Court Opinion Review: Judge Lopez Calls More Bluffs, New Jersey District Court Backs Judge Kaplan in Del Monte and a Joyous Mess in Harvest Sherwood

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 more signs of a change in judicial approach in Houston, a strange decision backing Judge Kaplan in Del Monte and the plan sponsorship competition in Harvest Sherwood.

Regime Change in Houston?

What are they putting in the enchiladas in Houston? In recent weeks Judge Christopher Lopez twice called the debtors’ bluff, by denying DIP approval in Ascend Elements and rejecting a disclosure statement – a disclosure statement! – in First Brands. Maybe all those bench–slaps from the district court and Fifth Circuit are finally getting through to the complex panel.

First, Ascend Elements. The Massachusetts-based battery manufacturer filed in Houston on April 9 with a plan to market its assets, including a research and development facility in Massachusetts, production sites in Georgia and Poland and plants under construction in Kentucky and Poland.

On May 6, the debtors sought approval of $30 million in DIP financing from third-party lender and Kinterra affiliate Bluegrass Infrastructure Partners, which the debtors also designated as stalking horse bidder for their assets. Prepetition secured creditors agreed to the priming of their liens on the assets, meaning we immediately assumed the DIP and any related goodies would be summarily approved – with the largest lenders on board, mechanics lienholders, unsecured creditors and other miscellaneous riff-raff rarely get anywhere with DIP objections.

Just one little wrinkle, though: In addition to funding working capital, $18.8 million of the DIP proceeds would be used to exercise an option held by nondebtor Ascend Elements 2 Sp. z o.o. (sounds way cooler than LLC, right?) to acquire land in connection with a Polish joint venture. Seems kinda problematic for the debtors taking on $18.8 million in new senior secured debt and immediately sending it out of the country to a nondebtor.

Of course, we still figured Judge Lopez would approve the Poland-bound portion of the DIP. As you no doubt realize if you’ve been reading this column, mega-case bankruptcy judges routinely approve whatever non-Code add-ons DIP lenders request (massive rollups of prepetition debt, immediate payment of that debt, backstop fees, accelerated case timelines, stalking horse status, even prospective plan treatment under an RSA), usually based on the debtors and lenders half-heartedly asserting they are “integral” to securing the financing to avoid liquidation.

That’s the classic DIP bluff: give the lenders these questionable goodies not provided for (and sometimes directly in conflict with) the Bankruptcy Code, or this one ends up in chapter 7. Big-case bankruptcy judges sympathetic to their debtors almost never call this bluff, instead deferring to the debtors’ hallowed business judgment. When a judge pushes back, the DIP package almost inevitably ends up better for the debtors and other creditors, but the big-case judges never seem to notice that.

Of course the Ascend debtors rolled out the parade of horribles. The entire DIP was made contingent on the exercise of the Polish land option, meaning rejection of the $18.8 million earmarked to do that meant rejection of the entire DIP – which would, you know it, lead immediately to liquidation. The debtors swore they “do not have sufficient liquidity to continue operating and pursuing the sale through its anticipated closing date without the DIP Facility.”

Not to mention that Bluegrass offered to serve as the stalking horse, meaning denial of the DIP could result in – depending how you see it – the loss of a “bird in hand” or competitive bidding without the chilling effect of a $2 million break-up fee and $1.5 million in expense reimbursement for the stalking horse. In our experience, big-case judges would sooner shoot their own dog than allow an all-asset sale to proceed without a willing stalking horse.

Not that Judge Lopez has never called the debtors’ bluff: recall his bold break from form in the Pine Gate Renewables case, which we discussed in December 2025. In that case, the debtors pushed a massive 5.6-to-1 rollup of prepetition debt on the first day of a two-month sale case, a pretty tall ask for any judge. “Hopefully this sets a precedent for the Houston judges to call B.S. on more of these bogus DIP ‘deals,’ though we won’t hold our breath,” we remarked at the time. Seek, and ye shall find.

At a status conference on May 8, the official committee of unsecured creditors hinted at objections to the DIP and accelerated sale timeline and a motion to convert the case to chapter 7 – typical stuff. Committees still seem to think hinting at conversion strengthens their position in chapter 11 negotiations, though sometimes it seems like these arguments only strengthen judges’ resolve to give the debtors whatever they want to avoid conversion. When given a choice between a plan, any plan, and conversion, our bet is big-case judges are going to pick the former 99.9% of the time.

However: Judge Lopez surprised us by suggesting he had real qualms – not “pretending to be concerned to appear evenhanded” qualms – about approving the $18.8 million Poland portion of the DIP. While it is “not uncommon” for a debtor to seek an interim order for DIP financing on short notice – understatement of the century – Judge Lopez said he was concerned a “substantial portion” of the DIP would be used to exercise the Polish land option.

The judge also felt it was a bit unseemly that the DIP claims would immediately be used to credit-bid at an auction just a few days after approval, before the committee could investigate.

Judge Lopez stopped short of saying no immediately, and instead adjourned the DIP hearing and suggested the parties agree to something. No such luck: on May 13, the UCC and a mechanics lienholder objected to the DIP, arguing the debtors’ general unsecured creditors would receive nothing from the $18.8 million going to a foreign nondebtor against whom they had no claims. The UCC helpfully suggested the debtors sell the option or their equity in the Polish entity instead, and use the proceeds to pay the debtors’ creditors.

The dispute came to a head at a DIP hearing on May 14 when Judge Lopez surprised us all by rejecting the facility. The judge explained that the debtors did not show they would face “immediate and irreparable harm” without emergency funding.

Judge Lopez acknowledged the DIP was “contractually fused” to the proposed credit bid, but held the contractual link between a DIP and the debtors’ favored chapter 11 strategy was a bad thing. Specifically, Judge Lopez pointed out that if stalking horse Bluegrass weren’t the winning bidder, the nearly $19 million routed to the nondebtor Polish entity would do nothing for the estate, meaning the DIP’s contractual fusion to the credit bid was a way to lock in the outcome, not a reason to bless it.

Remember: The complex panel judges routinely approve DIPs because they are integrated with a restructuring support agreement or sale of assets to senior lenders that sets the whole course of the case, not despite that.

So, mea culpa: we were wrong about Pine Gate Renewables. Rather than being a fringe-case one-off like Red River Talc, it appears to have been a signal that Judge Lopez is changing his approach to DIP financing and will call the debtors’ liquidation bluff if he feels doing so is warranted.

Of course, Kinterra walked from the DIP, abandoned its bid for the debtors’ assets and stormed off in a huff, leaving no potential buyer for the assets and zeroing out the value of the Polish option. Just kidding! Kinterra instead lodged a bid for the debtors’ interests in the Polish nondebtor affiliate and offered to directly fund the $18.8 million exercise price if it prevailed – exactly what the UCC proposed.

The mechanic’s lien creditors filed a motion to convert on May 18, but we suspect they face an uphill battle. Having stood up for a real DIP standard this time and seen it lead right where the UCC suggested, Judge Lopez is probably not going to be too excited about throwing the company into the kontener na śmieci. And yes: we believe a chapter 11 sale is often superior to a chapter 7 sale, all things being equal.

On May 20, the debtors designated Kinterra as the successful bidder for their Polish and IP assets in a piecemeal sale process, and Judge Lopez approved the sale on May 22. Other sales have been proposed and approved. Once again, the sky exercised its reasonable business judgment and declined to fall.

Perhaps Judge Lopez was still riding the same vibes on May 26, when he denied approval of the First Brands disclosure statement. The judge said he was “not comfortable” approving the DS because it is intertwined with a proposed settlement with the ad hoc group of prepetition and DIP lenders and the official committee of unsecured creditors.

This version of the DS was unusual in that it was linked to a plan that technically only covered a few debtors but would bind the creditors of all 111 debtors. Judge Lopez flagged that this might be unfair to creditors of the other debtors who wouldn’t be voting and that the DIP lenders’ credit bid raised gifting and substantive consolidation problems the plan glossed over.

That’s all very reasonable. But again: This is not how Houston usually worked for debtors and big creditors. Complex panel judges used to approve disclosure statements as a matter of course, even telling parties not to waste time objecting. Even we wondered why anyone bothers.

Unlike Ascend, First Brands is exactly the kind of fringe-case outlier that always allowed Judge Lopez to burnish his “not a lay-up” credentials by issuing a cosmetic anti-debtor ruling – after all, he’s done that in First Brands before. But after Pine Gate and Ascend, we can’t help but see a trend here. It’s what we do! The anti-debtor rulings are starting to pile up high enough we can scale them and see a New Dawn of Honest Chapter 11 Jurisprudence breaking over the horizon in the Southern District of Texas.

Great. Now every big case will be filed in New Jersey.

Friends in High Places

Speaking of which: For those of you concerned the district or circuit courts might harsh the super-mellow pro-debtor vibe in New Jersey, take heart: In a lecture on June 10, U.S. District Judge Robert Kirsch made clear he is copacetic with Judge Michael Kaplan’s rough-justice treatment of the Del Monte minority lenders and the bankruptcy judge’s seemingly unprecedented appointment of himself to mediate his own cases.

In our last episode, we discussed Judge Kaplan’s opinion granting in part and denying in part a motion to dismiss the minority lenders’ suit challenge to Del Monte’s DIP rollup. Despite the judge’s mediation prowess and constant imploring, the parties did not reach a consensual resolution of the dispute, and on May 18 Judge Kaplan duly confirmed the debtors’ chapter 11 liquidating plan over the minority lenders’ objections.

The minority lenders appealed and asked Judge Kaplan to stay the confirmation order to prevent the debtors from rushing to substantial consummation, triggering an equitable mootness argument on appeal. Don’t laugh, they had to ask him first. Them’s the rules. Of course, Judge Kaplan quickly denied that motion, allowing the minority lenders to renew the stay request in what they must have thought would be a more friendly forum at the district court.

Alas: At a June 10 status conference, Judge Kirsch made clear that he has no intention of pulling a Houston and clipping Judge Kaplan’s wings. Instead, Judge Kirsch harangued the parties to “exercise common sense,” return to mediation with Judge Kaplan and settle the whole tiresome dispute, as if trying that had never occurred to them.

According to Judge Kirsch, he spoke with Judge Kaplan before the status conference, and the bankruptcy judge kindly offered to continue mediating with the parties during the appeal. “I am prepared to enter an order taking Judge Kaplan up on his offer,” Judge Kirsch concluded. Really going out on a limb there, Your Honor.

Why would further mediation with Judge Kaplan succeed where it previously failed? Maybe they should try a different mediator, perhaps a judge down the hall? Well, they already tried that: Prior to Judge Kaplan appointing himself mediator, the parties failed to bridge the gap during mediation with fellow New Jersey Bankruptcy Judge Christine Gravelle.

Judge Kaplan even implored the parties to mediate with Judge Gravelle during a lunch break in the confirmation hearing, and that didn’t work. Maybe, just maybe, the parties are committed to actually litigating this one, even with three federal judges pestering them to cut a deal. At some point, these judges have to accept that a decision must be rendered, right? Right?

We suspect we know the answer to that when it comes to Judge Kaplan, but turns out that applies equally to Judge Kirsch despite his Article III status. According to Judge Kirsch, he read the pleadings and concluded “it was very clear that this case will and should resolve.”

Well, then. Who are we to question him? Just pundits and academics, folks. Maybe we would have a bit more confidence in Judge Kirsch’s view of the dispute had he not bizarrely (and unfavorably) compared any emergency supporting the minority lenders’ irreparable harm claim to the irreparable harm claims and emergencies facing undocumented ICE detainees?

You heard that right: According to Judge Kirsch, possibly having your appellate rights compromised by the debtors rushing to substantially consummate their plan simply doesn’t rise to the level of illegal forced detention of migrants. So that’s the standard for a stay pending appeal now?

On June 11, Judge Kirsch denied the motion to stay pending appeal while making clear the minority lenders are unlikely to prevail on the merits considering Judge Kaplan’s obviously well-reasoned conclusions. According to the district judge, Judge Kaplan “repeatedly rejected” the minority lenders’ arguments, and … That’s it. Judge Kaplan said so – that’s good enough for Judge Kirsch.

Look, we aren’t going to argue the merits of the false binary between choosing between hedge funds and undocumented migrants. The point is that that cannot possibly be the standard for what justifies “emergency” judicial intervention.

“[O]f course, the Court will thoroughly examine and assess Appellants’ legal and factual contentions after full briefing,” Judge Kirsch adds. OK.

On June 18, Judge Kaplan denied the minority lenders’ separate motion to stay their adversary proceeding challenging the non-pro-rata DIP pending appeal as well. Now they have to go back to Judge Kirsch for their second shot at a stay. Wonder how that will go.

In 2023, a report by Syracuse University’s Transactional Records Access Clearinghouse identified Kirsch as one of the most “productive” judges on the U.S. District Court for the District of New Jersey because he closed more than 99% of his cases that year – his first on the bench. Everyone who has practiced long enough has encountered judges focused on their efficiency and moving things along, but we aren’t sure this is fair when dealing with a massively important appeal of an issue that already got the “quick justice” treatment at the bankruptcy court.

It’s an old bankruptcy cliche that district courts hate handling bankruptcy appeals – see Judge Randy Crane’s head-turning “oral ruling at a status conference” and “sign one side’s proposed opinion without changing anything” combo move in Incora/Wesco for evidence of that – but now that case has spun out into remands and angels dancing on the head of a pin. Sometimes, and we will bite our words for this, justice delayed can be justice served, if the matter at hand requires real, considered attention.

What about the Third Circuit? The minority lender group asked Judge Kaplan to certify his confirmation ruling for direct appeal to the circuit court. Good luck with that – Judge Kaplan already held in denying the first stay request that the issues do not involve an unsettled question of law suitable for immediate appeal to the circuit court.

It could be 2028 before a judge who actually bothers to apply the law thoughtfully to this case gets a chance to weigh in, although of course they might just throw up their hands and dismiss the appeal as equitably moot – the Third Circuit has not been nearly as stingy as the Fifth Circuit on equitable mootness. For big debtors looking for a friendly forum, that’s a feature, not a bug.

May the Farce Be With You

Time for more middle-market madness! For you kids who never experienced a good old-fashioned contested chapter 11 (those old heads who have will be receiving their AARP membership package in the mail shortly), there’s always the wacky world of semi-sizeable chapter 11s playing Off-Off-Broadway in Octus’ Middle Market coverage. Prime example: the Harvest Sherwood case in Dallas, a big, honking bag of member berries for those of us from the pre-RSA days, when we were all blogging our “Lost” theories and plan sponsors were nervous.

Detroit-based meat/protein distributor Harvest Sherwood filed chapter 11 in Dallas in May 2025 to complete a prepetition wind-down and liquidate after ceasing operations. ABL lenders led by JPMorgan provided a $105 million DIP facility, including $25 million in new money and an $80 million rollup, to fund a somber burial for the stone-dead company.

’Twas not to be, as you probably guessed. On May 9, 2025, Judge Stacey G.C. Jernigan categorically declined to approve the rollup at the first day hearing. The judge said she would not approve an interim rollup of any amount for a liquidating company with no operations or employees and no likelihood of rehabilitation. After all, the reason bankruptcy judges approve DIP lender goodies in a reorganization is to save jobs, right?

After its bluff was called, JPMorgan offered to drop the interim rollup to $10 million but Judge Jernigan stuck to her guns – there would be no immediate rollup at all in any liquidating case before her, the judge insisted. Naturally, JPMorgan walked from the DIP and the case immediately converted to chapter 7. Hah! JPMorgan dropped the rollup entirely, and Judge Jernigan quickly granted interim approval, unlocking $5 million in new money.

The U.S. Trustee was not satisfied and objected to any rollup at final approval. Customer and $42 million litigation target Sprouts Farmers Market followed suit, objecting to the DIP and arguing that the case should be transferred to California, where the debtors were actually located. Meanwhile, two Burford Capital-affiliated litigation funders objected to the DIP on the grounds it would prime their interests in the debtors’ most substantial asset – over $1 billion in antitrust claims against pork, chicken and beef producers.

Oh? What’s that you say? That’s right – this “dead” company just happens to have a couple of potential lottery tickets in its jacket pocket, which would pass to JPMorgan – and pass out of the hands of Burford – if the DIP secured final approval. And with that, it was truly on like Donkey Kong.

On June 23, 2025, Burford filed a supplemental DIP objection laying out its position in more detail. According to the objection, Burford loaned the debtors $35 million to pursue the antitrust claims in exchange for the debtors’ agreement to subordinate their interest in the proceeds to Burford’s claims for $70 million – the funding amount plus a 2x ROI. “Agreement to subordinate” – that sure doesn’t sound like a security interest, does it?

Burford claimed that the debtors were obligated to place the proceeds of the litigation in a trust for its benefit until it received $70 million, meaning the first $70 million in proceeds were not actually property of the estate that could be liened up by the DIP. Even if it could be liened up, Burford alternatively argued, the court could not grant a priming lien senior to its “non-secured superior interest.” Hear that? Turns out having a perfected prepetition security interest is actually a bad thing; everybody should be getting “non-secured superior interests.”

(Side note: litigation funders do NOT structure their lending to litigation participants as an actual, real security interest due to a web of issues including Uniform Commercial Code limitations, state-level laws and concerns regarding tripping up legal ethical obligations. A topic for another day.)

On June 26, 2025, Judge Jernigan granted final approval of the DIP over the UST’s objection and denied Sprouts’ motion to transfer venue. This is not a case where the debtors put on a “ruse” to establish venue by opening a PO box the day before filing, Judge Jernigan said, which: Is that not OK now? The debtors and JPMorgan resolved Burford’s objection with order language preserving everyone’s rights to assert claims on the antitrust litigation proceeds.

On July 14, Burford filed an adversary proceeding to determine the extent and priority of its whatever it is interest in the antitrust litigation proceeds, teeing up litigation over that issue – while the debtors continued to squabble with Sprouts.

In September 2025, Judge Jernigan dismissed Burford’s adversary, concluding that Burford was only entitled to a general unsecured claim for breach of its funding agreement. Octus has been yelling about this from the rafters, but the ruling probably hasn’t gotten enough attention otherwise.

The judge pointed out the contradiction in Burford’s position: The funder described the agreement as a “grant” of an undivided or beneficial interest in the litigation proceeds, but Burford was also “adamant” the agreement was not an assignment or purchase and sale of the litigation claims and denied that the arrangement was a straight-up loan – possibly to avoid the usury implications of that “loan $35 million, collect $70 million” rate of return, according to the judge.

Judge Jernigan compared the litigation funding agreement to a factoring relationship, where a debtor transfers future receivables for cash (see FAT Brands for a similar nonfactoring factoring agreement argument) but, unlike a factor, Burford denied that the claims were actually transferred and declined to perfect its interest by filing a financing statement. Surely Burford had good reasons for structuring the funding agreement the way it did – but Judge Jernigan didn’t see that as her problem.

The judge entered a written opinion, and Burford promptly appealed that ruling to the Northern District of Texas, but the decision allowed the debtors to proceed with getting a plan together to fund the antitrust litigation and dole out the proceeds. And that is when things got really interesting.

On May 7, almost exactly one year after the filing, the debtors filed a proposed plan of liquidation whereby DIP lenders JPMorgan and Asperity Investors provide $97 million in financing to secure confirmation, pay administrative claims and fund the antitrust litigation going forward. The DIP lenders also agreed to convert their DIP claims into a “long-term investment interest” in the liquidating trust rather than requiring payment in full in cash on the plan effective date, as if that would have been possible without some third party cashing them out.

Well, about that. On May 21, the debtors filed an amended plan with a different sponsor, Atlas Grove. Atlas Grove offered to provide a $125 million replacement DIP that would cash out the JPMorgan DIP and give Atlas Grove the bulk of the antitrust and Sprouts litigation proceeds, plus $130 million in exit financing (including up to $40 million to pay Burford the proceeds of two earlier antitrust settlements applied to the JPMorgan DIP) if it prevailed on appeal. The DIP terms were substantially identical to the JPMorgan terms, except Atlas Grove agreed to a 2% reduction in the interest rate.

JPMorgan and Asperity immediately objected to the replacement DIP, but then on May 22, the debtors jilted Atlas Grove and pivoted back to the JPMorgan plan. Sprouts and Burford, sensing an opportunity to get back in the game, filed an objection, calling the plan process a “farce” and attacking estate professionals for racking up more than $29 million in fees.

Hey guys: If you’re going to rack up $29 million in professional fees, you might as well get a good old-fashioned plan sponsorship tussle out of it. Remember: this kind of competitive bidding is supposed to happen in chapter 11. This is how chapter 11 can provide additional value beyond a nonbankruptcy liquidation (or reorganization). We have gone so far in the other direction, with cases stitched up from day one and rushed to completion at the whims of debtors and senior creditors, that a competitive process with multiple bidders is lampooned as a “farce.”

On June 2, the debtors announced they would hold a plan sponsorship auction with a new bid from Atlas Grove as the stalking horse. Atlas Grove agreed to upsize the replacement DIP to $150 million and increase the exit facility to $180 million. Again: This is a good thing. On June 2, Judge Jernigan approved Atlas Grove as the stalking horse over an improved bid from JPMorgan and Farallon.

Under the Atlas Grove proposal, the plan sponsors would receive 100% of litigation proceeds until they recovered their invested capital, at which point the plan sponsors would receive 20% of the litigation proceeds and junior trust interest-holders (including GUCs but not including equity) would receive 80%. Once those junior holders are paid in full, the plan sponsors would receive 80% of any further litigation proceeds and junior trust interest-holders (including GUCs and equity) would receive 20%.

Like we said above: Competition, not predictability, gets more value to debtors and junior creditors.

JPMorgan counsel warned that the Atlas Grove bid could be topped in “a number of hours” given the “intense competitive nature” of the bidding process. No kidding. Burford and JPMorgan duly objected to approval of the Atlas Grove replacement DIP, which was set for hearing on June 17. Why isn’t Burford, an experienced litigation funder, itself trying to buy the sponsorship rights? Once bitten, twice shy, maybe.

On June 17, Judge Jernigan overruled Burford’s objections and approved the Atlas Grove replacement DIP. JPMorgan resolved its objection ahead of the hearing after agreeing to accept a letter of credit to backstop any antitrust settlement proceeds paid to JPMorgan that might get clawed back by Burford. Basically, they bowed out of the auction and allowed Atlas Grove to take the deal.

Whew. For those of you who scorn the Middle Market as small potatoes: Yeah, but, isn’t this fun? Isn’t this kind of swashbuckling chapter 11 exactly why you got into this business? Sure, there’s theoretically more money involved in the Spirit Airlines liquidation, but do they have a whipsawing plan sponsorship process? Is Spirit going to provide any return to unsecured creditors for those hundreds of millions in fees? Spoiler alert: Almost certainly not.

If you ask us, $29 million is a bargain for this kind of entertainment and the possibility of juicy returns for everybody in the stack. Give us a Harvest Sherwood over a Spirit Airlines any time.