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ALERT: Supreme Court ruling impacts property and title rights across large portion of Oklahoma

SCOTUS Ruling graphicToday, the Supreme Court ruled nearly half of the State of Oklahoma is an Indian Reservation.

From a New York Times article:

  • The 5-to-4 decision, potentially one of the most consequential legal victories for Native Americans in decades, could have far-reaching implications for the 1.8 million people who live across what is now deemed “Indian Country” by the high court.
  • Justice Neil M. Gorsuch said that Congress had granted the Creek a reservation, and that the United States needed to abide by its promises.

The outcome could have far-reaching implications for the State of Oklahoma and its citizens as it relates to property rights and land titles, taxation, and other matters involving tribal affairs.


To discuss how this may affect your business, contact Zac Bradt at the contact information below:

Zachary K. Bradt, Director
Phillips Murrah P.C.
EMAIL: zkbradt@phillipsmurrah.com
PHONE: 405.552.2447

Phillips Murrah

SCOTUS overturns structured bankruptcy dismissal in favor of payment priority rules

“Chapter 11 permits some flexibility, but a court still cannot confirm a plan that contains priority-violating distributions over the objection of an impaired creditor class.” – U.S. Supreme Court Ruling in Czyzewski v. Jevic Holding Corp.

A landmark decision handed down last Wednesday from the U.S. Supreme Court reversed a bankruptcy court ruling that approved a “structured” Chapter 11 bankruptcy dismissal settlement for a collapsed trucking company. WSJ reported that, in the highly anticipated ruling, SCOTUS overturned a controversial payout plan that disregarded important bankruptcy rules.

In Czyzewski v. Jevic Holding Corp., the High Court ruled that the dismissal violates payment priority rules of the Bankruptcy Code as set out by Congress, which gives a special priority creditor status to employees who are owed unpaid wages. In the decision, SCOTUS sent the case back to bankruptcy court so that it may be properly adjudicated.

The Backstory

In 2006, private-equity firm Sun Capital Partners’ acquired Jevic Transportation, Inc. in a leveraged buyout, according to the Wall Street Journal. By the following year, the company had started experiencing financial difficulty. In 2008, Jevic Transportation filed its Chapter 11 petition.

A day prior to the bankruptcy filing, Jevic ceased operations and about 90 percent of its employees were abruptly terminated. A group of the company’s truck-driver force filed a multi-million dollar class-action lawsuit claiming that the layoffs violated the Worker Adjustment and Retraining Notification (WARN) Acts. According to Federal Regulation Title 20, Section 639.1(a), employers are required to give a 60-day notice of plant closings and mass layoffs.

The suit included over $8 million in employee priority wage claims under Section 507(a)(4) of the Bankruptcy Code. Jevic truck drivers were awarded a judgment against Jevic, entitling the workers to payment ahead of general unsecured claims against the Jevic estate.

Another lawsuit was brought by the official committee of Jevic’s unsecured creditors claiming fraudulent conveyance and equitable subordination against secured creditors, Sun Capital and CIT Group, which funded the LBO. During the course of Chapter 11 proceedings, Jevic stated that it had run out of money to fight the claims, which set into motion a settlement with the unsecured creditors’ committee representing Jevic’s unsecured creditors in the form of a structured dismissal. A Delaware bankruptcy judge approved a payout plan and dismissed the case.

The Controversy

Under the settlement negotiated by Sun, CIT, Jevic and the committee, no assets were to be distributed to the truck drivers despite the WARN Act class-action judgment. The settlement did, however, provide for distributions to general unsecured claims. The group of Jevic truck drivers appealed the bankruptcy court ruling to the U.S District Court for the District of Delaware and the Third U.S. Circuit Court of Appeals, but was the appeals were denied.

This past summer, the Supreme Court agreed to review the case. At that time, the Wall Street Journal wrote:

“The question of what to do about bankruptcy rules that get in the way of a settlement has divided courts of appeal across the country, with some courts rejecting settlements that don’t comply with the scheme set out by Congress for who gets paid first.”

“The Bankruptcy Code contains a clearly-defined priority scheme for distributions to creditors of the bankruptcy estate, which is grounded on considerations of fairness to all creditors,” said Clayton D. Ketter, a Director at Phillips Murrah who specializes in financial restructurings and bankruptcy matters.

The negotiated structured dismissal did not include the consent of the group of Jevic truck drivers, the SCOTUS opinion stated, which allowed Jevic to evade its priority-creditor responsibility to the unpaid drivers. As long as priority creditors don’t consent to the deal, such settlements can’t be approved, the High Court said.

“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 liquidation). 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 connection with a Chapter 11 dismissal.

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,” wrote Justice Breyer.

“The Supreme Court’s ruling reinforces the enforceability of those priorities and clarifies that priority line jumping through a structured settlement will not be permitted,” Ketter said.

The Jevic case will now head back to bankruptcy court for more work.

The Takeaway

What are the implications of this decision, beyond the fairly narrow Supreme Court’s ruling? Will it affect the overall utilization of structured dismissals across the industry?

Ketter said that he has noticed a rise of structured dismissals in bankruptcy cases, which typically follow a sale of a substantial portion of the debtor’s assets.

“I don’t foresee the Jevic decision changing that,” he added. “The Supreme Court Justices did not say that structured dismissals are not allowed.  Rather, they said that structured dismissals that violate the bankruptcy code’s priority scheme are not allowed.  Thus, we are likely to continue to see structured dismissals used, so long as they do not impermissibly skip a class of creditors in making distributions.”

However, Ketter added that decision may have broader implications outside the realm of structured dismissals.

“For example, there are types of plans within a bankruptcy case where a priority class voluntarily gifts a portion of the recovery it would otherwise be due to a lower priority class,” he added. “Sometimes, those gifted distributions skip other classes sitting higher on the priority scheme.  The Jevic decision raises the question of whether such plans are permissible.”

 

Clayton D. Ketter is a Director and a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

Roth: Justice Antonin Scalia and the Clean Power Plan

By Jim Roth, Director and Chair of the Firm’s Clean Energy Practice Group. This column was originally published in The Journal Record on February 22, 2016.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Justice Antonin Scalia and the Clean Power Plan

U.S. Supreme Court Justice Antonin Scalia’s sudden death at the age of 79 leaves a vacancy on our nation’s highest court larger than one single person. In fact, it probably leaves a vacancy the size of many people, as the justice’s 29-year tenure certainly suggests.

English philosopher John Stuart Mill, a political economist, feminist and civil servant in the 19th century, probably wouldn’t have agreed much with our late Justice Scalia, but one of his quotes seems a foreshadow of the impact of just such a man:

“One person with a belief is equal to a force of ninety-nine who have only interests.”

Justice Scalia certainly was a man of firm beliefs. He has long been described as the “intellectual anchor for the originalist and textualist position” of the U.S. Supreme Court’s conservative wing. It was Scalia’s consistent belief that the U.S. Constitution provided clear lines of separation among the three branches of government: legislative, executive and judicial.

This rigidity was evident in his approach to three decades of opinions, including those cases involving America’s energy and environmental issues.

Just this month, Scalia joined the majority in an unusual move to grant a judicial stay on the regulatory efforts of the U.S. Environmental Protection Agency and its Clean Power Plan, which prior to the stay seemed on its own path for review on the merits at the D.C. Circuit Court level, then likely headed to the Supreme Court for review.

However, the SCOTUS stay halts states’ implementation of the final rule requiring states to develop plans to limit carbon emissions from the power sector in the coming years, with a deadline of September.

Now the fate of the Clean Power Plan, albeit delayed in time, is likely going to land in the hands of a different Supreme Court in the coming years. The issues being debated in the Clean Power Plan case – EPA authority, congressional actions within the Clean Air Act, states’ rights, citizens’ health and environmental protections – will be an early test for a new, possibly rebalanced SCOTUS.

In most every opportunity, Scalia strongly opposed the idea of a living Constitution, the notion that the judiciary can revisit the meaning of constitutional provisions in applying the facts of modern times. He believed instead that those laws must be viewed in their historical context, as they would have been understood at the time they were drafted.

Only time will tell if his viewpoints, beliefs and work-product legacy will receive the same frozen-in-time approach, or whether his beliefs live beyond the life of the believer.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah PC in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.

SCOTUS reverses lower court decision, Medicaid providers can’t bring injunction against Idaho officials

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United States Supreme Court Building

SCOTUS reverses a lower court decision in Armstrong v. Exceptional Child Center, Inc.:

Idaho residential care facilities sued the state for failure to implement higher reimbursement rates required by Medicaid which the Idaho legislature had not sufficiently funded.  The federal district court and the Ninth Circuit Court of Appeals sided with the facilities ruling that Idaho’s Medicaid rates were insufficient to support the federal requirements that payments had to be at such a level to provide for quality care and adequate access to services.  In Armstrong v. Exceptional Child Center Inc., the United States Supreme Court reversed the lower court ruling and held that the Supremacy Clause does not confer a private right of action and so Medicaid providers cannot sue for an injunction requiring the state to comply with the reimbursement rate provision of the federal Medicaid Act.  42 U.S.C. §1396a(a)(30)(A)

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