Court Opinion Review: Judge Kaplan’s Odd Del Monte Rollup Ruling, Due Process Threatens Nascent Delaware Ch. 15 Docket, Trinseo Prepack in Name Only, and Corizon/YesCare Seeks Another Breathing Spell

Legal Research: Kevin Eckhardt

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 Judge Kaplan’s motion to dismiss ruling in the Del Monte DIP rollup litigation, Judge Silverstein’s handling of the Monette Farms chapter 15, Trinseo’s upcoming “prepack” and the post-plan default chapter 11 filing of Corizon/Tehum two-step survivor YesCare.

Fruit Loops

First up: Judge Michael Kaplan’s perplexing?/confounding? May 11 opinion kinda granting and kinda denying a motion to dismiss the Del Monte Foods minority lender group’s claims related to the company’s non-pro-rata DIP rollup. We can’t help but feel there’s more going on here than what’s actually in the opinion – you’d probably have to ask the mediator, the eponymous Judge Michael Kaplan, about that – but this one could prove an interesting contrast with Judge Christopher Lopez’s pending decision in the Serta uptier litigation.

We intro’d this suit back in February as a possible test case for Judge Kaplan’s view of Judge Craig T. Goldblatt’s American Tire quasi-ruling. A refresher: The Del Monte Foods debtors filed chapter 11 in New Jersey in July 2025 with a $412.5 million term loan DIP that included a $247.5 million rollup of some, but not all, of the first-out super senior loans from the company’s 2024 liability management exercise.

Some of the first-out super senior lenders nevertheless didn’t participate in the DIP. Either they got cold feet at the thought of providing new money to Del Monte in bankruptcy, or maybe they took issue with the terms the majority placed on participation, including surrendering all decision-making to the majority and saying goodbye to any recovery on avoidance claims against Black Diamond related to a prepetition post-trial settlement of its state court challenges to the LME.

Seems pretty simple: Participate in the DIP, put your money on the line and get rolled up, or choose not to, and live a life of religious fulfillment. Except: Why shouldn’t they have their cake and eat it too? The minority lenders consented to entry of the final DIP order but reserved their right to sue the DIP lenders for damages on the theory their rights under section 2.17 of the credit agreement, which we always thought of as the “pro rata sharing provision,” requires payments on the loans to be shared with all lenders, including a rollup of prepetition claims into postpetition debt.

Section 2.17 of the credit agreement in question provides that if a lender receives “a payment or reduction of a proportion of the aggregate amount” due on the loans that “is greater than the proportion received by any other Lender,” the recipient must “apply a portion of such payment to purchase participations” in the excluded lenders’ loans so the distribution is shared pro rata.

If a rollup is understood as a draw on the DIP that pays off prepetition debt, the credit agreement’s prohibitions against non-pro-rata payments could apply. That’s what Judge Goldblatt suggested in American Tire, at least. To quote: “What the rollup is, is a draw on the DIP to pay down the prepetition credit agreement.”

The American Tire DIP lenders took the position that the rollup was actually a conversion of the prepetition loans into the DIP loan on a cashless basis as consideration for providing the DIP loan and not a payment of the prepetition term loan. Judge Goldblatt responded that while he did not know if that interpretation was correct or “too cute by half,” he was not going to let the majority lenders “off the hook on the litigation.”

(Before we go back to Del Monte, it’s worth noting that these disputes are new because in the “olden” days of Momentive, etc., rollups could be reserved for DIP funders but the DIP was open in one form or another to all lenders. The debtors’ favorites got their goodies via backstops, etc. Now we’re seeing more intraclass tensions and more attempts to box out some lenders entirely (whether explicitly or via Sophie’s Choice-type conditions to participation.)

Like the participating lenders in American Tire, the Del Monte DIP lenders/majority group maintained that pro-rata sharing provisions do not apply to noncash exchanges like a DIP rollup. They maintained that the rollup was actually a “cashless exchange” – kind of like a “conversion” – that elevated their prepetition loans to a higher-priority status but did not change the amount owed.

And in his opinion, Judge Kaplan agreed: The DIP rollup was not a “payment or reduction of a proportion of the aggregate amount” due on the prepetition loans – and went further, concluding that the prepetition loans survived the rollup.

Rather than refinancing and replacing the prepetition loans, Judge Kaplan explains, the rollup merely “improved treatment” for the prepetition loans and “did not involve the discharge of any debt.” According to the judge, the debtors and DIP lenders “engaged in a cashless exchange” and the final DIP order approving the rollup “did not result, in any way, in a payment, satisfaction or reduction of principal, interest, fees or other amounts due and owing under the Pre-petition Loan Agreement.”

In other words, Judge Kaplan seems to view the rollup provisions in a DIP as a kind of court-approved contractual promise to treat prepetition debt as postpetition debt in a plan of reorganization.

According to Judge Kaplan, in American Tire, Judge Goldblatt actually did not say that rollups are payments on prepetition debt: When Judge Goldblatt “learned that the roll-up transaction in American Tire did not involve a payment, but rather a cashless conversion of debt,” he “acknowledged” that the dispute “might be more complicated than [his] gut-level reaction,’” Judge Kaplan observes.

You know this column, and you know we don’t like to disappoint. We would spend the rest of this item criticizing Judge Kaplan for once again seemingly doing whatever it takes to get debtors and controlling creditors whatever they want, except: Judge Kaplan didn’t stop there. After rejecting the minority lenders’ breach of contract claim, Judge Kaplan nevertheless allowed their declaratory judgment claim to go forward. What declaratory judgment claim? The one the minority lenders spent two whole paragraphs defending in their response to the motion to dismiss?

“The Complaint seeks a declaratory judgment that Defendants must share pro rata all future payments received on their Roll-Up Loans (which in turn were received in exchange for their First Out Term Loans), including through the Debtors’ asset sales,” the minority lenders argued in their response to the motion to dismiss. “Thus, the contract claims focus on payments or reductions that Defendants have already received (in the form of the Roll-Up Loans they received in exchange for their First Out Term Loans), while the declaratory-judgment claim focuses on payments or reductions that they will receive in the future.”

According to Judge Kaplan, this apparent afterthought is the real crux of the dispute – and requires “a determination of the economic value attributable to the roll-up feature of the DIP Loans, including any other consideration associated with the additional risk and cost of new money.” This is decidedly not good for the DIP lenders: Because Del Monte is a liquidating case, distributions on the rolled-up claims will be made in cash from the proceeds of the debtors’ asset sales to third parties. So the Del Monte DIP lenders now face the real prospect of having to share that cash with the minority lenders.

If the DIP lenders were getting paid in something other than cash, they might be able to argue that the pro-rata sharing provision applies only to cash payments, like the participating lenders in Serta. Don’t worry, we’ll get to that ruling when it comes! But with cash distributions, that argument won’t fly.

The question here is why Judge Kaplan didn’t just give the debtors and DIP lenders what they wanted and stop. That’s certainly what we expected.

Of course we can’t say why, but for whatever reason Judge Kaplan essentially split the baby: He gave the debtors a win on the breach of contract claims but left the minority lenders some leverage to negotiate. Former judge David Jones has been off the bench so long that we almost forgot about this type of judicial-leverage-allocation. And like in former judge Jones’ greatest hits reel, the Del Monte ruling required running roughshod over some preconceived notions that seem to make perfect commercial and economic sense (as Judge Goldblatt pointed out in American Tire).

The anarchist in us loves the iconoclast, but we know Judge Kaplan isn’t blowing stuff up for the Love of the Game. He’s doing it to get something done in this particular case, and we can’t help but suspect it has something to do with his dual role as mediator.

The opinion dropped after mediation concluded, on the Sunday before the May 12 confirmation hearing. We suspect (but truly don’t know at all! That’s how mediation works) that Judge Kaplan shared his inclinations during the mediation (or at the off-the-record pre-confirmation hearing conference he held that Sunday, which we only heard about in court on Monday morning) in an effort to get the parties to settle.

Throughout the confirmation hearing that Monday, Judge Kaplan repeatedly urged the parties to continue settlement discussions with the original mediator, Judge Christine Gravell – even imploring them to do so during the lunch break. At the end of the hearing, he took confirmation under advisement and again told the parties they should keep talking until his oral ruling on May 18.

Alas, all this encouragement has not yet resulted in a deal. On May 18, Judge Kaplan issued an oral ruling confirming the plan after the parties were unable to reach a deal. Uncertainty continues to hang over the case and, two very-fact-specific but seemingly diametrically opposed rulings (Del Monte and American Tire) over every credit agreement with similar provisions and every plan that deals with rolled-up debt.

The minority lenders vow a speedy appeal, and the Third Circuit hasn’t really had a chance (until now?) to bigfoot Judge Kaplan like the Fifth Circuit has been clobbering Houston. The lingering open issues post-motion to dismiss mean equitable mootness might not save the plan proponents like it has in so many other cases. And we are now living in a world where circuit courts seem to come down particularly hard on bankruptcy judges who fly too close to the sun.

Remember – the Third Circuit has a reputation for being deeply connected to the Delaware bench and bar on bankruptcy issues. This New Jersey thing is new. Maybe Judge Kaplan’s focus on getting a consensual deal in this case in particular may be his Icarus moment.

Are we spinning conspiracy theories? Perhaps. But we firmly believe Judge Kaplan knows how this particular Game of Thrones works. Heavy is the head that wears the crown, etc.

A Chill in Delaware

With potential viral pandemics back in the news, it seems appropriate we have a new Patient Zero for the latest outbreak of a disease that seems poised to chill the Delaware mega-case docket: We’ll call it Goldblatt Syndrome. (Ed. note: But first – let’s break kayfabe for a second to remind you folks that this next section is dripping in irony. O.K.? Onward!)

Characterized by an excess of judicial thoughtfulness, attention to due process and application of actual legal standards rather than outcome-determinative freestyling, this dreaded plague has killed what was once the most cherished product of the First State, like citrus greening disease took out Florida’s once-massive orange industry.

Goldblatt Syndrome led first to the wilting and rotting of Delaware’s status as the go-to jurisdiction for pulling off corporate shenanigans in chapter 11, but a new strain has emerged that could also kill future chapter 15 cases in Delaware (already a second-class chapter 15 destination compared with the SDNY). Regardless, Judge Laurie Selber Silverstein seems to be showing all the symptoms, as evidenced by comments at the first day hearing on April 22 in the Monette Farms chapter 15.

Saskatchewan-based Monette Farms claims to be one of North America’s “largest private farming operations,” with Amber Waves of Grain in both Canuckistan and the U.S. On April 17, the company filed a restructuring proceeding under Canada’s Companies’ Creditors Arrangement Act, or CCAA, after EBITDA declined due to “expansion into lower-margin produce and cattle sectors,” “poor farming conditions,” property values flattening out and increasing interest rates. With refreshing honesty, the company acknowledges its business plan “was enabled by low interest rates and increasing property values,” which, yeah.

The company sought chapter 15 recognition of the CCAA proceeding in Delaware and requested pretty standard preliminary relief under chapter 15, including recognition of an interim Canadian DIP financing order and imposition of the automatic stay to protect U.S. property and halt litigation against nondebtors. I mean, it’s Canada – what kind of crazy stuff are those hosers going to get up to?

Fortunately for the debtors, only one “objector” took issue with the requested preliminary relief at the April 22 first day hearing. Unfortunately for the debtors, that objector was Judge Silverstein. The judge immediately told the foreign representative that she would not, and never will, grant chapter 15 recognition of a preliminary CCAA order – including interim DIP relief – at a first day hearing.

“I have never recognized a Canadian initial order on the first day,” Judge Silverstein told the parties, adding that she did not “recall a chapter 11 case” where on the first day she “extended a stay, or injunction, to prevent suit against nondebtors.” Judge Silverstein worried that the record was insufficient to grant the DIP lenders protection from appeal as good-faith postpetition lenders under section 364(e) of the Bankruptcy Code at such an early stage, which is kinda crucial stuff for DIP lenders that gets rubber-stamped at the first day hearing in virtually every large chapter 11 case.

We know that the first day record is never really sufficient for the kind of relief DIP lenders demand on the first day. The committee has not been appointed, and creditors other than the DIP lenders probably didn’t get sufficient notice to actually show up and object. Details are scarce. Ulterior motives are unknown. But these due process concerns rarely give bankruptcy judges pause. At least until the Goldblatt Virus strikes.

Counsel for the DIP agent warned that if Judge Silverstein did not grant section 364(e) protection immediately, the debtors might be forced to file a chapter 11 case. Don’t threaten us with a good time, eh? Again, this recognizes that bankruptcy judges grant such relief in chapter 11 cases as a matter of course.

Hell, other bankruptcy judges in Delaware tend to grant this kind of relief on the first day in chapter 15 cases. For example, on March 26, Judge Brandan Shannon recognized a CCAA initial order in the Cannabist chapter 15 at a first day hearing, despite potential objections to a cannabis business using chapter 15 when it clearly could not reorganize under chapter 11 due to the continuing (but not for long?) federal illegality of the sticky icky.

(Good news for fans of KB: the U.S. Trustee, which as a practice always seeks dismissal of cannabis-related chapter 11 cases on illegality grounds, declined to object to final recognition of the Cannabist proceeding under chapter 15 – and the debtors resolved their lender’s objections. On May 9, Judge Shannon granted final recognition, meaning cannabis companies, like fashion watch manufacturers, now have a chapter 15 option for bankruptcy protection. Sweet.)

Judge Silverstein eventually relented, granting preliminary recognition of the DIP financing and issuing good-faith findings sufficient to trigger the protections of section 364(e). However, she forced the debtors to drop their request for a direct U.S. automatic stay for nondebtors. Instead, she made them settle for a recognition order that enforced the Canadian court’s existing stay against those affiliates. Same rose, different name. But the principled stance Judge Silverstein took could cause a lot more real problems for a chapter 15 debtor in the next case.

On May 1, the CCAA court granted final DIP approval, and even a symptomatic Goldblatt victim like Judge Silverstein couldn’t help but recognize it. Still – if you are considering filing a chapter 15 case, why would you take the risk of filing in Delaware and pulling Judge Silverstein or even Judge Goldblatt when you can just venue-shop to the Southern District of New York and get whatever relief you desire, even if that relief is definitively unavailable under chapter 11 and wasn’t even approved by the foreign court?

There is one problem with the SDNY, of course: Judge Michael Wiles showed some of the characteristic signs of Goldblatt Syndrome by refusing to approve nonconsensual nondebtor releases in the Altice France case. Of course, the debtors were asking Judge Wiles for pretty extraordinary relief – the addition of nonconsensual nondebtor releases to a foreign plan that didn’t include them – rather than the routine chapter 11 stuff Judge Silverstein balked at in Monette Farms.

Despite Judge Wiles’ ruling in Altice France, the trend in is pretty clear: In the SDNY, foreign debtors will get at least as much relief under chapter 15 as they would get in chapter 11, and likely more if they get Judge Martin Glenn – who, like the complex panel gang in Houston and Judge Kaplan in New Jersey, doesn’t need a weathervane to know which way the wind blows.

If a New Golden Age of chapter 15 is indeed upon us (and, please, no, that’s not good for anyone’s bottom line), then it will be ushered in by those judges who seem immune to the temptations of due process and careful reasoning.

Another Prepack in Name Only

On May 13, Trinseo announced a restructuring support agreement for a “prepackaged” chapter 11 filing in Houston with a plan that would hand over the company to first lien lenders and wipe out noteholders. The plan would also resolve disputed intercompany claims between the HoldCo and OpCo debtors and provides for an $850 million term exit facility and a $450 million equity rights offering, which means backstop goodies are back on the menu in Houston, boys.

An ad hoc group holding 40% of the OpCo term loan has declined to join the RSA and organized with wartime consigliere Pallas Partners as counsel, meaning this one may be nowhere near “prepackaged.” Forty percent is what we in the bankruptcy business like to call a “blocking position,” and a “prepack” theoretically implies the debtors have the votes going in.

The debtors say they intend to emerge within 180 days, which isn’t really that fast by modern prepack standards. So why are they calling this a prepack? What is that label, or prepetition solicitation of RSA parties already bound to support a plan, actually accomplishing here?

To us, the answer is strategic: The label could instill urgency in whichever complex panel judge catches this one, and give the plan the momentum of a runaway train that simply cannot be stopped. Those are things any debtor cherishes.

What fascinates us about this one is why the debtors would choose Houston over, say, New Jersey. Those backstop goodies could be a problem in a bankruptcy court bound by Serta’s pronouncements regarding unfair discrimination and ConvergeOne’s rejection of equity rights offering goodies. And the company’s complex prepetition restructuring transactions – including a pari-plus liability management exercise – could draw fire under Serta.

I’m sure debtors’ counsel has a plan, but why not just file in a district where Serta and ConvergeOne don’t control? After all, the PINO (“prepack in name only,” for those of you who haven’t been keeping up) playbook works in New Jersey, too – see, e.g., Multi-Color and United Site Services.

Our guess: Debtors view the judges in Houston as more qualified to resolve issues related to complex financing transactions and intercompany settlements – in the debtors’ favor, of course. Maybe Trinseo’s lawyers read through that Del Monte opinion? Regardless, we are eagerly waiting for Trinseo to file, already. And that alone suggests this ain’t a real prepack, because we prefer our bankruptcies like we prefer our bourbon: well-aged, complicated and with a little burn going down.

Corizon/YesCare’s Latest “Breathing Spell”

Did we promise back in March that we had finally buried the Tehum Care Texas two-step saga? To be fair, we thought we had. Surely, surviving Corizon Texas two-step entity and prison “healthcare” provider YesCare was finally finished with chapter 11 after failing to make settlement payments to tort claimants under the plan Judge Christopher Lopez dubiously confirmed in 2025.

Alas: On May 8, YesCare itself filed chapter 11 in the Middle District of Florida, hilariously using a local jail’s address as its principal place of business. The debtors also unironically say they seek a “breathing spell” after a federal jury, no longer restrained by Judge Lopez, awarded claimants $307 million, leading to the loss of government contracts representing nearly 80% of the company’s annual revenue.

A “breathing spell,” eh? Guess that three-year pause in prisoner claims during the pointless Tehum bankruptcy just wasn’t enough for them to come up with a viable plan for dealing with all those lawsuits. Here’s a novel idea: How about liquidating the company and distributing the proceeds to claimants who convince a jury, after due process and due deliberation, that they are entitled to $307 million in damages?

Nah. YesCare says it intends to secure DIP financing, “preserve going-concern value” and continue treating prisoner patients while in chapter 11. To which we say horsefeathers. Our cynical selves say YesCare management wants to use yet another bankruptcy “breathing spell” to halt suits against them, keep drawing salaries and, hopefully, force plaintiffs to accept a meager payout under a chapter 11 plan.

At the first day hearing on May 11, counsel for the Tehum claimants’ trust accused YesCare of playing the same “shell game” as Corizon. YesCare “lender”/nondebtor affiliate M2 LoanCo “is going to be the DIP lender, just like they were in Tehum, and they’re going to ask for releases and they’re going to ask for liens on avoidance actions,” counsel predicted. He also suggested the nondebtor affiliates will try to strip the operating assets from the debtors, “move on and do the same business.” Well, yeah, that’s what chapter 11 is for, right?

The Purdue ruling may have made chapter 11 less attractive for big-business mass tort defendants, but debtors such as YesCare will continue to pull these maneuvers as long as bankruptcy judges keep giving them “breathing spells” and refuse to see these cases as obvious litigation delay tactics.

There is a fun, purely legal dispute that will get resolved soon: The liquidating trustee for the Tehum debtors asked Judge Luis Ernesto Rivera to transfer the case to Judge Lopez in Houston. According to the trustee, the debtors filed in Florida as “the latest in a seemingly endless scheme by former owners, officers and directors of Corizon” to escape liability for their actions and “flee the jurisdiction of the Texas Bankruptcy Court and evade the consequences of their own defaults under the confirmed Plan in the Tehum Bankruptcy Case.”

Can’t say we blame them: It’s a solid bet that even Judge Lopez has probably had enough of these guys. The transfer motion is set for hearing on June 3; let’s see if Judge Rivera wants to join the ranks of the mega-case chapter 11 destinations! The judge handles all cases filed in the Fort Myers division of the Middle District of Florida, so debtors can be sure that if they file there, they will get him; sounds like a possible White Plains in the making, if he plays his cards right.

We don’t see anything in Judge Rivera’s background that suggests he is a future contender in the bankruptcy judge Game of Thrones. Certainly the YesCare folks are extremely familiar with bankruptcy venue shopping at this point, so we assume they did their research.

And it would make sense for a Florida court to become the next mega-case forum for sketchy chapter 11 maneuvers, especially with the current Floridafication of the entire country.