Madison 92nd examiner: Faction law firms shouldn't represent debtor

By Caroline Salls

Pittsburgh, Jan. 12 - Madison 92nd Street Associates, LLC's examiner Thomas R. Slome said in the second part of his report that neither Goldberg Weprin Finkel Goldstein LLP nor Olshan Grundman Frome Rosenzweig & Wolosky should continue to represent the company as general counsel or special counsel, according to a Thursday filing with the U.S. Bankruptcy Court for the Southern District of New York.

"Each firm is representing a substantial group of the debtor's equityholders, each of which is adverse to the estate by virtue of its management deadlock with the other group and the fact that each has a member who is a contingent creditor of the debtor's estate," Slome said in the report.

In addition, the examiner said one of the firms is a creditor of the company's estate "and therefore does not meet the disinterested test," despite Madison 92nd's request to retain that firm as special counsel.

"Both firms might not meet the disinterested test as a result of their close affiliation with and representation of its respective faction of equityholders and in light of each faction's strong and opposing opinions as to the disposition of the two major assets of the estate," the examiner said in the report.

According to the report, Olshan Grundman was hired by the company in June 2011 to help with the sale of its hotel property following foreclosure and to prepare a potential Chapter 11 filing to complete the sale.

Goldberg Weprin was hired in connection with a Delaware derivative action tied to 92nd St. Hotel Associates LLC's decision not to sign the sale contract. It was also listed as the company's bankruptcy counsel on the Chapter 11 petition.

As previously reported, Slome filed the first part of his report last month. In that report, the examiner recommended that the company's two factions should "combine their approaches through a hybrid auction sale of the hotel asset of and the debtor's equity" if they cannot reach a buyout agreement.

If the two factions do not accept his recommendation for a hybrid auction sale, Slome said in his Dec. 12 report that "they would be best served by getting squarely behind the sale approach." If they reject both approaches, the examiner said a Chapter 11 trustee should be appointed.

In Thursday's report, the examiner said the two equity factions have not followed his recommendation to get squarely behind the hybrid approach or the sale approach.

As a result, Slome said neither Goldberg Weprin nor Olshan Grundman should continue as counsel "absent an immediate buyout of one faction by the other."

In addition, the examiner reiterated his recommendation that "appropriate concrete and certain steps be taken to overcome the management deadlock," such as appointment of a Chapter 11 trustee.

At that time, Slome said the firms "should continue their zealous advocacy for their respective equity clients."

Madison 92nd Street is a New York-based hotel owner. The company filed for bankruptcy on Aug. 16, and the Chapter 11 case number is 11-13917.

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