Judge Brian Kenney in the US Bankruptcy Court of the Eastern District of Virginia concluded that V&E is not disinterested given its representation of Enviva’s single largest shareholder Riverstone.

“[W]here: (a) Riverstone owns 43% of the Debtors’ equity; (b) Riverstone has two of the Debtors’ thirteen directors; (c) Riverstone is a $14,000,000.00 a year client of V&E; and (d) no ethical walls have been imposed, and no ethical walls can be constructed because V&E attorneys continue to represent the Debtors and Riverstone simultaneously, the Court must conclude that V&E is not disinterested,” according to the memorandum opinion and order filed today.

As 9fin has reported, V&E was the second firm to be caught up in a hard-fought debtors’ counsel retention battle in a large bankruptcy this year, following the retention fight in Invitae discussed here.

Today’s opinion distinguished Enviva from Invitae, noting: “Riverstone is an equity security holder, not a creditor. More importantly, the Court finds that there is an actual conflict of interest. V&E cannot be expected to negotiate a Plan that contravenes the interests of its $14 million dollar-a-year client. In Invitae, the proposed law firm [Kirkland & Ellis] billed the adverse party and client (Deerfield) a total of $2.4 million from the inception of the relationship, and $1.8 million in 2023, representing 0.03% of the applicant’s revenue for that year. The court described this as ‘relatively de minimus’ in the scheme of things. In this case, V&E’s revenue from Riverstone amounts to 1.4% of its annual revenue for 2023, or 46 times more…” (emphasis 9fin’s).

This hearing was scheduled after Judge Kenney, in response to the US Trustee’s objection, found that V&E failed to reference any wall of separation in its declaration regarding the firms handling of: V&E’s inability to represent the debtors; officers and directors in pending shareholder; and derivative litigation with Riverstone.

The Enviva docket is here.

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