CZYZEWSKI et al. v. JEVIC HOLDING CORP. et al.

Certiorari To The United States Court Of Appeals For The Third Circuit

No. 15-649. Argued December 7, 2016--Decided March 22, 2017

There are three possible conclusions to a Chapter 11 bankruptcy. First, debtor and creditors may negotiate a plan to govern the distribution of the estate’s value. See, e.g., 11 U. S. C. 1121, 1123, 1129, 1141. Second, the bankruptcy court may convert the case to Chapter 7 for liquidation of the business and distribution of its assets to creditors. 1112(a), (b), 726. Finally, the bankruptcy court may dismiss the case. 1112(b). A court ordering a dismissal ordinarily attempts to restore the prepetition financial status quo. 349(b)(3). Yet if perfect restoration proves difficult or impossible, the court may, “for cause,” alter the dismissal’s normal restorative consequences, 349(b)—i.e., it may order a “structured dismissal.” The Bankruptcy Code also establishes basic priority rules for determining the order in which the court will distribute an estate’s assets. The Code makes clear that distributions in a Chapter 7 liquidation must follow this prescribed order. 725, 726. 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. 1129(a)(7), (b)(2). The Code does not explicitly state what priority rules—if any—apply to the distribution of assets in a structured dismissal.

Respondent Jevic Transportation filed for Chapter 11 bankruptcy after being purchased in a leveraged buyout. The bankruptcy prompted two lawsuits. In the first, a group of former Jevic truckdrivers, petitioners here, was awarded a judgment against Jevic for Jevic’s failure to provide proper notice of termination in violation of state and federal Worker Adjustment and Retraining Notification (WARN) Acts. Part of that judgment counted as a priority wage claim under 507(a)(4), entitling the workers to payment ahead of general unsecured claims against the Jevic estate. In the second suit, a court-authorized committee representing Jevic’s unsecured creditors sued Sun Capital and CIT Group, respondents here, for fraudulent conveyance in connection with the leveraged buyout of Jevic. These parties negotiated a settlement agreement that called for a structured dismissal of Jevic’s Chapter 11 bankruptcy. Under the proposed structured dismissal, petitioners would receive nothing on their WARN claims, but lower-priority general unsecured creditors would be paid. Petitioners argued that the distribution scheme accordingly violated the Code’s priority rules by paying general unsecured claims ahead of their own. The Bankruptcy Court nevertheless approved the settlement agreement and dismissed the case, reasoning that because the proposed payouts would occur pursuant to a structured dismissal rather than an approved plan, the failure to follow ordinary priority rules did not bar approval. The District Court and the Third Circuit affirmed.

Held:

1. Petitioners have Article III standing. Respondents argue that petitioners have not “suffered an injury in fact,” or at least one “likely to be redressed by a favorable judicial decision,” Spokeo, Inc. v. Robins, 578 U. S. ___, ___, because petitioners would have gotten nothing even if the Bankruptcy Court had never approved the structured dismissal and will still get nothing if the structured dismissal is undone now. That argument rests upon the assumptions that (1) without a violation of ordinary priority rules, there will be no settlement, and (2) without a settlement, the fraudulent-conveyance lawsuit has no value. The record, however, indicates both that a settlement that respects ordinary priorities remains a reasonable possibility and that the fraudulent-conveyance claim could have litigation value. Therefore, as a consequence of the Bankruptcy Court’s approval of the structured dismissal, petitioners lost a chance to obtain a settlement that respected their priorities or, if not that, the power to assert the fraudulent-conveyance claim themselves. A decision in their favor is likely to redress that loss. Pp. 9–11.

2. Bankruptcy courts may not approve structured dismissals that provide for distributions that do not follow ordinary priority rules without the consent of affected creditors. Pp. 11–18.

(a) Given the importance of the priority system, this Court looks for an affirmative indication of intent before concluding that Congress means to make a major departure. See Whitman v. American Trucking Assns., Inc., 531 U. S. 457. Nothing in the statute evinces such intent. Insofar as the dismissal sections of Chapter 11 foresee any transfer of assets, they seek a restoration of the prepetition financial status quo. Read in context, 349(b), which permits a bankruptcy judge, “for cause, [to] orde[r] otherwise,” seems designed to give courts the flexibility to protect reliance interests acquired in the bankruptcy, not to make general end-of-case distributions that would be flatly impermissible in a Chapter 11 plan or Chapter 7 liquidation. Precedent does not support a contrary position. E.g., In re Iridium Operating LLC, 478 F. 3d 452 (CA2), distinguished. Cases in which courts have approved deviations from ordinary priority rules generally involve interim distributions serving significant Code-related objectives. That is not the case here, where, e.g., the priority-violating distribution is attached to a final disposition, does not preserve the debtor as a going concern, does not make the disfavored creditors better off, does not promote the possibility of a confirmable plan, does not help to restore the status quo ante, and does not protect reliance interests. Pp. 11–16.

(b) Congress did not authorize a “rare case” exception that permits courts to disregard priority in structured dismissals for “sufficient reasons.” The fact that it is difficult to give precise content to the concept of “sufficient reasons” threatens to turn the court below’s exception into a more general rule, resulting in uncertainty that has potentially serious consequences—e.g., departure from the protections granted particular classes of creditors, changes in the bargaining power of different classes of creditors even in bankruptcies that do not end in structured dismissals, risks of collusion, and increased difficulty in achieving settlements. Courts cannot deviate from the strictures of the Code, even in “rare cases.” Pp. 16–18.

787 F. 3d 173, reversed and remanded.

Breyer, J., delivered the opinion of the Court, in which Roberts, C. J., and Kennedy, Ginsburg, Sotomayor, and Kagan, JJ., joined. Thomas, J., filed a dissenting opinion, in which Alito, J., joined.


ENDREW F., a minor, by and through his parents and next friends, JOSEPH F. et al. v. DOUGLAS COUNTY SCHOOL DISTRICT RE–1

Certiorari To The United States Court Of Appeals For The Tenth Circuit

No. 15-827. Argued January 11, 2017--Decided March 22, 2017

The Individuals with Disabilities Education Act (IDEA) offers States federal funds to assist in educating children with disabilities. The Act conditions that funding on compliance with certain statutory requirements, including the requirement that States provide every eligible child a “free appropriate public education,” or FAPE, by means of a uniquely tailored “individualized education program,” or IEP. 20 U. S. C. 1401(9)(D), 1412(a)(1).

This Court first addressed the FAPE requirement in Board of Ed. of Hendrick Hudson Central School Dist., Westchester Cty. v. Rowley, 458 U. S. 176. The Court held that the Act guarantees a substantively adequate program of education to all eligible children, and that this requirement is satisfied if the child’s IEP sets out an educational program that is “reasonably calculated to enable the child to receive educational benefits.” Id., at 207. For children fully integrated in the regular classroom, this would typically require an IEP “reasonably calculated to enable the child to achieve passing marks and advance from grade to grade.” Id., at 204. Because the IEP challenged in Rowley plainly met this standard, the Court declined “to establish any one test for determining the adequacy of educational benefits conferred upon all children covered by the Act,” instead “confin[ing] its analysis” to the facts of the case before it. Id., at 202.

Petitioner Endrew F., a child with autism, received annual IEPs in respondent Douglas County School District from preschool through fourth grade. By fourth grade, Endrew’s parents believed his academic and functional progress had stalled. When the school district proposed a fifth grade IEP that resembled those from past years, Endrew’s parents removed him from public school and enrolled him in a specialized private school, where he made significant progress. School district representatives later presented Endrew’s parents with a new fifth grade IEP, but they considered it no more adequate than the original plan. They then sought reimbursement for Endrew’s private school tuition by filing a complaint under the IDEA with the Colorado Department of Education. Their claim was denied, and a Federal District Court affirmed that determination. The Tenth Circuit also affirmed. That court interpreted Rowley to establish a rule that a child’s IEP is adequate as long as it is calculated to confer an “ educational benefit [that is] merely . . . more than de minimis,” 798 F. 3d 1329, 1338 (internal quotation marks omitted), and concluded that Endrew’s IEP had been “ reasonably calculated to enable [him] to make some progress, ” id., at 1342 (internal quotation marks omitted). The court accordingly held that Endrew had received a FAPE.

Held: To meet its substantive obligation under the IDEA, a school must offer an IEP reasonably calculated to enable a child to make progress appropriate in light of the child’s circumstances. Pp. 9–16.

(a) Rowley and the language of the IDEA point to the approach adopted here. The “reasonably calculated” qualification reflects a recognition that crafting an appropriate program of education requires a prospective judgment by school officials, informed by their own expertise and the views of a child’s parents or guardians; any review of an IEP must appreciate that the question is whether the IEP is reasonable, not whether the court regards it as ideal. An IEP must aim to enable the child to make progress; the essential function of an IEP is to set out a plan for pursuing academic and functional advancement. And the degree of progress contemplated by the IEP must be appropriate in light of the child’s circumstances, which should come as no surprise. This reflects the focus on the particular child that is at the core of the IDEA, and the directive that States offer instruction “specially designed” to meet a child’s “unique needs” through an “[i]ndividualized education program.” 1401(29), (14) (emphasis added).

Rowley sheds light on what appropriate progress will look like in many cases: For a child fully integrated in the regular classroom, an IEP typically should be “reasonably calculated to enable the child to achieve passing marks and advance from grade to grade.” 458 U. S., at 204. This guidance is grounded in the statutory definition of a FAPE. One component of a FAPE is “special education,” defined as “specially designed instruction . . . to meet the unique needs of a child with a disability.” 1401(9), (29). In determining what it means to “meet the unique needs” of a child with a disability, the provisions of the IDEA governing the IEP development process provide guidance. These provisions reflect what the Court said in Rowley by focusing on “progress in the general education curriculum.” 1414(d)(1)(A)(i) (I)(aa), (II)(aa), (IV)(bb).

Rowley did not provide concrete guidance with respect to a child who is not fully integrated in the regular classroom and not able to achieve on grade level. A child’s IEP need not aim for grade-level advancement if that is not a reasonable prospect. But that child’s educational program must be appropriately ambitious in light of his circumstances, just as advancement from grade to grade is appropriately ambitious for most children in the regular classroom. The goals may differ, but every child should have the chance to meet challenging objectives.

This standard is more demanding than the “merely more than de minimis” test applied by the Tenth Circuit. It cannot be right that the IDEA generally contemplates grade-level advancement for children with disabilities who are fully integrated in the regular classroom, but is satisfied with barely more than de minimis progress for children who are not. Pp. 9–15.

(b) Endrew’s parents argue that the Act goes even further and requires States to provide children with disabilities educational opportunities that are “substantially equal to the opportunities afforded children without disabilities.” Brief for Petitioner 40. But the lower courts in Rowley adopted a strikingly similar standard, and this Court rejected it in clear terms. Mindful that Congress has not materially changed the statutory definition of a FAPE since Rowley was decided, this Court declines to interpret the FAPE provision in a manner so plainly at odds with the Court’s analysis in that case. P. 15.

(c) The adequacy of a given IEP turns on the unique circumstances of the child for whom it was created. This absence of a bright-line rule should not be mistaken for “an invitation to the courts to substitute their own notions of sound educational policy for those of the school authorities which they review.” Rowley, 458 U. S., at 206. At the same time, deference is based on the application of expertise and the exercise of judgment by school authorities. The nature of the IEP process ensures that parents and school representatives will fully air their respective opinions on the degree of progress a child’s IEP should pursue; thus, by the time any dispute reaches court, school authorities will have had the chance to bring their expertise and judgment to bear on areas of disagreement. See 1414, 1415; Rowley, 458 U. S., at 208–209. At that point, a reviewing court may fairly expect those authorities to be able to offer a cogent and responsive explanation for their decisions that shows the IEP is reasonably calculated to enable the child to make progress appropriate in light of his circumstances. Pp. 15–16.

798 F. 3d 1329, vacated and remanded.

Roberts, C. J., delivered the opinion for a unanimous Court.


STAR ATHLETICA, L.L.C. v. VARSITY BRANDS, INC., et al.

Certiorari To The United States Court Of Appeals For The Sixth Circuit

No. 15-866. Argued October 31, 2016--Decided March 22, 2017

The Copyright Act of 1976 makes “pictorial, graphic, or sculptural features” of the “design of a useful article” eligible for copyright protection as artistic works if those features “can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article.” 17 U. S. C. 101.

Respondents have more than 200 copyright registrations for two-dimensional designs—consisting of various lines, chevrons, and colorful shapes—appearing on the surface of the cheerleading uniforms that they design, make, and sell. They sued petitioner, who also markets cheerleading uniforms, for copyright infringement. The District Court granted petitioner summary judgment, holding that the designs could not be conceptually or physically separated from the uniforms and were therefore ineligible for copyright protection. In reversing, the Sixth Circuit concluded that the graphics could be “identified separately” and were “capable of existing independently” of the uniforms under 101.

Held: A feature incorporated into the design of a useful article is eligible for copyright protection only if the feature (1) can be perceived as a two- or three-dimensional work of art separate from the useful article, and (2) would qualify as a protectable pictorial, graphic, or sculptural work—either on its own or fixed in some other tangible medium of expression—if it were imagined separately from the useful article into which it is incorporated. That test is satisfied here. Pp. 3–17.

(a) Separability analysis is necessary in this case. Respondents claim that two-dimensional surface decorations are always separable, even without resorting to a 101 analysis, because they are “on a useful article” rather than “designs of a useful article.” But this argument is inconsistent with 101’s text. ”[P]ictorial” and “graphic” denote two-dimensional features such as pictures, paintings, or drawings. Thus, by providing protection for “pictorial, graphical, and sculptural works” incorporated into the “design of a useful article,” 101 necessarily contemplates that such a design can include two-dimensional features. This Court will not adjudicate in the first instance the Government’s distinct argument against applying separability analysis, which was neither raised below nor advanced here by any party. Pp. 4–6.

(b) Whether a feature incorporated into a useful article “can be identified separately from,” and is “capable of existing independently of,” the article’s “utilitarian aspects” is a matter of “statutory interpretation.” Mazer v. Stein, 347 U. S. 201. Pp. 6–10.

(1) Section 101’s separate-identification requirement is met if the decisionmaker is able to look at the useful article and spot some two- or three-dimensional element that appears to have pictorial, graphic, or sculptural qualities. To satisfy the independent-existence requirement, the feature must be able to exist as its own pictorial, graphic, or sculptural work once it is imagined apart from the useful article. If the feature could not exist as a pictorial, graphic, or sculptural work on its own, it is simply one of the article’s utilitarian aspects. And to qualify as a pictorial, graphic, or sculptural work on its own, the feature cannot be a useful article or “[a]n article that is normally a part of a useful article,” 101. Neither could one claim a copyright in a useful article by creating a replica of it in another medium. Pp. 7–8.

(2) The statute as a whole confirms this interpretation. Section 101, which protects art first fixed in the medium of a useful article, is essentially the mirror image of 113(a), which protects art first fixed in a medium other than a useful article and subsequently applied to a useful article. Together, these provisions make clear that copyright protection extends to pictorial, graphic, and sculptural works regardless of whether they were created as freestanding art or as features of useful articles. P. 8.

(3) This interpretation is also consistent with the Copyright Act’s history. In Mazer, a case decided under the 1909 Copyright Act, the Court held that respondents owned a copyright in a statuette created for use as a lamp base. In so holding, the Court approved a Copyright Office regulation extending protection to works of art that might also serve a useful purpose and held that it was irrelevant to the copyright inquiry whether the statuette was initially created as a freestanding sculpture or as a lamp base. Soon after, the Copyright Office enacted a regulation implementing Mazer’s holding that anticipated the language of 101, thereby introducing the modern separability test to copyright law. Congress essentially lifted the language from those post-Mazer regulations and placed it in 101 of the 1976 Act. Pp. 8–10.

(c) Applying the proper test here, the surface decorations on the cheerleading uniforms are separable and therefore eligible for copyright protection. First, the decorations can be identified as features having pictorial, graphic, or sculptural qualities. Second, if those decorations were separated from the uniforms and applied in another medium, they would qualify as two-dimensional works of art under 101. Imaginatively removing the decorations from the uniforms and applying them in another medium also would not replicate the uniform itself.

The dissent argues that the decorations are ineligible for copyright protection because, when imaginatively extracted, they form a picture of a cheerleading uniform. Petitioner similarly claims that the decorations cannot be copyrighted because, even when extracted from the useful article, they retain the outline of a cheerleading uniform. But this is not a bar to copyright. Just as two-dimensional fine art correlates to the shape of the canvas on which it is painted, two-dimensional applied art correlates to the contours of the article on which it is applied. The only feature of respondents’ cheerleading uniform eligible for a copyright is the two-dimensional applied art on the surface of the uniforms. Respondents may prohibit the reproduction only of the surface designs on a uniform or in any other medium of expression. Respondents have no right to prevent anyone from manufacturing a cheerleading uniform that is identical in shape, cut, or dimensions to the uniforms at issue here. Pp. 10–12.

(d) None of the objections raised by petitioner or the Government is meritorious. Pp. 12–17.

(1) Petitioner and the Government focus on the relative utility of the plain white uniform that would remain if the designs were physically removed from the uniform. But the separability inquiry focuses on the extracted feature and not on any aspects of the useful article remaining after the imaginary extraction. The statute does not require the imagined remainder to be a fully functioning useful article at all. Nor can an artistic feature that would be eligible for copyright protection on its own lose that protection simply because it was first created as a feature of the design of a useful article, even if it makes that article more useful. This has been the rule since Mazer, and it is consistent with the statute’s explicit protection of “applied art.” In rejecting petitioner’s view, the Court necessarily abandons the distinction between “physical” and “conceptual” separability adopted by some courts and commentators. Pp. 12–15.

(2) Petitioner also suggests incorporating two “objective” components into the test—one requiring consideration of evidence of the creator’s design methods, purposes, and reasons, and one looking to the feature’s marketability. The Court declines to incorporate these components because neither is grounded in the statute’s text. Pp. 15–16.

(3) Finally, petitioner claims that protecting surface decorations is inconsistent with Congress’ intent to entirely exclude industrial design from copyright. But Congress has given limited copyright protection to certain features of industrial design. Approaching the statute with presumptive hostility toward protection for industrial design would undermine that choice. In any event, the test adopted here does not render the underlying uniform eligible for copyright protection. Pp. 16–17.

799 F. 3d 468, affirmed.

Thomas, J., delivered the opinion of the Court, in which Roberts, C. J., and Alito, Sotomayor, and Kagan, JJ., joined. Ginsburg, J., filed an opinion concurring in the judgment. Breyer, J., filed a dissenting opinion, in which Kennedy, J., joined.