Court Opinion Review: The Multi-Color Non-Pro-Rata DIP Fight, Houston District Court Steps Into First Brands and Judge Horan’s Strange Flip-Flop in Ligado

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 Multi-Color DIP fight, the Houston district court’s close supervision of First Brands and Judge Horan’s heel turn from judicial restraint in Ligado.

Done at the Outset

The term “prepackaged” brings to our mind clothes carefully chosen, cleaned, ironed, folded and placed in those godforsaken vacuum packing cubes within an overhead bin-compliant, TSA-safe rolling suitcase selected after meticulously parsing reviews on The Wirecutter. The prepackaged bankruptcy is our Jet2 holiday: ready for the ride to the airport in a prebooked Uber three hours before that flight to a warm, sunny destination. Every type A bankruptcy lawyer’s dream: Why bother stressing at the last minute when you can stress for months beforehand?

Unfortunately, Multi-Color’s prepackaged chapter 11 case, filed Jan. 29 in New Jersey, more closely resembles the desperate post-sleeping-in scuffling at the beginning of Home Alone. All this one has in common with the Code drafters’ concept of prepackaged is the expedited schedule. Everything else is very much a work in progress – even the venue, although we don’t expect Friend of the Show Judge Michael Kaplan to burn the midnight oil coming up with an excuse to keep this one.

Perhaps the Multi-Color mess is a good reminder that while we throw the term around like it was meaningful, so-called prepackaged cases aren’t really a thing under the Bankruptcy Code. There is no “chapter 16” governing prepacks, just a few hints in the Bankruptcy Code that debtors can, occasionally at their peril, try to wrap up creditors’ votes prior to filing the petition.

Specifically, section 1126(b) of the Code provides that prepetition acceptance or rejection of the plan binds the voter only if the prepetition solicitation complies with applicable nonbankruptcy law (generally securities law) or section 1125 of the Code, which governs disclosure statements. Section 1125(g) somewhat redundantly provides that prepetition acceptance or rejection of the plan may be solicited if such solicitation complies with applicable nonbankruptcy law.

And … that’s it. What we think of as special rules governing prepackaged cases – for example, the presumed requirement that general unsecured creditors, who are almost never solicited prepetition, are treated as unimpaired – were mostly invented by bankruptcy judges and bankruptcy lawyers trying to ensure speed to emergence by eliminating possible disputes.

Some rules on prepacks – deadlines, combined plan/DS hearings etc. – have been codified in bankruptcy court’s local rules, but still there is a lot of room for creative practitioners.

When you think about it, the term “prepack” has very little legal meaning, and provides virtually no tangible benefits under the Code compared with a typical “prearranged” (another made-up concept) case with DIP financing and an RSA in place. There are no special rules for DIP approval in prepacks, and there are no exceptions to the confirmation requirements. So – why bother?

As you know from reading this column, the provisions of the Bankruptcy Code have precious little to do with modern mega-case bankruptcies. Even though the Bankruptcy Code has virtually nothing to say about prepacks as a class of filings, the term prepack carries a tremendous amount of weight with bankruptcy judges.

Throw that term around and those judges will stampede over each other to give the debtors whatever they want, under the apparent impression that this is gonna be easy. Hence Spirit Airlines’ repeated insistence on characterizing its first chapter 11 as “prepack-like” from the beginning. Prepack is a Brand. It signifies, it connotes. And debtors’ counsel know this.

For the record, and because the distinction is more vibes than rules: On Octus and in our data, we track prepacks (where solicitation has begun on or before the petition date) the same as prearranged (that is, with an RSA) cases.

But outside Octus and in a world where judges sometimes equate prepack with “easy,” the Multi-Color debtors’ insistence on using the term prepack despite the obvious dirty laundry crammed into the top of the rollerboard two minutes before jumping into the Uber an hour before the flight departs makes perfect sense.

Sure, Multi-Color did solicit and receive acceptances of its proposed plan from favored funded debtholders before the petition date. Under section 1126(b), those creditors are bound. But how is that any different from the hundreds of cases Octus covers where an RSA includes a draft plan, or even a detailed term sheet, and binds everyone other than the debtors?

The big difference in Multi-Color and many prepacks is that general unsecured creditors generally ride through, but that’s not some legally meaningful prepack term that excuses the bankruptcy judge from treating it like any other chapter 11 case. One caveat: Treating GUCs as unimpaired and making that seem rock solid by getting a prepack plan on file is a good way to maybe avoid getting a UCC appointed, but come on, debtors, everyone needs to eat!

Way back in September 2022, we suggested that debtors might be using the prepack label to sneak through some extraordinary goodies for favored creditors on an expedited basis, citing the Carestream Health and Lumileds cases as examples. Remember how hard the Carestream debtors leaned on the prepack label when trying to get Judge J. Kate Stickles to approve exit financing commitment fees – not DIP commitment fees, exit financing – on the first day?

In 26 years of practice, Carestream counsel said at the first day hearing, he had never seen “a prepack as buttoned up as this one.” Counsel assured Judge Stickles that none of the “sophisticated” holders of $159 million in first lien debt that declined to vote to accept the plan really objected; they just didn’t vote, for whatever reason.

Lumileds also tossed the term around to get Judge Lisa Beckerman to approve the proposed plan’s allocation of reorganized equity on the first day – the most sub rosa sub rosa plan we’ve ever seen.

“Expect more unusual goodies for DIP and exit lenders to get approved at prepack first day hearings going forward,” we predicted after both Clearstream and Lumileds got exactly what they asked for. “If this kind of relief gets ubiquitous enough, heck, expect more prepacks,” we predicted.

We would love to cite Multi-Color as an example of our amazing prescience at predicting mega-case bankruptcy trends, but alas: Judge Kaplan has treated the Multi-Color prepack like he treats every other case. The Thirstiest Bankruptcy Judge in America isn’t citing the prepack label as an excuse to do anything he wouldn’t otherwise do in a non-prepack case – setting an expedited schedule, quickly disposing of minority creditor objections and giving great deference to the debtors’ business judgment.

To be fair, the Multi-Color debtors aren’t trying anything as extraordinary as Clearstream and Lumileds – but the non-pro-rata DIP goodies in this prepack are pretty rich. Under the proposed majority first lender DIP, the prepetition DIP lenders would receive a $250 million rollup ($125 million on an interim basis), a guaranteed 30% allocation of $150 million in new financing (which, combined with their share of the remaining 70%, guarantees them post-emergence control over the reorganized debtors) and a $7.5 million commitment fee.

None of that is too extreme as DIP goodies go, but there are two big problems for Judge Kaplan to overcome. First, the DIP goodies aren’t available to every prepetition first lien lender – they are reserved for the favored (majority) group that was invited to join the RSA prepetition. Bah God, is that Judge Craig T. Goldblatt’s music?!? Yup: We got an American Tire non-pro-rata DIP scenario.

Judge Kaplan obviously knows American Tire well – he’s presiding over an American Tire-inspired suit already, in the Del Monte Foods case. Judge Kaplan specifically preserved the excluded lenders’ litigation claims when he approved the Del Monte DIP. But he approved the DIP, so.

All first lien lenders are invited to participate in the DIP, but those that join after the petition date won’t get that 30% allocation or the commitment fee. They’ll also have to sign on to the RSA and release any claims against the favored lenders. What we have here is a classic Hobson’s choice.

In their objection, a group of minority first lien lenders excluded from the DIP goodies complain that they “do not stand to benefit from the assortment of self-serving ‘fees,’ roll-ups, lopsided allocations, and other technology by which the Favored First Lien Lenders siphon for themselves a vastly disproportionate share of the value that should go to all First Lien claims on a pro rata basis.”

“The RSA and proposed Plan give the Favored First Lien Lenders and the Plan Sponsors extraordinarily rich terms,” the excluded lenders continue, “widening the gap between what the Favored First Lien Lenders and the Excluded First Lien Lenders will expect to receive on account of their similarly situated prepetition claims.” Just a little hint of ConvergeOne unequal treatment there!

Clearly, the minority group ain’t familiar with Judge Kaplan’s game. They seem to think the judge would view a favored group buying the entire bankruptcy process, including plan treatment, via DIP at the beginning of the case is a bad thing.

The second big problem for Judge Kaplan: The favored first lien DIP is not the only postpetition financing offer on the table. Prior to the filing, a cross-holder group proposed a DIP that did not lock the debtors into a plan from day one. As the cross-holder group pointed out in its objection, the majority DIP would “reallocate value from unsecured creditors to the Debtors’ controlling private equity sponsor,” Clayton, Dubilier & Rice (which would fund 15% of the DIP), and “favored lenders, who were willing to facilitate a transfer to the Sponsor on account of its out-of-the-money equity position.”

What’s more, the cross-holder group insists that its DIP proposal has better economics, including “$500 million of new money at lower cost, on better terms, without any roll-up of prepetition debt, and without the restrictive covenants that tie the Debtors to a predetermined plan of reorganization.” Among other things, the group says it offered “a lower interest rate,” “lower original issue discount,” “no backstop fee” and a “longer tenor.”

The rollup alone “would transfer $133 to $167 million of value (assuming a 4-month case) from unsecured creditors to the Sponsor and the Favored Lenders by elevating their undersecured deficiency claims to DIP claims that would be paid in full, with interest,” the cross-holder group explained.

The cross-holder group is a bit more realistic about their probability of success, or lack thereof, on that argument than the excluded first lien group. In addition to their DIP objection, the cross-holder group immediately filed a motion to dismiss the case for lack of venue or, alternatively, to transfer the cases to Delaware, where the purported New Jersey anchor baby debtor – MCC-Norwood – is domiciled.

Helluva laugh we’re going to have with 2002 us when we hop out of that time machine and tell them we now live in a world where not only is Donald Trump president, for the second time, but creditors want chapter 11 cases in Delaware. But of course: Delaware means American Tire is more likely to govern the non-pro-rata DIP proposal.

Also: Are you seriously telling us the debtors didn’t even bother to move MCC-Norwood’s principal place of business into a mailbox at a suburban Trenton UPS store, a la Sorrento in Houston? And they failed to fill in a crucial blank on MCC-Norwood’s petition? Here’s section 4 of MCC-Norwood’s petition:
 

All the debtors needed to do was list a mailing address in New Jersey under “Location of principal assets, if different from principal place of business.”

The debtors’ and majority first lien group’s responses were predictable. At a pseudo-first day hearing on Jan. 30, debtors’ counsel argued that venue was proper in New Jersey because MCC-Norwood’s principal assets are in New Jersey. The debtors also emphasized the need for immediate interim DIP approval, claiming they are “running on fumes.”

Normal nonbankruptcy folks often ask us how massive multibillion-dollar companies file chapter 11 with a buck-fifty in their cash accounts. Sensible! Why would a debtor want to need postpetition financing on onerous terms on an emergency basis? Our answer is that sometimes “running on fumes” is the best way to enter bankruptcy, especially if your favored lenders want immediate approval for questionable DIP goodies. (We have this convo around the same time as explaining how, magically, reorganized TEV is almost always enough to clear junior debt but not enough to put equity in the money).

Debtors’ counsel also played the “this is market” card: The rollup is “unremarkable,” and “this is the way DIPs work,” counsel said. Extremely infuriating if you’re getting this from a lawyer on the other side of some deal documents, but to a judge (especially a former chapter 7 and chapter 13 trustee), such statements sometimes carry weight.

Counsel for the majority lenders did the usual posturing about fiduciary duties and the debtors’ business judgment, which, yeah, you know how valuable that is. Also, hey – the debtors’ sponsor, CD&R, is one of the DIP lenders, so maybe not the most independent view? Also, the majority DIP was the result of “extraordinary” hard-fought negotiations with “so much investment and time and energy by sophisticated investors,” which, sure.

Judge Kaplan duly denied the venue-based motion to dismiss, at least for first day purposes, and approved $45 million in interim interim funding on Jan. 30. Predictably, he also approved the rest of the interim DIP funding at a follow-up “first day” hearing on Feb. 2. The judge recited the usual “acknowledgement” of issues with the DIP, including the non-pro-rata dispute, but as you know by now, that’s standard mega-case judge cold comfort before the minority group gets squashed.

The judge remarked that he is “cognizant of the math and that a rollup may produce a significant pro rata uplift for certain lenders,” but added that this cannot be viewed separately from the benefits the DIP financing will provide. Oh, we forgot the provision in the Bankruptcy Code that says the debtors’ need for approval of its chosen financing trumps the actual standard for approval of postpetition financing, sorry! To be clear: That a DIP be necessary is necessary for DIP approval, but it is not sufficient.

Judge Kaplan also suggested that having an RSA and plan in place that set out recoveries linked to the DIP is a good thing that outweighed the more favorable economic terms in the cross-holder DIP proposal. Which, duh. That’s the Prepack Brand. Pivoting to the cross-holder DIP could have risked delaying the cases with no guaranteed pathway for emergence, the judge remarked. We’d posit that might be a good thing, but this judge ain’t about to “gamble” on it.

Judge Kaplan added that disputes between the first lien favored and excluded lenders can wait, a la Del Monte. We’re cool with that, honestly. It’s better to put off fights until the case is stabilized, even if the need for stability may have been engineered by the favored lenders and the sponsor. It’s also better to have them decided by a nonbankruptcy court because they are nonbankruptcy claims rooted in state law and Article III or state courts, ugh, why do we even bother?

Judge Kaplan additionally preserved the venue issue for later, scheduling a full hearing on Feb. 25. That’s nice, but, as the cross-holder and excluded first lien groups pointed out at a Feb. 10 hearing on their motion to send their DIP appeal straight to the Third Circuit, by the time Judge Kaplan decides that motion the case will be an egg that cannot be unscrambled, toothpaste that cannot be put back in the tube, a horse that has left the barn, etc. Judge Kaplan denied that motion too.

We are not holding our breath for the Thirstiest Bankruptcy Judge in America to let this one go to a creditor-friendly jurisdiction such as Delaware. Irony: As we discussed with Judge Kaplan his ownself, the ascendancy of New Jersey as a bankruptcy venue was due largely to Judge Kaplan’s handling of LTL 1.0, which was transferred to him from North Carolina after creditors won a venue transfer motion.

But anyway, would transfer of Multi-Color matter? Maybe Judge Goldblatt would get assigned, maybe he would “gamble” and refuse to approve the non-pro-rata DIP, a la American Tire, and force the majority first lien group to share the goodies or risk not getting total control over the case.

Maybe that would lead to a more equitable plan, or at least a slightly larger slice of the pie for the excluded lenders. Maybe that would force the first lien group to offer slightly friendlier terms similar to the crossholder proposal – less rollup, lower interest, longer tenor. Would that be better for the debtors?

Well, there is some science on this one from the eggheads: Delaware does bankruptcy better. According to Samuel Antill of Harvard Business School and Aymeric Bellon of UNC Kenan-Flagler Business School, there is solid empirical support for judge-shopping, if the judge happens to be in Delaware (or resembles a judge from Delaware).

The authors of the study also constructed “a judge-level measure of how ‘Delaware-like’ a judge’s outcomes appear” and concluded “that an outside-Delaware bankruptcy with a Delaware-like judge tends to have a Delaware-like outcome.” The authors characterize a “Delaware-like outcome” as one that prevents closures and liquidations, shortens bankruptcies, boosts creditor recovery and increases post-bankruptcy employment by 62%.

“Relative to the counterfactual of filing for Chapter 11 in another court, we find that filing for Chapter 11 in Delaware dramatically lowers the probability that a firm eventually liquidates in Chapter 7 – liquidation rates fall by 25 percentage points,” the authors say. “This suggests, consistent with practitioner interviews, that the distribution of judge talent in Delaware drives our results,” the authors conclude (our emphasis).

Don’t expect anyone to cite that study in favor of transferring Multi-Color to the First State at the venue hearing on Feb. 25. By the time Judge Kaplan issues a ruling denying that venue motion, the case may be truly prepacked.

The Lidless Eye

Now let’s talk about First Brands, maybe the least prepackaged case in chapter 11 history. Honestly, the dust hasn’t settled enough on this one for a comprehensive look at the merits, so we’re not going to try now. Lo siento mucho. But: An unusual emergency district court reversal did catch our eye, and it gives us a clue as to how short a leash the Southern District of Texas District Court intends to keep on the bankruptcy court’s complex panel. The answer: very, very short.

On Dec. 22, 2025, Judge Christopher Lopez authorized First Brands to release $60 million from a factored receivables account to its operating accounts over the objection of factor Evolution Credit Partners, which claims a first-priority security interest in certain of the funds under a prepetition receivables assignment. According to Evolution, the decision left it with about $39.6 million in collateral to secure its $60.5 million claim, meaning it was not adequately protected for the debtors using its collateral for – [points at (cough cough) alleged Flaming Dumpster Fire of Fraud].

In a meandering oral ruling, Judge Lopez questioned the validity of Evolution’s claimed security interest. The judge wondered aloud – not a good habit for a judge, as we’ve explained – whether Evolution’s interpretation of the master receivables purchase agreement “textually works,” remarking, “I’m not convinced that it does.”

Now, to be clear: Under Federal Rule of Bankruptcy Procedure 7001(b), the validity, extent and priority of a lien must be determined via an adversary proceeding, with full pleadings, discovery and trial in accordance with most of the Federal Rules of Civil Procedure governing nonbankruptcy suits. Bankruptcy judges are not allowed to actually decide whether a creditor’s lien claim is valid in the context of determining whether the creditor is adequately protected for the use of its cash collateral under section 363.

Undoubtedly aware of this, Judge Lopez specifically said he was not prejudging the validity of Evolution’s lien, and that the instant dispute was a straightforward matter of adequate protection for cash collateral use. Oh, well, OK then. We’ve been treated to a rare wildlife sighting: The Birth of Dicta.

The judge also noted that Evolution’s lien claim would be preserved, which, nice, except a big pile of cash just left the safe, to be spent on – [again points at (alleged) Flaming Dumpster Fire of Fraud].

Evolution immediately appealed and sought to expedite the appeal. On Jan. 8, U.S. District Judge Lee H. Rosenthal denied the motion to expedite, saying she was unwilling to “risk an incorrect decision” on an accelerated basis. That seemed logical, honestly: There was no stay pending appeal, the cash was moving, and the order was highly interlocutory.

Except: Judge Rosenthal almost immediately changed her mind and agreed to fast-track Evolution’s appeal, setting oral argument for Jan. 29. Hmm. Did Judge Rosenthal just get the memo that the district court and Fifth Circuit have singled out complex panel decisions for regular cavity searches?

Meanwhile, on Jan. 9 Evolution filed a second adversary proceeding to determine the extent, validity and priority of its liens – the way that issue is supposed to be resolved. Then, on Jan. 10, Evolution moved to enforce a separate adequate protection stipulation, arguing that the debtors failed to maintain the required $335 million in collateral securing Evolution’s claim.

The debtors objected, arguing that they were in compliance with the parties’ adequate protection stipulation on the basis of “course of dealing,” and that their agreed-upon reporting metrics demonstrate inventory value “substantially higher” than the stipulated Evolution collateral maintenance threshold “at all times.” “Course of dealing” – you mean that (alleged) Flaming Dumpster Fire of Fraud?

According to the debtors, the $335 million figure in the stipulation was merely a “proxy” for unknown inventory values, and the company’s borrowing base reporting was “unreliable.”

The ad hoc cross-holder group supported the debtors, because duh, every dollar of collateral that belongs to Evolution comes out of their pocket. Also, the ad hoc group knows that the big fight in this case is between the factors/inventory financiers and corporate lenders, and debtor-friendly bankruptcy judges tend to side with corporate lenders, especially if they also provided DIP financing. Hey, they bought this bankruptcy process, they should have a say!

But: Maybe Judge Rosenthal’s volte-face on expediting the Evolution appeal had an effect on Judge Lopez? At a hearing on Jan. 20, the bankruptcy judge to our surprise granted Evolution’s motion to enforce the cash collateral stipulation. Maybe that had something to do with Judge Rosenthal, or maybe it had something to do with the fact that the stipulation expired anyway on Jan. 5 – meaning Judge “Not-a-Layup” had a primo chance to issue a creditor-friendly ruling without any negative consequences for the debtors.

On Jan. 29, during oral argument in Evolution’s appeal of Judge Lopez’s original receivables release decision, Judge Rosenthal expressed “confusion on this record” regarding the nature of Judge Lopez’s decision. Welcome to the club! She questioned whether the bankruptcy court had made a “preliminary determination” regarding the validity of Evolution’s liens to find that the lender is adequately protected – no bueno! – or instead gave a “tentative” ruling while assuming validity for adequate protection purposes.

Our bet is that Judge Rosenthal was just feigning confusion. At this point it seems like Judge Rosenthal might have been read into what seems like a concerted effort by the district court to reign in the complex panel. On Jan. 31, she issued a remarkable opinion remanding the dispute back to Judge Lopez with instructions to show your work.

Judge Rosenthal observed that Judge Lopez’s assessment of adequate protection likely relied on a “miscalculation” regarding the funds remaining in the account when he authorized the use of cash, and it is “unclear” how much evidence was available regarding the projected incoming receivables. You know, evidence.

The district judge specifically advises Judge Lopez that “in the absence of an adversary proceeding,” bankruptcy courts may conduct “some examination of lien validity,” but they “should assess only whether the party asserting the interest has made a prima facie showing of the validity and scope of that interest.” The district judge also directs Judge Lopez to “state specifically” in his remand decision what funds or property – “whether currently in the estate or projected to be in the estate” – are available to provide Evolution with adequate protection.

What we have here: A senior district judge (yes, Dubya appointees are now on senior status, we are crumbling into dust) lectured one of the busiest mega-case bankruptcy judges in America, a seasoned chapter 11 practitioner and jurist, on something pretty basic: determining what adequate protection a purportedly secured creditor is entitled to on the basis of actual facts presented in evidence and issuing a decision laying out those facts and his reasoning, while avoiding prejudging complex issues that must be decided on a full record after affording sufficient due process.

Whether or not you agree with Judge Rosenthal that Judge Lopez fumbled the ball on Evolution’s demand for adequate protection before the factored receivables cash was released – if you do, we think we can guess what side of the debtor/creditor divide you sit on, but anyway – you have to concede that this is pretty scary stuff for complex panel aficionados.

Judge Rosenthal took just 26 days – from Evolution’s notice of appeal on Jan. 5 to her Jan. 31 ruling – to consider Judge Lopez’s cash release decision, decide it needed to be addressed immediately, become utterly flabbergasted by it and issue an advisory opinion walking the bankruptcy court through the process of determining whether a purportedly secured creditor is entitled to adequate protection.

That kind of suggests that maybe the Houston district court doesn’t have sufficient faith in the Houston bankruptcy court to make even simple interlocutory rulings and is willing to step in at a moment’s notice to course correct. No wonder New Jersey is rocketing to first place on the mega-case jurisdiction charts.

Space Oddity

Now comes a story about how a mega-case judge, this time, one of the scientifically verified superior judges in Wilmington, got so very close to taking our advice only to blow it at the last minute and revert to type. Like Icarus, Judge Thomas Horan left low-earth orbit and flew too close to the sun, only to come crashing down, thanks to robes of wax.

Ligado – formerly LightSquared, and, no, we won’t be getting into all that – filed in Delaware in January 2025 to divorce old flame Inmarsat and kindle a new 5G love affair with AST & Science. The debtors also wanted to keep pushing their $40 billion takings suit against the feds for blocking their 20-year underdog quest to cripple (jk, jk) the U.S. military’s GPS technology. Real Menlo Park shit.

The debtors partnered with Viasat-owned Inmarsat way back in 2007 to cooperate on deploying the company’s L-band licenses. After 15 years of marriage, however, the partnership had yet to bear fruit, and in 2022 Inmarsat sued Ligado for failing to make a lease payment. On the petition date, the debtors publicly announced that they intended to dump Inmarsat and enter into new nuptials with AST to move forward on the L-band project; no word on where they’re registered.

Of course, Inmarsat graciously accepted the end of its cooperation agreement with Ligado, stepped aside and wished the new couple a happy life. Ha, no: Inmarsat went all Wars of the Roses in bankruptcy court, demanding full payment of all amounts due under the cooperation agreement while the chapter 11 proceeded. Ligado suing Inmarsat in bankruptcy court to recover $1.7 billion in prior payments as fraudulent transfers probably didn’t help.

Hilariously, Ligado dismissed and refiled that fraudulent transfer suit in New York state court, and Inmarsat promptly removed it right back to New York federal court, citing the close connection between the litigation and the bankruptcy. Wait – isn’t that typically the debtors’ move? The suit was then referred to Judge Martin Glenn in the New York bankruptcy court, meaning all that procedural wrangling ended up merely changing the bankruptcy venue for the action.

In our experience, debtors generally want their suits against creditors decided by the presumptively debtor-friendly bankruptcy court, and creditors want to keep the proceeding in a “real” court. So Ligado running to state court and Inmarsat yanking the fight back into bankruptcy court – a different bankruptcy court – makes little sense, other than as further evidence that these bickering lovers refuse to agree about anything.

True to form, the debtors then sought to remand the New York suit back to the state court. According to the debtors, allowing the suit to proceed in New York Supreme Court “does not prevent or complicate centralized resolution of issues in Ligado’s bankruptcy proceedings.” Wait, wait, wait – what? In virtually every case involving prepetition litigation, the debtors insist that allowing the suit to proceed outside of bankruptcy court would absolutely kneecap their efforts to reorganize via “distraction” and illusory “record taint” – and now we have debtors shrugging all that off as no big whup?

Clearly, the bobsled had left the track and the usual playbook was out the window. But, then, a miracle: In March 2025, the debtors announced that mediation with Inmarsat had borne fruit. On June 13, the parties disclosed the terms: AST would borrow $550 million and loan the proceeds to Ligado, which would pay Inmarsat $535 million as a property settlement to just go away already.

On June 23, Judge Horan approved the new Ligado/AST deal and cleared Ligado’s disclosure statement for solicitation, with a confirmation hearing set for Aug. 7, leaving the parties to work out the final documentation – including an amended cooperation agreement with Inmarsat and a new agreement with AST that complied with the settlement.

Would that it were so simple: As all those pointless venue fights evidenced, some people just can’t get enough of sticking it to their former life partner. On Aug. 4, the debtors kicked the confirmation hearing to Aug. 27, citing an unspecified issue with finalizing the cooperation agreements.

Then it all went to hell, as these things do. On Aug. 14, Inmarsat filed a motion to enforce the settlement agreement, arguing that Ligado had insisted on a new term: that Inmarsat surrender “its ability to enforce its valuable contractual right to the L-band spectrum outside North America,” which Inmarsat valued in the hundreds of millions of dollars.

Ligado immediately responded with its own motion to enforce the settlement, calling Inmarsat’s insistence on maintaining exclusive non-North America L-band rights “absurd.” Inmarsat’s interpretation of the settlement would “dramatically impair the underlying economics for AST’s investment” in the North America L-band and “undermine AST’s commercial objectives,” according to the debtors.

The debtors asserted that Inmarsat unequivocally agreed to support Ligado and AST’s initial application to operate an L-band service in North America. Inmarsat did not agree to support an application by Ligado and AST to operate outside North America, the debtors conceded, but nor did Ligado and AST agree they would never file such an application. However, Inmarsat insisted that the same North American geographic limits in its cooperation agreement with Ligado should apply equally to AST.

Sigh. Well, with a confirmation hearing set for September, at least this little contretemps would be resolved quickly, with a hearing scheduled for Aug. 29. Obviously Judge Horan would want to tie off a dispute worth hundreds of millions to both sides before confirming a plan! Except: At the hearing Judge Horan elected not to resolve the dispute. The whole fight was “not something that I should decide,” the judge told the parties at the outset.

Now Judge Horan was playing against type! Most mega-case bankruptcy judges dream of the parties teeing up a dispute for them to decide in an expedited fashion, rather than fighting it out in other courts for months or years and then bringing the result back to bankruptcy court.

We’ve seen bankruptcy judges deploy every sort of pseudo-legal jurisdictional baloney to seize control over nonbankruptcy litigation, and here was one of their favorites – the dispute stemmed from a bankruptcy settlement and had an outsized impact on a pending plan. But Judge Horan displayed admirable restraint, instructing the parties to import the language from the settlement term sheet directly into the definitive documents and “if there’s a dispute down the road” about interpretation, the parties could deal with it then.

Readers of this column are very familiar with our view that bankruptcy judges should be more cognizant of their limitations as Article I courts and a little more judicial restraint would go a long way toward restoring the legitimacy of our precious bankruptcy system. To be clear, we don’t have any issue at all with Judge Horan drawing back from resolving a nonbankruptcy dispute that he didn’t think needed to be resolved at the time and leaving the fight for the real courts after confirmation. Had this all ended there, fine.

Except: Just a few months later, on Jan. 27, Judge Horan issued a decision resolving the dispute in favor of Ligado. And, boy, what a decision: Judge Horan directed Inmarsat to affirmatively support Ligado and AST’s North America L-band application with the FCC, even though Inmarsat claimed the application was not properly coordinated as required. The judge actually instructed Inmarsat to support an application it believed included false statements about coordination with Ligado.

How did we get from “not something that I should decide” to “Inmarsat must support a regulatory filing by competitors”? On Dec. 19, Inmarsat sued Ligado and AST in New York state court – the same court Inmarsat pointedly did not want handling the cure payments dispute – to terminate the settlement and award damages. Merry Christmas! Ligado and AST responded by asking the bankruptcy court to enforce the settlement, arguing the state court suit violated the automatic stay.

Creditors suing in state court, debtors dragging the dispute to bankruptcy court and invoking the stay – this is our comfort zone. Naturally, Judge Horan stuck to his guns and told Ligado and AST to go fight it out with Inmarsat in state court. After all, Judge Horan said, just a few months earlier, that he shouldn’t decide this fight, and if a dispute arises “down the road,” well, the parties could take it to a court of more fulsome jurisdiction.

Kidding! Judge Horan scheduled an expedited non-evidentiary hearing on less than two weeks’ notice and drop-kicked Inmarsat into geostationary orbit. How did he justify this? The judge said “failure to obtain the regulatory approval would likely result in the failure of the plan.” If Inmarsat was “permitted to withhold the regulatory support that it committed to make” under the chapter 11 settlement, Judge Horan added, it would give Inmarsat “improper leverage to extract additional concessions.”

Judge Horan also reasoned that Inmarsat’s obligation to support Ligado and AST’s FCC application was triggered because Ligado quoted language from the settlement agreement regarding cooperation in the application. Inmarsat insisted that the language used was not factually correct, here in the real world – that Ligado did not actually coordinate with Inmarsat as stated in the application – but the judge felt Ligado including that magic language in the application automatically trumped reality, with no further need to inquire.

Putting aside the merits – which are literally rocket science – this reversal by Judge Horan strikes us as a bit inconsistent. The dispute over non-North America L-band rights was clearly ripe before the plan was confirmed, everyone agreed it would have a massive impact on the plan, and everyone agreed the bankruptcy court should resolve it – so why didn’t Judge Horan do so in August, before he confirmed the dang plan?

He could have set up an accelerated but still sufficient discovery schedule, briefing deadlines, held a full trial, all of that in the time between August and January. Instead – instant injunction.

Hey, remember good old Federal Rule of Bankruptcy Procedure 7001 from that First Brands item above? The one you read on the toilet a few hours ago? Not only does Rule 7001 require an adversary proceeding to determine the extent, validity and priority of a lien – it also requires an adversary proceeding before a bankruptcy judge can grant an injunction or other equitable relief.

Counsel for Inmarsat pointed out that Judge Horan’s quickie ruling effectively adjudicated the merits of the company’s state court lawsuit “without any real due process,” and insisted that “gagging” Inmarsat before the FCC constitutes irreparable harm and “a real public policy concern.” “[I]t’s actually crazy to say that we need to support something with the FCC that says the satellite’s coordinated if it’s not,” counsel pleaded.

Inmarsat immediately appealed the ruling, and on Feb. 4 asked the district court for a stay pending appeal. In its stay brief, Inmarsat, unsurprisingly, highlights Judge Horan’s statements at the August hearing that the parties should go to a real court if they need their disputes resolved. According to Inmarsat, the suit it filed against Ligado in state court was “precisely what the court instructed Inmarsat to do under the terms of an exclusive-venue provision in the postpetition contracts the Bankruptcy Court approved.”

Ligado and AST filed their responses to that motion on Feb. 11, and of course they disagree. To be clear, we aren’t slamming them in any way here – if you can get this kind of relief for your client in this accelerated fashion, you do it. Our beef is with Judge Horan’s flip-flop on resolving the dispute before the plan was confirmed, when there was time to do it right, and then taking on one piece of the settlement dispute in an accelerated, slipshod, ad hoc fashion without proper procedure, while citing the plan he confirmed as one of his justifications.

Again – the merits of this stuff are beyond us. But the point here is that Judge Horan believed they were really beyond him as well, and then cut a wild U-turn before issuing a decision from the hip. Judge Horan was this close to getting a Friend of the Show citation from this here column, but instead of sticking to his earlier restraint he decided to take a page out of the “bankruptcy trumps all” playbook and untie the Gordian knot with an Article I paper sword.