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Constellation’s Settlement Curtailed after Jevic

Posted on: May 18, 2017

In our recent article, Jevic: Breathing New Life Into Priority Disputes, we discussed the then-pending motions for settlement and dismissal in In re Constellation Enterprises LLC, et al.,16-bk- 11213 (CSS) (D. Del.). Constellation’s settlement motion proposed to transfer assets to the General Unsecured Creditor Trust over the claims of priority creditors and faced strong opposition in the wake of the Supreme Court’s ruling in Czyzewski et al., v. Jevic Holding Corp., et al., 137 S. Ct. 973, 985 (2017) (“Jevic”). On May 16, 2017, Judge Sontchi denied Constellation’s settlement motion. The one page order gives no insight into the reasoning behind the denial, however, the court’s statements during a hearing on the same day suggest that Jevic was a strong guidepost (“I am going to deny the settlement motion, and I do it with some reluctance. Doing this takes money away from creditors and keeps it in the hands of the purchaser . . . however, I am constrained to do so by the facts and by the law.”). The ruling in Constellation is a warning to debtors and others -- settlement proposals that deviate from the Code’s priority scheme are subject to rejection as “priority-skipping gifts of non-estate property.”

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