 to 1. 787 F. 3d, at 175; id., at 186 (Scirica, J., concur-
ring in part and dissenting in part). The majority held
that structured dismissals need not always respect prior-
ity. Congress, the court explained, had only “codified the
absolute priority rule . . . in the specific context of plan
confirmation.” Id., at 183. As a result, courts could, “in
rare instances like this one, approve structured dismissals
that do not strictly adhere to the Bankruptcy Code’s prior-
ity scheme.” Id., at 180.
Petitioners (the workers with the WARN judgment)
sought certiorari. We granted their petition.
II
Respondents initially argue that petitioners lack stand-
ing because they have suffered no injury, or at least no
injury that will be remedied by a decision in their favor.
See Spokeo, Inc. v. Robins, 578 U. S. ___, ___ (2016) (slip
op., at 6) (explaining that, for Article III standing, a plain-
tiff must have “(1) suffered an injury in fact, (2) that is
fairly traceable to the challenged conduct of the defendant,
and (3) that is likely to be redressed by a favorable judicial
decision”). Respondents concede that the structured dis-
missal approved by the Bankruptcy Court contained
distribution conditions that skipped over petitioners, ensur-
ing that petitioners received nothing on their multimillion-
dollar WARN claim against the Jevic estate. But respond-
ents still assert that petitioners suffered no loss.
The reason, respondents say, is that petitioners would
have gotten nothing even if the Bankruptcy Court had
never approved the structured dismissal in the first place,
and will still get nothing if the structured dismissal is
undone now. Reversal will eliminate the settlement of the
committee’s fraudulent-conveyance lawsuit, which was
10 CZYZEWSKI v. JEVIC HOLDING CORP.
Opinion of the Court
conditioned on the Bankruptcy Court’s approval of the
priority-violating structured dismissal. If the Bankruptcy
Court cannot approve that dismissal, respondents con-
tend, Sun and CIT will no longer agree to settle. Nor will
petitioners ever be able to obtain a litigation recovery.
Hence there will be no lawsuit money to distribute. And
in the absence of lawsuit money, Jevic’s assets amount to
about $1.7 million, all pledged to Sun, leaving nothing for
anyone else, let alone petitioners. Thus, even if petition-
ers are right that the structured dismissal was impermis-
sible, it cost them nothing. And a judicial decision in their
favor will gain them nothing. No loss. No redress.
This argument, however, rests upon respondents’ claims
(1) that, without a violation of ordinary priority rules,
there will be no settlement, and (2) that, without a settle-
ment, the fraudulent-conveyance lawsuit has no value.
In our view, the record does not support either of these
propositions.
As to the first, the record indicates that a settlement
that respects ordinary priorities remains a reasonable
possibility. It makes clear (as counsel made clear before
our Court, see Tr. of Oral Arg. 58) that Sun insisted upon
a settlement that gave petitioners nothing only because it
did not want to help fund petitioners’ WARN lawsuit
against it. See 787 F. 3d, at 177–178, n. 4. But, Sun has
now won that lawsuit. See 656 Fed. Appx. 617. If Sun’s
given reason for opposing distributions to petitioners has
disappeared, why would Sun not settle while permitting
some of the settlement money to go to petitioners?
As to the second, the record indicates that the fraudulent-
conveyance claim could have litigation value. CIT and
Sun, after all, settled the lawsuit for $3.7 million,
which would make little sense if the action truly had no
chance of success. The Bankruptcy Court could convert
the case to Chapter 7, allowing a Chapter 7 trustee to
pursue the suit against Sun and CIT. Or the court could
Cite as: 580 U. S. ____ (2017) 11
Opinion of the Court
simply dismiss the Chapter 11 bankruptcy, thereby allow-
ing petitioners to assert the fraudulent-conveyance claim
themselves. Given these possibilities, there is no reason to
believe that the claim could not be pursued with counsel
obtained on a contingency basis. Of course, the lawsuit—
like any lawsuit—might prove fruitless, but the mere
possibility of failure does not eliminate the value of the
claim or petitioners’ injury in being unable to bring it.
Consequently, the Bankruptcy Court’s approval of the
structured dismissal cost petitioners something. They lost
a chance to obtain a settlement that respected their prior-
ity. Or, if not that, they lost the power to bring their own
lawsuit on a claim that had a settlement value of $3.7
million. For standing purposes, a loss of even a small
amount of money is ordinarily an “injury.” See, e.g.,
McGowan v. Maryland, 366 U. S. 420, 430–431 (1961)
(finding that appellants fined $5 plus costs had standing
to assert an Establishment Clause challenge). And the
ruling before us could well have cost petitioners consider-
ably more. See Clinton v. City of New York, 524 U. S. 417,
430–431 (1998) (imposition of a “substantial contingent
liability” qualifies as an injury). A decision in petitioners’
favor is likely to redress that loss. We accordingly con-
clude that petitioners have standing.
III
We turn to the basic question presented: Can a bank-
ruptcy court approve a structured dismissal that provides
for distributions that do not follow ordinary priority rules
without the affected creditors’ consent? Our simple an-
swer to this complicated question is “no.”
The Code’s priority system constitutes a basic under-
pinning of business bankruptcy law. Distributions of
estate assets at the termination of a business bankruptcy
normally take place through a Chapter 7 liquidation or a
Chapter 11 plan, and both are governed by priority. In
12 CZYZEWSKI v. JEVIC HOLDING CORP.
Opinion of the Court
Chapter 7 liquidations, priority is an absolute command—
lower priority creditors cannot receive anything until
higher priority creditors have been paid in full. See 11
U. S. C. §§725, 726. Chapter 11 plans provide somewhat
more flexibility, but a priority-violating plan still cannot
be confirmed over the objection of an impaired class of
creditors. See §1129(b).
The priority system applicable to those distributions has
long been considered fundamental to the Bankruptcy
Code’s operation. See H. R. Rep. No. 103–835, p. 33 (1994)
(explaining that the Code is “designed to enforce a distri-
bution of the debtor’s assets in an orderly manner . . . in
accordance with established principles rather than on the
basis of the inside influence or economic leverage of a
particular creditor”); Roe & Tung, Breaking Bankruptcy
Priority: How Rent-Seeking Upends The Creditors’ Bar-
gain, 99 Va. L. Rev. 1235, 1243, 1236 (2013) (arguing that
the first principle of bankruptcy is that “distribution
conforms to predetermined statutory and contractual
priorities,” and that priority is, “quite appropriately, bank-
ruptcy’s most important and famous rule”); Markell, Own-
ers, Auctions, and Absolute Priority in Bankruptcy Reor-
ganizations, 44 Stan. L. Rev. 69, 123 (1991) (stating that a
fixed priority scheme is recognized as “the cornerstone of
reorganization practice and theory”).
The importance of the priority system leads us to expect
more than simple statutory silence if, and when, Congress
were to intend a major departure. See Whitman v. Ameri-
can Trucking Assns., Inc., 531 U. S. 457, 468 (2001) (“Con-
gress . . . does not, one might say, hide elephants in
mouseholes”). Put somewhat more directly, we would
expect to see some affirmative indication of intent if Con-
gress actually meant to make structured dismissals a
backdoor means to achieve the exact kind of nonconsen-
sual priority-violating final distributions that the Code
prohibits in Chapter 7 liquidations and Chapter 11 plans.
Cite as: 580 U. S. ____ (2017) 13
Opinion of the Court
We can find nothing in the statute that evinces this
intent. The Code gives a bankruptcy court the power to
“dismiss” a Chapter 11 case. §1112(b). But the word
“dismiss” itself says nothing about the power to make
nonconsensual priority-violating distributions of estate
value. Neither the word “structured,” nor the word “condi-
tions,” nor anything else about distributing estate value to
creditors pursuant to a dismissal appears in any relevant
part of the Code.
Insofar as the dismissal sections of Chapter 11 foresee
any transfer of assets, they seek a restoration of the pre-
petition financial status quo. See §349(b)(1) (dismissal
ordinarily reinstates a variety of avoided transfers and
voided liens); §349(b)(2) (dismissal ordinarily vacates
certain types of bankruptcy orders); §349(b)(3) (dismissal
ordinarily “revests the property of the estate in the entity
in which such property was vested immediately before the
commencement of the case”); see also H. R. Rep. No. 95–
595, p. 338 (1977) (dismissal’s “basic purpose . . . is to
undo the bankruptcy case, as far as practicable, and to
restore all property rights to the position in which they
were found at the commencement of the case”).
Section 349(b), we concede, also says that a bankruptcy
judge may, “for cause, orde[r] otherwise.” But, read in
context, this provision appears designed to give courts the
flexibility to “make the appropriate orders to protect rights
acquired in reliance on the bankruptcy case.” H. R. Rep.
No. 95–595, at 338; cf., e.g., Wiese v. Community Bank of
Central Wis., 552 F. 3d 584, 590 (CA7 2009) (upholding,
under §349(b), a Bankruptcy Court’s decision not to rein-
state a debtor’s claim against a bank that gave up a lien in
reliance on the claim being released in the debtor’s reor-
ganization plan). Nothing else in the Code authorizes a
court ordering a dismissal to make general end-of-case
distributions of estate assets to creditors of the kind that
normally take place in a Chapter 7 liquidation or Chapter
14 CZYZEWSKI v. JEVIC HOLDING CORP.
Opinion of the Court
11 plan—let alone final distributions that do not help to
restore the status quo ante or protect reliance interests
acquired in the bankruptcy, and that would be flatly im-
permissible in a Chapter 7 liquidation or a Chapter 11
plan because they violate priority without the impaired
creditors’ consent. That being so, the word “cause” is too
weak a reed upon which to rest so weighty a power. See
United Sav. Assn. of Tex. v. Timbers of Inwood Forest
Associates, Ltd., 484 U. S. 365, 371 (1988) (noting that
“[s]tatutory construction . . . is a holistic endeavor” and
that a court should select a “meanin[g that] produces a
substantive effect that is compatible with the rest of the
law”); Kelly v. Robinson, 479 U. S. 36, 43 (1986) (in inter-
preting a statute, a court “must not be guided by a single
sentence or member of a sentence, but look to the provi-
sions of the whole law, and to its object and policy” (inter-
nal quotation marks omitted)); cf. In re Sadler, 935 F. 2d
918, 921 (CA7 1991) (“ ‘Cause’ under §349(b) means an
acceptable reason. Desire to make an end run around a
statute is not an adequate reason”).
We have found no contrary precedent, either from this
Court, or, for that matter, from lower court decisions
reflecting common bankruptcy practice. The Third Circuit
referred briefly to In re Buffet Partners, L. P., 2014 WL
3735804 (Bkrtcy. Ct. ND Tex., July 28, 2014). The court
in that case approved a structured dismissal. (We express
no view about the legality of structured dismissals in
general.) But at the same time it pointed out “that not one
party with an economic stake in the case has objected to
the dismissal in this manner.” Id., at *4.
The Third Circuit also relied upon In re Iridium Operat-
ing LLC, 478 F. 3d 452 (CA2 2007). But Iridium did not
involve a structured dismissal. It addressed an interim
distribution of settlement proceeds to fund a litigation
trust that would press claims on the estate’s behalf. See
id., at 459–460. The Iridium court observed that, when
Cite as: 580 U. S. ____ (2017) 15
Opinion of the Court
evaluating this type of preplan settlement, “[i]t is difficult
to employ the rule of priorities” because “the nature and
extent of the Estate and the claims against it are not yet
fully resolved.” Id., at 464 (emphasis added). The decision
does not state or suggest that the Code authorizes noncon-
sensual departures from ordinary priority rules in the
context of a dismissal—which is a final distribution of
estate value—and in the absence of any further unre-
solved bankruptcy issues.
We recognize that Iridium is not the only case in which
a court has approved interim distributions that violate
ordinary priority rules. But in such instances one can
generally find significant Code-related objectives that the
priority-violating distributions serve. Courts, for example,
have approved “first-day” wage orders that allow payment
of employees’ prepetition wages, “critical vendor” orders
that allow payment of essential suppliers’ prepetition
invoices, and “roll-ups” that allow lenders who continue
financing the debtor to be paid first on their prepetition
claims. See Cybergenics, 330 F. 3d, at 574, n. 8; D. Baird,
Elements of Bankruptcy 232–234 (6th ed. 2014); Roe, 99
Va. L. Rev., at 1250–1264. In doing so, these courts have
usually found that the distributions at issue would “enable
a successful reorganization and make even the disfavored
creditors better off.” In re Kmart Corp., 359 F. 3d 866, 872
(CA7 2004) (discussing the justifications for critical-vendor
orders); see also Toibb v. Radloff, 501 U. S. 157, 163–164
(1991) (recognizing “permitting business debtors to reor-
ganize and restructure their debts in order to revive the
debtors’ businesses” and “maximizing the value of the
bankruptcy estate” as purposes of the Code). By way of
contrast, in a structured dismissal like the one ordered
below, the priority-violating distribution is attached to a
final disposition; it does not preserve the debtor as a going
concern; it does not make the disfavored creditors better
off; it does not promote the possibility of a confirmable
16 CZYZEWSKI v. JEVIC HOLDING CORP.
Opinion of the Court
plan; it does not help to restore the status quo ante; and it
does not protect reliance interests. In short, we cannot
find in the violation of ordinary priority rules that oc-
curred here any significant offsetting bankruptcy-related
justification.
Rather, the distributions at issue here more closely
resemble proposed transactions that lower courts have
refused to allow on the ground that they circumvent the
Code’s procedural safeguards. See, e.g., In re Braniff
Airways, Inc., 700 F. 2d 935, 940 (CA5 1983) (prohibiting
an attempt to “short circuit the requirements of Chapter
11 for confirmation of a reorganization plan by establish-
ing the terms of the plan sub rosa in connection with a
sale of assets”); In re Lionel Corp., 722 F. 2d 1063, 1069
(CA2 1983) (reversing a Bankruptcy Court’s approval of an
asset sale after holding that §363 does not “gran[t] the
bankruptcy judge carte blanche” or “swallo[w] up Chapter
11’s safeguards”); In re Biolitec, Inc., 528 B. R. 261, 269
(Bkrtcy. Ct. NJ 2014) (rejecting a structured dismissal
because it “seeks to alter parties’ rights without their
consent and lacks many of the Code’s most important
safeguards”); cf. In re Chrysler LLC, 576 F. 3d 108, 118
(CA2 2009) (approving a §363 asset sale because the bank-
ruptcy court demonstrated “proper solicitude for the prior-
ity between creditors and deemed it essential that the
[s]ale in no way upset that priority”), vacated as moot, 592
F. 3d 370 (CA2 2010) (per curiam).
IV
We recognize that the Third Circuit did not approve
nonconsensual priority-violating structured dismissals in
general. To the contrary, the court held that they were
permissible only in those “rare case[s]” in which courts
could find “sufficient reasons” to disregard priority. 787
F. 3d, at 175, 186. Despite the “rare case” limitation, we
still cannot agree.
Cite as: 580 U. S. ____ (2017) 17
Opinion of the Court
For one thing, it is difficult to give precise content to the
concept “sufficient reasons.” That fact threatens to turn a
“rare case” exception into a more general rule. Consider
the present case. The Bankruptcy Court feared that (1)
without the worker-skipping distribution, there would be
no settlement, (2) without a settlement, all the unsecured
creditors would receive nothing, and consequently (3) its
distributions would make some creditors (high- and low-
priority creditors) better off without making other (mid-
priority) creditors worse off (for they would receive noth-
ing regardless). But, as we have pointed out, the record
provides equivocal support for the first two propositions.
See supra, at 9–11. And, one can readily imagine other
cases that turn on comparably dubious predictions. The
result is uncertainty. And uncertainty will lead to similar
claims being made in many, not just a few, cases. See
Rudzik, A Priority Is a Priority Is a Priority—Except
When It Isn’t, 34 Am. Bankr. Inst. J. 16, 79 (2015) (“[O]nce
the floodgates are opened, debtors and favored creditors
can be expected to make every case that ‘rare case’ ”).
The consequences are potentially serious. They include
departure from the protections Congress granted particu-
lar classes of creditors. See, e.g., United States v. Embassy
Restaurant, Inc., 359 U. S. 29, 32 (1959) (Congress estab-
lished employee wage priority “to alleviate in some degree
the hardship that unemployment usually brings to work-
ers and their families” when an employer files for bank-
ruptcy); H. R. Rep. No. 95–595, at 187 (explaining the
importance of ensuring that employees do not “abandon a
failing business for fear of not being paid”). They include
changes in the bargaining power of different classes of
creditors even in bankruptcies that do not end in struc-
tured dismissals. See Warren, A Theory of Absolute Prior-
ity, 1991 Ann. Survey Am. L. 9, 30. They include risks of
collusion, i.e., senior secured creditors and general unse-
cured creditors teaming up to squeeze out priority unse-
18 CZYZEWSKI v. JEVIC HOLDING CORP.
Opinion of the Court
cured creditors. See Bank of America Nat. Trust and Sav.
Assn. v. 203 North LaSalle Street Partnership, 526 U. S.
434, 444 (1999) (discussing how the absolute priority rule
was developed in response to “concern with ‘the ability of a
few insiders, whether representatives of management or
major creditors, to use the reorganization process to gain
an unfair advantage’ ” (quoting H. R. Doc. No. 93–137, pt.
I, p. 255 (1973))). And they include making settlement
more difficult to achieve. See Landes & Posner, Legal
Precedent: A Theoretical and Empirical Analysis, 19
J. Law & Econ. 249, 271 (1976) (arguing that “the ratio of
lawsuits to settlements is mainly a function of the amount
of uncertainty, which leads to divergent estimates by the
parties of the probable outcome”); see also RadLAX Gate-
way Hotel, LLC v. Amalgamated Bank, 566 U. S. 639, 649
(2012) (noting the importance of clarity and predictability
in light of the fact that the “Bankruptcy Code standardizes
an expansive (and sometimes unruly) area of law”).
For these reasons, as well as those set forth in Part III,
we conclude that Congress did not authorize a “rare case”
exception. We cannot “alter the balance struck by the
statute,” Law v. Siegel, 571 U. S. ___, ___ (2014) (slip op.,
at 11), not even in “rare cases.” Cf. Norwest Bank
Worthington v. Ahlers, 485 U. S. 197, 207 (1988) (explain-
ing that courts cannot deviate from the procedures “speci-
fied by the Code,” even when they sincerely “believ[e] that
. . . creditors would be better off ”). The judgment of the
Court of Appeals is reversed, and the case is remanded for
further proceedings consistent with this opinion.
It is so ordered.
Cite as: 580 U. S. ____ (2017) 1
THOMAS, J., dissenting
SUPREME COURT OF THE UNITED STATES
_________________
No. 15–649
_________________
CASIMIR CZYZEWSKI, ET AL., PETITIONERS v.
JEVIC HOLDING CORP., ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE THIRD CIRCUIT
[March 22, 2017]
JUSTICE THOMAS, with whom JUSTICE ALITO joins,
dissenting.
Today, the Court answers a novel and important ques-
tion of bankruptcy law. Unfortunately, it does so without
the benefit of any reasoned opinions on the dispositive
issue from the courts of appeals (apart from the Court of
Appeals’ opinion in this case) and with briefing on that
issue from only one of the parties. That is because, having
persuaded us to grant certiorari on one question, petition-
ers chose to argue a different question on the merits. In
light of that switch, I would dismiss the writ of certiorari
as improvidently granted.
We granted certiorari to decide “[w]hether a bankruptcy
court may authorize the distribution of settlement pro-
ceeds in a manner that violates the statutory priority
scheme.” Pet. for Cert. i. According to petitioners, the
decision below “deepened an existing . . . split” among the
Courts of Appeals on this question. Id., at 8; see id., at
15–16 (citing In re AWECO, Inc., 725 F. 2d 293, 298 (CA5
1984), and In re Iridium Operating LLC, 478 F. 3d 452,
464 (CA2 2007)). After we granted certiorari, however,
petitioners recast the question presented to ask “[w]hether
a Chapter 11 case may be terminated by a ‘structured
dismissal’ that distributes estate property in violation of
the Bankruptcy Code’s priority scheme.” Brief for Peti-
2 CZYZEWSKI v. JEVIC HOLDING CORP.
THOMAS, J., dissenting
tioners i. Although both questions involve priority-
skipping distributions of estate assets, the recast question
is narrower—and different—than the one on which we
granted certiorari. It is also not the subject of a circuit
conflict.
I think it is unwise for the Court to decide the reformu-
lated question today, for two reasons. First, it is a “novel
question of bankruptcy law” arising in the rapidly develop-
ing field of structured dismissals. In re Jevic Holding
Corp., 787 F. 3d 173, 175 (CA3 2015). Experience shows
that we would greatly benefit from the views of additional
courts of appeals on this question. We also would have
benefited from full, adversarial briefing. In reliance on
this Court’s Rules prohibiting parties from changing the
substance of the question presented, see Rule 24.1(a); see
also Rule 14.1(a), respondents declined to brief the ques-
tion that the majority now decides, see Brief for Respond-
ents 52. Second, deciding this question may invite future
petitioners to seek review of a circuit conflict only then to
change the question to one that seems more favorable. “I
would not reward such bait-and-switch tactics.” City and
County of San Francisco v. Sheehan, 575 U. S. ___, ___
2015) (Scalia, J., concurring in part and dissenting in part)
(slip op., at 3); see also Visa, Inc. v. Osborn, post, p. ___.
Accordingly, I would dismiss the writ as improvidently
granted. I respectfully dissent.