Case 21-11002-KBO Doc 289 Filed 08/13/21 Page 1 of 9 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ) In re: ) Chapter 11 ) PIPELINE FOODS, LLC, et al.,1 ) Case No. 21-11002 (KBO) ) Debtors. ) Jointly Administered ) ) Hearing Date: August 20, 2021 at 12:00 p.m. (ET) (Requested) ) Objection Deadline: August 19, 2021 at 12:00 p.m. ) (ET) (Requested) MOTION OF THE DEBTORS FOR ENTRY OF AN ORDER AUTHORIZING THE REJECTION OF CONTRACT WITH CERES CONSULTING LLC Pipeline Foods, LLC (“Pipeline Foods”) and its affiliated debtors and debtors in possession (collectively, the “Debtors”) in the above-captioned chapter 11 cases (the “Chapter 11 Cases”), by and through their undersigned counsel, file this motion (the “Motion”) for entry of an order, substantially in the form attached hereto as Exhibit A (the “Proposed Order”), pursuant to section 365(a) of title 11 of the United States Code (the “Bankruptcy Code”), authorizing the Debtors to reject that certain shipping contract between the Debtors and Ceres Consulting L.L.C. (“Ceres”) dated May 21, 2021, a copy of which is attached hereto as Exhibit B (the “Rejected Shipping Contract”), effective as of the date of this Motion (the “Rejection Effective Date”). In support of this Motion, the Debtors respectfully state as follows: 1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are: Pipeline Foods, LLC (5070); Pipeline Holdings, LLC (5754); Pipeline Foods Real Estate Holding Company, LLC (7057); Pipeline Foods, ULC (3762); Pipeline Foods Southern Cone S.R.L. (5978); and Pipeline Foods II, LLC (9653). The Debtors’ mailing address is 6499 University Avenue NE, Suite 200, Fridley, MN 55432. 38812486.3 Case 21-11002-KBO Doc 289 Filed 08/13/21 Page 2 of 9 Jurisdiction and Venue 1. The Court has jurisdiction to consider this Motion pursuant to 28 U.S.C. §§ 157 and 1334, and the Amended Standing Order of Reference from the United States District Court for the District of Delaware, dated February 29, 2012. This is a core proceeding pursuant to 28 U.S.C. § 157(b). 2. Pursuant to Rule 9013–1(f) of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the “Local Rules”), the Debtors consent to the entry of a final order by the Court in connection with this matter to the extent that it is later determined that the Court, absent consent of the parties, cannot enter final orders or judgments consistent with Article III of the United States Constitution. 3. Venue is proper before the Court pursuant to 28 U.S.C. §§ 1408 and 1409. 4. The statutory basis for the relief requested herein is section 365(a) of the Bankruptcy Code and Rule 6006 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”). Background 5. On July 8, 2021 and July 12, 2021 (together, the “Petition Date”), each of the Debtors filed a voluntary petition with this Court for relief under chapter 11 of the Bankruptcy Code. The Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No request for the appointment of a trustee or examiner has been made in the Chapter 11 Cases. On July 22, 2021, the Office of the United States Trustee appointed the Official Committee of Unsecured Creditors of Pipeline Foods, LLC, et al. (the “Committee”). -2- 38812486.3 Case 21-11002-KBO Doc 289 Filed 08/13/21 Page 3 of 9 6. The reasons for the Debtors’ commencing the Chapter 11 Cases and information relating to the Debtors’ business operations are set forth in the Omnibus Declaration of Winston Mar in Support of Debtors’ Initial Emergency First Day Motions and Related Relief [Docket No. 6]. A. The Rejected Shipping Contract 7. Pipeline Foods and Ceres are parties to the Rejected Shipping Contract, which is a shipping contract for the use of barges to deliver organic soybeans. Pursuant to the Rejected Shipping Contract, during the period June 10, 2021 through August 5, 2021, Ceres was obligated to provide and operate ten (10) barges (each a “Barge” and collectively, the “Barges”) to ship organic soybeans from Houston, Texas to Simmons Feed & Supply LLC d/b/a Simmons Grain Co. (“Simmons Grain”) in Wellsville, Ohio. 8. Prior to the Petition Date, Pipeline Foods and Ceres arranged for one (1) Barge containing organic soybeans to be loaded and shipped to Simmons Grain in Wellsville, Ohio. Thereafter, subsequent to the Petition Date, Pipeline Foods and Ceres arranged for a second Barge containing organic soybeans to be loaded and shipped to Simmons Grain in Wellsville, Ohio. Pipeline Foods has not made arrangements with Ceres for the remaining eight (8) Barges (collectively, the “Remaining Barges”) under the Rejected Shipping Contract. B. The Simmons Grain Settlement and the Lack of Need for the Remaining Barges 9. Contemporaneously herewith, the Debtors have filed a motion for approval of a settlement between the Debtors, Simmons Grain, Coöperatieve Rabobank U.A., New York Branch (“Rabobank”), Compeer Financial, PCA and Compeer Financial FLCA (the “9019 Motion”), pursuant to which, inter alia, Pipeline Foods will make the Simmons Grain Identified Soybeans (as defined in the 9019 Motion) located in Houston, Texas available for Simmons -3- 38812486.3 Case 21-11002-KBO Doc 289 Filed 08/13/21 Page 4 of 9 Grain, and Simmons Grain shall coordinate and pay for the transport of such goods. Accordingly, the Debtors no longer have any need for the Remaining Barges. 10. Because the Debtors no longer require the use of such Remaining Barges, the Debtors believe that prompt rejection of the Rejected Shipping Contract is necessary. If the Rejected Shipping Contract is not promptly rejected, the Debtors may incur unnecessary costs or accumulate damages that may be asserted as administrative claims by Ceres. 11. The Debtors and Ceres have engaged in discussions related to the Rejected Shipping Contract and the Debtors have been informed by Ceres that Ceres wishes to enter into new contracts with other third parties for the use of the Remaining Barges. Accordingly, the Debtors and Ceres have agreed to reject the Rejected Shipping Contract as of the Rejection Effective Date to, among other things, relieve Ceres of its obligations under the Rejected Shipping Contract. 12. In light of the circumstances described herein, the Debtors believe that prompt rejection of the Rejected Shipping Contract as of the Rejection Effective Date is necessary and in the best interests of the Debtors and their estates and creditors. Relief Requested 13. By this Motion, the Debtors seek the entry of an order, pursuant to section 365(a) of the Bankruptcy Code, authorizing the Debtors to reject the Rejected Shipping Contract, effective as of the Rejection Effective Date, and granting such other and further relief as the Court deems just and proper. -4- 38812486.3 Case 21-11002-KBO Doc 289 Filed 08/13/21 Page 5 of 9 Basis for Relief Requested A. Rejection of the Rejected Shipping Contract Reflects the Debtors’ Sound Business Judgment. 14. Section 365(a) of the Bankruptcy Code provides that a debtor in possession, “subject to the court’s approval, may assume or reject any executory contract or unexpired lease.” 11 U.S.C. § 365(a). A debtor’s decision to reject an executory contract under section 365 is governed by the business judgment standard. E.g., In re HQ Global Holdings, Inc., 290 B.R. 507, 511 (Bankr. D. Del. 2003) (citing Group of Instit. Investors v. Chi., Milwaukee, St. Paul. & Pac. R.R. Co., 318 U.S. 523, 550 (1943)); Computer Sales Int’l Inc. v. Fed. Mogul (In re Fed. Mogul Global, Inc.), 293 B.R. 124, 126 (D. Del. 2003). “Under the business judgment standard, the sole issue is whether the rejection benefits the estate.” In re HQ Global Holdings, Inc., 290 B.R. at 511; NLRB v. Bildisco & Bildisco (In re Bildisco), 682 F.2d 72, 29 (3d Cir. 1982) (stating that the “usual test for rejection of an executory contract is simply whether rejection would benefit the estate”); see also Univ. Med. Ctr. v. Sullivan (In re Univ. Med. Ctr.), 973 F.2d 1065, 1075 (3d Cir. 1992) (explaining that section 365 is “designed to ‘allow[] the trustee or debtor in possession a reasonable time within which to determine whether adoption or rejection of the executory contract would be beneficial to an effective reorganization” (citing Data-Link Sys. Inc. v. Whitcomb & Keller Mortgage Co. (In re Whitcomb & Keller Mortgage Co., Inc.), 715 F.2d 375, 379 (7th Cir. 1983))). Furthermore, a “debtor’s determination to reject an executory contract can only be overturned if the decision was the product of bad faith, whim or caprice.” In re HQ Global Holdings, Inc., 290 B.R. at 511 (citing In re Trans World Airlines, Inc., 261 B.R. 103, 121 (Bankr. D. Del. 2001)). 15. As described above, the Debtors have determined, in their business judgment, that there is no benefit to maintaining the Rejected Shipping Contract since it obligates the Debtors to -5- 38812486.3 Case 21-11002-KBO Doc 289 Filed 08/13/21 Page 6 of 9 use the Remaining Barges, which they no longer need. The rejection of the Rejected Shipping Contract will relieve the Debtors from any this obligation and the costs associated with such obligation. 16. Additionally, the Debtors have been advised by Ceres that Ceres wishes to contract with other third parties for the use of the Remaining Barges.