PetSmart May Need to Show Documents After Chewy Court Order

(Bloomberg) -- PetSmart Inc. may be forced to turn over private information contained in documents as part of ongoing litigation related to the asset shuffle that moved valuable parts of the pet superstore beyond the reach of creditors.

In an order posted Thursday, U.S. District Judge Denise Cote granted PetSmart’s request to keep 3 of the 13 sets of documents protected under attorney-client privilege. The company is required to turn over un-redacted copies of the 10 documents not included under the protective order. They include communications between PetSmart, private equity owners and sponsors, related to the transfer of Chewy equity, according to the filing.

The case between PetSmart’s private equity owners, a group led by BC Partners, and the creditors revolves around the retailer’s decision to move a chunk of shares in the Chewy.com unit to its parent company and another Chewy stake to an unrestricted subsidiary. Proof that PetSmart was insolvent at the time of the asset move would support the lenders’ claims that the maneuver was “fraudulent.”

Representatives for PetSmart and BC Partners didn’t immediately return requests for comment.

Lenders want PetSmart to share internal communications between the company and its owners as well as presentations to the board. The retailer’s lawyers say those documents are protected by privilege, and Judge Cote asked them to file a motion supporting that claim.

“The mere fact that attorneys are involved in a communication does not cloak it with privilege,” Cote said in the filing. To qualify for the privilege, communication must be “for the purpose of obtaining or providing legal advice as opposed to business advice,” she said. When communications between a client and a consultant are made in “confidence” and “for the purpose of obtaining legal advice from the lawyer,” then the communication is privileged.

PetSmart’s senior unsecured bonds due 2023 were among the top performers in the U.S. high-yield market on Friday, according to Trace bond trading data. The 7.125 percent notes rose 2.75 cents on the dollar to 75, according to Trace.

The group of bank lenders challenging the company includes Bardin Hill Investments, Eaton Vance, Franklin Advisors, HPS Investment Partners, Onex Credit Partners, and Voya Investment Management, according to the court filings.

The case is Argos Holdings Inc. et al v. Wilmington Trust, National Association, 18-cv-05773, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Katherine Doherty in New York at kdoherty23@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Dawn McCarty, Nikolaj Gammeltoft

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