Motion for Protective Order // Chicken Soup for the Soul, LLC's and William Rouhana's Motion for Protective Order (related document(s)225, 226, 283) Filed by Chicken Soup for the Soul, LLC, William Rouhana. Detweiler, Donald (10/17/24)
[Edited for content]
Pursuant Application, Robert Warshauer, a former director of CSSE and member of CSSE’s SRC, seeks entry of an order, seeking two distinct retentions: (i) an order “authorizing the SRC to retain and employ PSZJ from June 28, 2024 through and including July 3, 2024”; and (ii) an order “authorizing the Chapter 11 Debtors to retain and employ PSZJ as their chapter 11 counsel from July 4, 2024 through and including July 10, 2024, the conversion date for these cases.”
Pursuant to the 327(e) Application, the Chapter 11 Trustee seeks to retain PSZJ as special litigation and transactional counsel to the Chapter 7 Trustee effective as July 11, 2024.
The Omnibus Objection identifies a number of critical events and facts impacting the Applications, including (i) Pachulski Stang Ziehl & Jones LLP’s (“PSZJ”) undisputed representation of the SRC both before and during the chapter 11 cases; (ii) PSZJ’s purported change of representation from the SRC to the Debtors following the Court’s July 4, 2024 Interim DIP Financing Order; (iii) Creditor HPS Investment Partners, LLC’s (“HPS”) failure to fully fund the amounts payable under the Interim DIP Financing Order prior to the conversion of the chapter 11 cases; (iv) HPS using the Interim DIP Financing Order to reinstate the SRC; HPS using the conversion of the chapter 11 cases to chapter 7 as an excuse not to fund almost half of the Interim DIP Financing approved by the Court (thereby depriving employees of certain health coverage benefits bargained for as part of the Interim DIP Financing Order); (v) PSZJ assisting in these efforts by criticizing the Debtors’ financial condition (and Mr. Rouhana individually) before the Court, despite just days earlier claiming PSZJ lacked the records and documents necessary to assess the Debtors’ finances and operations; and (vi) the SRC’s inexplicable replacement of Reed Smith, LLP, the Debtors’ chapter 11 counsel, with the SRC’s individual counsel, PSZJ.
While the Omnibus Objection sets forth a troubling sequence of events and facts, it is not intended to prove liability of HPS, the SRC, or its individual members. Rather, it informs the Court of the events and questionable relationships and interests among the SRC, HPS, and PSZJ, all of which bear upon the Applicants’ burden of proof before the Court. To meet their burden for the Applications, Applicants must, inter alia, demonstrate that: (i) under the 327(a) Application, PSZJ did not hold or represent an interest adverse to the Debtors’ estates and was disinterested at the time of its alleged engagement by the Debtors in the chapter 11 cases; and (ii) under the 327(e) Application, the proposed retention of PSZJ is in the best interest of the estates, and PSZJ does not represent or hold any interest adverse to the Debtors or the estates with respect to the matters on which PSZJ would be employed.
Because Mr. Warshauer is a former director of CSSE who resigned his board position on or around July 10, 2024, Movants are filing simultaneously with this Motion for Protective Order an Emergency Motion to Exclude the Court’s Consideration of the 327(a) Application (D.I. TBD, the “Emergency Motion to Exclude”). The Emergency Motion to Exclude seeks to exclude the Court’s consideration of the 327(a) Application due to Mr. Warshauer’s lack of corporate authority to seek retention of PSZJ ex post facto, after his resignation from the CSSE board of directors and the clear and unambiguous retention requirements of section 327(a) of the Bankruptcy Code. Granting the Emergency Motion to Exclude would winnow the issues raised by the Applications and should be considered in connection with this Motion for Protective Order. Based on discussions between counsel to the Movants and Applicants, the Movants understand that the Applicants oppose such relief.
By this Motion for Protective Order, Movants seek entry of an order quashing the proposed Depositions pursuant to Fed. R. Civ. P. 26(c) because: (i) good cause exists to protect Movants from annoyance, embarrassment, oppression, undue burden, and expense; (ii) the Depositions are also not relevant to the Applications before the Court and seek privileged information; (iii) the discovery sought is disproportionate to the issues before the Court; and (iv) the Applications fail as a matter of law. Indeed, the Depositions appear to be nothing more than an improper attempt to launch an investigation of Mr. Rouhana and CSS on issues unrelated to the Applications. The Court should not countenance such gamesmanship by the Applicants and its proposed counsel.
A protective order is also necessary because the Applicants seek discovery as to certain legal contentions identified in the Omnibus Objection relating to potential claims the Debtors’ estates may have or hold against HPS and the SRC, PSZJ’s former clients. (Exhibit A at Ex. A.) These potential legal claims were raised by the chapter 11 Debtors’ former counsel, Reed Smith LLP, as potential legal claims against HPS (Exhibit C hereto, the “Reed Smith Correspondence”), not CSS or Mr. Rouhana. The Applicants presumably plan to explore these legal contentions and Reed Smith Correspondence with Movants. However, neither CSS nor Mr. Rouhana can swear under oath about the legal theories and contentions developed by Reed Smith on behalf of the chapter 11 Debtors, and the Applicants’ desire to examine Movants on such legal contentions would be an exercise in futility given the pervasive attorney-client privilege and work product objections and instructions that questions about Reed Smith’s characterizations regarding HPS’s alleged misconduct would inevitably draw.
To this end, the hearing on the Applications should not be turned into collateral litigation about whether the chapter 7 Debtors can prevail on legal contentions developed by the Debtors’ former chapter 11 counsel. Rather, the focus should, instead, be on whether the Applicants have met their burden of proof to retain PSZJ under the Applications, especially given PSZJ’s prior representations of the SRC and HPS.
Accordingly, Movants respectfully request the Court enter a protective order quashing the proposed Depositions in their entirety.
Source: PACER [Docket 396]
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