Multi-Color Bankruptcy Brought Judge’s Mediation to Key Issues

Multi-Color Corp.'s brief but contentious bankruptcy encapsulated some of the thorniest issues in modern corporate reorganizations, including venue shopping, and concluded in a surprising fashion: with a judge mediating his own case.

The label maker won court approval April 16 to exit bankruptcy, less than three months after it entered with a prearranged restructuring plan. The road was bumpy, but the case incorporated strategies that practitioners should expect more of as key players become increasingly sophisticated, Justin M. Ellis of MoloLamken LLP said.

“This case is also a good example of parties pushing new and creative litigation tactics in bankruptcy,” he said.

The bankruptcy started out with junior creditors objecting to Multi-Color’s private equity owner, Clayton, Dubilier & Rice, taking a controlling stake in the reorganized company. It quickly shifted to a venue fight that led to a ruling from Judge Michael B. Kaplan allowing the Atlanta-based company to file in New Jersey based on deposits made into newly-opened bank accounts 16 days before the bankruptcy.

Then, in late March, the case shifted again as Kaplan took on an unusual dual role as a presiding judge and mediator. Within a couple weeks, the disputes were settled.

Multi-Color’s plan cuts $3.9 billion in debt, secures $889 million in new money—including a large chunk from CD&R—and clears the way for a Chapter 11 exit with a 100% recovery for unsecured creditors and saved nearly 5,000 jobs.

To appease dissenting creditors, Multi-Color offered up to $19.5 million for their lawyers while CD&R contributed $17 million in cash.

Restructuring attorney Kenneth Rosen, who runs his own firm, said the case moved fast and Kaplan helped the settlement process despite the contested issues and criticism of his dual role.

“It got buzz because of Kaplan’s venue decision and his decision to mediate himself,” Rosen said. “But, despite all the buzz, it only took 75 days.”

Judicial Mediation

After a court-appointed mediator failed to broker a settlement, Kaplan stepped in himself.

“No one can dispute the outcome—Judge Kaplan assisted the parties in reaching a global resolution in a very difficult case,” said Joseph J. DiPasquale, a Fox Rothschild LLP restructuring partner.

But Steven M. Berman, a Shumaker, Loop & Kendrick LLP restructuring partner, noted that mediation parties typically want to speak candidly about weaknesses in their own positions, which is harder to do with the presiding judge in the room.

“If I’m going to be sharing something and really exposing problems on my side or my strategy moving forward, I would be hesitant to share that with the presiding judge,” Berman said.

In addition the financial resolution, the mediated deal ended the company’s effort to disband the government-appointed official committee of unsecured creditors—allowing Kaplan to avoid ruling on the motion, which was aggressive even for a contentious case.

Official creditor committees are generally key players in large Chapter 11s, serving as the representative for junior creditors.

A presiding judge’s self-appointment as mediator raises issues because judges aren’t supposed to rely on case information that isn’t obtained through the formal proceeding, said former Nevada bankruptcy judge Bruce A. Markell, now a Northwestern Pritzker School of Law professor.

The practice could affect lawyers’ preparation for cases if they know a judge could flip roles, he said.

“If the mediation fails, what does the judge do with what they’ve learned that would not be admissible in court?” Markell said. “It’s not like Men in Black where someone can flash a device and erase the memories.”

Not everyone in a bankruptcy is part of private mediation, so judges serving dual roles can create an appearance of impropriety for claimants, especially in controversial cases, said Melissa Jacoby, a University of North Carolina law professor.

“It is a structural concern, not a matter of intentional misbehavior,” Jacoby said.

Kaplan declined to comment, citing ongoing appeals.

Unusual Circumstances

Kaplan took over mediation after weighing in on the venue dispute, where the Multi-Color subsidiary that provided the jurisdictional connection was accused of having no legitimate ties to New Jersey.

Kaplan disagreed, satisfied by the $1 million bank deposit in the weeks leading up to the bankruptcy and saying Congress left the statute “deliberately broad.”

The ruling adds to a growing body of decisions affirming bankrupt corporations’ authority to pick their courts.

“Judge Kaplan’s decision could, in theory, allow debtors to have their bankruptcy cases heard in any forum they choose simply by moving money into a local bank account,” Ellis said.

Judges mediating and presiding in their own cases is rare, but not unheard of. Kaplan last year did so in cosmetics materials supplier Presperse Corp.'s bankruptcy. Former Delaware Judge Christopher Sontchi self-mediated in the 2016 Paragon Offshore case.

Retired Southern District of New York Judge Robert Drain mediated collective bargaining issues in Hostess Brands’ 2012 case that he presided over.

“I felt there might be information that the union might want to share with me in a confidential setting, for example political issues/pressures within the union,” Drain said in an email. “The parties agreed on the record that this would not be a basis for recusal.”

Drain said the practice will likely continue only under unusual circumstances that don’t lend themselves to third party mediation.

Multi-Color’s case was also marked by a fight over the company’s valuation to determine whether CD&R’s new equity stake represented a fair investment or an improper windfall.

The mediated deal ultimately incorporated on the company’s $2.9 billion to $3.4 billion valuation over dissenting creditors’ higher estimate.

Valuation fights have grown rarer in corporate bankruptcies, said Joseph E. Sarachek of Sarachek Law via email, citing controversial pre-bankruptcy liability management exercises.

“Most of us bankruptcy ‘old-timers’ miss those days when valuation fights were commonplace BECAUSE there weren’t all these LME’s that fleeced companies of the remaining value,” Sarachek said.

Kirkland & Ellis LLP and Cole Schotz PC represent Multi-Color.

The case is Multi-Color Corp., Bankr. D.N.J., No. 26-10910, hearing 4/21/26.