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Jevic Workers Say Supreme Court Ruling Bars Ch. 11 Deal

Law360—Jeff Montgomery

Attorneys for workers whose bankruptcy appeal led to a U.S. Supreme Court ruling last year that narrowed the use of Chapter 11 structured settlement dismissals told a Delaware judge Monday the high court ruling nullified a deal that company lenders now want to reassert.

Craig Goldblatt of WilmerHale, counsel to the workers, told Judge Brendan L. Shannon that CIT Group Inc. and private equity firm Sun Capital Partners Inc. lost their chance to revise a 2012 structured settlement in order to pay Jevic Holding Corp. workers about $1.1 million now for a decade-old Worker Adjustment and Retraining Notification Act violation.

The violation itself dates to the Jevic’s retreat into bankruptcy in 2008 and failure to notify workers 60 days in advance of their termination as required by federal law for larger employers. The former New Jersey trucking company's workers were originally allocated nothing in a 2012 agreement to settle and terminate the badly underfunded Chapter 11 instead of pursuing confirmation.

Attorneys for the workers asked Judge Shannon in March to approve conversion of the case to Chapter 7, potentially setting the stage for court-appointed trustee actions to act on lender fraudulent conveyance allegations and other claims against the lenders and unsecured creditors.

“With the same evidentiary record, they’re asking the court to approve, in substance, the same settlement,” Goldblatt said, despite the justices rejection of a lower court conclusion that there were no settlement alternatives to the one challenged by workers.

Attorneys for Jevic and its official committee of unsecured creditors and the lenders argued that the workers only won a remand based on their assertion that the settlement paid creditors with lower-priority claims while skipping over the workers’ claims for payment based on the WARN Act violations, which should been paid before lower-ranking classes of creditors under the Bankruptcy Code.

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Judge Shannon said that both sides appeared, after a decade, to be seeking an end to the battle, within limits.

“We’re not writing on a clean slate. This was litigated, fought over and they [the employees] prevailed, and it’s back know,” Judge Shannon .... “I think their question, at a broader level, is: Did we just do that for nothing?”

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“Their point is: This is ‘Groundhog Day,’” Judge Shannon said, likening the workers’ position to Bill Murray in the endless-day movie. “This is the same problem — [in their view] the settlement does not comply with their statutory right under the bankruptcy code. Conversion seems to me to be the backdrop. If there’s not a way to settle this, it ought to convert.”

The two sides were unable to find a compromise during talks mediated by Judge Christopher S. Sontchi, Goldblatt said, and a settlement still appears in doubt.

“We think actually facing the barrel of a gun that the folks on the other side have seen today could be a catalyst for resolution,” Goldblatt said. “We’re not looking for Armageddon for fun, but we think without the risk of Armageddon, we won’t be able to get a resolution.”

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Judge Shannon said he would rule on the competing motions on May 21.

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The ex-workers are represented by Jack Raisner, Rene Roupinian and Robert Fisher of Outten & Golden LLP, Christopher Loizides of Loizides PA, and Craig Goldblatt, Joel Millar and Jonathan Seymour of WilmerHale.

The bankruptcy case is In re: Jevic Holding Corp. et al., case number 1:08-bk-11006, in the U.S. Bankruptcy Court for the District of Delaware.