Yellow Turtle Design, LLC, et al. v. Sonya Salkin Slott, et al.

In Czyzewski v. Jevic Holding Corp., 580 U.S. 451, 457, 137 S.Ct. 973, 979, 197 L.Ed.2d 398 (2017), this Court held, “The [Bankruptcy] Code makes clear that distributions of assets in a Chapter 7 liquidation must follow [the] prescribed order. §§ 725, 726.” The Bankruptcy Court below approved a settlement which provided distributions to one unsecured creditor without regard to statutorily prescribed priorities, thereby engaging in “the priority shell game of sorts involved in Jevic.” 1 The Bankruptcy Code2 prioritizes payments to claimants pro rata within each class. The Trustee in this chapter 7 case agreed to settle a cause of action belonging to the estate by payment to one unsecured creditor in violation of the statutorily-prescribed distribution scheme. Over the objection of excluded creditors, the bankruptcy court approved the settlement. Lower courts, including conflicting Circuit Courts considered themselves unburdened by the clear directions of Congress and this Court. The question presented on which Courts of Appeals are divided is: Whether distributions to creditors in bankruptcy shall be done in the manner prescribed in the Bankruptcy Code? 1 In re Daily Gazette Co., 584 B.R. 540, 546 (Bankr. S.D.W. Va. 2018). 2 See 11 U.S.C. § 726(a). 11 U.S.C. § 507(a). 11 U.S.C. § 726(b).