Current Month (September 2026)
The following pieces are part of a series of summaries of the leading cases related to bankruptcy decided in the last year and a half.
Barton/Rooker-Feldman Doctrine: Akhlaghpour v. Orantes (In re Akhlaghpour), 164 F.4th 1139 (9th Cir. 2026)
By Le Tong, Columbia Law School
Under the Barton doctrine, a person who sues a lawyer appointed by the bankruptcy court for acts done in the lawyer’s official capacity in a forum other than the bankruptcy court must seek leave of the bankruptcy court to do so. In re Akhlaghpour, 164 F.4th 1139, 1142 (9th Cir. 2026) (citing Barton v. Barbour, 104 U.S. 126 (1881)).
Under the Rooker-Feldman doctrine, federal district courts generally lack jurisdiction over “cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.” Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005).
On October 11, 2017, Mehri Akhlaghpour (“Debtor”) filed a voluntary Chapter 11 petition through Giovanni Orantes as her counsel. Two months after some properties had been sold by the operating trustee, the Debtor moved to dismiss the petition but was denied by the bankruptcy court on May 15, 2018.
On December 27, 2019, the Debtor sued Orantes in the Los Angeles County Superior Court for legal malpractice related to her bankruptcy. Orantes moved to dismiss on three grounds: the Barton doctrine, res judicata based on approval of the fee application, and the Debtor’s lack of standing. The superior court granted Orantes’s motion to dismiss without leave to amend and dismissed the action solely based upon the Barton doctrine.
The California Court of Appeal reversed in part and affirmed in part. Specifically, the court held that the Barton doctrine applied to the Debtor’s claims against Orantes for actions taken as debtor-in-possession counsel but did not apply to claims for actions taken as debtor-out-of-possession counsel after February 6, 2018, when his court-approved representation had concluded.
On February 2, 2023, the bankruptcy court reopened the Debtor’s case upon her motion. The Debtor filed a motion under Barton seeking authorization “to continue her prosecution of the pending” superior court action. Akhlaghpour, 164 F.4th at 1144. The bankruptcy court granted the motion in part, authorizing her to proceed as to the pre-petition period of October 5 to October 10, 2017, and as to the period after February 6, 2018.
On appeal, the Bankruptcy Appellate Panel (“BAP”) vacated the bankruptcy court’s order and remanded with instructions for the bankruptcy court to dismiss the Barton motion for lack of jurisdiction. The majority reasoned that the bankruptcy court’s order violated the Rooker-Feldman doctrine because it “reverse[d], modif[ied], or at least, ignore[d]” the California Court of Appeal and California Superior Court rulings. Id. at 1144. The Debtor appealed to the U.S. Court of Appeals for the Ninth Circuit.
Three questions were before the Ninth Circuit in Akhlaghpour v. Orantes (In re Akhlaghpour): whether a bankruptcy court may grant Barton approval after litigation in another forum has already commenced, whether such approval violated the Rooker-Feldman doctrine, and whether the bankruptcy court’s specific order was an abuse of discretion. 164 F.4th 1139. The Ninth Circuit reversed the BAP’s order on the first two issues and vacated the bankruptcy court’s order on the third, remanding with instructions.
On the first issue, the Ninth Circuit held that a bankruptcy court may provide Barton approval after a case in another forum has been initiated. Prior decisions indicate that subsequent bankruptcy court approval can cure a jurisdictional issue arising from a suit filed without Barton approval. See In re Harris, 590 F.3d 730 (9th Cir. 2009). The Ninth Circuit reasoned that requiring dismissal and refiling would needlessly fragment related claims. The court denied Orantes’s three arguments that Barton required dismissal of the state action: that Crown Vantage (In re Crown Vantage, Inc., 421 F.3d 963 (9th Cir. 2005)) mandated cessation of the action, that the state action was void ab initio, and that the bankruptcy court’s order operated nunc pro tunc. The best practice for a plaintiff who needs Barton approval after the beginning of the litigation would be to request to stay proceedings in the other forum as soon as a potential Barton issue arises and immediately seek Barton approval.
On the second issue, the Ninth Circuit held that granting the Debtor’s motion for Barton approval did not violate the Rooker-Feldman doctrine. That doctrine bars federal courts from reviewing state court judgments at the request of state court losers. Nevertheless, a Barton order is categorically different because it removes a jurisdictional bar, allowing a party to proceed in state court on claims that the state court has not yet adjudicated on the merits. If the court were to hold otherwise, it would undermine the exclusive nature of a bankruptcy court’s authority to consider whether an officer it appointed to help administer a bankruptcy estate can be sued. It would also go significantly beyond Rooker-Feldman’s intended reach and extinguish the Barton doctrine in cases where underlying state court judgments exist.
On the third issue, the Ninth Circuit held that the bankruptcy court abused its discretion by granting Barton approval for the pre-petition claims that went beyond addressing the removal of the jurisdictional bar and by granting Barton approval for post-trustee-appointment claims not initially subject to Barton. If the Barton doctrine does not apply, no approval is required.
The Ninth Circuit remanded to the bankruptcy court with instructions to enter an order granting Barton approval to file claims in state court that were consistent with the California Court of Appeal’s decision.
9019 Settlements: In re U Lock, Inc., No. 25-1177, 2025 WL 3776122 (3d Cir. Dec. 30, 2025)
By Le Tong, Columbia Law School
When a bankruptcy estate has limited resources and its creditors face a potential litigation that would consume remaining property, a negotiated settlement under Federal Rule of Bankruptcy Procedure 9019 may serve the creditors’ interests better than litigation.
U Lock, Inc. (“Debtor”) operated a storage facility on property owned by Christie Biros (“Creditor”). After the Debtor filed a Chapter 7 bankruptcy, the Creditor filed administrative claims against the estate for outstanding real estate taxes, unpaid rent, and environmental remediation taxes. The trustee and the Creditor proposed to settle those claims and eventually settled on $18,000 for the Creditor’s claims after a significant change from her initial valuation of $144,000. By the time of the second settlement hearing, the trustee had paid the outstanding taxes with court approval, mooting part of the claims. The Creditor also withdrew her remaining unsecured claims without prejudice. The bankruptcy court held two hearings; applied the four factors from In re Martin, 91 F.3d 389 (3d Cir. 1996); and approved the settlement. The four factors are (1) the probability of success in litigation; (2) the likely difficulties in collection; (3) the complexity of the litigation involved and the expense, inconvenience, and delay necessarily attending it; and (4) the paramount interest of the creditors. In re RFE Indus., Inc., 283 F.3d 159, 165 (3d Cir. 2002). George Snyder, a U Lock managing partner, appealed pro se, and the district court affirmed. Snyder appealed to the U.S. Court of Appeals for the Third Circuit and sought review of the district court’s judgment.
The question before the Third Circuit in In re U Lock, Inc., was whether the bankruptcy court abused its discretion in approving the settlement under Rule 9019 and the Martin factors. No. 25-1177, 2025 WL 3776122 (3d Cir. Dec. 30, 2025). The Third Circuit affirmed, finding no abuse of discretion in approving the settlement or regarding any of Snyder’s arguments.
Snyder’s principal objection was that the settlement was legally unsupported because the Creditor had simultaneously claimed that the Debtor owed rent as a tenant and real estate taxes as if the Debtor were the property owner. The Third Circuit rejected this argument. Under Martin, a bankruptcy court is not required to resolve the settled claims or achieve perfection when evaluating a proposed settlement. Its task is to simply decide whether the settlement is “fair and equitable.” In re Nutraquest, Inc., 434 F.3d 639 (3d Cir. 2006). The bankruptcy court did so by acknowledging the inconsistency in the Creditor’s position but placing greater weight on the non-merits Martin factors. Further litigation would drain the limited remaining estate assets. The record showed that the parties were willing to litigate small-dollar disputes out of proportion to their value. Approving the settlement would preserve funds for eventual distribution to creditors, which the bankruptcy court regarded as “the most compelling thing here.” U Lock, 2025 WL 3776122, at *2.
The Third Circuit also rejected Snyder’s other objections as unsubstantiated. He contended that the bankruptcy court ignored the valuation history of the Creditor’s inflated valuations. The record showed, however, that the bankruptcy court had noted the “significant change” and placed “little weight” on the Creditor’s valuation, while still “appreciating the compromise” as a whole. Id. at *1.
The Third Circuit therefore found Snyder’s objections meritless and affirmed the district court’s judgment.
9019 Settlements: Prime Financial, Inc. v. Kattula (In re TAJ Graphics Enterprises, L.L.C.), 162 F.4th 791 (6th Cir. 2025)
By Le Tong, Columbia Law School
A Chapter 7 trustee has the authority to seek a settlement, subject to the approval of the bankruptcy court. Fed. R. Bankr. P. 9019(a). Where the estate’s assets are of uncertain ownership and the estate lacks funds to litigate, a negotiated settlement may serve that obligation better than pursuing disputed claims.
TAJ Graphics Enterprises, LLC, controlled by Robert Kattula, filed for Chapter 11 bankruptcy in 2009, which was its second filing after the 2004 filing. The case was converted to Chapter 7 in 2019. Prime Financial, Inc., an unsecured creditor with a claim over $1.2 million, objected. The estate’s primary disputed assets centered on a memorandum of understanding (“MOU”) governing Kattula’s interests in a Kentucky landfill operation, which TAJ claims had been assigned to the estate in a 2006 assignment. Kattula disputed the validity of the assignment and claims.
On July 12, 2022, the Chapter 7 trustee moved to approve a settlement under which Kattula would pay $50,000 into the estate and waive certain claims in exchange for taking ownership of the five disputed assets. The Internal Revenue Service (“IRS”), as a senior secured creditor with a claim of $436,154.68, supported the settlement. The IRS had separately negotiated with Kattula to recover his tax debts outside of bankruptcy, secured by interests in Kattula’s residence. Prime Financial objected, arguing that the trustee had undervalued the estate’s assets, ignored Prime Financial’s competing $100,000 offer to purchase the same assets, and failed to investigate potential assets. The bankruptcy court approved the settlement on six grounds. The district court affirmed. Prime Financial appealed to the U.S. Court of Appeals for the Sixth Circuit.
The question before the Sixth Circuit in Prime Financial, Inc. v. Kattula (In re TAJ Graphics Enterprises, L.L.C.) was whether the bankruptcy court abused its discretion in approving the settlement under Federal Rule of Bankruptcy Procedure 9019. 162 F.4th 791 (6th Cir. 2025). The Sixth Circuit affirmed, applying the four-part test from Bard v. Sicherman. In re Bard, 49 F. App’x 528, 530 (6th Cir. 2002). Under Bard, the Sixth Circuit considered (a) the probability of success in litigation; (b) the difficulties of collection; (c) the complexity, expense, and delay of litigation; and (d) the paramount interests of creditors.
After considering each factor, the Sixth Circuit found no abuse of discretion. As to the first factor, the court acknowledged that while Kattula had questionable credibility, his claim of ownership over the 2006 assignment properties had a chance of success, indicating that the estate’s ownership of the MOU was uncertain. For the second factor, the court pointed out that the trustee lacked the funds to litigate ownership of the disputed assets or to monetize any ownership interests. Prime Financial objected and offered to litigate on a contingency basis, which the court rejected in consideration of the difficulties and lack of resources. As to the third factor, the complexity and expense of litigation were not disputed. Prime Financial described the case as “a voluminous case with a 15-year history of contentious litigation.” TAJ Graphics Enters., 162 F.4th at 801. For the last factor, the interests of creditors, the IRS as the main secured creditor supported the settlement. Even if the estate successfully recovered the ownership of the MOU, it would have to net more than $436,154.68 before unsecured creditors could receive any distribution at all. Prime Financial’s offer of $100,000 fell far short of the IRS’s secured claim.
Further, the court rejected Prime Financial’s remaining objections. Prime Financial’s offer to purchase the estate’s assets was illusory because it was conditioned on the title that the trustee could not warrant. Its allegations against the trustee, Kattula, and the IRS were unfounded. The other objections were either moot or forfeited. The court reaffirmed that a bankruptcy court “need not hold a mini trial” every time it approves a settlement. William Hindelang & Glob. Online Certifications, Inc. v. Taunt (In re MQVP, Inc.), 477 F. App’x 310, 313 (6th Cir. 2012).
The Sixth Circuit found that there was no basis to conclude that the bankruptcy court abused its discretion in approving the settlement since each of the Bard factors supported the bankruptcy court’s decision.
Proof of Claims: Duarte v. Hillard (In re Hillard), No. 24-5156, 2025 WL 2986474 (9th Cir. Oct. 23, 2025)
By Le Tong, Columbia Law School
Under Federal Rule of Bankruptcy Procedure 3002, an unsecured creditor must file a timely proof of claim for that claim to be allowed. Federal Rule of Bankruptcy Procedure 3004 provides a safety net, permitting a debtor or trustee to file a proof of claim on a creditor’s behalf, but only where the creditor has itself demonstrated some intent to enforce the claim before the bar date.
On August 19, 2022, Jenna Denise Hillard filed a Chapter 13 petition, listing Jerry Duarte as an unsecured creditor owed $87,068.89. The bar date was October 28, 2022, and Duarte did not file a claim by that date. On October 31, 2022, Duarte submitted a proof of claim for $114,320. On November 5, 2022, Hillard amended the schedules to reflect the adjusted amount. On January 4, 2023, Hillard objected to Duarte’s claim as untimely. Duarte responded by arguing that Hillard had filed an “informal claim” on his behalf by filing the amended schedule and plan. The bankruptcy court sustained the objection, and the district court affirmed. In re Hillard, No. 23-CV-01461, 2024 WL 3416259, at *1 (N.D. Cal. July 15, 2024). Duarte appealed to the Ninth Circuit.
The question before the Ninth Circuit in Duarte v. Hillard (In re Hillard) was whether a debtor’s post-deadline amendments to her schedule and Chapter 13 plan could constitute an informal proof of claim filed on a creditor’s behalf, thereby preserving an otherwise untimely claim. No. 24-5156, 2025 WL 2986474 (9th Cir. Oct. 23, 2025). Both the district court and the Ninth Circuit held that they could not.
The informal claim doctrine requires that a creditor affirmatively act before the bar date to evidence his intent to hold a debtor liable. See In re Franciscan Vineyards, Inc., 597 F.2d 181, 182–83 (9th Cir. 1979). The doctrine is premised on “liberality in amendments,” which means that a timely informal proof of claim may be amended by the filing of a formal proof of claim after the bar date. Franciscan Vineyards, 597 F.2d at 182 (quoting In re Patterson-MacDonald Shipbuilding Co., 293 F. 190, 191 (9th Cir. 1923)). Duarte took no affirmative step before the bar date; therefore, there was nothing to amend.
The district court relied on In re Barker, 839 F.3d 1189 (9th Cir. 2016), which held that a debtor’s schedules do not constitute an informal proof of claim because “bankruptcy schedules serve multiple purposes independent of a proof of claim” and “do not demonstrate the [creditor’s] intent to hold [the debtor] liable.” Hillard, 2024 WL 3416259, at *3 (citing Barker, 839 F.3d at 1195). For the same reason, Hillard’s amended plan did not constitute an informal proof of claim. The plans stated that no claim would be paid unless a proof of claim had been filed by or on behalf of a creditor, which showed that Hillard did not intend to make herself liable. On the contrary, the plan required a proof of claim before any payment could be made.
The Ninth Circuit affirmed in a brief memorandum, supporting each of the district court’s conclusions. Combining Duarte’s inaction and Hillard’s language in the plan conditioning payment on the filing of a claim, the Ninth Circuit held that there was no proof of claim.
Vexatious Litigation: Hayden v. Cashion (In re Cashion Family Trust), 676 B.R. 193 (B.A.P. 9th Cir. 2025)
By Le Tong, Columbia Law School
A vexatious litigant order is a prefiling restriction that requires a party to seek the court’s leave before initiating further proceedings. It is an extreme remedy reserved for those who have demonstrated a pattern of frivolous or harassing litigation that burdens the court and opposing parties alike.
This dispute traces back to a power of attorney executed by the ninety-six-year-old William Cashion designating his nephew, Steven Mark Hayden, as his agent. In 2011, Hayden secretly created two Nevada trusts, including the Cashion Family Trust, and transferred Cashion’s assets, including the Alabama Steel corporation, to the Nevada trusts without Cashion’s knowledge or consent. After Cashion discovered Hayden’s scheme, he immediately revoked Hayden’s power of attorney and obtained a temporary restraining order against Hayden.
In 2013, the Alabama State Court entered a judgment (“2013 Judgment”) awarding damages to Cashion and Alabama Steel (together, the “Alabama Parties”) and permanently enjoining Hayden from taking action with respect to Cashion’s assets or interests, interfering with Alabama Steel’s operations, or asserting that Cashion’s assets were owned or controlled by Hayden or the Nevada trusts. The 2013 Judgment also declared Hayden’s acts under the 2007 power of attorney, including the creation of the Nevada trusts, void ab initio, and ordered him to return Alabama Steel’s property. After the Alabama Supreme Court affirmed the 2013 Judgment, the Alabama State Court entered a second injunction in 2017 imposing a $150 daily fine until Hayden purged his contempt.
In 2019, Hayden formed a copycat corporation with the name “Western Steel, Inc.” in Wyoming and registered it in Nevada. In 2021, the Nevada State Court declared Hayden a vexatious litigant, and the Alabama State Court held Hayden in contempt of the earlier orders, found that his creation of the imposter corporation was a willful contempt of the 2013 Judgment, ordered him to dissolve Nevada Steel, and entered a judgment against him for $203,400. In October 2022, Hayden filed a Chapter 13 case in the District of Nevada. In February 2023, he filed an involuntary Chapter 11 petition against Nevada Steel, which was converted to Chapter 7. In April 2023, the Alabama State Court held Hayden in criminal contempt and ordered his incarceration for failure to comply with prior orders and the 2013 Judgment. Hayden’s total fines had accrued to over $1 million as of April 14, 2023, and continued to accrue at the rate of $300 per day. Hayden did not appear at the contempt hearing.
In August 2023, Hayden filed a second involuntary bankruptcy petition against the Cashion Family Trust under Chapter 7 in Nevada. He filed an adversary complaint against the Alabama Parties in the Nevada Steel bankruptcy case, which the bankruptcy court surmised as his “continued effort to conflate the two steel entities . . . without any basis in fact or law.” Hayden v. Cashion (In re Cashion Fam. Tr.), 676 B.R. 193, 204 (B.A.P. 9th Cir. 2025). His continued filings of the complaint as plaintiff, as well as of the consent notice as the defendant Alabama Steel, appeared to serve the purpose of harassing the Alabama Parties and avoiding various Alabama judgments.
In 2024, after the bankruptcy court entered orders setting evidentiary hearings on sanctions against Hayden, the Alabama Parties filed their vexatious litigant motions. The court granted the vexatious litigant motions after Hayden failed to appear at the evidentiary hearings and alleged in his opposition repetitive claims that had been rejected in previous orders. Hayden appealed.
The question presented to the Bankruptcy Appellate Panel of the Ninth Circuit in Hayden v. Cashion (In re Cashion Family Trust) was whether the bankruptcy court abused its discretion when it entered the vexatious litigant orders. 676 B.R. 193 (B.A.P. 9th Cir. 2025). Before imposing prefiling restrictions against a vexatious litigant, the court must:
(1) give litigants notice and an opportunity to oppose the order before it is entered; (2) compile an adequate record for appellate review, including a listing of all the cases and motions that led the district court to conclude that a vexatious litigant order was needed; (3) make substantive findings of frivolousness or harassment; and (4) tailor the order narrowly so as to closely fit the specific vice encountered.
Koshkalda v. Epson Am., Inc. (In re Koshkalda), 622 B.R. 749, 758 (B.A.P. 9th Cir. 2020) (quoting Ringgold-Lockhart v. Cnty. of L.A., 761 F.3d 1057, 1062 (9th Cir. 2014)).
On the merits, the Bankruptcy Appellate Panel found no abuse of discretion under any of the four required factors. First, Hayden had ample notice and opportunity to oppose the entry of the vexatious litigant orders but chose not to appear at the hearings. Second, the Bankruptcy Appellate Panel held that the bankruptcy court compiled a thorough record of decade-long litigation across multiple jurisdictions, including the filing of three cases and an adversary proceeding within ten months. Third, Hayden’s consistent pattern of filing meritless proceedings only to dismiss them when faced with potential sanctions, ongoing use of dissolved and void entities, and open defiance of final judgments affirmed by the highest courts in Alabama supported the panel’s findings of frivolousness and harassment. Finally, the vexatious litigant orders were narrowly tailored. They did not bar Hayden from the bankruptcy court entirely, but only required a prefiling declaration attesting that the proposed filing raised no previously decided issues, was not made in bad faith or for purposes of harassment, and was supported by a reasonable factual investigation. The orders expressly exempted notices of appeal in existing proceedings and imposed no merits screening.
After concluding that Hayden “apparently cannot accept the 2013 Judgment, affirmed by the highest court in Alabama, and has pursued a scorched earth campaign to attack and avoid it,” the Bankruptcy Appellate Panel affirmed the bankruptcy court’s order. Cashion Fam. Tr., 676 B.R. at 213.
Plan Confirmation and Permissible Open Market Purchases: ConvergeOne Holdings, Inc. v. Ad Hoc Group of Excluded Lenders (In re ConvergeOne Holdings, Inc.), No. 24-CV-02001, 2025 WL 4700341 (S.D. Tex. Sept. 25, 2025)
By Le Tong, Columbia Law School
Section 1123(a)(4) of the Bankruptcy Code requires that “a plan shall provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to a less favorable treatment of such particular claim or interest.” 11 U.S.C. § 1123(a)(4). This provision reflects a foundational principle of plan confirmation: similarly situated creditors must be treated equally.
On April 3, 2024, ConvergeOne Holdings, Inc. (“Debtors”), an information technology company, filed a Chapter 11 petition in the U.S. District Court for the Southern District of Texas. Before filing, ConvergeOne had spent months negotiating a restructuring support agreement (“RSA”) with approximately 81 percent of its first and second lien lenders (“Majority Lenders”), while excluding the remaining lenders (“Minority Lenders”) from the negotiations. The RSA provided an equity rights offering that raised $245 million at a 35 percent discount to the stipulated equity value of the Debtors under the bankruptcy plan (“Plan”). Certain Majority Lenders agreed to backstop the Plan in exchange for a 10 percent premium on their claims through discounted equity purchases offered exclusively to the backstopping lenders. The provision allowed the backstopping lenders to receive approximately 30 percent higher recoveries on their claims than those available to the Minority Lenders. The Minority Lenders were not given any opportunity to participate in negotiations or discussions leading to the RSA and the Plan.
After the Plan was filed, the Minority Lenders objected and offered two alternatives, both of which were rejected. The bankruptcy court confirmed the Plan after finding the backstop necessary and reasonable. It rejected the Minority Lenders’ § 1123(a)(4) objection, reasoning that the additional recoveries compensated the backstopping lenders for additional financial obligations rather than providing unequal treatment within the same class. The Minority Lenders appealed.
The question before the district court in ConvergeOne Holdings, Inc. v. Ad Hoc Group of Excluded Lenders (In re ConvergeOne Holdings, Inc.) was whether the exclusion of the Minority Lenders from the backstopping opportunity constituted unequal treatment in violation of 11 U.S.C. § 1123(a)(4). No. 24-CV-02001, 2025 WL 4700341 (S.D. Tex. Sept. 25, 2025). The court reversed the bankruptcy court’s confirmation order and remanded for further proceedings.
The court relied on two decisions: Bank of America National Trust & Savings Ass’n v. 203 N. LaSalle St. Partnership, 526 U.S. 434 (1999), and In re Serta Simmons Bedding, L.L.C., 125 F.4th 555 (5th Cir. 2024). In LaSalle, the Supreme Court denied a reorganization plan that gave pre-bankruptcy equity holders the exclusive opportunity to invest new money for ownership interests in the reorganized debtor without attempting market testing or charging anything for the opportunity. 526 U.S. at 458. Although LaSalle addressed the absolute priority rule under § 1129(b), rather than § 1123(a)(4), the district court found the reasoning instructive because of the structural similarities between the two provisions and their common purpose of preventing insiders from using the reorganization plan to gain an unfair advantage. Id. at 437. In In re Serta Simmons Bedding, the U.S. Court of Appeals for the Fifth Circuit addressed § 1123(a)(4) for the first time, holding that equal treatment required both equality of opportunity and approximate equality of value. 125 F.4th at 592.
Applying these principles, the district court found that the Plan violated § 1123(a)(4) on two independent grounds: the backstopping opportunity was exclusive and not market-tested, and the resulting treatment was unequal in both opportunity and value.
First, the opportunity was finalized before the bankruptcy case was ever filed, and the Minority Lenders were never given an opportunity to participate. This plan is distinguishable from Peabody, where the U.S. Court of Appeals for the Eighth Circuit approved the plan because every creditor had the opportunity to participate and the opportunities were supported by consideration. In re Peabody Energy Corp., 933 F.3d 918 (8th Cir. 2019). In ConvergeOne, by contrast, the participating Majority Lenders provided consideration for their backstop commitments, but they paid no separate consideration for the exclusive opportunity to participate in the backstop itself, and no creditor outside the Majority Lenders was permitted to compete for that opportunity. The Majority Lenders contended that the Minority Lenders were given the opportunity to propose an alternative plan after the Debtors filed, but the court regarded such opportunity “illusory.” ConvergeOne Holdings, 2025 WL 4700341, at *8. Because the proposed Plan already had the approval of enough creditors to be confirmed, the Minority Lenders had to convince a supermajority of creditors to take less money and to risk the confirmable Plan. The court also found that no market test occurred here. Relying on In re Castleton Plaza, LP, 707 F.3d 821 (7th Cir. 2013), the court held that a genuine market test requires competitive bidding, not merely the illusory opportunity to propose a competing plan after the deal is already done. Nor did the Debtors expose the investment opportunity to competitive bidding or any comparable market process.
Second, the disparate recovery here was unequal both in opportunity and result. The court viewed ConvergeOne as even more straightforward than Serta. In Serta, all class members received the same indemnity on the face of the plan, but its value depended on prior participation in an uptier exchange transaction. In ConvergeOne, by contrast, the opportunity to participate in the backstop was offered only to selected creditors, with no separate consideration paid for that exclusive opportunity. The fact that the exclusive arrangement was negotiated before the petition date did not avoid § 1123(a)(4) because prepackaged plans must still comply with the equal-treatment requirement. In re Combustion Eng’g, Inc., 391 F.3d 190, 239 (3d Cir. 2004). LaSalle forecloses the argument that a debtor may reserve an exclusive investment opportunity for selected stakeholders merely because those stakeholders later provide consideration in connection with the investment. The relevant question here is whether the selected stakeholders provide value for the exclusive opportunity itself. The court held that the Debtors had to show consideration for the exclusive opportunity, and no such consideration existed here. The preplanned arrangement constituted unequal treatment here.
In conclusion, the court held that the exclusive, non-market-tested opportunity to participate in the backstop and purchase discounted equity resulted in significantly higher recoveries for selected members of the same class, thereby violating § 1123(a)(4). The court therefore reversed the confirmation order in part and remanded.
