Debt Dialogue: July 2017 - How to Interpret a DIP Order

by Kramer Levin Naftalis & Frankel LLP

Kramer Levin Naftalis & Frankel LLP

Unlike an opinion, an order of the court is often not from the pen of the judge. Typically, a court order is submitted to the judge after negotiation among the parties. So, when a disagreement arises among the parties regarding the interpretation of the court’s order, how does the judge who signed the order go about resolving the matter? The issue came up not long ago in Outer Harbor Terminal LLC (Bkr. D. Del. May, 5, 2017), in which Judge Laurie Silverstein of the District of  Delaware bankruptcy court was confronted with a dispute over her own final DIP order. Applying principles of contract interpretation, Judge Silverstein interpreted her order to narrow the releases given to the DIP providers, who were also affiliates of the debtor. The decision, which gave only limited effect to certain boilerplate language in the order, afforded the unsecured creditors committee an opportunity to investigate claims against the lenders’ affiliates. The case is instructive, particularly in the bankruptcy context, regarding a court’s approach to enforcement of its own orders and the pitfalls of what the court referred to as “ritualistic” provisions.


Outer Harbor Terminal LLC was the operator of part of the Port of Oakland, California, in the San Francisco Bay area. The company commenced a voluntary bankruptcy case in February 2016, which ultimately resulted in its liquidation. As part of its first-day motions, the company filed for approval of DIP financing on a superpriority basis. The DIP financing was provided by HHH Oakland Inc. and Terminal Investment Limited S.A., which just happened to be the two 50% beneficial owners of Outer Harbor Terminal. The ultimate parent of HHH Oakland was Ports America Group Inc., one of the largest marine cargo operators in the country. In the year prior to the bankruptcy filing, there had been numerous payments made by Outer Harbor Terminal to affiliates of Ports America, whose services the debtor utilized pursuant to various shared services agreements. 

An interim and then a final order was entered by the bankruptcy court approving the DIP financing, with the size of the DIP increasing along the way. The final DIP order contained releases that could be interpreted to reach all claims against the DIP providers and their affiliates relating to the debtor, in whatever context they arose. At least this was the position of the debtor and its affiliates.

An official unsecured creditors committee was not appointed until January 2017, just a few days shy of the one-year anniversary of the filing of the case. In February 2017, the debtor filed its combined Chapter 11 plan of liquidation, along with a disclosure statement and a motion seeking conditional approval of the plan.

The UCC filed motions to extend the time for its investigation and to compel discovery with respect to claims against the DIP lenders and their affiliates. These claims related to payments made by the debtor to affiliates of Ports America under the shared services agreements during the one-year period prior to bankruptcy. The debtor and the DIP lenders opposed the motions on the grounds that the final DIP order released all claims against the DIP lenders and their affiliates.

The Final DIP Order Releases

The final DIP order provided that its releases were binding on the debtor, its estate and each other party in interest unless any party with standing:

[1]  timely commenced an adversary proceeding or other appropriate contested matter against a Released Party by no later than the earlier of (i) sixty (60) days from the date of the official committee’s formation for any appointed official committee or (ii) seventy-five (75) days from the date of entry of the Interim Financing Order for all parties other than an official committee. ...

As to the scope of the releases, the order provided:

[2]  claims, demands, liabilities, [etc.] of every type, whether known, unknown, asserted, unasserted, suspected, unsuspected, accrued, unaccrued, fixed, contingent, pending, or threatened, ... including without limitation, all legal and equitable theories of recovery, arising under common law, statute, or regulation or by contract, of every nature and description, ... arising out of, in connection with, or relating to the DIP Facility, the DIP Loan Documents, their interests in the Debtor, or the transactions and relationships contemplated hereunder or thereunder (emphasis supplied by the court).

Finally, as to the covered persons, the release included:

[3]  each of [the parties] respective affiliates, and their respective former, current, or future officers, employees, directors, agents, representatives, owners, members, partners, financial advisors, legal advisors, shareholders, managers, consultants, accountant [sic], attorneys, affiliates, success [sic], assigns and predecessors in interest.

The court focused on the interpretation of provisions [1] and [2] of the order quoted above.  The court’s first question was whether the time period during which the releases could be tolled had lapsed. The second question related to the scope of the releases — were they a general release of the lenders and their affiliates, or were the releases limited to matters relating to the DIP financing?

How to Interpret the Order

As a threshold matter, the court addressed the approach to be taken in interpreting the DIP order.  Here, the court relied on a prior case in Delaware bankruptcy court, In re Trico Marine Servs., Inc., 450 B.R. 474, (Bankr. D. Del. 2011). Quoting the learning of that case, the court said, “[W]hen construing an agreed or negotiated form of order, the Court approaches the task as an exercise of contract interpretation rather than the routine enforcement of a prior court order.” Moreover,  the court continued, “[a]t bottom, the goal is to determine the rights, duties, and reasonable expectations of the parties, as disclosed to and blessed by the Court.”

In other words, the court was not taking ownership of the order, even though it had approved and executed the document. An order of this sort is to be viewed as an agreement between the parties and not as an instrument emanating ex cathedra from the court.

The Court’s Rulings

The UCC argued that its time to investigate and claim against the lenders and their affiliates should run from the date of its formation. Based on the language of portion [1] of the final DIP order quoted above, the court held this was not the case. The order stated that the challenge period would terminate on the earlier of 60 days from the formation of the UCC and 75 days from the date of the interim DIP order, the latter of which had long since passed.1

However, the court said that this was not the end of the inquiry and asked for briefing regarding the parties entitled to be released under the order and the scope of the released claims. Not surprisingly, the lenders took the position that the releases were generic, applying to all possible claims against the lenders and their affiliates. The UCC, on the other hand, urged the court to go with its initial gut reading of the order, which would limit the releases to matters related to the DIP financing.

Referring to portion [2] of the order quoted above, the court dealt with the issue as one of pure contract interpretation. Did the clause “arising out of, in connection with, or relating to the DIP Facility, the DIP Loan Documents, ...” qualify the releases in their entirety? Or was the clause solely related to its immediate antecedent, “including without limitation, all legal and equitable theories of recovery, arising under common law, statute, or regulation or by contract, of every nature and description. ...”? (Emphasis again supplied.)

As might be expected, the court trotted out the Rule of the Last Antecedent, which instructs that qualifying words or phrases refer to the language immediately preceding the qualifier, absent indications of contrary intent. The court noted in this regard that Justices Sonya Sotomayor and Elena Kagan had recently crossed swords on the application, or nonapplication, of the rule in Lockhart v. U.S., 136 S. Ct. 958 (2016), a case of statutory interpretation.

The court did not, however, invoke this rule or any other formalism of contract interpretation.  Instead it focused upon “the Final DIP Order as a whole and the context in which it was negotiated.” In its analysis, the court identified nine separate reasons why the releases should be read to apply only to the DIP financing and related matters. In particular, the court observed that there was no reference to shared services agreements in the final DIP order, the term sheet for the DIP financing or the DIP approval motion. The broad reference to affiliates and other actors in portion [3] of the final DIP order quoted above was “ritualistic” and did not reflect an intention of the parties to effect a general, all-encompassing release.


The court made the repeated observation that the case was unusual because of the affiliation of the DIP lenders and the debtor, and this may be one reason why the court did not defer to the parties’ interpretation of the order that they drafted and submitted to the court. More generally, though, it may serve as a cautionary tale on drafting bankruptcy court orders, which are often long and complex and laden with time-honored formalisms. If called upon to interpret such an order, the court may regard it more as a creature of the parties than the craft of the court, to which the court may apply a critical and dispassionate analysis. To avoid unexpected consequences, parties are well-advised to pay careful attention to even standardized language to ensure the order produces the outcome they desire.


1  The court acknowledged that the DIP order established different periods for the UCC and other parties in interest. It nonetheless held that the investigation period ended at the conclusion of the earlier of the two periods. The UCC’s interpretation, the court said, afforded no meaning to the words “the earlier of.”

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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