smb Doc 56 Filed 03/07/14 Entered 03/07/14 15:22:54 Main Document Pg 1 of 7

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1 Pg 1 of 7 Shalom Jacob Alan H. Katz LOCKE LORD LLP 3 World Financial Center New York, New York Telephone: (212) Facsimile: (212) Kevin J. Leichter Santa Monica Boulevard, 4th Floor Los Angeles, California Telephone: (310) Facsimile: (310) Counsel to Le Metier Beauty Investment Partners LLC and Unattainable Beauty LLC UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: METIER TRIBECA, LLC, d/b/a LE METIER DE BEAUTE, Chapter 11 Case No (SMB) Debtor. OBJECTION OF LE METIER BEAUTY INVESTMENT PARTNERS LLC AND UNATTAINABLE BEAUTY LLC TO DEBTOR S APPLICATION TO EMPLOY STEGER KRANE, LLP AS SPECIAL COUNSEL NUNC PRO TUNC TO PETITION DATE Le Metier Beauty Investment Partners LLC and Unattainable Beauty LLC (collectively, the Capital Investors ), through undersigned counsel, hereby submit this limited objection (the Objection ) to Debtor s Application to Employ Steger Krane, LLP as Special Counsel Nunc Pro Tunc to Petition Date [Doc. No. 16] (the Application ) and, in support of their Objection, respectfully state as follows:

2 Pg 2 of 7 BACKGROUND 1. On February 14, 2014 (the Petition Date ), Metier Tribeca, LLC ( Debtor ) filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code (the Code ). No trustee has been appointed. 2. The Capital Investors own percent of the equity interests in Debtor, which is a majority of the equity interest in Debtor that is not owned by the Debtor s two Managers. The Capital Investors are two of the three equity interest owners referred to as Investors in the Debtor s Amended and Restated Operating Agreement dated as of October 31, 2012 (the Operating Agreement ). The Capital Investors have invested nearly 85% of all equity in the Debtor. As reflected in the Operating Agreement, the Capital Investors, along with the other money Investor identified therein, have liquidation preferences requiring return of their capital before other interest holders receive distributions. 3. Pursuant to Section 4.1 of the Operating Agreement, entering into any material transaction outside of the ordinary course of business of the Debtor requires the express consent of the the Investors, a term the Operating Agreement defines to include the Capital Investors. Debtor has not obtained the consent of the Capital Investors with regard to any aspect of this bankruptcy case, including without limitation the filing of the voluntary petition for relief In the Application, Debtor seeks approval pursuant to Bankruptcy Code Sections 327(e) of its employment of Steger Krane, LLP ( Steger Krane ) as its special counsel. 1 The Capital Investors reserve all rights with regard to the failure to obtain the consent required by the Operating Agreement prior to commencement of this bankruptcy case. 2

3 Pg 3 of 7 OBJECTION 5. Pursuant to Bankruptcy Code 327(e), the debtor-in-possession, with the Court s approval, may employ for a special purpose an attorney that has represented the debtor, but only if such employment is in the best interest of the estate and if such attorney does not represent or hold any interest adverse to the debtor or the estate with respect to the matter for which the attorney is to be employed. Federal Rule of Bankruptcy Procedure 2014(a) requires that an application to employ a professional pursuant to 327 state, to the best of the applicant s knowledge, all of the [professional s] connections with the debtor, creditors, [or] any other party in interest. Rule 2014(a) also requires that an application be accompanied by a verified statement of the person to be employed setting forth the person s connections with the debtor, creditors, [or] any other party in interest. 6. The Capital Investors object to the Application because, they submit, adequate disclosure of Steger Krane s connections has not been made, because Steger Krane has an interest adverse to the estate with respect to the matter for which it is to be employed and because employment of Steger Krane would not be in the best interest of the estate. Additionally, the engagement of Steger Krane has not been properly authorized by the Debtor, because the Capital Investors have not consented to it. 7. As the Court is aware, this case involves a control struggle between the Debtor s alleged 2 Managers, Richard Blanch and Gerard Mastellon, and the Capital Investors. Steger Krane has participated in that struggle, in the Capital Investors view favoring Messrs. Blanch and Mastellon, and has represented and perhaps is currently representing one or both of them on 2 The Capital Investors contend that Messrs. Blanch and Mastellon have been without authority to act on behalf of the Debtor since their employment agreements terminated in May

4 Pg 4 of 7 other matters. Although 327(e) permits employment of an attorney who has previously represented the debtor, because of Steger Krane s apparently partisan involvement in the control struggle and its representation of Mr. Blanch and/or Mr. Mastellon on other matters, it would not be in the best interest of the estate for Steger Krane to be engaged as Debtor s special counsel during this bankruptcy case. 8. The Application does not satisfy Rule 2014(a) s requirement that an application to employ a professional pursuant to 327 state, to the best of the applicant s knowledge, all of the [professional s] connections with the debtor, creditors, [or] any other party in interest, the Application itself contains no information about Steger Krane s connections with the Debtor, its creditors or any other parties in interest. 9. The Application is accompanied by an affirmation (the Affirmation ) executed by Michael D. Steger, a partner of Steger Krane, but while the Affirmation contains some information concerning Steger Krane s connections with the Debtor and Messrs. Blanch and Mastellon, its disclosure is inadequate, and what is disclosed raises questions about whether Steger Krane s retention would be in the best interest of the estate and whether it has adverse interests related to the proposed representation. 10. According to the Affirmation, the Debtor owes Steger Krane approximately $44, According to the Debtor s List of Creditors Holding 20 Largest Unsecured Claims [Doc. No. 1-2], Steger Krane s claim is the eighth largest unsecured claim. It is not in the Debtor s best interest to be represented by one of its largest unsecured creditors. 11. The Affirmation states that Steger Krane has no present connection with any creditor of Debtor or any party in interest except as disclosed in the Affirmation (Affirmation 6) and that Steger Krane has in the past represented, currently represents, and may in the 4

5 Pg 5 of 7 future represent entities that are claimants or interest holders of Debtor in matters unrelated to Debtor s pending chapter 11 case (Affirmation 7). It then states that Michael Steger himself, the person who would provide the proposed legal services, prior to being with Steger Krane personally represented Richard Blanch on unrelated matters, and I have represented a business entity that is party owned by Richard Blanch and Island Def Jam Music Group [another of Debtor s Investors]. That business entity has no current operations. (Affirmation 11.) 12. By making its own determinations of what is and what is not related to the proposed representation, rather than providing details of all representations of claimants or holders of interest in the Debtor, Mr. Steger s Affirmation defeats the Court s ability to make its own determination as to whether Mr. Steger and his law firm are qualified to serve as special counsel. Additional disclosure should be required before the Application is granted. 13. Additionally, the Capital Investors submit that Mr. Steger s and Steger Krane s prior representation of the Debtor and any past or ongoing representation of Mr. Blanch or Mr. Mastellon creates an adverse interest to the estate with respect to the matter for which employment is sought and also indicates that such employment is not in the best interests of the estate. 14. The Debtor proposes that Steger Krane provide corporate governance advice, attend board meetings and prepare minutes of meetings and other documents required to meet corporate requirements. But, the ongoing control struggle involves, among other things, notices of meetings, minutes, resolutions and other corporate documents prepared by Steger Krane as well as advice on such matters provided by Steger Krane. The Capital Investors believe that Steger Krane s advice and work inappropriately favored Messrs. Blanch and Mastellon to the Debtor s, the estate s and all investors detriment. For example, the notice of the special board 5

6 Pg 6 of 7 meeting at which the bankruptcy filing was approved omitted any mention that bankruptcy would be discussed. Further, under the Operating Agreement a decision to file bankruptcy was not within the board s mandate. Presumably, Steger Krane, which no doubt is familiar with the Operating Agreement, had a hand in drafting that notice and the resolution which was submitted with the voluntary petition. It is premature to make any firm conclusions in this regard, but the Debtor may have claims against Steger Krane arising from the filing of this case as well as claims arising from its prior work for the Debtor. 15. Additionally, in the securities fraud litigation pending in the United States District Court (No. 13-cv-4650, Southern District of New York), the Capital Investors have alleged that within twenty-four hours of the Debtor s receipt of $1,800, from Le Metier Beauty Investment Partners LLC on October 31, 2012, the Debtor paid $30, to Mr. Steger. Mr. Steger s involvement as counsel for the Debtor in the transactions challenged in that litigation at the least makes him a witness in that proceeding. The Debtor may have claims against Mr. Steger and/or Steger Krane arising from the alleged securities fraud. Any such adverse interest is related to the legal work that the Debtor now wants Steger Krane to perform. 16. The Debtor s Application does not allege that retaining counsel other than Steger Krane would be inconvenient or cause it to incur significant additional expense. To the extent that the Debtor may raise such arguments, the Capital Investors submit that there are many attorneys in this area who can do this work, that bringing another attorney up to speed would entail review of only a limited number of corporate documents generated over not even two years and would not entail significant expense, and that in view of the ongoing governance dispute it would be unseemly for the Debtor now that a bankruptcy petition has been filed to 6

7 Pg 7 of 7 continue to use the same counsel who participated in the dispute that is a large part of the reason for its filing. 17. In sum, the Capital Investors submit that not only has adequate disclosure not been made, but the known facts indicate that Steger Krane has interests adverse to the estate that relate to the proposed representation and that also indicate that the Debtor s continued engagement of Steger Krane would not be in the best interests of the Debtor and its estate. Furthermore, engagement of Steger Krane has not been properly authorized by the Debtor. CONCLUSION denied. For the reasons stated above, the Capital Investors submit that the Application should be Dated: March 7, 2014 /s/ Alan H. Katz Shalom Jacob sjacob@lockelord.com Alan H. Katz akatz@lockelord.com LOCKE LORD LLP 3 World Financial Center New York, New York Telephone: (212) Facsimile: (212) and Kevin J. Leichter Santa Monica Boulevard, 4th Floor Los Angeles, California Telephone: (310) Facsimile: (310) Counsel to Le Metier Beauty Investment Partners LLC and Unattainable Beauty LLC 7