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BRACEWELL LLP Robert G. Burns Mark E. Dendinger Joshua D. Neifeld (admitted pro hac vice) 1251 Avenue of the Americas New York, New York 10020 Telephone: (212) 508-6100 Facsimile: (212) 508-6101
Proposed Counsel for Debtors and Debtors in Possession
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
In re Chapter 11
Seabras 1 USA, LLC et al., Case No. 19-14006 (SMB)
Debtors.1 (Jointly Administered)
Related Docket Nos. 70, 95
REPLY IN SUPPORT OF DEBTORS’ APPLICATION FOR ENTRY OF AN ORDER AUTHORIZING AND APPROVING RETENTION AND EMPLOYMENT OF BRACEWELL LLP AS ATTORNEYS FOR THE DEBTORS NUNC PRO TUNC TO THE PETITION DATE
1 The Debtors in these chapter 11 cases, along with the last four digits of their respective tax identification numbers, are Seabras 1 USA, LLC (0027) and Seabras 1 Bermuda Ltd. (7149). The Debtors’ principal offices are located at 600 Cummings Center, Suite 268-Z, Beverly, MA 01915.
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TABLE OF CONTENTS
PRELIMINARY STATEMENT ...... 1
REPLY ...... 5
I. Bracewell is Disinterested and Has no Adverse Interest as a Matter of Law ...... 5
II. Bracewell Never Represented Seabras Group ...... 6
A. Bracewell Was Retained Only by Seabras Bermuda ...... 6
B. No Attorney Client Relationship was Formed Between Bracewell and Seabras Group ...... 7
III. There is No Actual Conflict that Precludes Bracewell’s Retention Even If the Court Were to Find Bracewell Represented Seabras Group ...... 11
IV. The Debtors Have the Right to Select Their Own Counsel and Denying the Bracewell Retention Application Will Damage the Debtor’s Estates ...... 13
V. The Payments Made In The Preference Period Should Not Disqualify Bracewell From Representing The Debtors In These Cases ...... 14
RESERVATION OF RIGHTS ...... 15
CONCLUSION ...... 15
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TABLE OF AUTHORITIES
Page(s)
Cases
In re Ampal-Am. Isr. Corp., 534 B.R. 569 (Bankr. S.D.N.Y. 2015), aff’d, 554 B.R. 604 (S.D.N.Y. 2016) ...... 5, 6, 12
In re Ampal-Am. Isr. Corp., 554 B.R. 604 (S.D.N.Y. 2016) ...... 6
Bank Brussels Lambert v. Coan (In re AroChem Corp.), 176 F.3d 610 (2d Cir. 1999)...... 6
In re Caldor Inc. NY, 193 B.R. 165 (Bankr. S.D.N.Y. 1996) ...... 5, 14
In re Casesars Entertainment Operating Co., Inc., 561 B.R. 420 (Bankr. N.D. Ill. 2015) ...... 13
In re Codesco Inc., 18 B.R. 997 (Bankr. S.D.N.Y. 1982) ...... 5
Ello v. Singh, No. 05-Cv-9625 (KMK), 2006 WL 2270871 (S.D.N.Y. Aug. 7, 2006) ...... 10
In re Enron Corp., No. 01-16034 (AJG), 2002 WL 32034346 (Bankr. S.D.N.Y. May 23, 2002) ...... 13
In re Granite Partners, L.P., 219 B.R. 22 (Bankr. S.D.N.Y. 1998) ...... 5
GSI Commerce Solutions, Inc. v. BabyCenter, L.L.C., 618 F.3d 204 (2d Cir. 2010)...... 11
Hashemi v. Shack, 609 F. Supp. 391 (S.D.N.Y. 1984)...... 11
Latin Am. Fin. Grp., Inc. v. Pareja, No. 04 Civ. 10082 (DLC), 2006 WL 2032627 (S.D.N.Y. July 19, 2006) ...... 8
Makhoul v. Watt, Tieder, Hoffar & Fitzgerald, LLP, No. 11-CV-5108 (PKC), 2015 WL 5158477 (E.D.N.Y. Sept. 2, 2015) ...... 8, 9
Merck Eprova AG v. ProThera, Inc., 670 F. Supp. 2d 201 (S.D.N.Y. Sept. 17, 2009) ...... 8
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Pellegrino v. Oppenheimer & Co., 49 A.D.3d 94 (N.Y. App. Div. 2008) ...... 8
In re Pillowtex, Inc., 304 F.3d 246 (3rd Cir. 2002) ...... 15
In re Project Orange Assocs., LLC, 431 B.R. 363 (Bankr. S.D.N.Y. 2010) ...... 5, 6
Pryor v. Ready & Pontisakos (In re Vouzianas), 259 F.3d 103 (2d Cir. 2001)...... 5
Wei Cheng Chang v. Pi, 288 A.D.2d 378 (N.Y. App. Div. 2001) ...... 8
In re West End Fin. Advisors, LLC, No. 11-11152 (SMB), 2012 WL 2590613 (Bankr. S.D.N.Y. July 3, 2012) ...... 15
In re Wingspread Corp., 152 B.R. 861 (Bankr. S.D.N.Y. 1993) ...... 14
Statutes
Bankruptcy Code § 327 ...... 4, 5, 6, 12, 15
Bankruptcy Code § 327(a) ...... 5, 14
Bankruptcy Code § 547 ...... 14
English Law ...... 7
Other Authorities
https://www.sra.org.uk/solicitors/standards-regulations/code-conduct-solicitors/; https://www.legislation.gov.uk/uksi/2017/692/part/2 ...... 7
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Seabras 1 USA, LLC (“Seabras USA”) and Seabras 1 Bermuda Ltd. (“Seabras
Bermuda” and, together with Seabras USA, the “Debtors”), the debtors and debtors in
possession in the above-captioned chapter 11 cases (these “Cases”), acting by and through their
undersigned counsel, respectfully submit this reply (this “Reply”) to the objection [D.I. 95] (the
“Objection”) of Seabras Group, LLC (“Seabras Group”) to the Debtors’ Application for Entry
of an Order Authorizing and Approving Retention and Employment of Bracewell LLP as
Attorneys for the Debtors Nunc Pro Tunc to the Petition Date [D.I. 70] (the
“Bracewell Retention Application”). In support of this Reply, the Debtors rely on: (i) the
Declaration of Robert G. Burns (the “Burns Declaration”) attached as Exhibit B to the
Bracewell Retention Application; (ii) the Declaration of Larry Schwartz (the
“Schwartz Declaration”), which is being filed simultaneously herewith; and (iii) the
Declaration of Oliver Irwin (the “Irwin Declaration”)1, which is being filed simultaneously
herewith, and respectfully represent as follows:
PRELIMINARY STATEMENT
1. Bracewell was retained by Seabras Bermuda pursuant to an engagement letter
dated May 16, 2018. Bracewell later expanded the scope of its representation pursuant to an
engagement letter executed with Seabras Bermuda and Seabras USA dated December 17, 2019.
Bracewell was never retained by any other entity in this matter. Bracewell never represented,
provided a bill for services, or was paid by any entity other than the Debtors. The attempt by
Seabras Group to disqualify Bracewell is based upon a distortion of events where key
executives held positions in different interconnected entities. These principals understood at the
1 Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Irwin Declaration and Bracewell Retention Application, as applicable.
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time who Bracewell did and did not represent. No role fulfilled by Bracewell prevents
Bracewell from serving as Debtors’ counsel in these Cases.
2. Corporations are inanimate objects that act by and through their officers,
directors and authorized employees. The Objection is based on solely on the Declaration of
Todd Smith (the “Smith Declaration”), but Mr. Smith is not the sole arbiter of whether it was
reasonable for Seabras Group, as a corporate entity, to believe it was represented by Bracewell.
The underlying record clearly shows that other members of the Seabras Group board, as well as
Seabras Group’s executive officers, were abundantly clear that Bracewell was counsel only to
Seabras Bermuda. When Mr. Smith made occasional references to Bracewell as Seabras
Group’s counsel he was contemporaneously corrected. Moreover, the record will show that
some of his purported interactions with Bracewell on which his declaration rests stretch the
bounds of credibility.
3. The key players relevant to the allegations raised in the Objection acted in
different capacities for distinct legal entities during the months leading up to the filing of these
Cases. The following will give the Court a sense of the many roles the parties played:
Larry Schwartz, Andrew Bax and Roger Kuebel (collectively, the “Executive Team”) were the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, respectively, of: (i) Seabras Group; (ii) Seabras Bermuda; and (iii) Seabras USA. They were also members of the boards of directors of all three entities.2
Todd Smith is the Senior Vice President, Private Infrastructure of Partners Group (USA), Inc. and a member of the Seabras Group Board.
Todd Bright is a Partner with Partners Group (USA), Inc., Mr. Bright is not a member of the Seabras Group Board.
2 The Objection makes the incredible claim that Bracewell is still representing Seabras Group because Patrick Hill was the corporate secretary for Seabras Group for eight days following the petition date and is the general counsel of Seabras Group. See Obj. at 9, n. 9. Mr. Hill is not now, nor has he ever been, the general counsel of Seabras Group. As for the brief period while he remained corporate secretary, Bracewell dealt with Mr. Hill solely in his capacity as General Counsel of Seaborn Management. See Schwartz Decl. ¶ 5.
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Adam Pilchman is a Senior Vice President of Partners Group (USA), Inc., Mr. Pilchman is not a member of the Seabras Group Board.
Scott Salopek is an employee of Partners Group (USA), Inc., Mr. Salopek is not a member of the Seabras Group Board.
(Messrs. Smith, Bright, Pilchman and Salopek are referred to collectively as the “Partners
Group Team”). Despite the fact that Partners Group (USA) is not a direct or indirect
shareholder in the project, these individuals took the lead role on the restructuring and other
matters that were under discussion during the time frame referenced in the Smith Declaration.
Mr. Bright and later Mr. Pilchman were active in giving feedback on the restructuring proposal
discussed in the Objection. Yet only Mr. Smith had any role with Seabras Group. The others
had no legal connection whatsoever to Seabras Group. The actions of the Partners Group Team
vis-à-vis Seabras Group makes evident that Partners Group was working to protect and advance
at all times its interests in the project and largely disregarded Seabras Group in the process.
4. Seabras Group’s Objection rests on Mr. Smith’s factually inaccurate premise that
Bracewell represented Seabras Group prior to the commencement of these Cases. Attached to
the Smith Declaration are a limited set of carefully curated emails that paint a very one-sided
and misleading picture. Mr. Smith is not unsophisticated when it comes to the attorney-client
relationship. He is a former lawyer. In his current role as a senior member of a worldwide
private equity firm he undoubtedly comes into contact with lawyers on a daily basis. While it is
now convenient to use select emails he wrote to purportedly show he had some expectation of
representation, the record will show that Mr. Smith had actual knowledge that Bracewell was
not Seabras Group counsel. Additionally, Mr. Smith was a member of the Partners Group Team
which has historically received advice from Sidley Austin LLP (“Sidley”). It was not reasonable
for him to expect that Bracewell was his counsel. He had every reason to conclude the opposite.
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5. Even, assuming arguendo, that Bracewell could be construed to have effectuated
a common law attorney-client relationship with Seabras Group prior to the Petition Date, the
Objection must still fail. Nothing in the Objection reveals circumstances that give rise to any
actual conflict which would prevent Bracewell from carrying out effective and disinterested
representation of the Debtors. Accordingly, there is no conflict for purposes of section 327 of
the Bankruptcy Code.
6. Seabras Group’s other arguments in opposition similarly fail. First, Bracewell is
not rendered un-disinterested simply because Bracewell advised the Debtors in the lead up to
filing these Cases. While Seabras Group contends that there are valuable breach of fiduciary
duty claims existing against Seabras Bermuda’s directors and officers, those claims have yet to
be put forth and they are not related to the successful resolution of these cases. In any event,
conflicts counsel could be employed to investigate such claims. Second, Bracewell is not
precluded from being retained as Debtors’ counsel because of Seabras Group’s allegation that
the Debtors’ current management should be replaced. By Seabras Group’s own admission, the
standard for retention is deferential and it does not preclude a retention order simply because a
party-in-interest is seeking to dislodge management. Lastly, Bracewell is not precluded from
being retained because it is the recipient of payments within the ninety day preference period of
these Cases. As discussed herein, it strains credulity to let ordinary course payments stand in the
way of a firm’s retention. A bright line rule to the contrary would make the retention of law
firms as debtor’s counsel nearly impossible.
7. As such, and for the reasons discussed herein, Seabras Group’s objection should
be overruled and the Court should authorize the Debtors to retain Bracewell as their counsel.
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REPLY
I. Bracewell is Disinterested and Has no Adverse Interest as a Matter of Law
8. Section 327 of the Bankruptcy Code permits a debtor to employ professionals to
represent the estate during bankruptcy with court approval. See, e.g., In re Project Orange
Assocs., LLC, 431 B.R. 363, 369 (Bankr. S.D.N.Y. 2010). Public policy favors permitting
parties to retain professionals of their choice. See, e.g., In re Caldor Inc. NY, 193 B.R. 165, 170
(Bankr. S.D.N.Y. 1996); In re Codesco Inc., 18 B.R. 997, 999 (Bankr. S.D.N.Y. 1982) (“Only
in the rarest cases should the trustee be deprived of the privilege of selecting his own
counsel[.]”) (citation omitted).
9. To qualify under section 327(a), professionals must be both disinterested and not
hold or represent any interest adverse to the estate. See Pryor v. Ready & Pontisakos (In re
Vouzianas), 259 F.3d 103, 107 (2d Cir. 2001) (citation omitted). As explained by the Project
Orange court, “[t]he structure of the Bankruptcy Code distills these dual requirements into a
single test for analysis of a conflict of interest.” 431 B.R. at 369-70; see also In re Granite
Partners, L.P., 219 B.R. 22, 33 (Bankr. S.D.N.Y. 1998) (observing that “the two prongs of
section 327(a) are duplicative and form a single test to judge conflicts of interest” and noting the
test concerns issues with “divided loyalties and affected judgements”). Whether an adverse
interest exists is best determined on a “case-by-case basis giving due consideration to the
totality of the circumstances.” In re Ampal-Am. Isr. Corp., 534 B.R. 569, 580 (Bankr. S.D.N.Y.
2015) (citations omitted) (“Ampal I”), aff’d, 554 B.R. 604 (S.D.N.Y. 2016) (“Ampal II”).
10. Moreover, “[t]he test is not retrospective; courts only examine present interests
when determining whether a party has an adverse interest.” In re Project Orange Assocs., LLC.,
431 B.R. at 370 (citing Bank Brussels Lambert v. Coan (In re AroChem Corp.), 176 F.3d 610,
623-24 (2d Cir. 1999)); accord Ampal II, 554 B.R. at 615. In this way, it is only when a former
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representation rises to the level of an actual present conflict that section 327 is implicated. See
Ampal I, 534 B.R. at 582 (discussing why limited prior representation did not create actual or
potential dispute). As discussed herein, Bracewell’s retention meets the legal standards
established by section 327 of the Bankruptcy Code.
II. Bracewell Never Represented Seabras Group
11. At its core, Seabras Group argues that Bracewell had an attorney-client
relationship with Seabras Group, which precludes its retention in these Cases under section 327
of the Bankruptcy Code. That contention is contradicted by the facts. Bracewell never
represented Seabras Group and no attorney-client relationship ever developed or existed.
A. Bracewell Was Retained Only by Seabras Bermuda
12. In May 2018, Seabras Bermuda retained Bracewell (UK) LLP (“Bracewell
UK”). See Irwin Decl. ¶ 6. On May 3, 2018, Mr. Irwin sent an email to the board of Seabras
Bermuda to confirm the terms of the engagement. See Irwin Decl., Exh. B. In his email, Mr.
Irwin wrote that “the contracting Seaborn entity (and thus the client) will be Seabras 1 Bermuda
Ltd.” See id. Like most law firms in England, Bracewell UK maintains a strict policy of
executing engagement letters with its clients and conducting stringent “Know Your Customer”
due diligence (“KYC”) on its prospective clients. Accordingly, Mr. Irwin further advised that
“[b]efore we can start work on this matter, in order to meet the requirements of the United
Kingdom’s anti-money laundering regime, we are required to identify Seabras 1 Bermuda Ltd
(“Seabras”) and any ultimate beneficial owners of the company.” See id. Bracewell UK
executed an engagement letter with Seabras Bermuda providing for the provision of services by
Bracewell UK and its affiliates to Seabras Bermuda. See Irwin Decl., Exh. E.
13. At no time has Bracewell ever signed an engagement letter with Seabras Group.
See Burns Decl. ¶ 17. At no time has Bracewell ever requested any materials from Seabras
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Group to conduct KYC due diligence regarding a Seabras Group retention. Irwin Decl. ¶ 7. At
no time has Seabras Group ever requested to execute an engagement letter with Bracewell.
Burns Decl. ¶ 17; Irwin Decl. ¶ 7. Bracewell has never requested, and Seabras Group has never
paid, any legal fees to Bracewell. Burns Decl. ¶ 17; Irwin Decl. ¶ 7. At no time has any
Bracewell attorney represented to Seabras Group, or any of its officers or directors, that
Bracewell was, or is, acting as counsel to Seabras Group. Irwin Decl. ¶ 7. Seabras Group’s
contention that Bracewell was acting for and on the behalf of Seabras Group is undermined by
these and other facts.
B. No Attorney Client Relationship was Formed Between Bracewell and Seabras Group
14. Mr. Irwin is a UK solicitor, at all relevant times he practiced in London pursuant
to relevant professional rules, and the Bracewell UK Engagement Letter provided that
Bracewell’s engagement would be governed by English Law. Under English law generally, the
question of who is a lawyer’s client is governed by contract and heavily regulated under the
Solicitors Regulation Authority for Solicitors in England and Wales and the Money Laundering,
Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations of 2017.3
There was no contract, let alone any necessary KYC undertaken in accordance with these
regulations with respect to Seabras Group retaining Bracewell. Under English law, Seabras
Group was not a client of Bracewell.
15. Similarly, under New York law, “the formation of an attorney-client relationship
is governed by contract principles.” See Latin Am. Fin. Grp., Inc. v. Pareja, No. 04 Civ. 10082
(DLC), 2006 WL 2032627, at *7 (S.D.N.Y. July 19, 2006). “The unilateral belief of a plaintiff
3See https://www.sra.org.uk/solicitors/standards-regulations/code-conduct-solicitors/; https://www.legislation.gov.uk/uksi/2017/692/part/2.
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alone does not confer upon him or her the status of a client.” Wei Cheng Chang v. Pi, 288
A.D.2d 378, 380 (N.Y. App. Div. 2001) (citations omitted). Rather, “to determine whether an
attorney-client relationship exists, a court must consider the parties’ actions[.]” Pellegrino v.
Oppenheimer & Co., 49 A.D.3d 94, 99 (N.Y. App. Div. 2008) (citations omitted). Specifically,
courts in this jurisdiction consider six factors to determine whether an attorney-client
relationship exists:
1) whether a fee arrangement was entered into or a fee paid; 2) whether a written contract or retainer agreement exists indicating that the attorney accepted representation; 3) whether there was an informal relationship whereby the attorney performed legal services gratuitously; 4) whether the attorney actually represented the individual in one aspect of the matter (e.g., at a deposition); 5) whether the attorney excluded the individual from some aspect of the litigation in order to protect another (or a) client's interest; 6) whether the purported client believes that the attorney was representing him and whether this belief is reasonable.
Makhoul v. Watt, Tieder, Hoffar & Fitzgerald, LLP, No. 11-CV-5108 (PKC), 2015 WL
5158477, at *4 (E.D.N.Y. Sept. 2, 2015) (quoting Merck Eprova AG v. ProThera, Inc., 670 F.
Supp. 2d 201, 210 (S.D.N.Y. Sept. 17, 2009). The burden is on the plaintiff to prove the
attorney-client relationship. See Makhoul, 2015 WL 5158477, at *4 (noting “a plaintiff must
show” the relevant factors).
16. As noted above, there was never a fee arrangement with Seabras Group or a
written engagement letter. Bracewell did not represent Seabras Group in any litigation or
deposition. Bracewell excluded the Partners Group Team from conversations with Seabras
Bermuda to preserve privileged advice. Moreover, despite allegations made in the Objection,
Bracewell received no confidential information unique to Seabras Group. Irwin Decl. ¶ 9. In
fact, numerous correspondence sent by and between Mr. Smith and Mr. Irwin had non-Seabras
Group personnel in copy which completely undermines any expectation of confidentiality or an
attorney-client privilege or relationship. See, e.g., Obj. at 6 (citing July 6, 2019 correspondence
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where Mr. Schwartz, Mr. Bright, and other Partners Group Team members are in copy).
Further, any information shared with Mr. Irwin was already shared with Seabras Bermuda or
shared at the same time. See, e.g., id.; Irwin Decl. ¶ 9.
17. Seabras Bermuda repeatedly made clear Bracewell was acting as its counsel. See
Schwartz Decl ¶ 10. Any contention that Mr. Smith believed Bracewell represented Seabras
Group should not be viewed as reasonable given the facts.
18. Seabras Group never questioned Bracewell’s representation until about three
weeks before these Cases were filed. See Irwin Decl. ¶ 10. At that time, the officers and
directors of Seabras Bermuda and the Partners Group Team were in severe conflict. See id. In
an effort to deprive Seabras Bermuda of its counsel, the Partners Group Team sought to replace
Bracewell as Seabras Bermuda’s counsel with the Partners Group Team’s preferred law firm to
represent Seabras Bermuda going forward. Schwartz Decl. ¶¶ 12-13. Notably, at no time did
Mr. Smith ever attempt to terminate Bracewell as alleged counsel to Seabras Group.
19. Further, given the alleged client is a legal entity, there is the added question of
how Mr. Smith’s individual perceptions could create an attorney-client relationship between
Bracewell and Seabras Group. Mr. Smith is only one Seabras Group Board member. Mr.
Schwartz was also a Seabras Group Board Member at the time and did not have any belief that
Bracewell acted as counsel to Seabras Group. In the absence of a formal retention, the views of
one individual board member should not govern the creation of an implied attorney-client
relationship.
20. Mr. Smith’s concerted efforts to build a record that Bracewell was previously
serving as counsel to Seabras Group after the commencement of these Cases do not change the
reality. For example, on December 23, 2019, the day after the Debtors filed for bankruptcy, Mr.
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Smith wrote an email to Mr. Irwin wherein Mr. Smith made references to Bracewell acting as
“counsel for Seabras [Group] and its subsidiaries.” See Irwin Decl. ¶ 14. Later that day, Mr.
Irwin respond to Mr. Smith, advising him that “Bracewell does not represent Seabras Group,
LLC. We represent Seabras 1 Bermuda Limited.” See id.
21. As will become clear to this Court, Bracewell solely advised Seabras Bermuda
pursuant to the terms of its engagement. For example, Mr. Irwin only provided assistance on the
restructuring proposal discussed in the Objection after receiving direction from his Seabras
Bermuda (his client) to provide such assistance. Irwin Decl. ¶ 9. Similarly, Mr. Smith, fully
aligned with Partners Group, received legal services and/or advice from Sidley. See id. ¶ 5.
22. Thus, Mr. Smith’s assertion that he believed he was being represented by
Bracewell through Mr. Irwin is not reasonable and far from dispositive. As such, no attorney-
client relationship was formed. Cf. Ello v. Singh, No. 05-Cv-9625 (KMK), 2006 WL 2270871,
at *4 (S.D.N.Y. Aug. 7, 2006) (finding union representative plaintiff’s “subjective belief” that
opposing counsel represented him “patently unreasonable” where plaintiff should have known
counsel represented union and communications would not be kept confidential) (citations
omitted); Hashemi v. Shack, 609 F. Supp. 391, 395 (S.D.N.Y. 1984) (finding correspondence
read in their entirety makes clear that “defendants assumed no duty to represent [plaintiff]”).
23. The concurrent representation cases cited by Seabras Group (see Obj. ¶ 35) do
not compel a different result. In those cases, counsel was disqualified from suing a corporate
subsidiary of the firm’s current client where such entities were so aligned and intertwined so as
to deemed “a single entity for conflict purposes.” However, there is no allegation of an active
concurrent representation here. Moreover, the Second Circuit “agree[s] with the ABA that
affiliates should not be considered a single entity for conflicts purposes based solely on the fact
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that one entity is a wholly-owned subsidiary of the other, at least when the subsidiary is not
otherwise operationally integrated with the parent company.” GSI Commerce Solutions, Inc. v.
BabyCenter, L.L.C., 618 F.3d 204, 211 (2d Cir. 2010). In this case, Seabras Group and Seabras
Bermuda adhered to corporate formalities, held separate board meetings, and at all times Mr.
Schwartz exercised diligence in maintaining separateness of the entities and his obligations to
each. See Schwartz Decl. ¶ 6. Further, there was no unity of interests or shared general counsel
between Seabras Group and Seabras Bermuda during the relevant time period. The divergent
interests of Seabras Bermuda and Seabras Group were particularly acute after the Executive
Team received advice from Appleby that Seabras Bermuda was in the “zone of insolvency” and
therefore their fiduciary duties were to creditors rather than shareholders. Under these
circumstances, there can be no legitimate dispute that Bracewell’s client was Seabras Bermuda
and any communications also received by Mr. Smith (along with the various other third parties
on those communications) from Mr. Irwin cannot reasonably be said to have created an
attorney-client relationship between Seabras Group and Bracewell.
III. There is No Actual Conflict that Precludes Bracewell’s Retention Even If the Court Were to Find Bracewell Represented Seabras Group
24. Even assuming arguendo that Bracewell represented Seabras Group, that fact,
standing alone, would not be a basis to bar Bracewell’s retention. Here, there is no contention
that Bracewell currently represents Seabras Group. The Objection generally only alleges the
following with respect to legal services allegedly provided by Bracewell to Seabras Group: (i)
sharing a legal analysis regarding a contract dispute with a Seabras Bermuda vendor; (ii)
responding to requests to formalize a restructuring proposal and attending a video conference
meeting (with representatives from the lender group and their counsel as well as the Partners
Group Team) concerning the same proposal; (iii) setting up a call to discuss the impact of
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insolvency on certain contracts; and (iv) giving advice regarding the novation of the MSA to
Seabras Bermuda board members who were at the time also officers and directors of Seabras
Group. See Obj. ¶ 12. Bracewell did not receive confidential information from Seabras Group
regarding any of these matters, let alone any confidential information that it could use to
Seabras Group’s detriment or to the detriment of the estate. See Ampal I, 534 B.R. at 582
(noting the issue of actual conflict focuses on whether confidential communications passed
between proposed counsel and former clients that would prevent counsel from representing the
best interests of the estate) (citation omitted). Moreover, none of these matters are central to the
progress of these Cases and do not preclude Bracewell from rendering disinterested advice in
the best interests of the estate. Accordingly, even assuming Bracewell did represent Seabras
Group, such limited representation does not present an actual conflict barring representation.
See id. at 588 (overruling section 327 objection where proposed counsel’s prior representation
of creditors would not interfere with serving best interests of estate and disqualification would
have a deleterious effect on estate).
25. Similarly, Seabras Group’s contention that Bracewell’s role in advising Seabras
Bermuda regarding the novation of the MSA and the filing of these Cases creates an actual
conflict because it precludes Bracewell from pursuing breach of fiduciary claims is
unpersuasive. See Obj. ¶¶ 21-27. 4 First, unlike the cases cited in paragraph 25 of the Objection
concerning proposed counsel’s concurrent significant representations or deep and undisclosed
conflicts with central creditors or litigation targets, Bracewell’s advice to Seabras Bermuda or
allegedly to Seabras Group prior to these Cases does not, and will not, cause it to suffer from
divided loyalties or affected judgments as it relates to the interests of the estate and its creditors.
4 Contrary to the allegations made in the Objection, Bracewell did not advise Seabras Group regarding the MSA Novation. Bracewell gave such advice to Seabras Bermuda. Irwin Decl. ¶ 12.
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Bracewell will work with the Debtors to put forward a viable plan of reorganization that is in
the best interest of the estate and all creditors. Second, to the extent breach of fiduciary duty
claims may exist, such claims may be investigated by conflicts counsel. See, e.g., In re Casesars
Entertainment Operating Co., Inc., 561 B.R. 420, 435 (Bankr. N.D. Ill. 2015) (“Should
questions arise about [Debtor’s] willingness to pursue claims belonging to the bankruptcy
estates, there are better solutions than depriving [Debtor] of its choice of counsel.”); In re Enron
Corp., No. 01-16034 (AJG), 2002 WL 32034346, *10 (Bankr. S.D.N.Y. May 23, 2002)
(recognizing “[c]onflicts counsel, limited engagement agreements, and ethical walls have been
acceptable procedures to address conflict of interest issues.”).
IV. The Debtors Have the Right to Select Their Own Counsel and Denying the Bracewell Retention Application Will Damage the Debtor’s Estates
26. Seabras Group argues that because Seabras Bermuda’s management is allegedly
not properly in charge of the Debtors, they should not be permitted to retain Bracewell. See Obj.
¶¶ 15-20. As discussed above, public policy favors permitting parties to retain professionals of
their choice. Moreover, a “party seeking disqualification must carry a ‘heavy burden’ and meet
a ‘high standard of proof’.” See In re Caldor, 193 B.R. at 178 (quoting In re Wingspread Corp.,
152 B.R. 861, 863 (Bankr. S.D.N.Y. 1993)).
27. Here, while Seabras Group is actively disputing who should have control over
Seabras Bermuda, and consequently these Cases, this Court has not rendered a decision on that
pending dispute. It should therefore not hamper the Debtors’ control over these Cases and their
business judgement in electing to retain Bracewell as their counsel. To prevent the Debtors from
retaining Bracewell on this ground now would serve no purpose other than advancing Seabras
Group’s agenda. By contrast, approving and authorizing the Debtors retention of Bracewell
would permit the Debtors’ to advance these cases with a renewed ability to focus on the key
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matters around which a restructuring will unfold. Seabras Group will not be prejudiced by these
continued efforts. If the Debtors put forth a plan to which Seabras Group objects, Seabras
Group has already amply shown that it can represent its interests in these Cases.
V. The Payments Made In The Preference Period Should Not Disqualify Bracewell From Representing The Debtors In These Cases
28. Lastly, Seabras Group alleges that because payments were made to Bracewell
during the 90-day preference period, Bracewell is not disinterested and should not be retained
under section 327(a) of the Bankruptcy Code. See Obj. ¶¶ 40-42. The allegation is unavailing.
Bracewell received six invoice payments totaling $171,727 in the 90 days prior to the filing of
these Cases. The average age of the invoices was 19.5 days. Only one payment (for $10,947)
was made more than 30 days after the invoice date. As for the $100,000 retainer received on
December 20, 2019, that was an advance payment for work to be done on the preparation of the
cases. Given that this payment was not received on account of an antecedent debt it does fall
within the scope of Section 547 of the Bankruptcy Code.
29. Taken to its logical end, the theory advanced here would mean that no law firm
that received payment of legal fees in the 90 days prior to the case could be retained. That has
simply never been the rule. While prepetition payments could certainly constitute preferences,
see In re Pillowtex, Inc., 304 F.3d 246, 255 (3rd Cir. 2002), the common practice would be for
the firm to disgorge any preference payment so as to avoid any conflict with Section 327 of the
Code. See In re West End Fin. Advisors, LLC, No. 11-11152 (SMB), 2012 WL 2590613, at *10
(Bankr. S.D.N.Y. July 3, 2012) (discussing procedure for resolving potential preference issue).
This is a practical rule and a practical approach. By the time a debtor arrives in bankruptcy, the
proposed counsel has spent countless hours and billed sometimes millions of dollars in fees. To
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disqualify a firm because it received fees within the preference period would be highly
disruptive in the early stages of a case.
RESERVATION OF RIGHTS
30. The Debtors reserve all rights to supplement, update and/or amend this Reply
and to assert any and all other arguments and/or evidence. Further, the Debtors do not waive,
and expressly preserve, all other rights, including rights of discovery, claims and defenses it
may have in this proceeding or any other matter.
CONCLUSION
For the reasons set forth above, the Debtors respectfully request that the Court enter an
order, substantially in the form attached to the Bracewell Retention Application, granting the
relief requested in the Bracewell Retention Application and such other and further relief as may
be just and proper.
[Signature Page on Following Page]
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WHEREFORE the Debtors respectfully request entry of an order granting the relief
requested herein and such other and further relief as this Court may deem just and appropriate.
Dated: February 1, 2020 New York, New York
BRACEWELL LLP
/s/ Robert G. Burns Robert G. Burns Mark E. Dendinger Joshua D. Neifeld (admitted pro hac vice) 1251 Avenue of the Americas New York, New York 10020 Telephone: (212) 508-6100 Facsimile: (212) 508-6101
Proposed Counsel for Debtors and Debtors in Possession
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