In re Jevic Holding Corp.

Sun Capital Partners (Sun) acquired Jevic Transportation, Inc. (Jevic) (debtor) with money borrowed from CIT Group. Two years later, Jevic laid off its workers and filed for Chapter 11 bankruptcy. A group of former Jevic truck drivers (creditors) sued Jevic and Sun in bankruptcy court, asserting that Jevic terminated them without appropriate notice. The bankruptcy court granted summary judgment for the drivers. The drivers estimated their damages at $12.4 million, of which $8.3 million was considered a priority wage claim under the Bankruptcy Code. Separately, a committee of Jevic’s unsecured creditors brought a fraudulent-conveyance action against Sun and CIT. The parties in that action eventually reached a settlement agreement dismissing Jevic’s Chapter 11 case and providing that Jevic’s remaining assets would be used to pay general unsecured creditors’ claims. The settlement left nothing to pay the drivers’ higher-priority $8.3 million wage claim. The drivers and the United States trustee objected to the settlement because it departed from the Bankruptcy Code’s ordinary distribution-priority rules. The bankruptcy court acknowledged the departure but still approved the settlement after finding that the settlement agreement represented the only realistic prospect for ensuring a distribution to Jevic’s unsecured creditors. The district court affirmed, and the drivers and the United States trustee appealed.