Preview
FILED: NEW YORK COUNTY CLERK 04/29/2022 09:55 AM INDEX NO. 651987/2022
NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/29/2022
EXHIBIT J
From: Hirsh, Robert M.
To: Nathan Bryce; John Fredericks
Cc: Goret, David L.; Chafetz, Eric
Subject: Medley inquiry relating to Disinterestedness and conflict
Date: Monday, March 01, 2021 2:58:05 PM
Nate and John,
As discussed, it continues to be our view that there is not currently a conflict by virtue of LS
representing both of MDLY and Medley, LCC and LS meets the standard of Disinterestedness
required under Section 327 of the Bankruptcy Code.
The parent (MDLY) has the authority to act on behalf of its wholly owned (but for Seth’s small stub
piece) subsidiary. The interest of the subsidiary is subsumed by the Parent. Here, MDLY as Parent
(and managing member) has made and continues to make all of the decisions and to oversee the
SEC reporting for its subsidiary, Medley, LLC. There is and has always been one Board, one
management team, and more recently, and most importantly, one subcommittee of the board
comprised of all independent directors (and an independent restructuring expert) that is making all
the decisions relating to the bankruptcy case and process.
With regard to a conflict analysis, in analyzing the conflicts facing counsel that represent corporate
affiliates, the discussion is typically divided into two distinct scenarios. The first is when counsel
represents a parent corporation and one or more of the parent’s wholly owned affiliates or
subsidiaries. The second is when counsel represents (a) a parent and one or more affiliates or
subsidiaries that the parent controls, but does not wholly own, or (b) several affiliates controlled, but
not wholly owned, by a common parent.
In the first scenario, counsel’s representation is not of entities whose interests may differ because
the parent’s interests completely preempt those of its wholly owned affiliates. As a matter of
corporate law, “in a parent and wholly-owned subsidiary context, the directors of the subsidiary are
obligated only to manage the affairs of the subsidiary in the best interests of the parent and its
shareholders.” Anadarko Petroleum Corp. v. Panhandle E. Corp., 545 A.2d 1171, 1174 (Del.
1988). See also Aviall, Inc. v. Ryder Sys., Inc., 913 F. Supp. 826, 832 (S.D.N.Y. 1996) (“Because the
officers and directors of a parent company owe allegiance only to that company and not to a wholly
owned subsidiary, it is reasonable to conclude that a parent corporation itself is under no obligation
to provide the subsidiary with independent representation .... It would be anomalous to impose a
duty upon the corporation, an artificial person, when all the natural persons who are its officers and
directors have no such duty, and there is no natural person to take up the duty.”), aff’d, 110 F.3d
892 (2d Cir. 1997).
In addition, the simultaneous representation of multiple wholly commonly owned and solvent
entities generally will not create a conflict. See, e.g., Morrison Knudsen Corp. v. Hancock, Rothert &
Burnshoft, 69 Cal. App. 4th 223, 81 Cal. Rptr. 425 (1999) (the parent and subsidiary are considered
one client for conflict purposes when a corporation is the alter ego of another entity or has sufficient
unity of interest); In re Johnson, 300 Or. 52, 707 P.2d 573 (1985) (no conflict present in simultaneous
FILED: NEW YORK COUNTY CLERK 04/29/2022 09:55 AM INDEX NO. 651987/2022
NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/29/2022
representation of buyer and seller where lawyer had been told that the buyer and seller had
identical ownership). This is true whether one thinks of the multiple entities in such situations as a
single mega-client or as multiple clients whose interests happen to be totally aligned.
In the case of MDLY and Medley LLC, the board of MDLY as the parent (and managing member) of
Medley LCC makes all of the decisions. In our view, Seth as the co-CEO and board member of MDLY
has existing duties to MDLY that make this virtually identical to the wholly-owned subsidiary context
for conflicts analysis purposes. For bankruptcy purposes, the independent Subcommittee of the
board, chaired by a third-party entirely independent restructuring professional who has never had
any ties to MDLY or Medley LLC is making all of the decisions concerning whether bankruptcy should
be filed, and the ultimate structure of any plan of reorganization being proposed. In addition, the
Company operates as one enterprise and conducts business and governs itself in that manner.
As part of its retention in the bankruptcy case, LS will make comprehensive disclosures which will
demonstrate that that there is not an adverse interest to the Debtor, its estate or any class of
creditors within the meaning of section 327 of the Bankruptcy Code. Under 327 of the Bankruptcy
Code, a debtor-in-possession may employ its own attorneys so long as they are disinterested. While
a bankruptcy court may disqualify a professional for providing services to the estate if there is an
actual conflict, there is broad discretion regarding disqualification and a court will not deny retention
where there is only an appearance of conflict. See In re Marvel Entm’t Grp., Inc., 140 F.3d 463, 476
(3d Cir. 1998). Based on our understanding of the facts and circumstances referenced above, we are
unaware of any conflict and believe LS passes the disinterested test under 327 of the Code.
We hope this answers your questions and/or concerns.
All the best.
Rob
Robert M. Hirsh, Esq.
Partner
Bankruptcy, Financial Reorganization & Creditors' Rights
Lowenstein Sandler LLP
T: 212.419.5837
M: 516.426.8232
F: 973.597.2400
Bio
This message contains confidential information, intended only for the person(s) named above, which may
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such case, you should delete this message and kindly notify the sender via reply e-mail. Please advise
FILED: NEW YORK COUNTY CLERK 04/29/2022 09:55 AM INDEX NO. 651987/2022
NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/29/2022
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FILED: NEW YORK COUNTY CLERK 04/29/2022 09:55 AM INDEX NO. 651987/2022 NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/29/2022 EXHIBIT J From: Hirsh, Robert M. To: Nathan Bryce; John Fredericks Cc: Goret, David L.; Chafetz, Eric Subject: Medley inquiry relating to Disinterestedness and conflict Date: Monday, March 01, 2021 2:58:05 PM Nate and John, As discussed, it continues to be our view that there is not currently a conflict by virtue of LS representing both of MDLY and Medley, LCC and LS meets the standard of Disinterestedness required under Section 327 of the Bankruptcy Code. The parent (MDLY) has the authority to act on behalf of its wholly owned (but for Seth’s small stub piece) subsidiary. The interest of the subsidiary is subsumed by the Parent. Here, MDLY as Parent (and managing member) has made and continues to make all of the decisions and to oversee the SEC reporting for its subsidiary, Medley, LLC. There is and has always been one Board, one management team, and more recently, and most importantly, one subcommittee of the board comprised of all independent directors (and an independent restructuring expert) that is making all the decisions relating to the bankruptcy case and process. With regard to a conflict analysis, in analyzing the conflicts facing counsel that represent corporate affiliates, the discussion is typically divided into two distinct scenarios. The first is when counsel represents a parent corporation and one or more of the parent’s wholly owned affiliates or subsidiaries. The second is when counsel represents (a) a parent and one or more affiliates or subsidiaries that the parent controls, but does not wholly own, or (b) several affiliates controlled, but not wholly owned, by a common parent. In the first scenario, counsel’s representation is not of entities whose interests may differ because the parent’s interests completely preempt those of its wholly owned affiliates. As a matter of corporate law, “in a parent and wholly-owned subsidiary context, the directors of the subsidiary are obligated only to manage the affairs of the subsidiary in the best interests of the parent and its shareholders.” Anadarko Petroleum Corp. v. Panhandle E. Corp., 545 A.2d 1171, 1174 (Del. 1988). See also Aviall, Inc. v. Ryder Sys., Inc., 913 F. Supp. 826, 832 (S.D.N.Y. 1996) (“Because the officers and directors of a parent company owe allegiance only to that company and not to a wholly owned subsidiary, it is reasonable to conclude that a parent corporation itself is under no obligation to provide the subsidiary with independent representation .... It would be anomalous to impose a duty upon the corporation, an artificial person, when all the natural persons who are its officers and directors have no such duty, and there is no natural person to take up the duty.”), aff’d, 110 F.3d 892 (2d Cir. 1997). In addition, the simultaneous representation of multiple wholly commonly owned and solvent entities generally will not create a conflict. See, e.g., Morrison Knudsen Corp. v. Hancock, Rothert & Burnshoft, 69 Cal. App. 4th 223, 81 Cal. Rptr. 425 (1999) (the parent and subsidiary are considered one client for conflict purposes when a corporation is the alter ego of another entity or has sufficient unity of interest); In re Johnson, 300 Or. 52, 707 P.2d 573 (1985) (no conflict present in simultaneous FILED: NEW YORK COUNTY CLERK 04/29/2022 09:55 AM INDEX NO. 651987/2022 NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/29/2022 representation of buyer and seller where lawyer had been told that the buyer and seller had identical ownership). This is true whether one thinks of the multiple entities in such situations as a single mega-client or as multiple clients whose interests happen to be totally aligned. In the case of MDLY and Medley LLC, the board of MDLY as the parent (and managing member) of Medley LCC makes all of the decisions. In our view, Seth as the co-CEO and board member of MDLY has existing duties to MDLY that make this virtually identical to the wholly-owned subsidiary context for conflicts analysis purposes. For bankruptcy purposes, the independent Subcommittee of the board, chaired by a third-party entirely independent restructuring professional who has never had any ties to MDLY or Medley LLC is making all of the decisions concerning whether bankruptcy should be filed, and the ultimate structure of any plan of reorganization being proposed. In addition, the Company operates as one enterprise and conducts business and governs itself in that manner. As part of its retention in the bankruptcy case, LS will make comprehensive disclosures which will demonstrate that that there is not an adverse interest to the Debtor, its estate or any class of creditors within the meaning of section 327 of the Bankruptcy Code. Under 327 of the Bankruptcy Code, a debtor-in-possession may employ its own attorneys so long as they are disinterested. While a bankruptcy court may disqualify a professional for providing services to the estate if there is an actual conflict, there is broad discretion regarding disqualification and a court will not deny retention where there is only an appearance of conflict. See In re Marvel Entm’t Grp., Inc., 140 F.3d 463, 476 (3d Cir. 1998). Based on our understanding of the facts and circumstances referenced above, we are unaware of any conflict and believe LS passes the disinterested test under 327 of the Code. We hope this answers your questions and/or concerns. All the best. Rob Robert M. Hirsh, Esq. Partner Bankruptcy, Financial Reorganization & Creditors' Rights Lowenstein Sandler LLP T: 212.419.5837 M: 516.426.8232 F: 973.597.2400 Bio This message contains confidential information, intended only for the person(s) named above, which may also be privileged. Any use, distribution, copying or disclosure by any other person is strictly prohibited. In such case, you should delete this message and kindly notify the sender via reply e-mail. Please advise FILED: NEW YORK COUNTY CLERK 04/29/2022 09:55 AM INDEX NO. 651987/2022 NYSCEF DOC. NO. 11 RECEIVED NYSCEF: 04/29/2022 immediately if you or your employer does not consent to Internet e-mail for messages of this kind.