In Re: Jevic Holding Corp. et al

Filing 22

MEMORANDUM. Signed by Judge Sue L. Robinson on 1/24/2014. (nmfn)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

In re:

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JEVIC HOLDING CORP., et al.,

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)
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Debtors.

CASIMIR CZYZEWSKI, et al.,

Chapter 11
Bank. No. 08-11006 (BLS)
(Jointly Administered)

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)
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Appellants,
v.

JEVIC HOLDING CORP., et al.,
Appellees.

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Civ. Nos. 13-104-SLR and
13-1 05-SLR (consolidated)

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MEMORANDUM
At Wilmington

thi~th day of January, 2014 having reviewed the appeal taken

by Casimir Czyzewski, Melvin L. Myers, Jeffrey Oehlers, Arthur E. Perigard, and Daniel
C. Richards, on behalf of themselves and all others similarly situated, ("appellants"),
and the papers submitted in connection therewith; the court issues its decision based
on the following analysis:
1. Background. 1 Jevic Holding Corp., Jevic Transportation, Inc. and Creek
Road Properties, LLC's (collectively, "debtors") are a trucking company. In June 2006,

1

The factual background is largely undisputed and is taken from the United
States Bankruptcy Court for the District of Delaware's ("bankruptcy court") oral order
dated November 28, 2012 and supplemented by the parties' briefing.

Sun Capital Partners IV, LP, Sun Partners Management IV, LLC and Sun Capital
Partners, Inc. (collectively, "Sun") bought debtors, and subsequently refinanced the
acquisition through a $101 million loan from The CIT Group/Business Credit, Inc.
("CIT"), as agent for the lenders (the "Lender Group"). (0.1. 19 at 3-4)
2. On May 20, 2008 ("the petition date"), 2 debtors each filed a voluntary petition
for relief under chapter 11 of title 11 of the United Stated Code (the "Bankruptcy Code")
in the bankruptcy court. On June 4, 2008, the United States Trustee appointed the
Official Committee of Unsecured Creditors of Jevic Holding Corp. et al. ("the
committee") (collectively with debtors, Sun, and CIT, "appellees"). Shortly prior to the
petition date, the debtors wound-down their business, ceasing substantially all of their
operations and terminating approximately 90% of their employees. After the petition
date, all of the debtors' tangible assets were liquidated and the proceeds used to
partially repay the outstanding obligations owed to CIT.
3. On May 21, 2008, appellants, 3 who are truck drivers 4 whose employment was
terminated by debtors, filed a complaint asserting claims under the Worker Adjustment
and Retraining Notification Act, 29 U.S.C. § 2101 et. seq., and the New Jersey Millville
Dallas Airmotive Plant Job Loss Notification Act, PL. 2007, c.212, C.34:21-2. 5 (0.1. 19

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As of the petition date, the debtors' primary secured creditors were Sun and
CIT, with an aggregate of approximately $53 million on a first priority senior secured
basis. (08-11 006-BLS, 0.1. 1519 at 5:1-4)
3

Referred to by the bankruptcy court as "the Warren [sic] plaintiffs."

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About 1,200 truck drivers who claim over $20 million and are debtors' largest
group of unsecured creditors. (0.1. 19 at 1)
5

Appellants allege that these claims are priority claims under 11 U.S.C. §§
507(a)(4) and (a)(5); as such, they allege they should be paid in full before any funds
may be paid to general or lower priority creditors. (0.1. 19 at 4)

at 4)
4. Appellees reached a settlement agreement ("settlement"), dated June 22,
2012, which resolved all claims among the debtors and their estates, the committee,
CIT, the Lender Group and Sun. Appellants minimally participated in the settlement
negotiations, but did not agree to the settlement. (08-11006-BLS, 0.1. 1519 at 11; D. I.
1514 at 31:13-21, 68:11-22) The settlement "provided for (a) the exchange of releases,
(b) the payment of $2 million by CIT to the [d]ebtors, to be used to satisfy unpaid
chapter 11 administrative claims, (c) the dismissal with prejudice of the Adversary
Proceeding, 6 (d) the assignment by Sun of its lien on the estates' remaining assets to
the Jevic Holding Corp. Liquidating Trust (the "[c]reditors['] [t]rust") for the benefit of the
[d]ebtors' unsecured creditors and certain priority tax claimants, (e) the reconciliation of
administrative and unsecured claims, and (f) the dismissal of the chapter 11 cases."

(0.1. 15 at 5; ex. A at 1l 3)
5. Appellants objected to the agreement on various grounds. 7 After briefing and
an evidentiary hearing, the bankruptcy court concluded that the possibility of recovery
for appellants was remote at best, as there were "several independent hurdles that the
[c)ommittee would have to clear before it would actually see a material recovery out of
the litigation," which would take years (08-11006-BLS, D. I. 1519 at 13:7-9) Further, the
debtors possessed no funds that were not subject to the liens of CIT and Sun, to
continue with litigation. The bankruptcy court entered the settlement on December 4,

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A proceeding brought by the committee against CIT and Sun, respectively the
debtors' senior and junior secured lenders.
7

The United States Trustee also objected.

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2012. (08-11006-BLS, D.l. 1520)
6. On January 2, 2013, appellants filed a motion to stay with the bankruptcy
court. (08-11 006-BLS, D.l. 1545) After briefing and argument, the bankruptcy court
denied the stay on January 18, 2013 but, as a courtesy to the district court, instructed
the debtors to refrain from consummating the settlement for ten to fifteen days to give
appellants an opportunity to challenge the ruling. (D.I. 16, ex. 6 at 29-30; 08-11006BLS, D.l. 1567) Appellants did not challenge the denial and have not further sought a
stay.
7. At a hearing on February 20, 2013, appellants sought clarification regarding
whether the appellees could move forward with implementing the settlement. The
bankruptcy court confirmed the lack of a stay. The committee advised that appellees
were "actively considering closing. So if [appellants] want to stay ... they should file a
motion promptly." Although appellants indicated that they would be seeking a stay (D. I.
16, ex. 3 at 12-14), no such motion was filed in this court.
8. The appellees instigated a series of transactions to implement the settlement,
beginning on August 28, 2013. All funds were distributed under the settlement, with the
creditors' trust distributing 1,039 final disbursement checks to holders of allowed
general unsecured claims and 29 final disbursement checks to holders of allowed
unsecured priority tax claims. 8 (D. I. 15 at 9) The bankruptcy court dismissed the
debtors' chapter 11 cases on October 11, 2013.
9. Standard of Review. This court has jurisdiction to hear an appeal from the

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0f these, 39 checks were returned and "$90,422.58 in checks have not been
negotiated by the payees .... " (D .I. 16 at 9)

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bankruptcy court pursuant to 28 U.S.C. § 158(a). In undertaking a review of the issues
on appeal, the court applies a clearly erroneous standard to the bankruptcy court's
findings of fact and a plenary standard to that court's legal conclusions. See Am. Flint
Glass Workers Union v. Anchor Resolution Corp., 197 F.3d 76, 80 (3d Cir. 1999). With
mixed questions of law and fact, the court must accept the bankruptcy court's "finding of
historical or narrative facts unless clearly erroneous, but exercise[s] 'plenary review of
the [bankruptcy] court's choice and interpretation of legal precepts and its application of
those precepts to the historical facts."' Mellon Bank, N.A. v. Metro Communications,
Inc., 945 F.2d 635, 642 (3d Cir. 1991) (citing Universal Minerals, Inc. v. C.A. Hughes &
Co., 669 F.2d 98, 101-02 (3d Cir. 1981 )). The district court's appellate responsibilities
are further informed by the directive of the United States Court of Appeals for the Third
Circuit, which effectively reviews on a de novo basis bankruptcy court opinions. In re
Hechinger, 298 F.3d 219, 224 (3d Cir. 2002); In re Telegroup, 281 F.3d 133, 136 (3d
Cir. 2002).
10. Analysis. Appellants largely do not contest the bankruptcy court's factual
findings. Instead, appellants fault the bankruptcy court's approval of the settlement on
various legal grounds. Contrary to appellants' contentions, the bankruptcy court
properly evaluated the proposed settlement, considering the Martin test's four criteria 9
and determining that the settlement was "fair and equitable." Myers v. Martin (In re
Martin), 91 F.3d 389, 393 (3d Cir. 1996); Protective Comm. for lndep. Stockholders of

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"(1) the probability of success in litigation; (2) the likely difficulties in collection;
(3) the complexity of the litigation involved, and the expense, inconvenience and delay
necessarily attending it; and (4) the paramount interest of the creditors."

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TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424 (1968). More specifically, the
bankruptcy court considered appellants' primary objections to the settlement - that the
proceeds did not flow to their claims and that the committee breached its fiduciary duty
-in making its determination. (0.1. 1519 at 9:4-1 0); see In re Nutraquest, Inc., 434 F.3d
639, 644-45 (3d Cir. 2006) (finding that "many cases have applied the Drexel- TMT

Trailer-Martin factors to settlements involving claims against debtors" and the court
should "carefully examine" the settlement and determine if it was fair to "the parties who
did not settle") (citations omitted). As discussed below, these objections did not
necessitate rejecting the settlement.
11. As to the pending WARN litigation, the bankruptcy court found that the
litigation was in the early stages, would be lengthy and expensive, was not "a slam
dunk," and the estate was without funds to support any litigation. (0.1. 1519 at 12-14)
As to the "paramount interest of creditors" factor, the settlement involves "a substantial
distribution to unsecured and certain administrative creditors." (0.1. 1519 at 14:4-17)
Further, appellants' claim against the estate is "effectively worthless given that the
estate lacks available unencumbered funds to satisfy it if it were allowed." (/d.)
12. As to the whether the settlement is "fair and equitable," the bankruptcy court
found that all of the major economic stakeholders were involved in the negotiations
(including appellants), 10 the committee lacked the resources to continue any litigation,

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The appellants initially participated in the negotiations, but chose not to settle
as they wished to continue their pending litigation against debtors and Sun. (0.1. 1519
at 11-12) Appellants argue that the bankruptcy court erred in concluding that they
"opted out" of the settlement, however, considering appellants were included in the
negotiations, the court does not find this factual conclusion clearly erroneous.
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and the settlement offered "the prospect of a meaningful distribution to unsecured
creditors, and to some but admittedly not all administrative priority creditors." (D. I. 1519
at 9-1 0)
13. Appellants contend that the committee breached its fiduciary duty when it
agreed to the settlement structure. The court concludes otherwise. The committee
fulfilled its charge to investigate and prosecute potential causes of action. (D. I. 1519 at
11: 16-25) The committee fully participated in the negotiations and then sought
approval of the settlement with the support of the debtor. (ld.) The court finds that the
settlement was in the best interest of the estate and of resolving the pending Chapter
11 cases.
14. As discussed by the bankruptcy court, the settlement does not follow the
absolute priority rule. However, this is not a bar to the approval of the settlement as it is
not a reorganization plan. 11 Cf. In re Armstrong World Indus., Inc., 432 F.3d 507, 509
(3d Cir. 2005) (affirming the district court's denial of confirmation of a reorganization
plan which violated the absolute priority rule). In Armstrong, the Third Circuit
distinguished a line of cases approving settlement agreements allowing "creditors ... to
distribute their proceeds from the bankruptcy estate to other claimants without offending
section 1129(b)." /d. at 514 (discussing In re SPM Mfg. Corp., 984 F.2d 1305 (1st Cir.
1993); In re Mcorp Fin., Inc., 160 B.R. 941 (S.D. Tex. 1993), and In re Genesis Health
Ventures, Inc., 266 B.R. 591 (Bankr. D. Del. 2001 )); see also In re World Health Alts.,

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The bankruptcy court found that there was no prospect of a confirmable plan.
(D.I. 1519 at 8:6-8) This court has no reason to question this conclusion on the record
at bar, nor have the appellants presented any evidence to the contrary.

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Inc., 344 B.R. 291, 297-98 (Bankr. D. Del. 2006); In re Kainos Partners Holding
Company, LLC, 2012 WL 6028927 at *12 (D. Del. Nov. 30, 2012) (finding that the

settlement did "not violate the Bankruptcy Code's statutory priority scheme but, instead,
satisfie[d] the criteria for approval under Bankruptcy Rule 9019 and the standards set
forth under In re Martin). In the case at bar, "the funds are indisputably the collateral of
the secured creditors, [and] admittedly subject to litigat[ion] challenge." Therefore, the
court concludes that the bankruptcy court did not err in confirming the settlement and
dismissing the Chapter 11 cases.

(D.I. 1519 at 10-11)

15. Alternatively, appellees have moved to dismiss this appeal as equitably
moot. (D.I. 14) In determining whether the doctrine applies, courts should consider the
following "two analytical steps: (1) whether a confirmed plan has been substantially
consummated; and (2) if so, whether granting the relief requested in the appeal will (a)
fatally scramble the plan and/or (b) significantly harm third parties who have justifiably
relied on plan confirmation." In re Semcrude, L.P., eta/., 728 F.3d 314, 321 (3d Cir.
Aug. 27, 2013).
16. The court finds that the settlement has been substantially consummated as
all the funds have been distributed. Should the court grant the appeal, the settlement
will be irreversibly "scrambled," as it did not provide for funds for appellants' speculative
recovery and appellants chose not to substantively participate in the negotiation and
subsequent settlement. The parties to the settlement reached their negotiated
resolution following years of litigation and will be harmed if the settlement is now
unwound. The court concludes that the appeal is equitably moot in view of the
settlement.
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17. For the reasons discussed above, the court dismisses the appeal and
affirms the order of the bankruptcy court. An order shall issue.

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