American court hearing recordings and interviews - Del Monte Foods - August 18 2025 bankruptcy hearing (District of New Jersey, USA)

Episode Date: August 19, 2025

The bankruptcy court presiding over the chapter 11 bankruptcy proceedings of Del Monte held a second hearing on August 18. This is the official court audio recording of the August 18 hearing.The audio is docketed with the bankruptcy court as docket number 407, and is publicly available information. For this and other filings docketed with the bankruptcy court, see https://cases.stretto.com/delmontefoods/

Okay, good morning, everyone. This is Judge Kaplan. We will be hearing the Del Monte Food Corporation motions, motions of Pacific Coast producers and mornings for packing. Let me get those an opportunity to adjust their screens. Good morning, Judge. Nottson Hammerman from Herbert Smith-Freehels Kramer for the debtors. Good morning. Other appearances for movements? Good morning. Your Honor, Scott. I'm sorry.

Good morning, Your Honor. Voyich, Gion, from the law of Wampo Ban Dickinson for Pacific Coast producers. With me on the line is Tom Willoughby from the law firm of Ferguson for Gerald Wilby, Paskuzzi, and Rios. All right, good morning, folks. Good morning, Your Honor. Scott Zuber, Keiza Shahini, and John Tomasi on behalf of Co-Movement, the Morning Star Packing Company, LP, and Morning Star King's, LLC. Also, my colleague, Terry Friedman, is on the line as well. All right. Good morning. Good morning, Your Honor. And we have for the committee.

Good morning, Your Honor. Kristen Elliott of Kelly, Dry and Warren, proposed co-counsel for the official committee of unsecured creditors with me in the virtual courtroom or several attorneys from the Morrison and Foster law firm. In particular is Ms. Miranda Russell, whose pro-Hafichi application we filed on Friday, Ms. Russell is prepared to address today's motion on behalf of the committee, and we would respectfully request that, Your Honor, allow her to appear and address the court in connection with the motion while that application is pending.

Absolutely. Welcome to New Jersey, Ms. Russell. Thank you. Good morning, Your Honor. Thank you. All right. Any other appearances? Needless to say, as a remote hearing,

throughout the course of the proceeding. If you wish to be heard, if counsel wishes to be heard, please use the raise hand function if I haven't already called upon you. I have had the opportunity to re-through all the briefing and the declarations. I will first turn to the co-movements. I don't know if you've decided among yourselves who you, who wishes to lead off? Yes, Your Honor.

Mr. Wojek-Young is going to lead off on some of the preliminary arguments, and then to the extent the court will allow, I would follow up with some specific discussions regarding the environmental issues, D-365D3 issues, as well as the integration, severability of the two contracts. Thank you. All right, thank you. Mr. Young, good morning.

Good morning, Your Honor. Just as a preliminary matter, we have made certain agreements, Your Honor, with our friends on the other side with respect to the admissibility of the three declarations that have been submitted in support and in opposition to the motion. We do not believe that cross-examination or other evidentiary hearing is necessary, but of course to the extent. the court believes otherwise, we would reserve the right to have that hearing at the appropriate time. As Mr. Zuber, you know, the reference, I will address primarily the issues surrounding the product supply agreement, which in a movement's view raises the more urgent situation in terms of timing. As we set forth in the papers, Iran, the parties are subject to a product supply agreement executed in January of this year. That was based as a result of the debtor's decision to exit the tomato production business and enter into a co-packing agreement with our clients. Iran, it probably cannot be understressed that the timing is of this case, of this situation,

makes this matter drastically different and more urgent that Iran perhaps has seen in most motions under Section 365D2. That is because the tomato packing season of 2025 has started. at the beginning of July, so just a little bit over a month ago, and it is scheduled to conclude at the very beginning of October. Pursuant to the Porte's agreement, Your Honor, our clients are producing the entire volume of inventory for the debtor. That inventory usually lasts between a year and 18 months. That inventory would be produced in total by October. And to do so, PCP and the morning store party to the supply agreement are required to expand

significant amount of resources to produce that inventory. We set forth in a paper, zero, that includes over $20 million of expenses to produce product, which obviously they are happy to do, but giving what the debtors are, there is no assurance whatsoever at the moment that that product will be needed for the estate and what even if the debtors end up purchasing the products pursuant to the ordinary timeline it is doubtful and unclear certainly that the debtors will have the necessary resources to pay for the product you rather to make the merits even more difficult about 30% 38% of the product that

my client is producing is a product that is custom-made with special Del Monte recipe. That product is likely difficult or perhaps impossible to sell outside of this context, outside of this relationship. And, Your Honor, we are not talking about a few cans of custom products. We are talking about 400,000 cases of custom-made products, in addition to the hundreds of thousands of the more generic type product the PCP and Morning Store are producing for the debtors. So, Your Honor, we have made the motion requesting that the debtor make a decision,

admittedly, rather early on in the case, whether or not to assume and assigned or for now assume the product supply agreement, Mr. Zuma will address related issues that we from the release because the agreement, the lease agreement and the product supply agreement were entered and were conditioned upon, everyone was conditioned upon the other when the parties signed both agreements back in January. In reply, the debtors offer what I would call primarily generic arguments in response, one of which is, well, it's only on the case and they need a more. greedy room to decide what to do with that contract.

If that argument carried the debate, there would be no need for relief under Section 365D of the code because the normal response would be, of course, the debtor needs more time, it's only two months, give them six months. Perhaps in an ordinary case, like an Enron and others cited in the debtors' papers, where courts have given eight months, for example, to the side, In those cases, that was probably reasonable because those cases lasted many years. This case would be over your honor by end of November with the sale of the assets that the debtors contemplate entering into is likely to conclude in November.

So we don't have three, four, five, six, seven months here for the debtors to make a decision on this contract. The timing is really imminent. A $20 million of out-of-pocket expense, Your Honor, is a large sum for our client. My client, PCP, is a California co-op. Its members are local farmers. They don't have the luxury, Your Honor, of being $20 million plus out-of-pocket just to perhaps increase the chance for the debtors and other creditors to put. potentially realize some benefit from these contracts if they end up being assumed as part of the cell process.

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Find an agent at CINFIN.com. The debtors have been in default under the supply agreement for months prior to the petition date. We set forth in our papers that one of the requirements under the agreement to provide some level of protection for the suppliers, was for demanded to provide a $4 billion letter of credit. Despite many requests prior to the petition date, and even after the petition date, that LC was not issued compliance with the agreement.

About a week or two ago, in matter, an LC was issued, and we have agreed to it to move the process forward, but then LC, issued remains non-compliant with the product supply agreement and that is for primarily one major reason the supply agreement is a five-year agreement that goes through the 2030 tomato production season the LC that was issued your honor goes only to March 25 of next year so this LC is a six month long LC and why do I say that that provides rather little protection for the movements? Well, products is not expected to be shipped at least in initial phases more likely

until September or October. The agreement provides for payment terms 20 to 30 days depending on the situation. So your honor we are looking at the earliest payment by the debtors of the earliest possible interest. invoice to come likely end of October or more likely in November. By that time, the salary of asset would have closed. The initial invoices arguably would be paid pursuant to the debt budget. The debt budget, Your Honor, the outside date is March of next year. And we are told that that was the reason why the debtors wanted to limit the LC to March

of 2026. But what happens to the board of the product that remains with the movements, post-production, which again will conclude in October, so just in a month and a half from now, what happens to that product after March of next year? Will the debtors order the product to wind it down or to sell it off, pursuant to the wind down? Your Honor, that's what that debtors speculate they perhaps could do, but they do not commit of doing it.

They do not commit to segregate any of the financing money to ensure that the $20 plus million of costs that the movements are incurring solely for the debtors benefit, that that money will be escrowed and secured for the movements at the end of the day. So in essence, what the debtors are asking is for the movements. two entity to shelter the burden of the debtor's entire tomato inventory only for the debtors to have the optionality of tell the prospective bidders that they have access to five years' worth of tomato inventory, perhaps more, but at the same time the debtors are not committing to pay for that. you're under one of the potential resolutions which we believe is viable is to offer the movements an administrative claim not for the entire five years of the production because we understand

the debtors would be hard-pressed to do that at the moment but it should be an easy solution for the debtors to agree and agree now that the movement should have an allowed administrative claim Only for the 2025 tomato pack season. That should provide the movements with comfort, that there will be sufficient money in the case, assuming again that the state is not administrative insolvent. At the same time, provide the debtors with the security and the benefit in discussions with their prospective buyers,

in discussions with their existing customers, that they, in fact, will have, sufficient inventory on hand. So, Your Honor, at the end of the day, 365D2 calls for a balancing test that Your Honor must entertain here. The balance of harms should be spread equally under the current proposal without the relief

that the movements seek, it is the movements that are scheduled to bear the entire burden. Your Honor, we respectfully state that that is simply not fair under the current facts and circumstances. With respect to our relief, Your Honor, requests for state relief, Your Honor, we asked for that because the state, because the agreement itself contains deadlines applicable to both sides that provide for termination of the agreement in situations

where costs is required, and there are situations where no cost is required. One of the deadline that is coming up is a deadline of October 31st of this year that enables 140 to send a termination of this, not for an imminent termination, but to terminate the agreement at the end of the initial five-year period. So that's part of the relief that we have also requested. If the movements wanted to, and they have not,

and they have not yet made the decision to do so, they could send a termination of this in accordance with the agreement. So, Your Honor, I know I said a lot. I would pause to see if Your Honor has any questions, and if not, I would turn it over to Mr. Zuber to address the least issue that does not involve BCB. All right, thank you, Mr. Yombe. Good morning.

Let me hear it. Good morning, Your Honor. Thank you. So, Your Honor, I wanted to address two issues. The first being the so-called integration or severability issue, as the movements have set forth in particular Morning Star, because PCP is not a party to the lease-back agreement. We've taken the position that the supply agreement and the lease-back agreement are, in fact, integrated-related agreements such that they need to be assumed or rejected together. They can't be separated, so the debtor can't assume, and, you know, the debtor can't assume, take the benefits of the supply agreement without also assuming and taking the benefits or burdens, as they may be, of the lease back agreement. The debtors have taken the position, and by way of joining the committee and the lenders, have all taken the position that that issue is premature, that, you know, nobody has yet asked the court to allow the assumption or rejection of one agreement,

but not compel the assumption or rejection of the other integrated agreement. So to the extent the court is inclined to deferred decision on that, we would just request a couple things. One, we would like to tee that issue up for an evidentiary hearing sufficiently in advance of the October 31st deadline by which either party, again, with or without cause, could seek to terminate the supply agreement in accordance with its terms. So one thing that I saw in the response papers is the debtors say they intend to be finished with the plant by September 28th. They don't say whether they intend to reject that agreement, but it would seem logical that if they have no further use for the plant by September 28th,

that perhaps a way to move forward with this integration issue is for the debtors to file their notice or proposed rejection of the lease agreement, at which point we could say if we chose that they could only do so if they also seek to reject the supply agreement, and we can have an of an injury hearing on that issue because depending upon how your honor were to rule on that issue may determine how at least Morningstar would like to proceed with respect to termination or not terminating the supply agreement. So we would prefer not to argue the substance of the integration points today, particularly because, you know, the other parties have taken the position that it's not before the court and didn't address the merits. We would certainly, if the court

is not inclined to grant the motion today, request that that issue be deferred for another day. But, again, we would really need to have an evidentiary hearing, if Your Honor, would accommodate that. And again, I think the mechanism potentially could be, you know, a notice of proposed rejection as of September 28th. And then we could adjudicate whether the debtors would be permitted to reject the lease agreement, but not reject the supply agreement as well. Again, we believe that, you know, these agreements are integrated, that they need to be assumed or rejected completely together, not piecemeal. You can't cherry pick. But again, we would reserve all substantive legal arguments on that integration issue.

Again, we believe it should be an evidentiary hearing where, Your Honor, could listen to the parties, discuss, you know, how those agreements. You've finally broken loose from work. Three friends, one tea time, and then the text. Honey, there's water in the basement. Not exactly how you pictured your Saturday. That's when you call us, Cincinnati Insurance. We always answer the call because real protection means showing up, even when things are in the rough. Cincinnati Insurance, let us make your bad day better.

Find an agent at CINFIN.com. It came into being what the intent of the parties were and whether and to what extent those agreements are integrated and should be dealt with as one agreement. So that's our position on the integration severability issue, Your Honor. And if Your Honor has questions, I'd be happy to address them. Otherwise, I can move on to my other small issue. No, thank you. I understand it. Please move on.

Okay. Your Honor, the other issue that we raised, for lack of a better description, I'll call it the 365D3 issue, I would recognize that, you know, the motion of compel did not directly request that the debtor comply with Section 365D3. But in the initial Sherwood Declaration, certain environmental issues and concerns were raised. The parties have engaged in a number of discussions about these environmental concerns. We've gone back and forth, and, you know, we really have unfortunately not been able to come to an agreement,

but we would respectfully submit to Your Honor that the consideration of the D3 and post-petition compliance is of sufficient importance from the health and safety consideration that Your Honor should consider that today. Again, I don't want to really rehash all the specific arguments we made. Those are set forth in the two declarations, but big picture, you know, we believe that the plant is not being operated with a safe and properly functioning water system, that there is necessary testing for things like lead and copper and aluminum that are required to be done, which haven't been done. And if they have been done, we have not seen the results. The debtors have taken a position that much of this is pre-petition.

They've also taken the position that, you know, my client bought this property back in an as-is condition. But we, as we said in the papers, we believe that these are ongoing post-petition compliance obligations. Delmonte needs to comply with applicable environmental laws. They need to make sure that the water system is safe and operating properly. With all due respect to the debtors, having bottled water on site is not a substitute for a properly functioning and safe water system. As indicated by Mr. Sherwood in his supplemental declaration, there are these flushes going on. There are 30,000 gallons of water being flushed out to agricultural land.

We don't know if that water is clean. We don't know if it's contaminated. The debtors have not done the sampling and the testing. And again, if they have, we have not seen the results. They're supposed to do bacteria testing. They're supposed to be testing for heavy metals. These are real and significant environmental concerns. So to the extent that the court is inclined, we would like the debtor to be directed to comply.

They've indicated they will, they're aware of their obligations under D3, that they intend to comply. The question is, what are those obligations and how do they comply? But, again, I think these are health and safety considerations. They're discharging water. They're not testing. We don't have a properly functioning water system. and we believe that all of those are ongoing post-petition obligations that the debtor must address under Section 365D3. All right.

Thank you, Mr. Zuber. At this point, I don't have questions. I may turn to both of you after further argument. Let me hear from counsel for the debtor first. Thank you. Thank you, Judge. Good morning, Your Honor, Natan Hammerman from H.S.F. Kramer, on behalf of the debtors. Can you hear me okay?

Yes, I can. Thank you. Wonderful, thank you. We have the feeling here that as much as Morningstar and PCP would like to focus on other items, the real motion before the court is a motion to compel the debtors to assume or reject these contracts. And that was made mere weeks after the petition date and is being heard now less than two months into this highly complex bankruptcy. The motion is frankly unprecedented in its case. pace and it should be denied as unwarranted. At the outset, Your Honor, we'd like to note that movements have failed to produce a single case supporting their motion on an expedited timeline such

as this one. And this is true for any of the forms of relief that they're asking for, accelerating the assumption deadline, lifting the stay under 362, or request for adequate protection insofar as one was actually made. Your Honor's read the papers. I don't need to go through everything, but obviously the Section 365 provides us 120 days to assume or reject non-residential leases and until confirmation for other executory contracts, efforts to accelerate the schedule are routinely denied. We cited numerous cases on this on page 11, paragraph 21 of our objection. And even in the rare cases where a motion to compel is granted, it's usually far later in a case and giving a debtor far more time than here,

and that was paragraph 22 of our objection. We think the move-ins, we know the movements, bear the burden here. We think they've utterly failed. The most important consideration, according to the case law, is that the court should consider motions to compel in the debtor's time,

consistent with the broad purpose of Chapter 11, which is to permit the successful rehabilitation of the debtors. interests of creditors collectively and the bankrupt estate as a whole do not yield to the convenience or advantage of one creditor out of many. That's the physician health case that we cited on page 16 of our objection. Here, the debtors are rightfully focused on rehabilitating their business through a going concern sale process to benefit and maximize value for all stakeholders, all stake hurts. stakeholders deserve a sale process, where the bidders will bid as much as possible. And to achieve that, the debtors want optionality. They don't want the court to predetermine that they must assume or reject a particular contract

because of the interests of one set of movements. That would put the interests of that one set of movements ahead of the interests of the estate as a whole. Instead, the debtors should be able to decide with the involvement of the eventual buyers, or the debtors should be able to decide based on their view of what's in the interests of all stakeholders, not just one. And I would note, Your Honor, that the intelligent case, which we cited, 268 bankruptcy reporter 723, actually says, we're going to give time to assume or reject because of a sale process that's ongoing. Move-ins don't really have any answer to this. Their focus is on themselves alone. At best, they pay some lip service to the idea that the supply agreement is valid.

to the estate because it supposedly has below market pricing, which in our view actually militates against them because it means the harm that would befall them as a result of delayed rejection would be unlikely to materialize. I won't run through all of the factors, Your Honor. Those are in our papers. I'm going to focus for a moment on the balance of the harms here, which is I think where the main play is. The harm to the debtors and by extension all stakeholders is that this Chapter 11 proceeding may unravel. And I'll start again with the sale process. It's self-evident to us that in the midst of the sale process,

movements should not be able to force the debtors to decide prematurely whether to continue these contracts, one of which has a five-year term plus extensions. Making the wrong decision could be costly and reduce the debtor's eventual sale price. And the detriment would be far in excess of the alleged good to be achieved by one individual supplier, especially one who continues to receive post-petition performance.

There's not an alleged non-payment of any kind and is not nearly as at risk as it contends, which I'll get to in a moment. The harm to the estate is multiplied by the complexity of the case. There's over a billion in assets and liabilities, over a thousand claimants, and we should be allowed to figure out what to do with this large number of contracts on our pace.

many of the debtors contracts work exactly like the supply agreement here. And if PCP and Morningstar get to jump the line with premature relief, other vendors will try to do the same, throwing these cases into disarray. Even if those other motions are denied, the distraction on the business during the critical PAC season would be harmful. Now, the harm to PCP and Morningstar, on the other hand, is, in our view, speculative and effectively, minimized. As to the lease, I'll start there. Morningstall actually failed to identify any harm by

letting the debtors decide on assumption or rejection on the ordinary schedule. I'll come back to the 365D3 stuff in a moment. That's actually not before the court, but they've not identified any reason to accelerate the assumption or rejection deadline, any harm to them on that account. For the supply agreement, there's actually multiple reasons to conclude that the harm asserted by PCP is overstated. First, They might have had an argument if they didn't have the letter of credit, but they do. That's what they bargained for, and that should be the end of the matter. Your Honor, we heard today the argument that the letter of credit doesn't somehow comply with the requirements of the product supply agreement.

That's not accurate. Product supply agreement section 3.1, which Your Honor has, does not provide any requirement, it's subparagraph one of that section does not provide any requirement that the letter of credit be of five-year duration. Letters of credit are not usually a five-year duration. So that would not work.

That was not a requirement here. There's no non-compliance. They have the letter of credit. That is the protection they bargain for. And the bargain for that protection, knowing all of the things that they came before you with today, that they would incur massive costs at the beginning of the season, according to them,

knowing that they weren't going to be paid for some time thereafter. Notwithstanding that, the only protection they bargained for in the product supply agreement was this $4 million letter of credit. And that's what they have. So in our view, that should be the beginning and end. They have the protection they're entitled to under the product supply agreement. But that's not the only reason the harm that they're concerned about is overstated.

We now also have, Your Honor, the dip facility, which has been finalized, $165 million of new money. And that was obtained for the express purpose of paying for the budgeted costs of the 2025 pack season, which includes tomato products. That's exactly the reason we borrowed the money. That's what it's there for. So, Your Honor, what else did this debtor say about the LC and the dip? They say that it's going to expire in March, and movements might sell their products later than that. But the sale will be in November, and by that time, they'll know for sure the state of their contract. So the idea that the termination in March of the LC or the dip, of the dip, that's not a justification for accelerating anything here.

Third mitigation issue, Your Honor. The sale process contemplates a going concern sale, and the debtors have a stocking horse bid here for a going concern sale, which includes the tomato business. Fourth, by Moven's own estimation, their hypothesized harm, namely that no one buys their tomatoes, is unlikely to occur. Move-ins repeatedly expressed that the supply agreement is exceedingly valuable and how foolish it would be for anybody not to assume it. If movements believe what they themselves say, an assumption is either very likely or someone will want to buy their tomatoes on Windown. Fifth, the majority of the tomatoes are common formula, what was called generic. They can be resold. This reduces movement's economic exposure.

The limited exposure on the proprietary blends, which only PCP is preparing, not Morningstar, can be sold on Winddown if the debtor's eventual purchase or doesn't buy the tomato. business. PCP responds to that by arguing, well, maybe the debtors will no longer have employees and won't be able to sell the products on wind down. This is kind of confusing. There'll still be a wind down after the sale. If the tomato business is not in the sale, the wind down entity could definitely still sell the products.

And again, more importantly, this is not an issue for today, two months into the case. There's nothing that prevents PC. and Morningstar from bringing this motion again if the eventual buyers don't buy the tomato business, if the wind down doesn't cover the products, you know, in that circumstance, they could come back, which would be, you know, a more normal time frame in which to bring a motion like this. By then, everything that has been ordered and delivered will have been paid for, and the exposure will be far more limited. I want to make clear a few other points about what the movements have said and didn't say in reply and an argument today. There's very limited attempt to balance any of the other factors that courts consider, only the balance of the harm.

They don't deny exclusivity as ended. They don't deny that this motion is inconsistent with the congressional mandated scheme of Chapter 11. they don't deny that the motion would be contrary to Chapter 11's purpose. They concede there are no cases in their favor. They fail to find any precedent that supports their request, and they don't even make any attempt to distinguish the cases we cited in our response. They nevertheless say, this case, Your Honor, this is the one. Why do they say that?

Because they say they're incurring costs now, and they're going to be paid later. That's no different than any other vendor in this case. and that's no different than many other vendors in cases that were already cited. In Enron, for example, which was cited, the pardon moving to compel assumption or rejection contended that it would incur millions of dollars to expand the gas pipeline that it might not ever get repaid, and that that sum might not be necessary if there was an assumption of rejection more quickly. The court did not find that compelling. It said the debtor is entitled to run its bankruptcy.

In the Mayor Pollock Steel Corp case, which we cited, the party seeking early assumption or rejected, a rejection noted that it had to process and ship scrap metal at costs before it ever got paid. And the court denied the motion there too. And it spoke very tellingly. It said a creditor would be paid less than the full amount owed to it was no reason to accelerate a decision. It's no answer, said the court, to argue as the move. did there, that it is a creditor among many others which will probably be paid less than the full amount owed to it under the terms of any reorganizational plan of the debtor. In other words, the idea that a vendor might come out of pocket and might not get fully

repaid is not enough. And if anything, Your Honor, for the reasons I said already, movements are less sympathetic than most others here. The exposure they complain about, the costs that they have to come out of pocket, that's something they knew about when they entered into this agreement. And what did they bargain for? A $4 million letter of credit, and they got it. One last point that I think bears mentioning on this, PCP and Morningstar said in their reply papers that the court should evaluate the present facts. That's at page five of their reply. The present facts are that they have the letter of credit.

there is a final dip to fund the PAC season. A sale process is underway. There is a stocking horse bidder for going concern sale, and there are no allegations of non-payment. Those are the present facts. Their argument, by contrast, focuses on hypotheticals. What happens if the contract is rejected? Or if the sale cannot go forward?

Or if a wind-down entity doesn't purchase. their tomatoes. Those are not present facts. Those are future speculations. So bottom line here, Your Honor, the movement's primary relief should be denied as unwarranted or at best premature. The debtors are entitled to their statutory mandated time to assume or reject, and the facts and circumstances here are not unique, let alone so amazingly unique that it should be the first case in the history of the Bankruptcy Code where a motion to compel assumption or rejected should should be granted so soon in the case. I'll turn briefly to some of the other points, if that's okay. Let me just ask a quick question, and I have a question which you may be

about to address. The debtor's sale, anticipated sale, the timing of it. Remind me the sale date? The sale hearing. The sale hearing is November 18th. 118. And I'm going to ask you to address the issue of the integration and whether or not, if the court denies the motion this morning, whether we need an evidentiary hearing on that issue. In other words, would any buyer need to know what they're going to either assume or reject and whether the leases, both leases, both agreements need to be treated as one in that process. Will it facilitate the sale? Okay. First of all, I got a note just while you were talking that I got the date wrong.

It's November 20th and not November 18th. So let me fix that. As to integration, we would come to that or we'll come to it now, I guess. We don't think you need to decide on that today. And I think Mr. Zuber acknowledges that that does not need to be decided today. we agree that if we move to reject the lease and don't simultaneously move to reject the supply agreement, that that would be an appropriate time to consider that issue. I'm not yet sure that we need an evidentiary hearing on it.

I suppose that should be something that the parties discuss, not negotiate in the middle of the court hearing. But we need a hearing before the sale hearing, before I have to determine whether I am a proven of a sale or approving of assumption of potential agreements as part of the sale? I think the answer to that is no, but I do, because I don't think that that's necessarily the sale is dispositive of this issue or that the sale turns on this issue. I do, however, think that this may come up earlier than that. As Mr. Zuber correctly notes, we're planning to finish using the facility on September or 28th or thereabouts. And after that, I do think that it would be appropriate time for a

conversation between us and Mr. Zuber. And if we agree that we need to have an evidentiary hearing we should get one scheduled on that, particularly if, and this is the conditionality that I'd like to preserve, particularly if we would like to move forward with rejection of one contract, the lease in particular, and not yet be in a position to do. decide or not want to reject the product supply agreement. So what I would think on that one, although I would have liked to have not, you know, done this on the fly in the, in the courtroom is that we should get together with Mr. Zuber.

We should discuss that issue and have a status conference at some point, presumably right after September 28th and come to your honor with a plan and an approach on that. Fair enough. continue. Okay, sure, thank you. Okay, let me turn quickly to, and in that regard, Judge, I would note that we're not conceding that this is a true lease yet. That's an issue we're reserving rights on. We'll come to that as well at a later time, I think, though, not something that needs to be decided today. There's a couple of forms of alternative relief that were asked for in the papers and a couple of different forms of alternative relief that were asked for. today. On stay relief, I don't intend to spend very long on that. Stay relief in our view is just an end run around the breathing space provided by 365. The court should reject it for the same reason that it should reject shortening debtors' time to assume or reject. I think there was a suggestion of allowing some future termination notice to be issued now. This again to me, I'm not

quite sure I followed that new argument that was presented today, but it doesn't seem to me like a today issue, it's new, it would be detrimental to the value of the contract if there was some looming termination notice out there. And so we don't think that that should be permitted and we do think that that would be contrary to the stay. We don't think it's justified either, as we pointed out in our papers. We don't think we've done anything warranting termination. It's true that the letter of credit was not issued pre-petition, but there was not a notice of termination and there was not a notice to cure in accordance with, in accordance with the contract. And now the the letter of credit has been issued, and as I said, it is fully compliant with the requirements of 3.1

of the product agreement. Let me turn to adequate protection briefly. We don't think the movements are entitled to any sort of adequate protection here. No cases were cited were a court granted adequate protection in the form of liens to an individual with an executory contract. More important than that failure, however, is that we believe movements, are adequately protected, the letter of credit, which I don't need to mention again, the diff facility, the budget, the stocking horse for a going concern sale, post-petition obligations to continue to pay rent and pay for goods,

the rights under 503, 365D3, among others. All of those are forms of adequate protection that have already, that already exist. And we don't think there's further adequate protection that is entitled, that anybody should be entitled to here. There was a suggestion of escrowing money. That's a new argument again today. That's not how our ABL dip works. That would not work.

No other vendors are escrowing money or money being escrowed for them. That would bring down our ability to borrow and fund things. So we don't think that that kind of suggestion made offhand in court works. And so for that reason, we think that we think that. that that should be denied as well. On reply, movements conflate the UCC concept of adequate assurance of performance with adequate protection. It didn't cite the UCC in their moving papers. We don't think it was fair to do so on reply, but it doesn't seem to us in none of the cases they've cited support. The idea that the adequate assurance is a future performance argument under the UCC

gives you an end run around the bankruptcy code or the automatic stay or any provisions like that. That would strip away many of the protections provided in the bankruptcy code, and debtors, particularly debtors who sell goods, would be barbed with requests from vendors to provide assurances. Nothing in the cases, as I said, supports that. And the court, for example, in Carlisle, which they cite actually goes against them. It said, first of all, that was not even a purchase of goods. case and the court there said that within the bankruptcy, the idea of adequate assurances will fall considerably short of an absolute guarantee of performance. And what they're requesting here

is a guarantee of full performance, and we don't think they're entitled to that here. Other comments, they claim we repudiated the contract. We think this is suspicious. Everybody's here fighting because everybody knows that the contract was not repudiated. They threatened not to perform. You think that that would violate the stay. They complain about lack of communication. I think the documents next to the papers show that there has been ample communication. They ask for a license to sell branded products. Again, this is a subject that can be tackled in December or February or March.

This is not something that we need to worry about today. And all of these arguments in our view are one of two things. they're trying to negotiate with the court, or they're trying to throw things at a wall to see what sticks. And speaking of throwing things at the wall for the first time on Friday afternoon, we were told that there is now a suggestion that the court should treat this motion as one for relief under 365D3. This is a brand new motion. They admitted in their papers. They admitted here today.

It's not before you. If it will be presented to you, it should be presented to you in the right way. and we will respond to it. We do not agree that that should be taken up today. New arguments raised on the first time on reply are waived. But I do want to preview a few things because I want to put the court's mind at ease. We do not think the health and safety arguments are meritorious at all. We think they're just wrong.

We did provide bacteria and aluminum results. They are next to our papers. That's Exhibit D, I think. It's pages 72 to 86 of our docket 3.7. The Goulding Declaration, show bacteria is fine, Chode aluminum is fine. We're continuing to do testing on other things. That's true.

And as the results come in, we will deal with them. We don't think, we don't understand at all why they think there's 30,000 gallons of wastewater spilling out onto agricultural lands. We dispute that. That's a disagree, a factual disagreement among the parties. We don't think that this is right. There's no wastewater because there's no tomato processing going on at this point. plant. So the idea that there's some flushing of water onto agricultural lands, we think this is just wrong. We even provided photographs, Your Honor, at the end of our, I think it's page 86 of the same

golden declaration that shows this agricultural land in a bone-dry condition. We think that this is just wrong. And look, Your Honor, even if there are some issues at Hanford, and let's keep in mind, Hanford was purchased, as is there was a release in the agreement related to hazardous materials on site. They themselves acknowledge that it is an obsolete, inefficient plant. So there could very well be some issues at Hanford. I don't want to say that that might not exist. But everybody is going to do what they need to do. We will perform, we've said this over and over and over again. We will perform in accordance with our 365 D3 obligations while reserving all rights. We reserve all rights as to whether it's a true lease. We reserve all rights as to whether they're pre-petition

defaults or post-petition defaults. We reserve the rights as to whether they're defaults at all. But we don't think that's an issue for today, and we don't think the situation is nearly as dire as they seem to say. They actually have the right under the lease to go on the property and perform work themselves. They've not tried to exercise that right, because I think they know that these problems are not what they say they are. I'll turn now to one point made in reply, which is the Alcala Farms water treatment service agreement. This is the ag lands that water is supposedly flowing out onto, but we dispute.

And there was a contract. It was rejected, a contract for treatment services by the Alcala Farms folks. And they're contending that by rejecting that contract, that leads us exposed to environmental concerns. We think this is both incorrect and somewhat ironic, actually. It's incorrect because Alcala was treating water, wastewater, of which there's nut. There's no tomato packing. There's no wastewater. A point they kind of continue to miss or gloss over or dispute. We have a separate third-party service provider that tests the water and that provides other regulatory and compliance services. Those are the folks whose names appear on all of the exhibits to Mr. Goulding's

declaration. Their comments about the Alcala Farms Water Services contract are also a little ironic. When the debtor was selling Hanford to Morning Star Kings, we offered them, do you want to assume this contract? And we know we didn't need it because we weren't going to be processing tomato there. And they said, you know what? No, we don't need to assume that contract. So they turned it down.

Then when we filed the case and we filed this rejection motion because we knew there's no wastewater on this property. We called them again, and we said, hey, we've got this up for rejection, particularly after they made this motion. Do you want us to pull this rejection motion? Do you want to assume this contract? And they again said no. They didn't object to the rejection. They didn't see this cause of some sort of environmental concern. They didn't see a thing. So to now come here and comment about this seems a little bit disingenuous. on their part. And the last irony with respect to this is that the Alcala service contract shows precisely why we don't want the court to accelerate assumption or rejection.

On this single individual facility, the Hanford facility, the debtors, in that case, this pre-petition, went to their buyers, Morning Star Kings, and said, do you want to assume or reject this contract? We didn't predetermine that for them. them, what do they think? And they said, no, we don't want this. And we honor that as the seller. Now multiply that by whatever fold, tenfold. That's what we've got going in the sale process today before your honor. We've got an entire business. We're going out to the market. We are running the going concern sale process. We want to be able to speak to our buyers or make decisions that are in the best interests of the estate as a whole. And we don't think that,

it's right, just like it wasn't right for Alcala, for us to make decisions for our buyer, we don't think, particularly as to the product supply agreement, that it should be right for us to make decisions for the buyer of the eventual tomato business. I spoke a little bit about integration. I think that's all I've got, Your Honor, unless you have questions for me. I don't. Thank you very much. Thank you.

Let me hear from the committee, counsel. Thank you. Hi, good morning. Miranda Russell, Morrison, and Forrester proposed counsel for the official committee of unsecured creditors. Your Honor, the committee filed a joiner to the debtor's objection at docket number 370. As stated therein, the movement's request is premature. The committee is concerned that granting the request of relief at this time would be prejudicial to other unsecured creditors and potentially not in the best interest of the debtor's estates. The debtor's sale process has just begun, and assuming any contracts now, outside of that sale process could risk locking an administrative expense claims that may not be justified.

The movement's right to assert administrative claims later in these cases is fully reserved. The committee agrees with the debtors that the assumption and rejection process should be done holistically, rather than siling the estate with an administrative expense at this stage in the process that could also potentially deter potential bidders, given the five-year term of the contract at issue. The committee's diligence with respect to the move-in's contracts remains ongoing, as well as the committee's diligence in connection with the larger sale process. For example, the committee is continuing to review the proposed form of stocking horse APA. The movement's reply raised concerns that the debtor's estates may be administratively insolvent. To be clear, the committee is committed to ensuring that following any restructuring transaction in these cases, whether through a sale or otherwise,

first, that the go-forward Del Monte business will be well positioned to satisfy unsecured claims. And second, the vendors and contract counterparties were continuing to work with the debtors during these cases are not left holding the bag. To that end, the committee wants to reserve the debtor's optionality and granting the motion today cuts against that goal. The committee respectfully asks that the court deny the movement's motion without prejudice. Thank you. All right. Thank you, counsel. Anyone else wish to be heard on this matter before I turn back to move and see if they wish to respond?

All right. Let's turn back. Mr. Zuber? Yes, Your Honor. I just had a couple of brief response points. You know, at one point out, and as we noted in our papers, you know, the supply agreement provides that either party can terminate that agreement with or without coal. So, you know, as I think is black letter law, debtors in Chapter 11 don't get greater rights in bankruptcy than they have outside of bankruptcy. So we would respectfully submit that Your Honor should not continue a stay when it's just an exercise of a contractual right that is, you know, they have a right without cause.

This is not, you know, a determination of a 362D about whether cause has been established under B1. This is just an exercise of a contractual right, and that right should not be expanded or be made greater for the debtor's benefit just because they're in bankruptcy. With respect to the integration issue, I already suggested to Your Honor, that we believe it's appropriate to have an evidentiary hearing sufficiently ahead of that October 31 deadline. It doesn't sound like counsel is pushing back on that too much, except their suggestion that we just wait until September 28th to see whether the debtors file notice or rejection, that we can have a status. conference, you know, that's just going to delay things to the point where we're going to be up against a deadline, you know, having a status conference at the beginning of October for an evidentiary hearing that we would respectfully submit we need a decision on before October 31st. It doesn't really give us enough time.

So we would ask that, Your Honor, consider scheduling an evidentiary hearing sometime before that, especially since the debtors intend it would appear to reject that lease. They say they're going to be out of the facility. It would seem axiomatic that they would see. seek to reject that lease effective as of the 28th, and we would ask the court to schedule an evidentiary hearing prior to that. We'll certainly engage in ongoing discussions with counsel. We've had a lot of discussions about a lot of things.

We will continue to do that and to discuss these things in good faith, but we would, again, implore the court to schedule on evidentiary hearing to give us an opportunity prior to October 31st to have a decision on that issue. And I think Your Honor was correct when you asked Debtors' counsel, you know, wouldn't a buyer want to know whether they need to assume or direct the assumption assignment of both of these contracts before they go through the sale. And I think that's a very, very important and good point. You know, if we're right and buyers know they have to assume both or reject both, they should know that.

If we're wrong and Your Honor would allow them to sever, so be it. But, you know, buyers should know that as well. So, again, we would really just be pushing respectfully to have a decision on that integration issue by way of an evidentiary hearing sufficiently ahead of the October. 31st deadline. Two other very quick points. On the 365 D3 issue, I recognize that the caption of our motion didn't talk about compliance with D3, but everybody recognizes that they, that or must comply with D3, and we would submit that it's really before the court on a de facto basis. Final point, and Mr. Young may want to address this as well, but, you know, Mr. Hammond said

that, you know, the relief requested is inconsistent with the statutory scheme. I would suggest that that is not true, as Mr. Young pointed out, 365D2, while it does provide a timeline for assumption or rejection of non-residential real property leases, it also says, but the court can shorten that time. And that's why we're here. If there was never a circumstance, as debtors suggest, never in the history of the bankruptcy world where a court has compelled a debtor to assume to make a decision prior to the statutory deadline, then, you know, if the language of 365D2 will be superfluous, Mr. B no point for it and we suggest again that this is the appropriate case to shorten that time frame. All right, thank you, Mr. Zuber. Mr. Hammerman, before I get back to you, Mr. Young, do you want to? Yes, Your Honor, I will be brief on the supply agreement itself.

My friends on the other side continue to argue that the court should the first decision for the police to see how the cell process plays out. And they argue that to do it sooner would somehow be valid of the congressional intent behind the bankruptcy in general. Your Honor, that argument frankly seeks to create an exception to 365D2 that does not exist in a bankruptcy code. There is no exception that the court should not provide for an order of assumption rejection during a pendency of our cell process. If Congress wanted that to be a consideration, it would have put the language in the code. And I continue to stress why is timing important here? Your Honor, timing is important because between now and October, there are chances to mitigate potential damages.

If decision is delayed post-October, substantially all of our 2025-pack season expenses, that includes buying product, packing, labeling, testing, etc., all that costs would have been incurred by October. So this is not a case where indecision can be delayed. Debtos Council states that, well, we may do so. something with the products in connection with the cell if buyer may want it and they say well there is value to do that so we should not reject it so flipping the tables if the debtors believe there is value in that business in a tomato business it should be an easy decision for them to have that contract assumed

now or at the very least confirmed that the movements will have an administrative claim for all the products produced for them, pursuant to the schedules that the debtors have provided to the movements in April for this year. So, in essence, the movements, or rather be debtors, the committee and the landers, seek to place the entire burden of this production on their movements, and for the debtors to likely reap the entire benefit if the contract is assumed. In essence, the debtors do not want to have any skin in this game whatsoever. And that's not the purpose of Section 365

B2, that section, and the courts that analyze that section, talk about the balancing of harms. That is the main factors that the courts consider. The debtor's proposal does not take any harm away from the movements, and in fact, the deduce argued that the movements and only the movements should bear the possibility of the harm, which we view is significant.

For that reason, Your Honor, we request that our motion be granted. Thank you. Thank you, Mr. Young. Mr. Hammerman, last thoughts. Yes, thank you, Judge. The right to terminate and the supply agreement, we cited cases on this. It's paragraph 47 of our objection. That does not prompt the automatic stay.

that's well established in law. Mr. Zuber also brought up the concept of scheduling. The rejection motion, if one is made, is the one that should determine the schedule. That's when this issue should be heard. And so we think it's premature at this time to be setting evidentiary hearings. If we make a rejection motion,

that's when the court should schedule an evidentiary hearing. I think we can work that out with Mr. Zuber. I don't think that's something the court needs to, wait into today. I do think that the status conference idea gives Mr. Zuber an opportunity to come back to the court and argue for a different schedule than the one that perhaps we speak with him about. So whether the status conference is exactly when we suggested it or otherwise, I think it's premature at this time the set of schedule, but I do expect that we will be able to reach accommodation with Mr. Zuber on that point. Talked about being consistent with the statutory

scheme, the idea that 365D2 has the ability to make a motion, it sure does. And they've made it here, and the cases that interpret that provision suggest that if you're going against the grain, if a 365D2 motion is going against the grain of giving the debtor the time that's afforded under the code, that that is somewhat inconsistent with the statutory scheme, and there should be a good reason for it here. And here we have a dispute as to whether that is a good reason or not. Timing is important for us to respond to Mr. Young. We have a sale process going on here. We want that sale process to succeed.

We believe that the timing is very important for us as well. We don't want things to upset the apple card. I don't mean to use puns. Upset the apple cart in this case with our sale process. And we want things to go as well as possible on that sale process. Mr. Young's clients entered into a contract. That contract gave them a degree of security, which they have. It gave them the exact predicament that they're describing here.

It gave that to them all along every year, every time, every season. That's something they bargained for and agreed to. So we don't think that that is a particularly sympathetic argument or that the court should be particularly troubled by it, and certainly not to put the interests of one creditor over all others. The movements have their rights, with respect to an administrative claim, the movements have whatever rights they have under 503. Nobody is telling them they can't make a 503 motion.

That's not the motion they made again. We don't think that their products here qualify for that. We think they have the security they were entitled to, but they do have 503 as a future avenue. If anything turns out to be, to not be assumed or not be picked up, or the parade of horribles occurs, they have those rights. They don't need that today. It is not a today issue. I think that's all I have here. All right. Thank you, counsel. Well argued on all sides.

I would gather my thoughts. This matter comes before the court on the motion filed by Code Movement specific coast producers, Morningstar Packing Company and Morningstar Kings LLC, seeking relief under Section 365D2 to accelerate or compel the debtor into seeking either the assumption of rejection of the two agreements at issue, a product supply agreement as well as a real estate lease, lease as part of a sale and leaseback arrangement. This court has jurisdiction under 28 U.S.C. Section 1334 is a core matter under 28 U.S.C. Section 157B.

Now, in determining whether to impose a shortened or accelerated deadline, upon a debtor with respect to assumption or rejection of executive agreements, as been noted in the papers by all parties. Courts consider a number of factors, including the nature of the interests, most importantly, the balance of the harms to the parties, the purposes and good to be achieved by accelerating the date. the safeguards afforded the parties. The court also was to take into account congressional scheme and supporting the broad purposes of Chapter 11, which is to promote successful rehabilitation of the debtors and to provide the debtor or debtors with a breathing spell

and making determinations as to the viability and pecuniary benefits of assumption and rejection with the harms involved with respect to rejection. The court has taken to account the stage of the case, whether there's been a termination of exclusivity and also the general complexity of the case. Those factors were outlined in one of my colleagues' decisions in G1 Holdings,

I know it was cited in Enron. Of those factors, the court focuses significantly upon the balancing of the harm and the safeguards afforded the litigants. The decision to assume or reject is one where courts normally defer to the business judgment of the debtor. the debtor is in the best position to gauge whether or not an agreement has value, whether that value outweighs any detrimental impact that would come with rejection. And this deference to the business judgment of the debtor in deciding the substantive decision to, making the substantive decision to assume or reject also applies to the debtor's determination as to timing. When is it in the best interest of the estate to make this decision?

Here, the debtor is supported by the committee in seeking additional time after a proposed sale process in order to determine whether a five-year supply agreement would have value to a purchaser, as opposed to a knee-jerk decision to assume the supply agreement, which would expose the estate to significant administrative liabilities. As you can tell from my comments, I'm going to deny the motion under 365D2 because I believe the balance of the harms and the balancing of the interests weigh in favor of the...

state at this juncture. And I do so because there are, and this is also one of the factors, significant safeguards that are in place in the situation. Number one, the $20 million potential outlay by the movements with respect to the product supply agreement is not likely to be their exposure. That outlay will be reduced by payments being made consistent with the dip budget, by sales of inventory and other elements we're going to discuss, which will reduce their costs. And it's important to note, and I agree with counsel for the debtor, that the initial outlay in this manner is part of the movement's business plan. They do it and is consistent with how these product supply agreements are done throughout the industry.

Advancing funds is inherently risky, but it's part of the business plan that was agreed to as part of the arrangement. Also, the debtor's ability to not necessarily purchase the entire supply is part of the contractual arrangement agreed to by the parties. It is one of the risks built into this process, and it should come as no surprise. Now, when I mentioned safeguards, yes, there are safeguards. I don't think anybody disputes that over 60% of the potential inventory to be produced could be resold. It is not of this debtor's brand. There's the ability to seek administrative claim for any unpaid costs associated with servicing the contract post-petition, consistent with Section 503B.

There is a letter of credit that was put up to secure certain potential risks. I think it's a $4 million letter of credit. There is an ongoing sale process where this very agreement or agreements may indeed be assumed. And there's a generous DIP budget which will allow for continued ongoing payments. So there are these safeguards that are already in place that are frankly not available necessarily to all administrative claimants or contract parties. And because of this, this court is very leery of imposing upon the debt or a shortened time period inconsistent with the goals under Chapter 11 which support rehabilitation

and which may impede the sale process. Indeed, potential purchasers need to have time to evaluate the benefits and the merits of the supply agreement, deciding whether or not that the agreement is important, is beneficial, is essential, and becomes part of any purchase bid. It would undercut the debtors' efforts to maximize the return. to this estate if we were to accelerate the process at this point. The court is not considering the 365 D3 issues at this juncture. I have never sanguine about directing parties to comply with the law. I think that's a given. The debtor has responsibilities under Section 365D3,

and in the event that there is malfeasance or a failure to live up to its obligations and responsibilities under the code or under non-bankruptcy law, this court is certainly willing to hear any matters on an expedited schedule if warranted. But the court certainly doesn't have a factual predicate to, make any ruling in the 365 D3 at this juncture. I'm going to deny the motion under 365D2 without prejudice, of course, to renew the motion, indeed. You can contact, the movements can contact chambers at a later date after the sale process, after November 20th, and seek to renew the motion without having to necessarily file a new

motion and prepare. I don't want to add costs. There might have a need for supplemental declarations, of course. The issues may be further refined, but contacting chambers and the court will get the matter on its calendar as soon as possible. I did bring up the issue as far as an evidentiary hearing on the integration issue because it indeed may be pertinent to any sale. And I'm going to leave it to the council who are all as demonstrated, very professional, very courteous, very responsible, to meet and confer and develop a schedule if warranted. I'm going to tell you that I will, and this is for the court's ease, I need to carve out days

or else they get used up with other matters. So I will carve out October 24th at the Friday, and you might want to work with that date as a hearing date in advance of any sale. It's a suggestion at this point. The court will always accommodate any request for a status conference informal phone call or Zoom, and we can address it further and put in place any further scheduling that you all can't agree upon. But at this juncture, I think all of the factors weigh in favor of denying the motion without prejudice. So for the reasons to set forth, I'll deny the motion.

I will ask Devers Council to submit a form of order consistent with the ruling. Are there any questions I can address for any counsel? Not for me. Thank you, Judge. Your Honor, I think that Mr. Young initially mentioned several declarations will those be put into evidence

for the purpose for which we've agreed that essentially not necessarily for the truth, but just to have them as part of the evidentiary record. Sure, let's be clear can I have the declaration? Let's give them exhibit numbers. I don't believe there's any objection on all sides. That's correct.

The original declaration of Mr. Sherwood was document number 175. There was a declaration on the debtor side. I don't have that number handy, but I believe that they submitted a declaration in opposition. Yeah, the declaration of Matt Strong at docket 174. And then the supplemental declaration of Mr. Sherwood was filed at one moment, Your Honor. 379. 179?

No. 379. Let me just confirm it here. That's the reply. 79-1 is the supplemental operation of Mr. James Sherwood. So, oh, go ahead. I'm sorry, Judge. Mr. Goulding's declaration was 369.

369. 369. All right. And I don't have the exact words of our kind of arrangement up in front of me that we negotiated, but I think the agreement and the co-counsel will step in if I don't have it right, is that these would be admitted without, without preventing any party from cross-examining or without assuming that the parties assume the truth. of the matters. They're there for the court's consideration. In other words, in the future, if there's an evidentiary hearing, we can come back and cross-examine, we can dispute the truth of things. I know there's places where we confer with one another.

All right. Counsel, any concerns with that? Representative? That's correct. You're out. No concern. So the four declarations that have been cited will be admitted into evidence, two on behalf of the movements and two on behalf of the debtors. And we'll let the record rest at this juncture. Thank you for your time. Have a good day.

Take care. Thank you, Judge.