Court Opinion Review: Venue in LTL 3.0, A Defense of Judge-Shopping, Sackler Injunction Renewed in Purdue and Bidding Procedures Dinged in Delaware

Octus’ Court Opinion Review provides an update on recent noteworthy bankruptcy and creditors’ rights opinions, decisions and issues across courts. We use this space to comment on and discuss emerging trends in the bankruptcy world. Our opinions are not necessarily those of Octus as a whole. Today we consider the LTL 3.0 venue decision, how to defend judge-shopping, the extension of the Sackler litigation injunction in Purdue and rejection of unusual bidding protections in UpHealth and Big Lots.

Reality Bites

At a hearing in the contentious Yellow Corp. case on Oct. 28, Unofficial Americas Court Opinion Review Contributor Judge Craig T. Goldblatt succinctly summarized the bankruptcy judge’s dilemma: He said he wants to resolve thorny issues surrounding billions in pension and WARN Act claims against the debtors quickly so the case can “move along,” but at the same time he doesn’t want “to start making stuff up.” Never before have we seen such a clear distillation of the conflict between the urgent demands of large chapter 11 bankruptcy cases – always in perpetual, sometimes not very credible crisis – and adherence to, you know, applying legal precedent in fair and predictable ways (i.e. “the law”).

One of our central themes for going on five years has been the difficulty between bankruptcy courts as a practical, pragmatic forum for encouraging settlement and getting companies back out into the world with the least amount of grief and bankruptcy courts as courts of law. When we criticize bankruptcy judges, it is generally because they give much greater weight to the former than the latter.

Yes, folks, we admit: We are biased toward bankruptcy judges applying the law in fair and predictable ways. But what really rankles the Court Opinion Review is when we see the usual playbook outcome (jobbing for debtors) wrapped up in “whelp, the law’s the law” with a little dash of sophistry and a hyper-technical application of legal concepts such as corporate separateness, to the point of willful blindness. Let’s talk about Judge Christopher Lopez’s venue decision in the LTL 3.0 talc case.

Yes, we are saying LTL 3.0 and not “Red River Talc,” whatever that is (name changes bring out all the feels over here these days). In the case of “Red River Talc,” we all know what is really going on here. In 2021, Johnson & Johnson undertook a Texas two-step to separate its consumer products division’s assets from its potentially ruinous cosmetic talc liabilities, with the goal of using bankruptcy to pressure the claimants into settlement via endless delay and summary judicial estimation. Twice LTL filed, and twice its case was dismissed as a bad-faith filing, first by the Third Circuit and then, reluctantly but, we’d say, properly, by Judge Michael Kaplan in New Jersey.

Thereafter, Johnson & Johnson made it clear it saw no way to resolve mass tort claims outside of bankruptcy – despite considerable evidence to the contrary – and that it intended to take up Judge Kaplan’s wistful invitation for a third go-around. However, Johnson & Johnson did not risk another case in the Third Circuit. Instead, in May 2024 what was now LLT Management proposed a prepackaged plan for a third chapter 11 case to be filed by a new entity, Red River Talc, after another corporate reorganization.

Red River would (i) file in Houston (we know, it was the [blank] district of Texas for a bit, but we all know that was kayfabe) to avoid the dismissal precedent from the first two cases and (ii) avoid Purdue’s ban on nonconsensual nondebtor releases by securing 75% support for an asbestos channeling injunction and releases under section 524(g).

Section 4.2 of the disclosure statement sent to asbestos claimants outlines the “Prepetition Corporate Restructuring” that would create Red River. According to the DS, LTL would be merged into a new entity, Holdco (Texas) LLC, that would then undergo another Texas divisional merger, with three offspring: Red River, which would receive the talc liabilities to be resolved under the plan; Pecos River Talc, which would receive other liabilities; and New Holdco (Texas) LLC, which would receive LTL’s assets.

One apparent point of this exercise: to ensure that LTL’s assets, including a couple of very valuable funding agreements with Johnson & Johnson and related contract and fraudulent transfer claims, are not included in the Red River bankruptcy. With the talc-laden company backed up by the contract claims, the Third Circuit found it was in no “financial distress” and not qualified for bankruptcy. Plus, if Red River filed with those agreements and claims, then talc creditors could seek standing to bring those claims, as they did in LTL 2.0.

Of course Red River’s creditors – formerly LTL’s creditors – could seek standing to avoid the new divisional merger as a fraudulent transfer, but why not put another entity in the chain between the talc claimants and Johnson & Johnson, just to make it more complicated – and possibly dazzle a Houston judge inclined to the debtors’ way of thinking?

The other apparent point of the new divisional merger? Well, it helps avoid the original sin that true bankruptcy aficionados know doomed LTL 1.0 and LTL 2.0: Judge Craig Whitley’s transfer of LTL 1.0 from its initial jurisdiction (Charlotte, N.C., in the Fourth Circuit) to New Jersey (in the Third Circuit). If Judge Whitley kept LTL 1.0, he almost certainly would not have dismissed the case (he declined to dismiss three other two-steps filed in Charlotte, which, that’s why they filed in Charlotte) and the debtors would be enjoying almost three litigation-free years of delay by now, with no end in sight for the claimants.

By setting up Red River in Texas, Johnson & Johnson bolstered its case for keeping the bankruptcy in Houston.

In LTL 1.0, the bankruptcy administrator and claimants argued that Judge Whitley should transfer the case to New Jersey as the real home of LTL, calling venue in North Carolina “manufactured.” Wait, is that not allowed? The movants pointed out that Johnson & Johnson, the real party in interest, is located in New Jersey, and so is the federal talc multidistrict litigation. In other words, they appealed to reality over the technicality that LTL was a North Carolina company (for all two weeks or so of its existence).

LTL couldn’t rely entirely on its state of incorporation or say why it really filed in Charlotte, so it maintained that the case should stay in Charlotte because of Judge Whitley’s experience with asbestos cases generally and Texas two-step cases in particular. The fact that Judge Whitley’s experience consisted of allowing these legal laboratory experiments to linger in bankruptcy for years on end while claimants died waiting for a jury trial was beside the point!

LTL literally called Charlotte the Delaware of mass tort cases. If that sounds odd, recall that LTL’s brief was filed in 2021 – before the Delaware judges began their ongoing campaign to discourage debtors from filing in Wilmington by refusing to cater to their every whim (see below). The Delaware bench has lost a lot of experience since then.

To our surprise, Judge Whitley went with reality, LTL 1.0 went to New Jersey, and the rest is history. So Johnson & Johnson definitely does not want that to happen again, and creating a new Texas entity to file that is not LTL – or LLT, whatever – had to be one benefit of the new divisional merger.

Of course, when Red River filed the tort claimants and the U.S. Trustee duly asked both Judge Lopez and Judge Kaplan to drag LTL 3.0 back to New Jersey (and the Third Circuit), where the decisions in LTL 1.0 and 2.0 would carry considerably more weight. Judge Kaplan wisely deferred to Judge Lopez, so we won’t worry about that motion. The claimants and the UST argued that the case belonged in New Jersey because the first two cases were filed in New Jersey and the same logic for transferring LTL 1.0 to New Jersey still applies – Johnson & Johnson is in New Jersey, and Johnson & Johnson is the real party-in-interest.

Red River responded, like LTL, that it has always been a Texas entity (ever since it was formed weeks ago, so technically correct – the best kind of correct) and hey, the Texas court can handle the case as well as Judge Kaplan. Wait – what?

In LTL 1.0, the debtor argued that the case should stay in North Carolina because of Judge Whitley’s extensive experience on key issues that might arise in an asbestos Texas two-step case, such as the reach of the stay, nondebtor injunctions and derivative standing to challenge the merger. For the Red River case, those same arguments weigh in favor of transferring the case back to New Jersey, where Judge Kaplan has actual experience on issues that actually arose, in this very situation – twice.

Red River’s other argument to keep venue in Houston was the prepetition vote on the plan. According to Red River, 83% of claimants accepted the plan, which contemplates a filing in Texas – so the claimants obviously want the case in Houston. As we expected, there are some issues with the counting of votes by Johnson & Johnson, but we’ll cover that next time.

For now, maybe keep in mind that the claimants weren’t offered the option of voting for Red River to file anywhere but Texas. The vote was hardly confirmation that Texas is a place they’d really love to be.

Did Judge Lopez apply that famous Houston focus on practicalities and pragmatism when determining whether to keep the case in Houston, or did he hew to empty technicalities, the kind he generally dispenses with like John Belushi in samurai kit when pushed by the U.S. Trustee in an objection to a debtor’s motion to take some questionable action? Brother, you know the answer.

You will not be surprised to learn that on Oct. 10 Judge Lopez sided with the debtor on the venue issue. “Unlike LTL, Red River Talc is a Texas entity,” the judge said. Which, yeah, but it was a North Carolina entity for LTL 1.0, and the North Carolina court still sent it off to New Jersey – before Judge Kaplan spent two years handling the case and gaining precious experience on the issues.

“The debtor before me isn’t LTL” and “has a different corporate and capital structure,” the judge added. Again – that is technically correct. Red River is a Texas entity. Of course it was arguably formed as a Texas entity to create Texas venue, and arguably given a manufactured capital structure to optimize its prospects for a channeling injunction with the minimum of litigation over those blank-check funding agreements the Third Circuit went on about. But you don’t have to take our word for it – Red River itself told the Supreme Court that it should be substituted for LTL in the appeal of the LTL 1.0 dismissal, with the usual hyper-technical caveats.

“This case is going to be dismissed or it’s going to be confirmed,” Judge Lopez promised, which, hey judge, those are not the only two options. For example, the judge could appoint a chapter 11 trustee. Just ask Judge Kaplan, who considered the possibility of a chapter 11 trustee as an alternative to dismissal in LTL 1.0 and 2.0. Seems like it might help to have Judge Kaplan handling the case because he has extensive knowledge of potential alternatives to dismissal and confirmation from handling a very similar case involving the same parties with many of the same issues twice before.

Look, again, we understand venue shopping. If your client will benefit from having a different judge handle a case, go for it, that’s your job. The law technically allows you to try that. But we sure wish everyone could be honest about it and acknowledge the reality: Red River is the same company as LTL in the only way that matters – it is carrying the liabilities Johnson & Johnson wants resolved in bankruptcy into the bankruptcy court. LTL filed twice in New Jersey. Johnson & Johnson didn’t like how that turned out, and it wants to go somewhere else, so it came up with a restructuring to accomplish that.

From the Horse’s Mouth

Speaking of forum shopping and irony: On Sept. 23, Judge Reed O’Connor of the Northern District of Texas gave a speech slamming a recent proposal to limit judge-shopping from the federal Judicial Conference. Under the proposal, “all civil actions that seek to bar or mandate state or federal actions, ‘whether by declaratory judgment and/or any form of injunctive relief,’” would be “assigned through a district-wide random selection process.”

The proposal specifically targets the practice of assigning these cases to the judge or judges in a particular division of the district – e.g. the Houston division of the Southern District of Texas – if they are filed in that division. If a division has only one judge, then the plaintiff can be certain he will receive the case if they file in that division – effectively allowing the plaintiff to select that judge to hear the case.

This is exactly how so many big debtor cases were funneled to Judge Robert Drain in White Plains, N.Y. As the only bankruptcy judge in the White Plains division of the Southern District of New York, he automatically got all the cases filed there – meaning debtors knew that if they filed in White Plains, they’d get a friendly judge on the case. It’s also got some, uh, uncomfortable, spotlight in the former-judge-Jones imbroglio via text messages about the benefits of filing in Corpus Christi, Texas.

Even if a division has two judges – like the Fort Worth division of the Northern District of Texas, where O’Connor sits – a party can shop a friendly judge if both of them are known to be, shall we say, sympathetic to a certain political point of view.

Judge O’Connor delivered his speech at a Federalist Society meeting, so you know which way he swings. His colleague Judge Mark T. Pittman was appointed in 2019 by Donald Trump, so yeah. Folks know what they are about. Conservative groups – and Elon Musk – have made Forth Worth, Texas, a one-stop shop for easy wins on their favorite issues.

The two-judge division resembles the complex panel in Houston – you have a 50/50 shot of getting the one you really want (or maybe better!) but the other guy is pretty good too.

This is seen by most disinterested, sentient commentators and judges as a bad thing. I mean, it’s bad to start with that some judges – district and bankruptcy – have become so predictably biased that the folks who choose the venues – plaintiffs and debtors – restructure entities and move their principal place of business into a P.O. box at the UPS Store to get them on a case. It’s even worse that local courts make this relatively easy to do. It’s definitely not very sporting.

The Southern District of New York got rid of the White Plains assignment rule in 2021, just maybe because of all that judicial effigy-burning during the Purdue case (plus Judge Drain retiring). Now, the judicial conference wants to force districts nationally to make the switch to division-blind assignment, at least with cases to enjoin federal or state actions (read: conservative challenges to federal regulations or enforcement).

We aren’t really on board with the proposal being limited just to cases involving federal or state regulations. Why not have all cases randomly assigned among all judges in a district and ignore division boundaries? Divisions aren’t a real thing, after all – they exist solely for convenience. There is no “law of the Jacksonville Division of the Middle District of Florida” – it’s just a branch office of Florida’s Middle District. In an age when telephonic participation is simple and cheap, why even have divisions as a thing?

To his credit, Judge O’Connor rightly points out that if the Judicial Conference wants to end judge-shopping, it should do so not just in regulatory challenges but also for bankruptcy and patent cases. These cases “impact our economy in the billions of dollars and were recently highlighted only due to an embarrassing scandal.” Hmm, what could he possibly be referring to?

That said, we don’t really believe that he wants division assignment eliminated in any cases. The mention of bankruptcy courts is misdirection, because what Judge O’Connor really doesn’t like about the proposal applies across the board: that it is the result of “external political criticism.” Which Judge O’Connor, for one, would never bend to. Again: he is giving this speech at the Federalist Society.

“This Judicial Conference proposal rejects the idea that there are no partisan judges – only judges doing their level best to faithfully apply the law to reach the correct decision,” the judge says. Yes, Judge O’Connor, it does exactly that, and you owe us a keyboard and a new set of eyeballs, ours just rolled out of their sockets and down the block.

It is hardly a betrayal of the Founding Fathers and Justice John Marshall to admit that courts should sometimes pay attention when outsiders question their impartiality and make suggestions to improve their always-questionable legitimacy. Federal judges are appointed for long terms to free them of direct political interference, but as desirable as that may be, it is a problem for the courts that these judges are considerably less answerable to democracy than the “faceless bureaucrats” his ilk like to denigrate as “undemocratic.”

The courts must defend their legitimacy because of this lack of political accountability, however positive it may be. Proudly refusing to consider reform proposals because they come from politicians or, Judge O’Connor’s other bogeyman, “law schools and law professors” that teach students “to presume malicious intention on the part of judges with whom they disagree,” is a sure way to get your wings clipped – especially if, like bankruptcy judges, you don’t have Article III behind you.

We complain quite a bit about the judges on the complex panel in Houston, and defenders often respond that not all bankruptcy judges behave like that – many are conscientious, measured and apply justice impartially. Of course, that’s exactly why no one files big chapter 11 cases in those judges’ courts.

So maybe we would take Judge O’Connor’s criticism of the Judicial Conference proposal a bit more seriously if he wasn’t obviously talking his book. We don’t have “to presume malicious intention” on his part to conclude that he is not, in fact, one of those nonpartisan judges. Maybe this guy is not the best voice to defend obsolete local case assignment rules; feel free to chime in, Judge Drain! Or, if he is the best guy to defend the rules, then the rules just might be indefensible.

The Bankruptcy Bubble

Reorg – er, Octus, we are in so much trouble – bars “martial metaphors” in stories, and for good reason. Not only are they a bit tacky and cliched, but they are also almost always inapt. For example, mass tort litigation is not “warfare,” no matter how obnoxious counsel can get fighting over email search terms. Apparently, Judge Sean Lane feels differently – on Oct. 31, he extended the “preliminary” – now almost five years old – injunction protecting the Sacklers from opioid claims in the Purdue case, reasoning that total litigation “warfare” might interfere with mediation over a post-SCOTUS deal with the family.

Three states objected to keeping the injunction in place – Maryland, Rhode Island and Washington – along with Nassau County, New York. Nassau County cut right to the chase, arguing that the Supreme Court’s Purdue ruling barring nonconsensual nondebtor releases also places “temporary” (five years!) nonconsensual nondebtor litigation injunctions beyond the pale.
According to Nassau County, the decision suggests that “bankruptcy law does not afford bankruptcy courts the kind of power needed to block lawsuits against parties who have not filed for bankruptcy.”

There is some sound logic here. The Supreme Court held that nonconsensual releases qualify as a discharge and that nothing in the Bankruptcy Code allows bankruptcy courts to discharge claims against a nondebtor. The discharge is really just a permanent extension of the automatic stay after the bankruptcy concludes. So what authority is there to extend the automatic stay to claims against a nondebtor? The basic point of Purdue is that to get the benefits of bankruptcy, including a temporary, nonconsensual stay of litigation against you, you have to file bankruptcy. The Sacklers have not filed for bankruptcy.

Maryland made a more practical point: The only way to get the Sacklers to pony up more funds is to apply maximum litigation pressure, not give them more breathing space. From the first day of the case, the state points out, the Sacklers insisted they would not raise their settlement offer to get releases. They only budged from that position when Judge Colleen MacMahon knocked out the releases and the prospect of the litigation resuming became real.

This is a point we’ve made before, in the context of the 3M/Aearo case: Perhaps bankruptcy actually discourages settlement of mass tort cases by taking the litigation pressure off the defendants. Any litigator or trial judge will tell you that a looming summary judgment ruling or trial amps up the pressure to settle – heck, even some bankruptcy judges (see Judge Marvin Isgur’s theory of “dynamic pressure” in Incora/Wesco).

But we really like how Maryland put it: The litigation injunction creates “artificial circumstances” that thwart ordinary litigation settlement triggers. We like this because it emphasizes that bankruptcy litigation stays are not “normal.” Bankruptcy judges love to say that nondebtor litigation injunctions are “extraordinary” – just like nondebtor releases – but they impose them as a matter of course and from then on treat the situation as the default way of resolving the mess, as if no high-stakes or complex litigation ever settles outside of a bankruptcy stay. The default setting is letting litigation proceed, not holding it up.

Here’s where the problems with judicial mediation kick in: The Purdue mediator is former bankruptcy Judge Shelley Chapman, and she argued that allowing litigation to proceed could ruin all of the progress she has made in negotiations. No disrespect for Judge Chapman, but she practiced bankruptcy for decades before serving for more than a decade as a bankruptcy judge. The “artificial circumstances” of bankruptcy are simply the air she breathes, and the idea that letting the litigation continue outside of those circumstances could hasten a settlement might be inconceivable to her.

Rhode Island pointed to another practical issue: as time passes, it becomes harder and harder for the plaintiffs to prove their case against the Sacklers, should they ever get the opportunity. The state noted that it had to fight to get the chance to depose Jonathan Sackler before the injunction prevented the deposition from going forward. And now he’s dead. Because the plaintiffs bear the burden of proof, they face the greatest risk from the disappearance of evidence. And, again, maybe putting depositions on the calendar could put some dynamic pressure on the Sacklers.

Washington went all the way back to the beginning, attacking the indemnification claims that so many debtors cite (and sometimes create) to justify bankruptcy protections for nondebtors. The state points to the UCC’s draft complaint against the Sacklers, which “lays out in devastating detail factual allegations that would satisfy the standards of equitable subordination” of those indemnification claims – namely, “that the Sacklers abused their position of control to their advantage and to the detriment of creditors.” Those indemnification claims are a fantasy, basically.

Did any of this sway Judge Lane? Of course not.

All that matters, the judge suggested, is that “warfare” does not interfere with the mediation. Again: litigation is not “warfare.” It happens every day, in millions of cases pending in thousands of courts across the country. It is the normal way things work. It ain’t pretty, but so far it has not led to the complete collapse of Our Precious Way of Life.

But fret not, citizens of Nassau County and the sovereign states of Maryland, Rhode Island and Washington! The judge acknowledged the objectors’ concern about “granting the debtors a blank check” and said that he was “exceedingly mindful” of the status of the mediation. Oh, well in that case I guess it’s all good.

Yes, the extended injunction runs only through Dec. 6. No, that doesn’t matter, because if you think Judge Lane won’t extend the injunction again if Judge Chapman comes in and begs for more time free of “distractions” like, you know, the normal functioning of state law tort cases, you’ve got a lot to learn about this business.

Unprotected Bidding

Speaking of Nobody Wants to Go to Delaware Anymore, Again: Couple interesting decisions this month from the First State rejecting unusual stalking horse bidding protections. First, on Oct. 9 Judge Laurie Selber Silverstein refused to approve a breakup fee, expense reimbursement, four-week “no-shop” and right of first refusal for a putative purchaser in the UpHealth case. Then, on Oct. 25 Judge J. Kate Stickles turned down the Big Lots debtors’ request to provide superpriority administrative expense treatment for bidding protections. Let’s check these out.

The UpHealth debtors filed chapter 11 about a year ago to deal with a $40 million litigation judgment, and quickly agreed to sell a subsidiary for $180 million to pay down funded debt, which drew some limited grief from the official committee of unsecured creditors. That sale closed on March 18. In the meantime, Judge Silverstein denied the debtors’ motion to estimate a litigation claim, which we discussed in April.

On July 18, the debtors filed a motion to sell their equity interest in wholly owned nondebtor subsidiary TTC Healthcare, with no stalking horse in place (sure … but we kinda have our doubts about whether one wasn’t on the horizon).

The debtors canceled the TTC auction on Sept. 19 – guess there wasn’t any undisclosed stalking horse after all, sorry, we can be so cynical! Except, on Sept. 22, the debtors filed a “supplement” seeking approval of bid protections for “stalking horse” bidders Martin Beck and Freedom 3 Capital. Martin Beck just so happens to be the debtors’ former CEO and TTC’s former chairman; he left the debtors in July, just a couple months before offering to buy TTC.

Must have been a real shock when he came forward, totally out of the blue! Bankruptcy can still surprise us sometimes. Anyway, the putative stalking horse bidders offered $11 million for TTC and demanded a $750,000 breakup fee, up to $500,000 in expense reimbursement, a four-week no-shop and a four-week diligence period.

Except: wait a second. Why is UpHealth asking for bid protections for a stalking horse after the auction? Isn’t the whole point of a stalking horse to provide a price floor for future bidding? Stalking horses get bid protections to encourage them to participate in a public auction rather than insisting on a private sale, on the theory that having a stalking horse will get a higher price and give the debtors certainty they can at least sell for that bid. What is the point after the debtor determines the “stalking horse” is the only bidder?

On Oct. 7, the U.S. Trustee objected to the bid protections, going right at the issue: There is no reason to provide bid protections when the bidding is over just because the buyer continues to do due diligence. And why does the guy who ran the company a couple months ago need to do all that much due diligence before submitting a binding bid? Most importantly: If you want a breakup fee, don’t you have to agree to be bound yourself?

At the hearing on Oct. 9, counsel for the debtor played the hits: The transaction was supported by the big creditors and the UCC, and the bid protections weren’t so bad. Judge Silverstein wasn’t having it. The judge called the proposed protections “too rich” and inappropriate where the bidder had not actually committed to its bid until due diligence was complete. The judge noted that she has not seen a no-shop in a bankruptcy bid “since the ’80s” and called the proposed bid protections “problematic” from a “bankruptcy court systemic perspective.”

Remembering the ’80s and considering the “systemic” effects of approval on the bankruptcy system? Judge Silverstein, this burning is an eternal flame – ours, for you.

We thought we only had Judge Goldblatt, but – even better – we’re adding a third crush to the board: Judge Stickles! The Big Lots debtors filed on Sept. 9 to sell their assets as a going concern, presumably on closeout after another retailer couldn’t unload them nyuk nyuk. Nexus capital affiliate Gateway BL Acquisition offered to serve as a more traditional stalking horse with a $760 million bid consisting almost entirely of funded debt repayment. The bidding procedures proposed a $7.5 million breakup fee and expense reimbursement of up to $1.5 million for Gateway BL.

Doesn’t sound too bad for $760 million, right? Well, could be a case of hogs getting slaughtered, considering Reorg’s – I’m so sorry, Octus’ – analysis shows the business is probably worth considerably more than the bid. Apparently Nexus failed to share our analysis with their lenders, because on Oct. 14 the UCC announced that the buyer had not yet secured committed financing, and everybody agreed to come back later.

Then, on Oct. 15 the UST objected to the bid protections, explicitly arguing that they are in fact “liquidated damages” for a potential breach of the asset purchase agreement by the debtors because the breakup fee and expense reimbursement would be payable even if an alternative transaction does not close. The UST also argued that stalking horse bid protections per se cannot qualify for treatment as superpriority administrative expenses, which are generally reserved for undersecured DIP and adequate protection claims.

Later the same day, the debtors filed an amended stalking horse APA that actually increased the expense reimbursement to $2 million under certain circumstances, which, bold move. In a reply brief filed Oct. 21, the debtors ran out the usual parade of horribles: The buyer “required that these Bid Protections be afforded superpriority status” and the bid protections “were an integral component of the APA,” the debtors said. “If the Bid Protections are not approved, the Stalking Horse Bidder may well abandon its bid and its efforts to pursue such financing, a result that would put the entirety of the Debtors’ restructuring efforts at risk.”

On Oct. 21, Judge Stickles kicked the bidding procedures motion because Gateway BL still didn’t have financing in place. Maybe the debtor should have asked for bid protections and expense reimbursement for all the work charged to the estates that could be wasted if financing is not forthcoming? On Oct. 24, the hearing was pushed again to Oct. 25.

Finally, the buyer secured commitments and at the Oct. 25 hearing Judge Stickles approved the bid protections over the UST’s objection – except she would not agree to treat the breakup fee and expense reimbursement as superpriority administrative expenses. Oh no! The buyer didn’t get everything they wanted. Well, that’s that then. The debtors said that the superpriority treatment term was “integral” to the bid, which means it can’t be severed, which means the buyer will walk and the whole case will fall into liquidation hell.

Debtors’ counsel asked for a moment to confer with the buyer, presumably to receive a termination notice right in the kisser and a brusque dressing-down for failing to bring home the goods. How shocked must they have been when Gateway BL counsel graciously agreed to go forward despite the judge’s denial of superpriority status? Earthly power doth then show likest God’s, when mercy seasons justice.