Maxus Liquidating Trust v. YPF S.A. (In re Maxus Energy Corp.)

626 B.R. 249

IN RE MAXUS ENERGY CORPORATION, et al., Debtors.

Maxus Liquidating Trust, Plaintiff,

v.YPF S.A., YPF International S.A., YPF Holdings, Inc., CLH Holdings, Inc., Repsol, S.A., Repsol Exploration, S.A, Repsol E&P USA, Inc., Repsol Offshore E&P USA, Inc., Repsol E&P T&T Limited and Repsol Services Company Defendants.

Case No. 16-11501 (CSS)

Adv. Pro. No.: 18-50489 (CSS)

United States Bankruptcy Court, D. Delaware.

Dated: April 6, 2021

LANDIS RATH & COBB LLP, Adam G. Landis, Matthew B. McGuire, 919 Market Street, Suite 1800, Wilmington, DE 19801-and-CLEARY GOTTLIEB STEEN & HAMILTON LLP, Victor L. Hou (Argued), Ari D. MacKinnon, One Liberty Plaza, New York, New York 10006, Counsel for the YPF Defendants

FARNAN LLP, Brian E Farnan, Michael J. Farnan, 919 North Market Street, 12^th Floor, Wilmington, DE 19801-and-WHITE & CASE LLP, J. Christopher Shore (Argued), Matthew L. Nicholson, 1221 Avenue of the Americas, New York, New York 10020, Counsel for the Liquidating Trust

OPINION¹

Sontchi, C.J.

Before the Court is the YPF defendants' motion to disqualify plaintiff's lead law firm. The Court will deny the motion.

A. Findings of Fact²

This adversary proceeding has been pending since 2018 and grew out of the 2016 Chapter 11 case of Maxus Energy Corporation ("Maxus"). The plaintiff is the Maxus Liquidating Trust (the "Trust"), which was formed under Maxus's confirmed plan of reorganization to pursue litigation, including this adversary proceeding. The relevant defendants are YPF S.A., YPF International S.A., YPF Holdings, Inc., and CLH Holdings, Inc. (collectively, "YPF"). At all relevant times, YPF was Maxus's parent. The causes of action in the complaint principally revolve around fraudulent conveyance, and alter ego/veil-piercing claims.³

Since the Trust's formation, it has been represented by White & Case LLP ("White & Case") as lead counsel, including in this adversary proceeding.⁴ Similarly, since shortly after the inception of this adversary proceeding, YPF has been represented by Sidley Austin LLP ("Sidley") as lead counsel. YPF is now also represented in this adversary proceeding by Cleary Gottlieb Steen & Hamilton LLP ("Cleary"). Indeed, it is Cleary that has presented to the Court YPF Defendants' Motion to Disqualify White & Case LLP as Counsel for the Maxus Liquidating Trust, D.I. 306 ("Motion to Disqualify") as lead counsel rather than Sidley. Cleary is the fourth major law firm to represent YPF in connection with the Maxus Chapter 11 case and this adversary proceeding.⁵

The facts and issues relevant to the Motion to Disqualify center on Ms. Jessica Lauria neé Boelter.⁶ Ms. Boelter is a well-regarded restructuring attorney. She has received numerous recognitions, including being named by Global Restructuring Review to its "40 Under 40 2016" list, which featured 40 of the world's leading restructuring specialists, aged 40 and under. Turnarounds & Workouts selected her as one of the Outstanding Young Restructuring Lawyers for 2015, and Law360 named her a Rising Star as one of the country's top eight bankruptcy lawyers under the age of 40. In addition, she has been ranked as Up and Coming in Chambers USA.⁷

Ms. Boelter was formerly a partner in the restructuring group of Sidley before she joined White & Case on October 1, 2020.⁸ She started at Sidley in their Chicago office in 2002 after graduating from law school and became a partner at Sidley in 2010.⁹ She transferred to Sidley's New York office in 2017.¹⁰

Along with other lawyers, Ms. Boelter participated in the initial Sidley pitch to YPF in the summer of 2018.¹¹ She was involved in negotiating the engagement letter between Sidley and YPF.¹² She also consulted with other members of the Sidley team on certain motions, including the motion to dismiss, and related analysis and was admitted pro hac vice in the adversary proceeding.¹³ In addition, she participated in or was copied on email correspondence with the client.¹⁴ She also attended several in-person meetings with the client.¹⁵ Executives at YPF considered Ms. Boelter to be "an integral part of YPF's outside legal team and depended on her advice, counsel and discretion on a wide range of highly sensitive topics."¹⁶

James Conlan led the Sidley engagement from the outset until his departure from Sidley in June 2020.¹⁷ Although Ms. Boelter was the senior remaining restructuring partner on the engagement, John Kuster assumed lead responsibility for the engagement after Mr. Conlan left the firm.¹⁸

Ms. Boelter's participation in this adversary proceeding varied over time.¹⁹ In total, she billed 300 hours to the engagement between 2018 and 2020.²⁰ To the best of Ms. Boelter's recollection, approximately 200 of these hours were billed in 2018, approximately 100 hours were billed in 2019 (with the majority billed during the first half of the year), and no hours were billed in 2020.²¹ Ms. Boelter attended at least part of the 6-hour oral argument on the motion to dismiss and recalls making one appearance on the record during a discovery hearing.²² The Court has no recollection of Ms. Boelter appearing in the case. Nonetheless, according to Mr. Kuster, Ms. Boelter worked on, supervised work on, and/or was privy to internal discussions concerning:

a. drafting the motion to dismiss the complaint and preparing YPF's initial disclosure;

b. document collection, document review, privilege determinations, and other discovery matters;

c. the motion to withdraw the reference and consideration of the merits of seeking another forum;

d. the tactics of White & Case in the litigation;

e. developing YPF's overall litigation strategy;

f. YPF's disclosure pursuant to U.S. securities laws;

g. the engagement of local counsel;

h. corporate law considerations related to the case;

i. the possibility of settlement or other out-of-court resolution of the case;

j. discussions concerning litigation status; and k. potential expert issues.²³

As noted above, Mr. Conlan, then the global head of Sidley's restructuring group, left Sidley to join Faegre Drinker Biddle & Reath LLP in June 2020. As is often the case in these matters, Mr. Conlan's departure led to the departure of other attorneys in his group. Ms. Boelter began exploring other opportunities and avers that her work for YPF played no role in her decision to explore lateral moves or to leave Sidley.²⁴

In connection with her ultimate relocation to White & Case, Ms. Boelter went through a standard conflict screening process.²⁵ During that process, Ms. Boelter did not discuss the YPF case other than to identify it as a matter on which she had worked, for purposes of conflict identification.²⁶ Also, during that process, Ms. Boelter understood that she was not being recruited because of her prior work for YPF.²⁷

From the beginning of her recruitment, Ms. Boelter understood that, because of her prior work for YPF on this case, a screen would be necessary.²⁸ A screen was implemented as of the day Ms. Boelter joined the firm;²⁹ and Ms. Boelter was promptly informed of, and acknowledged that she would comply with, the screen.³⁰ Ms. Boelter avers that she has never seen any of the Trust's documents pertaining to this matter, whether hard copy or electronic, in White & Case's possession.³¹

Ms. Boelter avers that she has not revealed, either directly or indirectly, any confidential information (or substantive information of any sort) that she learned during her work for YPF, including during the conflicts screening process, to anyone at White & Case and there is no evidence to the contrary.³² Other than the limited necessary disclosures during the conflicts screening process, Ms. Boelter has not discussed this matter with anyone at White & Case and has not set foot in White & Case's New York office since she joined the firm (perhaps not surprising given the existing pandemic).³³ Ms. Boelter understands that White & Case policy dictates that any disclosure of a YPF confidence, even inadvertent, will be punished as a disciplinary violation.³⁴ Finally, Ms. Boelter has agreed to certify compliance with the White & Case screen periodically.³⁵

YPF executives first learned that Ms. Boelter was leaving Sidley and joining White & Case on September 12, 2020.³⁶

Ms. Boelter joined White & Case on October 1, 2020, and sent a letter to Sidley to provide notice to YPF on the same date.³⁷ The letter stated, among other things, that all relevant personnel (i.e. , Ms. Boelter and lawyers and staff working on the matter at White & Case) had been instructed that: (1) Ms. Boelter would not have access to electronic or hard copy files relating to the matter; (2) Ms. Boelter may not discuss this matter with anyone at White & Case; and (3) Ms. Boelter would not receive any part of the fee from this matter.³⁸

Shortly thereafter, YPF's attorneys began a lengthy dialogue with White & Case over Ms. Boelter's departure.³⁹ White & Case provided extensive information to YPF as to the screen that had been implemented and related information.⁴⁰ YPF's lawyers never provided any comment as to the screen even though they were invited to do so.⁴¹ Rather, they took the position that due to Ms. Boelter's extensive involvement in the adversary proceeding on behalf of YPF no screen would be adequate.⁴²

After almost two months of, ultimately, fruitless discussions, YPF filed the Motion to Disqualify on December 19, 2020. Briefing was completed on February 26, 2021 and a hearing was held on April 1, 2021.⁴³

B. Legal Standard

The Court "has the power ... to discipline attorneys who have been admitted to practice before it," "including the power to disqualify an attorney from a representation."⁴⁴ As such, "attorney conduct is governed by the ethical standards of the court before which the attorney appears."⁴⁵ This Court, under Local Rule 9010-1(f), has adopted the American Bar Association's Model Rules of Professional Conduct (the "Model Rules") to govern the conduct of the attorneys appearing before it.

While reviewing motions to disqualify,...