UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION ) Chapter 11 ) Case No.

05-55927 (SWR) COLLINS & AIKMAN CORPORATION, et al., ) ) Jointly Administered ) Debtors. ) Honorable Stephen W. Rhodes ______________________________________________________________________________ In re:

OBJECTION OF JPMORGAN CHASE BANK, N.A., AS PREPETITION AGENT, TO MOTION OF OFFICIAL COMMITTEE OF UNSECURED CREDITORS FOR AN ORDER DIRECTING EXAMINATION AND PRODUCTION OF DOCUMENTS PURSUANT TO FEDERAL RULE OF BANKRUPTCY PROCEDURE 2004 JPMorgan Chase Bank, N.A., as administrative agent (the Pre-Petition Agent) for the pre-petition senior secured lenders (the Pre-Petition Secured Lenders), by its counsel, Wachtell, Lipton, Rosen & Katz and Dykema Gossett PLLC, files this Objection to the Motion of the Official Committee of Unsecured Creditors (the Committee) for an order directing examination and production of documents pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure (the Motion), and states as follows: Introduction 1. Under the Final DIP Order entered by this Court on July 28, 2005, the

stipulated principal amount of the bank debt owing to the Pre-Petition Secured Lenders is approximately $748 million. That senior indebtedness is secured by liens and security interests held by the Pre-Petition Agent on substantially all of the pre-petition assets of the Debtors estates (excluding a portion of the stock of certain foreign subsidiaries). As such, the PrePetition Secured Lenders are the predominant creditor constituency in theses cases.
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2.

The Debtors have previously advised this Court that they are proceeding

on a dual track toward a reorganization: (a) exploring a sale of some or all of the Debtors businesses on a going concern basis, and (b) developing a standalone reorganization plan. Rather than committing to a single approach based on incomplete information and unproven projections, the dual track approach enables the Debtors to identify the optimal way to generate the greatest recovery to creditors, while best assuring the continued operation of the Debtors businesses and employment of their workers. The Pre-Petition Agent supports the dual track approach. 3. As this Court is aware, the Debtors have retained Lazard Freres & Co. as

the investment bankers in charge of the sale process. The sale process for certain of the Debtors businesses has already commenced, and the Pre-Petition Agent understands that the process will commence shortly for the remainder of the businesses. 4. For the sale process to achieve its goal of identifying the highest and best

offers for the Debtors businesses, it is imperative that the process be orderly, encourage the participation of all bona fide prospective purchasers, make reasonably necessary information available to all prospective purchasers, and provide and appear to provide a level playing field for all prospective purchasers. 5. The Committee, however, has made clear on numerous occasions that it is

opposed to the sale track and would prefer that the Debtors commit now to a standalone reorganization. In furtherance of its position, the Committee has brought the Motion to obtain discovery from WL Ross & Co. LLC and its affiliates (collectively, Ross), an apparent prospective purchaser of the Debtors businesses. -2DET01\487117.1 ID\BGB

6.

The Pre-Petition Agent does not object to the Motion out of solicitude

toward Ross, but rather solely to ensure that the highest value for creditors is achieved. On that basis, the Motion is objectionable on multiple grounds: it is premised on factual inaccuracies; it is designed to chill bidding; it endangers the sale track being pursued by the Debtors; and it fails to satisfy the standards of Rule 2004. For these reasons, as explained further below, the relief sought by the Motion is antithetical to the best interests of the estate and its creditors, and should be denied. The Motion Is Premised on Factual Inaccuracies 7. Initially, the Motion ( 11) suggests, based on inaccurate media reports,

that Ross may have acquired most or all of the pre-petition bank debt. In fact, according to the records of the holders of the bank debt maintained by the Pre-Petition Agent in accordance with the pre-petition credit agreement, Ross and its known affiliates hold less than two percent of the pre-petition bank debt. 8. In addition, the Committee suggests that Ross is privy to confidential

information in its capacity as a holder of pre-petition bank debt (e.g., Motion 23). This is also incorrect. The Pre-Petition Agent has not granted access to Ross to the Intralinks site on which confidential information is posted by the Pre-Petition Agent for the benefit of the Pre-Petition Secured Lenders. Additionally, Ross is not a member of the bank group steering committee.1

The Pre-Petition Agent does not purport to attest to what information, if any, Ross may have obtained from sources other than the Pre-Petition Agent or in capacities other than as a PrePetition Secured Lender. It should be noted that Pre-Petition Secured Lenders who have been granted access to the Intralinks site are subject to confidentiality restrictions. -3DET01\487117.1 ID\BGB

The Motion Is Designed to Deter Prospective Bidders 9. The Committee suggests that it is seeking discovery from Ross in order to

further the interests of the estate. Unfortunately, however, it appears that the Committees motivation lies not in protecting the estate, of which the Pre-Petition Secured Lenders are the creditor constituency with the most at stake, but rather in disrupting an orderly sale process. Such a motivation would not be surprising, given that the results of a properly conducted sale process will surely yield more credible evidence of the fair market value of the Debtors' businesses than a theoretical projection-based plan valuation, as advocated by the Committee. 10. A prime example of the Committees efforts to block a constructive sale

process is its request for information related to communications between Ross and the principal customers of the Debtors (supposedly because such information may form the basis of some unspecified cause of action against Ross). No potential bidder can be expected to participate meaningfully in the sale process and make its best offer for the assets of the estate if it is deterred from communicating with the OEMs for fear that it may become embroiled in litigation over whether such communications were somehow improper. Any serious bidder must communicate with the Debtors principal customers to understand its prospects for a continued relationship with the OEMs without that understanding, a bidder cannot possibly offer top dollar for the Debtors businesses. The Court should not countenance the Committees effort to impede prospective purchasers from engaging in commercially reasonable and prudent communications and due diligence in formulating their bids by threatening baseless lawsuits and taking unjustified discovery.

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11.

The Pre-Petition Agent is committed to supporting the dual track process

being pursued by the Debtors. Inaccurate press reports creating the implication that Ross has a special position in the sale process or controls the bank debt have the potential to chill bidding. Permitting invasive discovery into the due diligence, business strategies, and bid preparation efforts of potential purchasers can only have the effect of dampening the sale process. The PrePetition Agent submits that the dual track process is critical to achieving a successful outcome in these cases, and asks that the efforts by the Committee to harass Ross and impede the sale track be denied. The Motion Fails to Satisfy the Requirements of Rule 2004 12. The Committees Rule 2004 Motion should be denied because it does not

seek valid Rule 2004 discovery of information genuinely bearing on the existence or location of the Debtors assets and property, the Debtors financial condition and affairs, or the administration of the estate. Instead, the Motion inappropriately seeks to intrude into the private business strategy of a potential bidder in the sale process for the Debtors assets. A potential bidders communications with the OEMs and other industry participants in investigating and formulating a potential bid, and its joint venture arrangements with other potential participants in a bid, do not bear on any matter legitimately within the scope of Rule 2004. Moreover, because the purpose of the attempted inquiry by the Committee here is the deterrence of Ross as a potential acquirer, the Motion threatens harm to the sale process being undertaken by the Debtors and should be denied. 13. A Rule 2004 examination function[s] as a quick factual fix relative to the

estate, its existence and location. In re Dinubilo, 177 B.R. 932, 941 (E.D. Cal. 1993) (quotation -5DET01\487117.1 ID\BGB

omitted); see also In re Silverman, 36 B.R. 254, 259 (Bankr. S.D.N.Y. 1984). The purpose of a Rule 2004 examination is to allow the court to gain a clear picture of the condition and whereabouts of the bankrupts estate. In re Johns-Manville Corp., 42 B.R. 362, 364 (S.D.N.Y. 1984). The discovery the Committee is requesting of Ross will shed no additional light on the condition or whereabouts of the Collins & Aikman estate, but it will impose unnecessary burden, distraction and expense on all parties to the reorganization. 14. While broad, Rule 2004s scope is not without limits. In re Wilcher, 56

B.R. 428, 433 (Bankr. N.D. Ill. 1985); see also In re Contl Forge Co., 73 B.R. 1005, 1007 (Bankr. W.D. Pa. 1987). [T]he language of the rule makes it evident that an examination may be had only of those persons possessing knowledge of a debtors acts, conduct or financial affairs so far as this relates to a debtors proceeding in bankruptcy. Wilcher, 56 B.R. at 434 (quoting In re GHR Energy Corp., 35 B.R. 534, 537 (Bankr. D. Mass. 1983)); Bankruptcy Litigation Manual 4.04[C], at 4-11 (Michael L. Cook ed., 2002) (same). The [e]xamination of a witness about matters having no relationship to the [debtors] affairs or the administration of his estate is improper. 9 Collier on Bankruptcy 2004.02[2], at 2004-7 (15th ed. 2003) (quoting JohnsManville, 42 B.R. at 364); accord, e.g., Contl Forge, 73 B.R. at 1007; Wilcher, 56 B.R. at 433. 15. Where, as here, the requested discovery exceeds the scope of Rule 2004

by delving into unrelated competitive matters and irrelevant private business information, the discovery should be denied. The courts have never permitted Rule 2004 to be used to provide a debtor or its creditors carte blanche to pry into the business affairs of the debtors competitors or potential bidders for its assets. See, e.g., In re CIS Corp., 123 B.R. 488, 490 (S.D.N.Y. 1991) (vacating bankruptcy court order directing Rule 2004 discovery of debtors auditor that would exceed[] the permissible scope of discovery under Rule 2004 by requiring [the auditor] . . . to -6DET01\487117.1 ID\BGB

produce proprietary documents which do not relate only . . . to the liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtors estate) (quoting Fed. R. Bankr. P. 2004(b)); Johns-Manville, 42 B.R. at 365 (reversing bankruptcy court order requiring production of competitors market-share data unrelated to the debtors financial affairs; the facilitation of negotiations was not a proper ground on which to order the non-voluntary production of documents not otherwise discoverable under Rule 2004); Contl Forge, 73 B.R. at 1005 (rejecting Rule 2004 discovery of competitive proprietary business information because [i]t is clear that Rule 2004 may not be used as a device to launch into a wholesale investigation of a non-debtors private business affairs.) (quoting Wilcher, 56 B.R. at 434). The Committees Motion presents no reasoned basis to conclude that the requested intrusive discovery of Ross will provide any information relevant to the debtors assets, conduct, acts, estate administration or financial affairs. 16. To the contrary, the Motion appears to be designed primarily to harass and

deter Ross from participation in the sale track that is properly and responsibly being conducted by the Debtors over the Committees parochial objection. However vigorous and broad discovery may be under a Rule 2004 examination, there are well-established limits, and [t]he case law is replete with holdings that resort to Rule 2004 cannot include discovery conducted in bad faith or for improper purposes. In re Duratech Indus., Inc., 241 B.R. 291, 296 (Bankr. E.D.N.Y. 1999); In re Enron Corp., 281 B.R. 836, 840 (Bankr. S.D.N.Y. 2002) (Rule 2004 relief should be denied where the purpose of the examination is to abuse or harass); In re Recoton Corp., 307 B.R. 751, 755 (Bankr. S.D.N.Y. 2004) ([C]ourts may limit, condition or forbid Rule 2004 discovery when it is designed to abuse or harass.); In re Vantage Petroleum Corp., 34 B.R. 650, 651 (Bankr. E.D.N.Y. 1983) (The imprecise standard of relevancy in Rule 2004 requires -7DET01\487117.1 ID\BGB

the Court to exercise its discretion and balance the competing interests presented, and to deny requests that are abusive or unnecessary). Because the Committees principal purpose in pursuing the Motion is improper and not in the best interests of all creditors, including most significantly the Pre-Petition Secured Lenders, the Motion should not be granted. WHEREFORE, the Pre-Petition Agent respectfully requests that the Motion be denied, together with such other and further relief as is just and proper. Respectfully submitted, DYKEMA GOSSETT PLLC

By: ___/s/ Ronald L. Rose__________ Ronald L. Rose (P19621) 400 Renaissance Center Detroit, MI 48243 (313) 568-6553 - and Harold S. Novikoff David C. Bryan Chetan Gulati WACHTELL, LIPTON, ROSEN & KATZ 51 West 52nd Street New York, New York 10019 (212) 403-1000 Attorneys for JPMorgan Chase Bank, N.A., as PrePetition Agent Dated: November 7, 2005

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