Bankruptcy lawyers breathed a sigh of relief when Justice Stephen G. Breyer issued a relatively narrow opinion in Czyzewski v. Jevic Holding Corp. But after a few weeks of reflection, Prof. Stephen Lubben wonders if The decision didn’t lay the groundwork for years of future litigation, according to Lubben’s commentary in the New York Times DealBook blog on Friday. The Supreme Court held that when a bankruptcy court orders a chapter 11 case dismissed, it can’t also order the distribution of the debtor’s assets in a way that contradicts the order of payment via the “absolute priority rule” in a bankruptcy liquidation. The court went out of its way to avoid saying anything definitive about all the other times priority is violated in a chapter 11 case. In reaching this conclusion, Justice Breyer distinguishes most of the other priority violations as interim distributions, which might plausibly make most creditors better off in the long run. He contrasts these with final distributions, like those at work in Jevic, that decide creditors’ recovery rights once and for all.
