# Opinion

> United States Bankruptcy Court, D. New Jersey · May 11, 2026

URL: https://www.frixlaw.com/law-library/cases/11324681

## Case

- **Full name:** In Re: Del Monte Foods Corporation II, Inc., et al. v. Members of the Ad Hoc Term Lender Group
- **Court:** United States Bankruptcy Court, D. New Jersey
- **Decided:** May 11, 2026
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/11324681

## How later opinions describe it (automated extraction)

- stating that a payment is “the discharge in money of a sum due”
- holding that, absent “an express understanding” to the contrary, a promissory note is ordinarily “evidence of a debt rather than in payment thereof”
- holding that delivery of a promissory note and the “consolidation of it with other loans” generally does not constitute satisfaction of a debt

## Opinion text

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY
COURT DISTRICT OF NEW JERSEY
Caption in Compliance with D.N.J.
Lead Case No. 25-16984
LBR 9004-1(b)
Adv. Case No. 26-01018 (MBK)
In Re:
Del Monte Foods Corporation II, Inc., et al., Hearing Date: March 18, 2026

Debtors. Chapter 11

Certain Members of the Ad Hoc Group of
Minority Secured Lenders,

Plaintiffs,

v.

Members of the Ad Hoc Term Lender Group,

Defendants.

All Counsel of Record

MEMORANDUM DECISION

Presently before this Court is a Motion for Dismissal of the Ad Hoc Group of Minority
Secured Lenders’ (the “Plaintiffs”) Adversary Complaint (hereinafter, the “Complaint”) pursuant
to Federal Rule of Civil Procedure 12(b)(6) and Federal Rule of Bankruptcy Procedure 7012(b)
(the “Motion to Dismiss”) filed on behalf of the Ad Hoc Term Lender Group (the “Defendants” or
“Movants”) (ECF No. 51). Ultimately, Defendants seek dismissal of Plaintiffs’ Complaint on the
grounds that the claims asserted therein are without merit, and further request that the Court enter

1 Unless otherwise indicated, ECF Nos. will refer to entries made in the Adversary Proceeding docket.
an order dismissing the complaint with prejudice. The Court has reviewed carefully the Complaint,
the parties’ written submissions, as well as arguments made during the hearing held on March 16,
2026. For the reasons that follow, the Court will GRANT in part and DENY in part the Motion to
Dismiss.

I. Jurisdiction
The Court has jurisdiction over the contested matter under 28 U.S.C. §§ 1334(a) and 157(a)
and the Standing Order of the United States District Court dated July 10, 1984—as amended
September 18, 2012, and June 6, 2025—referring all bankruptcy cases to the bankruptcy court.
This matter is a statutory core proceeding, and this Court has constitutional authority to enter a
final order. 28 U.S.C. § 157(b)(2) 2.
II. Background3
A. The Super-Senior Credit Facility4 (the “Pre-petition Loan Agreement5”)
On August 2, 2024, as part of a “drop down” liability management transaction, Debtors
transferred substantially all of its assets to DM Intermediate Corporation, which in turn transferred
those assets to a newly formed unrestricted subsidiary, DM Intermediate II Corporation; those

assets were then further transferred to a second newly formed unrestricted subsidiary, Del Monte
Foods Corporation II Inc. Adv. Compl. ¶ 11, ECF No. 1. On the same day, Del Monte Foods
Corporation II Inc., as borrower, and DM Intermediate Corporation, together with certain

2 For purposes of this Motion, the Court accepts, without further analysis, the Plaintiffs’ admission in
paragraph 9 of the Complaint that the within dispute is a core proceeding pursuant to 28 U.S.C. § 157(b)(2).
Adv. Compl. ¶ 9.
3 Given the breadth and complexity of the Lead Case, this section is limited to the factual and procedural
history relevant to the Adversary Complaint and the instant Motion to Dismiss.
4 Formally known as the “Super-Priority and Guaranty Agreement”.
5 Capitalized terms used but not otherwise defined herein shall have the same meanings ascribed to such
terms in the Adversary Complaint and moving papers.
subsidiaries, as Guarantors, then entered into the Pre-petition Loan Agreement6. Adv. Compl. ¶ 12;
Defendants’ Motion, Ex. A., 33 (“Super-Priority Credit and Guaranty Agreement”), ECF No. 5-2.
The Pre-petition Loan Agreement provided for three tranches of term loans: (i) the First Out Term
Loan totaling $236 million (the “First Out Term Loan”); (ii) the Second Out Term Loan totaling

$468.8 million (the “Second Out Term Loan”), and the Third Term Out Loan totaling $135 million
(the “Third Out Term Loan,” and collectively, the “Term Loans”). Id. The Term Loans were
secured by a first-priority lien on Term Loan Priority Collateral, and a second priority lien on asset-
based lending Priority Collateral. Id.
Section 2.15 of the Pre-petition Loan Agreement titled “Application of
Prepayments/Reduction”, contains a “payment waterfall” provision (the “Waterfall Provision”)
which sets forth the order of priority for distribution of payments and proceeds from Del Monte
Foods Corporation II Inc., as borrower, to the lenders. Adv. Compl. ¶ 15. This provision makes
clear that all Lenders of the First Out Term Loan shall be repaid in accordance with the Waterfall
Provision. Id.

Foundational to Plaintiffs’ argument is Section 2.17 (the “Sharing Provision”), which
states:
2.17. Ratable Sharing. Lenders hereby agree among themselves that if any of them
shall, whether by voluntary payment (other than a voluntary prepayment of Loans
made and applied in accordance with the terms hereof), through the exercise of any
right of set-off or banker’s lien, by counterclaim or cross action or by the
enforcement of any right under the Credit Documents or otherwise, or as adequate
protection of a deposit treated as Cash Collateral under the Bankruptcy Code,
receive payment or reduction of a proportion of the aggregate amount of principal,
interest, fees and other amounts then due and owing to such Lender hereunder or
under the other Credit Documents (collectively, the “Aggregate Amounts Due” to
such Lender) which is greater than the proportion received by any other Lender in
respect of the Aggregate Amounts Due to such other Lender, then the Lender

6 As set forth in Section 10.14, the Pre-petition Loan Agreement is governed by, and construed in accordance
with the laws of the State of New York (as well as all other applicable agreements referenced in the
Adversary Complaint). Adv. Compl. ¶ 14.
receiving such proportionality greater payment shall (a) notify Administrative
Agent and each other Lender of the receipt of such payment and (b) apply a portion
of such payment to purchase participations (which it shall be deemed to have
purchased from each seller of a participation simultaneously upon the receipt by
such seller of its portion of such payment) in the Aggregate Amounts Due to the
other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared
by all Lenders in proportion to the Aggregate Amounts Due to them . . .

Defendants’ Motion, Ex. A., 102 (“Sharing Provision § 2.17”), ECF No. 5-2. Moreover, the
Sharing Provision expressly states three exceptions:
The Provisions of this Section 2.17 shall not be construed to apply to (a) any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement (including the application of funds arising from the
existence of a Defaulting Lender), (b) any payment obtained by any Lender as
consideration for the assignment or sale of a participation in any of its Loans or
other Obligations owed to it or (c) any payment of any fee in connection with any
amendment, waiver or consent or in connection with any extension or commitment
of funds.

Id. Pursuant to Sections 10.5(b) and 10.5(c), the Sharing Provision cannot be amended, modified,
or waived without the consent of each Lender directly and adversely affected; accordingly,
Plaintiffs maintain that this language renders Section 2.17 a so-called “sacred right.” Adv. Compl.
¶ 17.
B. Intercreditor Agreements
On August 2, 2024, the parties to the Pre-petition Loan Agreement entered into a Pre-
petition intercreditor agreement (the “Intercreditor Agreement”), which, among other things,
provides for how proceeds of senior collateral under the Pre-petition Loan Agreement will be
applied. Adv. Compl. ¶ 18; Defendants’ Motion, Ex. A, 364 (“Intercreditor Agreement”) § 4(a),
ECF No. 5-2. Moreover, section 5.3(c) of the Intercreditor Agreement provides that even in the
case of insolvency, the existing Lien Priority and other terms and conditions set forth in the
Intercreditor Agreement still control. Adv. Compl. ¶ 19. Additionally, parties to the Pre-petition
Loan Agreement entered into a Pre-petition “Pari Passu” intercreditor agreement, which provides
that proceeds from any collection, sale, and foreclosure related to proceeds of collateral under the
Pre-petition Loan Agreement shall be paid to first priority obligations after payment of obligations
owed to each applicable administrative agent and collateral agent. Adv. Compl. ¶¶ 20-21;
Defendants’ Motion, Ex. A, 382-83 (“Pari Passu Agreement”) § 4.1(a), ECF No. 5-2.

C. Amendment No. 1 to the Super-Priority Credit and Guaranty Agreement
A group of Lenders that did not join the Pre-petition Loan Agreement—led by Black
Diamond (the “2024 Holdouts”)—retained $105 million of stub 2022 Term Loans owed by
Debtors. Adv. Compl. ¶ 22. In the fall of 2024, those 2024 Holdouts re-constituted the boards of
Del Monte and certain parent entities and commenced litigation seeking determination that the
new directors were properly installed. Id. After trial on the merits, but before the Delaware
Chancery Court ruled, Debtors settled with the 2024 Holdouts by agreeing to pay their stub 2022
Term Loans in full. Id. In order to raise money to make settlement payment, Debtors and other
borrowers under the Pre-petition Loan Agreement incurred an additional $122,100,000 of
Incremental First Out Term Loans in April 2025 pursuant to Amendment No. 1 to the Super-

Priority Credit and Guaranty Agreement dated April 8, 2025 (the “Amendment”). Adv. Compl. ¶
23. The additional term loans were backstopped and funded by members of the Majority Ad Hoc
Group (the Defendants) who hold more than $107 million of Incremental First Out Term Loans.
Id7.
The option to participate in the Incremental First Out Term Loans was offered to all existing
Lenders under the Pre-petition Loan Agreement based upon their pro rata share of the First Out
Term Loan under the Pre-petition Loan Agreement and following entry into the Amendment, the

7 The “Amendment No. 1” was not annexed to the exhibits accompanying the Motion to Dismiss, nor was
it included with any related submissions. For reference however, and as reflected in the Adversary
Complaint, Plaintiffs cite to Section 1(a)(i) of the Amendment.
First Out Term Loans were upsized to a total funded amount of $395,000,000. Adv. Compl. ¶¶ 25-
26. The Defendants opted to participate in the Incremental First Out Term Loans. Adv. Compl.
¶ 28.
III. Nature of Action and Procedural History

On July 1, 2025, after undergoing a period of financial crisis, Del Monte Foods Corporation
II, Inc. and its affiliated debtors and debtors in possession (collectively, the “Debtors” or “Del
Monte”) sought relief under Chapter 11 of the Bankruptcy Code, assigned case number 25-16984
(the “Bankruptcy Case” or “Lead Case”). To remain in business during the Chapter 11 process and
to maximize the value of the estates as it operated during its sale process, the Debtors required
interim financing. As a result, the Defendants agreed to extend credit to support the Debtors during
its reorganization and, under the court-approved debtor-in-possession loan agreement (the “DIP
Loan”), the Defendants converted a portion of their pre-petition debt into “roll-up loans” in
exchange for enhanced priority (the “Roll-Up Loans”). All creditors of the same class and similarly
situated were afforded an equal opportunity to participate in the debtor-in-possession financing on

the stated terms. Plaintiffs declined to participate and therefore retained their pre-petition
position—holding the same debt with the same priority as existed prior to the chapter 11 filing.
On January 23, 2026, Plaintiffs filed the instant Adversary Proceeding alleging breach of
contract, breach of the implied covenant of good faith and fair dealing, and seeking a declaratory
judgment. Plaintiffs assert that their claims against the Defendants accrued upon entry of the Final
Order (I) Authorizing the Debtors to (A) Obtain Post-petition Financing and (b) Utilize Cash
Collateral, (II) Granting Liens and Superpriority Administrative Expense Claims, (III) Granting
Adequate Protection, (IV) Modifying Automatic Stay, and (V) Granting Related Relief (the “Final
DIP Order”) (ECF No. 359 in the Lead Case, Case No. 25-16984). Specifically, Plaintiffs contend
that, under the Final DIP Order, Defendants reduced certain pre-petition debt in exchange for the
Roll-Up Loans, in violation of the Pre-petition Loan Agreement (described in further detail below),
under which both Plaintiffs and Defendants (collectively the “Parties”) were lenders. Adv. Compl.
¶ 2. Accordingly, Plaintiffs maintain that Defendants failed to comply with the Sharing Provision

set forth in Section 2.17 of the Pre-petition Loan Agreement. Id. ¶ 3.
On February 25, 2026, Defendants filed the instant Motion to Dismiss Plaintiffs’ Complaint
(ECF No. 5). Thereafter, on March 11, 2026, Plaintiffs filed a brief in opposition to Defendants’
Motion (the “Opp.”) (ECF No. 12). Subsequently, on March 16, 2026, Defendants filed a response
in further support of their Motion (the “Reply”) (ECF No. 16). After considering the Parties’
submissions and oral arguments, the Court held the matter on reserve.
IV. Legal Standard
Defendants filed this Motion pursuant to FED. R. CIV. P. 12(b)(6), for failure to state a
claim, applicable to adversary proceedings pursuant to FED. R. BANKR. P. 7012. Under Rule
12(b)(6), “[t]o survive a motion to dismiss, a complaint must contain sufficient factual allegations,

taken as true, to ‘state a claim for relief that is plausible on its face.’” Fleishner v. Standard Ins.,
679 F.3d 116, 120 (3d Cir. 2012) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
When reviewing a motion under FED. R. CIV. P. 12(b)(6), a court must “view the facts alleged in
the pleadings and the inferences to be drawn from those facts in the light most favorable to the
plaintiff, and judgment should not [be] granted unless the moving party has established that there
is no material issue of fact to resolve, and that it is entitled to judgment in its favor as a matter of
law.” Leamer v. Fauver, 288 F.3d 532, 535 (3d Cir. 2002) (citation omitted); see also Davis v. Wells
Fargo, 824 F.3d 333, 341 (3d Cir. 2016). A claim has “facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly at 556).
To test sufficiency of the complaint in the face of a Rule 12(b)(6) motion, the Court must
conduct a three-step inquiry. See Santiago v. Warminster Twp., 629 F.3d 121, 130-31 (3d Cir. 2010).

First, the court must tak[e] note of the elements a plaintiff must plead to state a
claim. Second, the court should identify allegations that, because they are no more
than conclusions, are not entitled to the assumption of truth. Finally, where there
are well-pleaded factual allegations, a court should assume their veracity and then
determine whether they plausibly give rise to an entitlement for relief.

Santiago, 629 F.3d, 121 at 130 (quotations omitted).
V. Motion to Dismiss

A. Count I
In Count I, Plaintiffs argue that Defendants breached the Pre-petition Loan Agreement at
the time the Roll-Up Loans were approved by this Court because the Final DIP Order converted a
portion of the First Out Term Loan into super-priority loans. Adv. Compl. ¶ 42. This, according to
Plaintiffs, reduced Defendants’ Pre-petition First Out Term Loan indebtedness without abiding by
the express terms of the Sharing Provision in the Pre-petition Loan Agreement. Id. Plaintiffs
maintain that Defendants—through their conduct—are essentially depriving Plaintiffs of their so-
called “sacred right” to ratable treatment in loan repayment. Id. And, under the terms set forth in
the Pre-petition Loan Agreement, Plaintiffs argue they are entitled to share pro rata in any
“payment or reduction” of the debt that Debtors owe under the agreement. Therefore, Plaintiffs
argue Defendants have violated their contractual obligations to Plaintiffs by allegedly receiving
payment on their debt, through participation in the DIP Loan, without permitting Plaintiffs to share
ratably in that recovery. The Court finds Plaintiffs’ reading of the Pre-petition Loan Agreement
unpersuasive.
In matters concerning contract interpretation, “a bankruptcy court will ‘rely on applicable
state law in construing a contract’s terms.”’ In re Fresh-G Rest. Intermediate Holding, LLC, 580
B.R. 103, 108-09 (Bankr. D. Del. 2017) (quoting In re New Century TRS Holdings, Inc., No. 07-
10416 KJC, 2011 WL 1811050, at *2 (Bankr. D. Del. May 10, 2011)). The parties agree that the

governing documents require application of New York law. “Where the terms of a contract are
clear and unambiguous, the intent of the parties must be found within the four corners of the
contract, giving a practical interpretation to the language employed and reading the contract as a
whole.” Ellington v. EMI Music, Inc., 24 N.Y.3d 239, 244 (2014). To properly plead a breach of
contract claim, a litigant must establish “the existence of a contract, the plaintiff’s performance
under the contract, the defendant’s breach of contract, and resulting damages.” See Tapp Partners,
LLC v. Wall Sections Inc., 244 A.D.3d 1727, 1728 (4th Dept 2025) (quoting Niagara Foods, Inc.
v. Ferguson Elec. Serv. Co., Inc., 111 A.D.3d 1374, 1376 (4th Dept 2013)). As will be discussed,
in the present matter, there have been no breaches by Defendants of any obligations under the Pre-
petition Loan Agreement, and thus, Plaintiffs’ breach of contract claim fails as a matter of law.

The Sharing Provision set forth in Section 2.17 of the Pre-petition Loan Agreement requires
that if any Lender receives “payment or reduction of a proportion of the aggregate amount of
principal, interest, fees and other amounts then due and owing to such Lender [under the Pre-
petition Loan Agreement] or under the other Credit Documents (collectively, the “Aggregate
Amounts Due”) which is greater than the proportion received by any other Lender,” such Lender
shall “apply a portion of such payment to purchase participations . . . in the Aggregate Amounts
Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by
all Lenders in proportion to the Aggregate Amounts Due to them.” Adv. Compl. ¶ 40; Pre-petition
Loan Agreement § 2.17. Plaintiffs further assert that under Section 10.5(b)(viii) and Sections
10.5(c)(iii), (c)(v), and (c)(vi) of the Pre-petition Loan Agreement, Section 2.17 cannot be
amended, modified, or waived without the consent of each Lender directly and adversely affected
thereby, thus making Section 2.17 a so-called “sacred right”. Adv. Compl. ¶ 17; Plaintiffs’ Opp. 4.
At its core, Plaintiffs’ Complaint is bottomed on an interpretation of the Pre-petition Loan

Agreement such that Defendants’ mere participation in and negotiation of a DIP loan which
includes a roll-up of pre-petition debt, without more, constitutes a “payment or reduction” as
defined in Section 2.17, and that by participating in the roll-up loan transaction, Defendants have
deprived Plaintiffs of their “sacred right” to ratable treatment. As a result, Plaintiffs contend they
are entitled to recover from the ratable share. Plaintiffs’ Opp. 14.
The Court disagrees with Plaintiffs’ view as to the impact of the DIP transaction and
whether the negotiated roll-up mechanism, in and of itself, triggers any sharing obligations under
the Pre-petition Loan Agreement. Under the DIP Loan, Defendants provided $165,000,000 in new
money loans in exchange for enhanced priority on $247,500,000 of “rolled-up” pre-petition debt.
Defendants’ Motion, 4. The DIP Loan granted the Defendants priority through the Roll-Up Loans,

which converted the $247,500,000 in pre-petition debt into an equivalent amount of “super-priority
DIP obligations.” Id. In simple terms, Defendants agreed to loan $165,000,000 in new money, but
only if they could recover $247,000,000 before anyone else were to receive payment on pre-
petition indebtedness. By means of the roll-up, Defendants secured a strengthened position as to
their pre-petition debt in exchange for undertaking the meaningful risks associated with new
money loans.
Neither Debtors’ new post-petition loan obligations, nor the resulting improved treatment
of Defendants’ pre-petition loans, constitute a “payment” or “reduction” of debt for purposes of
the Sharing Provision, as the transactions did not involve the discharge of any debt. It is well-
settled “that a mere promise to pay, absent an express agreement to the contrary, does not discharge
a preexisting debt.” Manufacturers and Traders Trust Co. v. Myers, 38 A.D.3d 965, 965-966, (3d.
Dept 2007) (citations omitted); see also Skaneateles Savings Bank v. Herold, 50 A.D.2d 85, 88-89
(4th Dept 1975) (holding that, absent “an express understanding” to the contrary, a promissory

note is ordinarily “evidence of a debt rather than in payment thereof”). The Debtors and Defendants
engaged in a cashless exchange in which Debtors secured additional financing by undertaking new
post-petition obligations and agreeing to improved treatment of Defendants’ pre-petition claims.
The Court’s entry of the Final DIP Order 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.
The Court’s view is supported by the well-settled principle that “[a]bsent express language
to the contrary, in [a] typical credit agreement the term ‘payment’ is most sensibly construed to
apply only to payments received in cash.” Michael Bellucci & Jerone McCluskey, The LSTA’s
Complete Credit Agreement Guide 526 (2d Ed. 2017); see also Stokes v. Stokes, 34 A.D. 423, 431-

32 (1st Dept 1898) (stating that a payment is “the discharge in money of a sum due”).
Likewise, other provisions of the Pre-petition Loan Agreement further support the Court’s
conclusion. For example, Section 2.16(a) makes clear that “[a]ll payments by the Borrower of
principal, interest, fees and other Obligations shall be made in Dollars in the same day funds.”
Pre-petition Loan Agreement § 2.16(a) (emphasis added). Section 2.16(c) requires an
administrative agent to “promptly distribute to each Lender . . . all payments . . . of principal and
interest due hereunder.” Id. § 2.16(c). It is evident to the Court that the Parties thus understood
“payment” to require an exchange of dollars or cash equivalents and, as the Defendants argue, the
obligation to “distribute” such “payments” would make little sense in the context of a cashless
exchange, as occurred when Defendants participated in the roll-up loan transaction. Defendants’
Motion, 10; see Ellington, 24 N.Y.3d at 342; Home & City Sav. Bank v. Bilinski, 177 A.D.2d 73,
75 (3d Dept 1992) (holding that delivery of a promissory note and the “consolidation of it with
other loans” generally does not constitute satisfaction of a debt) 8. Here, the roll-up transaction

did not discharge a single dollar of the Debtors’ existing payment obligations to Defendants. Final
DIP Order, 4.
The Plaintiffs cite Sumitomo Mitsui Banking Corp. v. Credit Suisse, 89 A.D.3d 561 (1st
Dept 2011) in support of their contention that the Roll-Up Loans were a “payment or
reduction.” Plaintiffs’ Opp. 8. Indeed, Sumitomo instructs courts to look beyond the labels used in
supporting documentation because “it is the economic substance of a transaction that should
determine the rights and obligations of interested parties.” Sumitomo, 89 A.D.3d at 564. However,
implicit in this direction is that the “economic substance”—and resulting “rights and obligations
of interested parties”—must be evaluated in the context of the parties’ written agreement. Id.; see
also, e.g., Ellington, 24 N.Y.3d at 244, 251-53. Moreover, New York courts have addressed

previously the “economic substance” of additional debt, ruling that—absent a written agreement
to the contrary—the giving of a note is not equivalent to the payment of money, but rather, is
construed “as evidence of a debt.” Skaneateles, 50 A.D.2d at 88-89 (quoting Industrial Bank of
Commerce v. Shapiro, 276 A.D. 370, 372 (1st Dept 1950)); Bilinski, 177 A.D.2d at 75; In re Earl,
147 B.R. 60, 63 (Bankr. N.D.N.Y. 1992).

8 The caselaw cited by Plaintiffs are distinguishable. See, e.g., AEA Middle Market Debt Funding LLC v.
Marblegate Asset Mgmt., LLC, 214 A.D.3d 111, 129 (1st Dept 2023) (involving a credit bid as opposed to
new debt); Prudential Ins. Co. of Am. V. WestLB AG, 961 N.Y.S.2d 360 at *2, *3 (Sup. Ct. 2012) (explaining
that a ratable sharing provision could be applied to proceeds from a collateral sale in the face of allegations
that a lender abused its position to manipulate a sale of collateral assets through a credit bid and later resale).
Defendants argue that neither case supports “the principle that a debt-for-debt conversion occurring as part
of an offering of new money constitutes a “payment” or “reduction” of debt. Defendants’ Motion, 7.
Here, the Parties’ agreement indisputably contains no express provision establishing that a
roll-up would constitute “payment” or “reduction” of the pre-petition debt or give rise to any
obligations under the Sharing Provision. As set forth above, where contract terms are clear and
unambiguous, courts may not construe or “rewrite” the contract in a way that contradicts its express

terms. Sutherland Glob. Servs., Inc. v. Crowley, 21 Misc. 3d 344, 347 (Sup. Ct. 2008). This
principle is especially applicable when construing contracts between “sophisticated, counseled
businessmen, and the undisputed evidence show[s] that the unambiguous language reflect[s]
precisely what the moving part[ies] intended.” Chimart Associates v. Paul, 66 N.Y. 2d 570, 574
(1986). Simply put, had the Plaintiffs intended the agreement to prohibit a roll-up arrangement or
to treat it as payment of the pre-petition debt, the parties could have stated so expressly.
Defendants’ Motion, 10; see, e.g., CT Inv. Mgmt. Co., LLC v. Chartis Specialty Ins. Co., 130 A.D.3d
1, 7 (1st Dept 2015).
Plaintiffs further direct the Court’s attention to Judge Craig Goldblatt’s decision in In re
Am. Tire Distributors, Inc., 24-12391 (Bankr. D. Del. Nov. 12, 2024) to reinforce their contention

that participation in the roll-up transaction cannot be used to sidestep pro rata sharing obligations
among lenders and that by structuring the transaction to benefit certain lenders at the expense of
others, the Defendants are employing financing mechanisms to evade contractual obligations.
Plaintiffs’ Opp, 12; Sklar Decl., Ex. 4, Hrg. Tr. 116:2-9; 116:13-16, 122:20-21, ECF No. 12-5.
However, Plaintiffs’ characterization of Judge Goldblatt’s decision omits essential parts of the
court’s explanation. Specifically, when the court learned that the roll-up transaction in American
Tire did not involve a payment, but rather a cashless conversion of debt—which consequently
caused a subordination issue with the parties—Judge Goldblatt acknowledged “it might be more
complicated than my gut-level reaction . . . I was thinking of it under the structure . . . of the way
I grew up understanding what a rollup was.” Plaintiffs’ Opp., Sklar Decl., Ex. 4, Hrg. Tr. 122:13-
17. Ultimately, Judge Goldblatt did not make a definitive ruling on whether the roll-up transaction,
in and of itself, violated the DIP Loan, given the nature of the exchange of debt9. See, e.g. Hrg. Tr.
122:23-24 (suggesting that “if and when [a lawsuit challenging the roll-up] is filed, we’ll deal with

it”); Id. at 123:5-6, 128:10-14.
Finally, were this Court to accept the proposition that the mere entry into a DIP facility,
which includes a roll-up of pre-petition obligations, should qualify as a “payment” or “reduction
of indebtedness” for purposes of enforcing the Sharing Provision of the Pre-petition Loan
Agreement, Defendants would face the unreasonable prospect of having to purchase the requisite
loan participation, in the “Aggregate Amounts Due to the other Lenders” [per the Sharing
Provision] with no guarantee that the DIP Loan would in fact be repaid10. This Court, as well as
my colleagues in other districts, have witnessed first-hand the unfortunate reality that DIP loans
are not always satisfied in full or even meaningful part. Indeed, the additional fees, charges,
priming considerations and enhanced treatment of pre-petition loans through roll-ups are intended

to compensate lenders for such increased risks of nonpayment. It is nonsensical to suggest that the
non-participating lenders, such as Plaintiffs, should secure the benefit of payment on their pre-
petition loans, having taken no such risks, merely upon the entry of the Final DIP Order.
Accordingly, Count I of the Adversary Complaint is dismissed with prejudice.

9 While Judge Goldblatt agreed that the minority lenders may prevail in a litigation challenging the non-pro
rata roll-up transaction as a violation of the terms set forth in the prepetition first lien loan, the court’s
analysis centered on whether there was an actual pay-down of the pre-petition debt. See Plaintiffs’ Opp.
Sklar Decl., Ex. 4, Hrg. Tr. at 116:6-9.
10 At the time of oral argument and the submission of briefing on the Motion, there had not been a closing
on the approved sales of the Debtors’ assets, and no proceeds to satisfy all or a portion of the DIP Loan.
The Court understands that subsequently, the sales did, in fact, close and at least a portion of the DIP Loan
has been repaid. This has no bearing on the Court’s ruling on Count I.
B. Count II
In Count II, Plaintiffs allege Defendants breached the implied covenant of good faith and
fair dealing when Defendants “improperly circumvented” Plaintiffs’ “sacred rights”, as well as
duties and obligations imposed upon Defendants under the Pre-petition Loan Agreement. Adv.

Compl. ¶ 47. Additionally, Plaintiffs contend that by entering into the DIP Loan, Defendants
employed a “scheme” to bypass Plaintiffs’ rights under the Pre-petition Loan Agreement. Id. ¶ 48.
Under principles of New York law, “[i]mplicit in every contract is a covenant of good faith and
fair dealing which encompasses any promise that a reasonable promisee would understand to be
included.” Wymara, Ltd. V. Gansevoort Hotel Grp., LLC, 241 A.D.3d 1611, 1613 (2d Dept 2025)
(citations omitted). The implied covenant of good faith and fair dealing obligates each party to a
contract to refrain from conduct that would undermine or deprive the other party of the benefits
reasonably expected under the agreement, even where such conduct is not expressly proscribed by
the contract’s terms. Id. However, “no obligation may be implied that would be inconsistent with
other terms of the contractual relationship.” Id. (citing Celauro v. 4C Corp., 187 A.D.3d 836, 838

(2d Dept 2020); 1357 Tarrytown Rd. Auto, LLC v. Granite Props., LLC, 142 A.D.3d 976, 977 (2d
Dept 2016)). “A court, under the guise of interpretation, may not imply a provision the parties
chose to omit.” Id. (citing Ernst v. Ernst, 8 A.D.3d 331, 332 (2d Dept 2004)). Here, Plaintiffs have
not sufficiently pled a claim for breach of implied covenant of good faith and fair dealing.
Germane to the issue is Plaintiffs’ belief that Defendants devised an improper scheme in
an attempt to nullify Plaintiffs’ rights under Sections 2.17, 10.5(b)(viii), and 10.5(c)(iii), (c)(v),
and (c)(vi) of the Pre-petition Loan Agreement. Adv. Compl. ¶ 47. Specifically, Plaintiffs assert
that Defendants converted a portion of their pre-petition First Out Term Loan into Roll-Up Loans
while, at the same time, reducing their respective Pre-petition First Out Term Loan indebtedness.
Adv. Compl. ¶¶ 48-49. Plaintiffs contend that Defendants’ conduct was improper and performed
with the knowledge and intent of damaging the Plaintiffs. Id. However, Plaintiffs do not allege that
their claim is predicated on conduct distinct from that underlying the alleged breach of contract
claim identified in Count I. As Defendants argue, under New York law, Plaintiffs’ may not

“repackage” a breach of contract claim under alternative legal theories. Defendants’ Motion, 21
(citing Art Cap. Grp., LLC v. Carlyle Inv. Mgmt. LLC, 151 A.D.3d 604, 605 (1st Dept 2017)).
Indeed, it is well-settled New York law that a claim for breach of an implied covenant of good faith
and fair dealing fails where it is based on the same conduct and seeks the same damages as the
accompanying breach of contract claim. See, e.g. Embarq, L.L.C. v. Bank of New York Mellon Tr.
Co., N.A., 242 A.D.3d 569, 572 (1st Dept 2025) (dismissing a counterclaim for breach of the
implied covenant of good faith and fair dealing as duplicative of the breach of contract
counterclaim); 269 W. 87th St. Apartment Corp. v. QSB 267 Prop. Co, LLC, 88 Misc. 3d 1246(A)
(Sup. Ct. 2026) (same). Because Plaintiffs’ breach of implied covenant claim is bottomed on the
same allegations and seeks the same damages as the breach of contract claim, Count II fails as a

matter of law.
As discussed above, Plaintiffs rely upon a portion of Judge Goldblatt’s discourse in
American Tire, to buttress their position that through pursuing the roll-up, Defendants have
schemed to evade their contractual obligation under the Pre-petition Loan Agreement. Notably,
however, as Defendants point out, Plaintiffs’ argument ignores key context: in American Tire, the
excluded minority lenders were not permitted to participate in the DIP financing and consequently,
had no opportunity to obtain the benefits of the DIP loan in exchange for offering new money.
Defendants’ Motion, 8. In the instant matter, Plaintiffs were offered the right to participate in the
Roll-Up Loans on equal terms—as were all other similarly situated creditors. See Hrg. Tr. 76:19-
77-12; 78:19-79:10 (March 18, 2026), ECF No. 2011. And, more significantly, in approving the
DIP Loan, this Court expressly ruled that the agreement was “negotiated in good faith and at arm’s
length among the Debtors and the DIP Secured Parties.” Final DIP Order, 23. This reflects good
faith and fair dealing and as such, this Court chooses not to infer otherwise.

Without more factual underpinnings demonstrating wrongful conduct apart from simply
engaging with Debtors in advancing a new money loan, Plaintiffs have not put forward a plausible
claim for breach of the implied covenant of good faith and fair dealing. Finally, as discussed, the
Court does not find that Defendants committed a breach of the Pre-petition Loan Agreement. Mere
participation in a roll-up transaction does not violate the agreement’s express terms and, in
particular, receipt of the Roll-Up Loans did not result in a “payment or reduction” of debt that
would have triggered obligations under the Pre-petition Loan Agreement. “A claim for breach of
implied covenant of good faith and fair dealing may not be used as a substitute for a non-viable
claim of breach of contract.” Smile Train, Inc. v. Ferris Consulting Corp., 117 A.D.3d 629, 630
(1st Dept 2014) (citations omitted). Because Plaintiffs’ claim for breach of contract is not viable,

its claim for breach of implied covenant of good faith and fair dealing—which is wholly bottomed
on its breach of contract claim—likewise fails.
Nevertheless, should Plaintiffs—through further discovery—be able to articulate and
substantiate the alleged scheme in which Defendants purportedly participated through conduct
distinct from that underlying the breach of contract claim, the Court will consider such allegations
at that time. Accordingly, Count II of the Adversary Complaint is dismissed without prejudice.

11 Plaintiffs argue that participation in the DIP came with attendant conditions and restrictions and that the
equal participation “is a factual issue outside the allegations in the [Adversary] complaint and so cannot be
the basis for a motion to dismiss.” Plaintiffs’ Opp. 25 (citations omitted). Notwithstanding, the pleadings
offer little more than a recharacterization of the alleged breach of contract claim asserted in Count I and fail
to provide a factual predicate to support a plausible claim for breach of the implied covenant of good faith
and fair dealing.
C. Count III
Plaintiffs seek a declaratory judgment that Defendants must share pro rata future payments
received on their Roll-Up Loans, including through the Debtors’ asset sales. Adv. Compl., ¶ 55;
Plaintiffs’ Opp. 25. The Declaratory Judgment Act provides that, "in a case of actual controversy

within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal
relations of any interested party seeking such declaration, whether or not further relief is or could
be sought." 28 U.S.C. § 2201(a). “The standards for determining whether a particular declaratory-
judgment action satisfies the case-or-controversy [test is] whether the facts alleged, under all
circumstances, show that there is a substantial controversy, between parties having adverse legal
interests, of sufficient immediacy and reality to warrant relief . . . .” MedImmune, Inc. v. Genentech,
Inc., 549 U.S. 118, 118 (2007) (internal quotations marked omitted).
Here, the Court agrees that the nature of Plaintiffs’ declaratory judgment claim is premised
on payments or reductions that they may receive in the future and, on that basis, concludes that
Plaintiffs’ declaratory judgement claim is not duplicative of Plaintiffs’ contract claims, which are

directed at the alleged payments or reductions that Defendants received through entry into and
participation in the Roll-Up Loans. Plaintiffs’ Opp. 25-26. Nothing in the pleadings or incorporated
documents before the Court, or the legal arguments presented, demonstrate that the Defendants’
pre-petition loans to the Debtors have been released, satisfied or discharged12; rather, one can
plausibly view the obligations as having been merged into the Roll-Up Loans and arguably will be
satisfied (in whole or part) through subsequent payment on the Roll-up Loans13. Moreover, the

12 As all Parties concede, under the DIP Credit Agreement, $150,000,000 of Defendants’ First Out Term
Loans were “converted into and exchanged for Roll-Up Loans,” and “shall satisfy and discharge”
$150,000,000 of those First Out Term Loans …“without constituting a novation.” DIP Loan § 2.1(b).
13 Plaintiffs recognize as much, stating that, “[e]ven putting aside whether the Roll-Up Loans themselves
are a ‘payment or reduction’ of debt, Defendants will receive substantial funds beyond repayment of the
New-Money Loans under the DIP Facility through the Debtors’ asset sales. At the very least, those
Pre-petition Loan Agreement provides for specific exceptions as to what may constitute a
“payment” but fails to include any reference to satisfaction of roll-up obligations. As noted by
Plaintiffs, “[b]ecause the parties knew that the [Debtors] might file for bankruptcy, they would
have included an exception for roll-up loans in bankruptcy from pro rata sharing among the other

express exceptions in the Sharing Provision if one were intended.” Plaintiffs’ Opp. 27; see also id.
at 18.
Resolution of the Plaintiffs’ claim, however, 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. A roll-up of pre-petition loans is a
negotiated undertaking by a debtor, in favor of a lender, that must have an associated economic
cost and value. The central question to be resolved is fixing the dollar amount for such value, and
whether (as well as to what extent if any) such value should be shared with lenders who did not
participate in the roll-up transaction. Further discovery, and possibly expert analysis, is therefore
necessary to determine the amounts, if any, subject to pro-rata sharing. Although the eventual

satisfaction of the DIP Loan and Roll-Up Loans may constitute “payment”,14 the extent to which
any such payment must be shared remains to be determined. Accordingly, Count III of the
Adversary Complaint survives dismissal as a plausible claim.

forthcoming payments must be shared ratably with Plaintiffs as ‘payments or reductions’ in connection with
the original loans.” Plaintiffs’ Opp. 18; see also Adv. Compl. ¶¶ 51-57 (seeking declaratory judgment as to
future payments under the Roll-Up Loans).
14 Again, as noted in footnote 10, supra, the Court understands that there now have been closings with
respect to the approved sales of Debtors’ assets, and proceeds have been used to reduce the DIP Loan. To
the extent such actions warrant amendments to Count III or other aspects of the Complaint, Plaintiffs should
pursue same consistent with the Federal Rules of Civil Procedure.
VI. Conclusion
Based on the foregoing, this Court partially grants and partially denies the Defendants’
Motion to Dismiss. Count I is dismissed with prejudice, Count II is dismissed without prejudice,
and Count III survives as a plausible claim. Defendants are directed to submit an appropriate Order.

[ude Michael B. Kaplan
United States Bankruptcy Judge
Dated: May 11, 2026

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11324681. Public record. Not legal advice.