Corporate Counsel Connect collection

July 2017 edition

Structured dismissals • Standard of review for EEOC subpoenas • Sex discrimination under Title VII

Structured dismissals

Chapter 11 parties entering into settlements that include the dismissal of the bankruptcy case should ensure that they comply with the priority rules set out in the Bankruptcy Code (Code). The U.S. Supreme Court recently held that bankruptcy courts may not approve nonconsensual structured dismissals that violate the priorities for payment of allowed claims under the Code.

In Czyzewski v. Jevic Holding Corp., a structured dismissal provided for the dismissal of the trucking company debtor’s Chapter 11 case and the settlement of a fraudulent conveyance complaint by the creditors’ committee against the debtor’s secured lender. The structured dismissal included payments to a group of unsecured creditors, but did not include payments to the debtor’s truck drivers who had priority wage claims.

The drivers objected to the structured dismissal because it violated the priority rules of the Code, which require that priority wage claims be paid in full before unsecured creditors receive distributions. The bankruptcy court approved the structured dismissal, and the district court and circuit court affirmed.

The Supreme Court reversed, concluding that:

The drivers had suffered an injury, and therefore had standing, because they lost opportunities in the bankruptcy case due to the approval of the structured dismissal.
The Code does not authorize, or show a congressional intent to allow, a party to violate the Code’s priority rules for distributions. (However, the Supreme Court distinguished payments under a plan that deviated from the priority rules to achieve a successful reorganization, and interim payments that have a bankruptcy-related justification.)
Structured dismissals are not an exit tactic to avoid or deviate from the Code’s priority rules without the affected creditors’ consent, even in rare cases.

For more information on this decision, see Legal Update, Czyzewski v. Jevic Holding Corp.: US Supreme Court Prohibits Nonconsensual Priority-Violating Structured Dismissals.

Standard of review for EEOC subpoenas

Employers should be aware of a recent U.S. Supreme Court decision clarifying the standard for reviewing subpoenas issued by the U.S. Equal Employment Opportunity Commission (EEOC).

In McLane Company, Inc. v. EEOC, the Supreme Court held that a court of appeals should review a district court’s decision to enforce or quash an EEOC subpoena for abuse of discretion, rather than engage in de novo review. The Supreme Court’s decision brings the Ninth Circuit’s practice in line with the rest of the circuits.

The Supreme Court also reminded district courts and employers that the EEOC may subpoena any material that might shed light on the allegations in the charge under investigation. When assessing relevance, a district court:

Must not use the subpoena enforcement proceeding to test the strength of the allegations in the underlying charge
Should enforce the subpoena unless the employer establishes that it is too indefinite, was issued for an illegitimate purpose, or is unduly burdensome

Employers should:

Consider whether early mediation may resolve a charge before the EEOC starts investigating systemic issues
Emphasize in the position statement the individualized nature of the charge and that there is no widespread discrimination
Ensure the litigation hold letter covers the full scope of documents that the EEOC may request
Gather and review all requested documents as soon as practicable
Negotiate with the EEOC a reasonable response tailored to the allegations in the charge
Be courteous and cooperative (refusing to produce information may convince the EEOC that the employer has something to hide)
Explain specifically the burdens involved in gathering or producing the requested information
Petition the EEOC to revoke or modify a subpoena promptly and include all appropriate legal arguments in the petition and any later enforcement action

For more information on this decision, see Legal Update, SCOTUS Clarifies Standard of Review of District Court’s Decision to Enforce or Quash an EEOC Subpoena is Abuse of Discretion.

Sex discrimination under Title VII

Employers should review their policies and provide additional training in light of a recent Seventh Circuit decision expanding the application of Title VII to discrimination based on sexual orientation.

In Hively v. Ivy Tech Community College of Indiana, the Seventh Circuit, sitting en banc, ruled that discrimination based on sexual orientation is a form of sex discrimination prohibited by Title VII. The Seventh Circuit:

Considered whether the employer would have treated the lesbian plaintiff the same way if she were a man in a relationship with a woman
Concluded that a distinction between gender stereotyping claims and sexual orientation claims does not exist, and that any discomfort, disapproval, or job decision based on an employee dating or marrying a same-sex partner is a reaction based on sex
Held that discrimination against the plaintiff because of the sex of an individual with whom she associates is sex discrimination against the plaintiff

The decision creates a circuit split between the Seventh Circuit and the Eleventh Circuit, which the Supreme Court might ultimately resolve. In the meantime, employers should:

Amend their equal employment opportunity, anti-discrimination, and anti-retaliation policies to include sexual orientation as a protected class, at least in states within the Seventh Circuit.
Consider changing their policies regardless of their location, because:
- federal law is trending toward the conclusion that Title VII covers sexual orientation
- many states and cities already prohibit discrimination based on sexual orientation
- consistent policies are easier to enforce
Train supervisors and managers on how to avoid discrimination and retaliation based on sexual orientation or gender stereotyping
For companies operating in countries where homosexuality is illegal, understand Title VII’s extraterritorial application and the narrow foreign laws exception

For more information on this decision, see Legal Update, Seventh Circuit: Discrimination Based on Sexual Orientation Is a Form of Sex Discrimination Under Title VII.

For more information on the federal employment laws protecting employees from discrimination, harassment, and retaliation based on sex, see Practice Note, Sex Discrimination Under Title VII and the EPA .

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