On June 29, 2016, Judge Sleet of the Delaware District Court entered an order denying a motion for stay of the Debtors’ plan confirmation pending appeal.  A copy of the related Opinion is attached here.

Morris Propp II and Morris Propp II Foundation (the “Movants”) had filed an objection to the Debtors’ plan on the basis that they were not allowed to participate in the DIP loan.  After making significant waves in the Debtors’ bankruptcy proceedings, the Debtors conceded the point and provided at confirmation that any noteholders who so desired would be allowed to participate in the syndication of the DIP loan.  Opinion at *3.  The Court determined that such a concession mooted the Movants’ objection and confirmed the Debtors’ plan.

The Movants then elected to participate in the DIP loan’s syndication.  Opinion at *3.  As part of the process of participating, the Movants agreed to be bound by the Restructuring Support Agreement (the “RSA”).  Opinion at *4.  The RSA prohibits any signatory thereto from opposing confirmation.

The Movants appealed the decision approving confirmation, and the Debtors filed a motion to enforce the RSA.  The Bankruptcy Court granted the Debtors’ motion, holding that the Movants were “sophisticated investors, and that despite counsel’s contention that Appellants executed the Subscription Documents without consulting their counsel, ignorance of the law is no defense.”  Opinion at *5.

The Movants then filed the appeal and motion to stay pending appeal.  In relatively short order, Judge Sleet examined the four factor test created by the Third Circuit:  (1) whether the movant has made “a strong showing” that it is likely to succeed on the merits; (2) whether the movant will be irreparably injured absent a stay; (3) whether a stay will substantially injure other interested parties; and (4) where the public interest lies. Republic of Phil. v. Westinghouse Electric Corp., 949 F.2d 653, 658 (3d Cir. 1991).  Opinion at *7.  In a later case, the Third Circuit provided that the first two factors of this four factor test were gating issues, and that “if the movant does not make the requisite showings on either of these first two factors, the inquiry into the balance of harms and the public interest is unnecessary…”  Opinion at *9.

Moving through the first two factors, Judge Sleet determined that the Movants failed to meet their burden as to both, and quickly denied their motion for stay pending appeal.  Opinion at *14.