IN THE UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION In re: COLLINS & AIKMAN CORPORATION,

et al. Debtors. ) ) ) ) ) ) ) Chapter 11 Case No. 05-55927 (SWR) (Jointly Administered)

Honorable Steven W. Rhodes

MOTION TO COMPEL C&A POST-CONSUMMATION TRUST TO FULLY RESPOND TO FIRST SET OF REQUESTS FOR PRODUCTION OF DOCUMENTS OF KZC SERVICES, LLC AND JOHN R. BOKEN

KZC Services, LLC and John R. Boken (Boken and collectively, KZCS), by this motion (the Motion), seek the entry of an order compelling the C&A Post-Consummation Trust (the Trust) to fully produce documents requested in KZCS First Set of Requests for Production of Documents (the Document Requests), pursuant to Rules 7034, 7037 and 9014 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules), incorporating by reference Rules 34 and 37 of the Federal Rules of Civil Procedure (the Federal Rules). In support of the Motion, KZCS represents as follows: JURISDICTION AND VENUE This Court has jurisdiction over this Motion pursuant to 28 U.S.C. 157 and 1334. Venue is proper in this judicial district pursuant to 28 U.S.C. 1408 and 1409. The statutory predicate for the relief sought herein is section 105 of title 11 of the United States Code (the Bankruptcy Code) and Bankruptcy Rules 7034, 7037 and 9014.

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FACTS A. Introduction. 1. The Trust has filed an objection to the allowance of KZCS fees (the Fee

Objection) in which it argues for a reduction in those fees of over $23 million (See Fee Objection at 5). The Trust alleges that KZCS work in connection with the Debtors creation of their 2006 Projections, and the first amendment to those Projections, the 4+8 Plan (collectively the Projections), was substandard. The Trust alleges that the Debtors Board should have rejected the operating and cost savings assumptions that Frank Machers executive team developed and that were incorporated into the Debtors 2006 Plan, that KZCS failed to perform adequate diligence with respect to Mr. Machers teams assumptions, and that KZCS alleged failure unnecessarily delayed the resolution of these cases at the expense of the PrePetition Lenders (See, e.g. Fee Objection at 48, 49, 51, 54, 56-61). The Trust contends that reduction of KZCS hourly rate in calculating the lodestar is appropriate in light of alleged deficiencies in KZCS work. 2. The numerous inaccuracies in the Fee Objection will be exposed during

discovery and at trial, but one glaring inaccuracy is apparent without the need for discovery. A central feature of the Trusts Fee Objection is its contention that KZCS had untrammeled authority to make decisions with respect to all aspects of the management and operation of the Debtors businesses. (Fee Objection at 9 (citing the Debtors Application to retain KZCS)), and KZCS could have, and should have, forced the Debtors to adopt different projections than those approved by the Board. The above quotation from the pleading cited in the Fee Objection omits critical language from 2(b) of the KZCS Services Agreement, which provides in relevant part that KZCS authority is subject to appropriate governance by the Board, and disregards in 2

particular the Board Resolution referred to in the Services Agreement. The Resolution itself provides that as Chief Restructuring Officer, Boken shall perform duties and tasks as instructed and directed by the Board of Directors. The Trusts failure to reference the limitations on KZCS authority in either the Services Agreement or the Resolution is at the least puzzling. 3. The sole basis for the Fee Objection is the allegation that KZCS deviated

from the appropriate standard of care in connection with the preparation of the Projections, and that deviation caused the alleged losses. The Trust has informed KZCS that it will not call an expert witness to prove either the standard of care or the alleged deviation therefrom, and will rely on the testimony of Peter Nurge and Peter Chadwick of Capstone Advisory Group, LLC (Capstone), who were the financial advisors to JP Morgan Chase Bank (JPM), the Agent for the Pre-Petition Lenders and the DIP Lenders; Capstone is now the Plan Administrator of the Trust. KZCS has served Document Requests on Capstone and the Trust, and despite substantial and somewhat productive negotiations concerning compliance by Capstone and the Trust with those requests, there remain unresolved issues which have necessitated this Motion.1 B. Discovery Status 4. On January 31, 2008, KZCS served the Document Requests on Capstone

and the Trust, a copy of which is attached to the annexed Declaration of Paul R. DeFilippo (the DeFilippo Decl.) as Exhibit A. On February 12, 2008, the Trust served counsel for KZCS with a letter pursuant to Federal Rule 34(b) objecting to the Documents Requests (the Discovery Objection). A copy of the Discovery Objection is annexed to the DeFilippo Decl. as Exhibit B. During a conference call with the Trusts counsel on February 14, 2008, KZCS

KZCS requests the Court to direct Capstone to search the hard drives, networks and backup tapes in its computer system for the documents it has agreed, and which it should 3

specifically outlined the relevancy of its Document Requests. The Trust and Capstone responded with a letter dated February 21, 2008, a copy of which is annexed to the DeFilippo Decl. as Exhibit C, agreeing to provide additional documents. As a result of further communications between the parties, including KZCS email dated February 21, 2008 (a copy of which is annexed to the DeFilippo Decl. as Exhibit D) in response to Capstone and the Trusts February 21 letter, and the Trusts email to KZCS dated February 29, 2008 (a copy of which is annexed to the DeFilippo Decl. as Exhibit E), the items in dispute have been narrowed further. The DeFilippo Decl. is attached hereto and incorporated as Exhibit A. 5. At this point, the principal areas of dispute concern whether Capstone and

the Trust should be required to produce the following documents. The reasons why KZCS believes production is required are set forth immediately after a description of the documents in question. a. Communication Between Capstone and the Agent for the DIP Lenders and the Pre-Petition Lenders. 6. Capstone has refused to search for or produce communications between it

and its client JPM, the Agent for the Pre-Petition Lenders and the DIP Lenders. While agreeing to give KZCS final versions of formal reports it sent to the Agents, the Pre-Petition Lenders or the Steering Committee, it has acknowledged that it has additional documents which it exchanged with the Agents that it is not willing to produce on grounds that are specious at best. The relevance of those communications, or at least the likelihood that those documents could lead to the discovery of admissible evidence, is readily apparent.

be ordered, to produce. 4

7.

The Trust will seek to prove what KZCS should have done, and what it

allegedly failed to do, through the testimony of the authors of or recipients of the documents in question; it will apparently also try to prove that KZCS did not act according to the expectations of the other constituents in the cases (See, e.g., Fee Objection at 57). Documents exchanged with the Agents in which Capstone personnel addressed the very matters at issue in the Fee Objection, including the relative roles of Mr. Machers team and KZCS in the preparation of the Projections, the nature of the assumptions made, the risk factors disclosed, the analysis and recommendations that Capstone made to the Agents with respect to the Projections, and whether KZCS was performing its function in accordance with the Pre-Petition Lenders expectations, are highly probative evidence, and are essential to allow KZCS to fairly prepare to respond to the Fee Objection. It bears repeating that only the holders of the Pre-Petition Lenders claims will benefit from any reduction in KZCS fees. 8. The Trust has alleged that it is entitled to seek a reduction in KZCS fees

as the successor to the Pre-Petition Lenders; the documents generated by the representatives of those lenders are highly probative and certainly relevant. There were numerous, almost daily, communications between Capstone and the Debtors concerning the facts at issue in the Fee Objection, and what Capstone was reporting back to its clients about the subject matter of those communications is compelling evidence of what was actually discussed between the parties at the time. Moreover, the DIP Lenders had the right under the DIP Loan Agreement to refuse to approve any budgets or projections supplied by the Debtors, and the work that Capstone did in examining the budgets and advising the Agents whether the budgets were appropriately constructed or not is highly probative to the Trusts contention that those same budgets were negligently prepared by KZCS. Further, Capstones communications with the Agents will go a 5

long way to debunking the Trusts contention that these cases were not conducted with complete transparency (See Fee Objection at 67). 9. Finally, communications between Capstone and the Agents related to the

decisions whether to negotiate with WLRoss & Co., LLC (Ross) over its offer in July 2006, the prosecution of the Agents efforts to execute a standalone plan, and other decisions made by the Agents during the course of the proceedings, all of which had a direct impact on the direction the cases took, are directly relevant to the Trusts contention that KZCS omissions caused a two month delay between the time the decision to liquidate was made, and the time when the Trust claims it should have been made. b. Analysis as to the Prospective Recoveries on the Pre-Petition Lenders Claims During the Cases, Valuations of the Debtors, or Documents Exchanged Between the Agents and their Advisors Concerning Offers for the Debtors. 10. KZCS has asked for documents that concern the estimated recoveries to

the Pre-Petition Lenders during the cases, valuation of the Pre-Petition Lenders position, and any offers for the Debtors; Capstone and the Trust have refused to produce those types of documents. The Trust contends that one of the motivations of the Agents in rejecting the Ross purchase offer was the fact that the Pre-Petition Lender claims were trading at levels higher than the offered price (see Fee Objection at 69), so valuation analyses by or on behalf of the Agents of estimated recoveries under a standalone plan compared with the Ross (or any other) offers are certainly relevant, as are all discussions concerning whether or not to accept the Ross offer. In July 2006 the Pre-Petition Lenders decided to terminate negotiations with Ross and proceed with a standalone plan, which was directly contrary to the Debtors recommendations. The documents exchanged between the Agents and their advisors at that time concerning the course 6

of action the Pre-Petition Lenders should follow are directly related to whether KZCS alleged underperformance caused the alleged delay in the resolution of these cases. c. Analyses of the Risk Factors, Assumptions and Other Elements of the Debtors Business Plans 11. Documents regarding the Agents, Capstones and the Prepetition

Lenders analyses of the risk factors, assumptions and other elements of the Projections is relevant to numerous issues raised by the Fee Objection, including the veracity of the claims of a lack of transparency, failure of KZCS to perform adequate diligence, and the Agents acceptance and understanding of the risk of execution in performance on the Projections. 12. All the documents requested are also needed in order for KZCS to prepare

its witnesses for depositions, to cross-examine the Trusts witnesses, to test each and every allegation asserted by the Trust in the Fee Objection, and refute the serious and unfounded allegations made by the Fee Examiner and the Trust regarding the deficiencies in the services rendered by KZCS in these cases. ARGUMENT I. The Motion to Compel The instant Motion arises out of highly relevant discovery served by KZCS on Capstone and the Trust on January 31, 2008. KZCS requests are specifically tailored to obtain information highly relevant to the Fee Objection. KZCS is not seeking any information that is not reasonably likely to produce relevant or admissible evidence, nor is it seeking to impose an unconscionable burden on the Trust. Accordingly, KZCS seeks an order compelling Capstone and the Trust to produce all documents fully responsive to the Document Requests.

II.

KZCS Motion to Compel Should Be Granted Federal Rule 26(b)(1) permits a party to obtain discovery regarding any matter,

not privileged, that is relevant to the claim or defense of any party. Fed. R. Civ. P. 26(b)(1). Further, pursuant to Federal Rule 34, [t]he party submitting the [discovery] request may move for an order under [Federal] Rule 37(a) with respect to any objection or other failure to respond to the request or any part thereof . . . Fed. R. Civ. P. 34(b). Federal courts compel production where the documents sought are relevant, and there is no undue burden. See American Power Co., Inc. v. United States, 191 F.R.D. 132 (S.D. Ohio 1999); Pfizer, Inc. v. Mylan Labs., Inc., 2003 U.S. Dist. LEXIS 24806 (S.D.N.Y. Dec. 17, 2003); In re Lloyds Am. Trust Fund Litig., 1998 U.S. Dist. LEXIS 1199 (S.D.N.Y. Feb. 4, 1998). The party opposing the production of documents must prove it would be unduly burdened by doing so. See United States v. Jenkins, 1997 U.S. Dist. LEXIS 14262, at *4 (E.D. Mich. June 16, 1997) (citations omitted). An objection must show specifically how a [discovery request] is overly broad, burdensome, or oppressive, by submitting affidavits or offering evidence which reveals the nature of the burden. Jenkins, 1997 U.S. Dist. LEXIS 14262, at *4 (quoting Chubb Integrated Sys. Ltd. V. National Bank of Wash., 103 F.R.D. 52, 5960 (D. D.C. 1984)). Since an extensive search of Capstones records is already consensually underway, including within that search the documents identified above could not possibly be unduly burdensome. III. The Information Requested by KZCS is Plainly Relevant to the Fee Objection Courts have routinely held, discovery of evidence, whether hearsay or not, is permitted if it is at all possible that it will lead to the discovery of admissible evidence. See Coleman v. American Red Cross, 23 F.3d 1091, 1097 (6th Cir. 1994); Marshall v. Bramer, 828 8

F.2d 355, 357-58 (6th Cir. 1987); see also Corporate Express Office Prods. v. Gamache, 2006 U.S. Dist. LEXIS 90345, at *17 (S.D.N.Y. Dec. 13, 2006) ([t]o be relevant, [a] request for information must be germane to the subject matter of the claim, defenses or counterclaims, though not necessarily limited by such pleadings, and is not controlled by whether it will be admissible at trial.); Johnson v. Nyack Hosp., 169 F.R.D. 550, 556 (S.D.N.Y. 1996) (Relevance for purposes of discovery . . . is synonymous with germane). As set forth above, the documents requested go directly to the matters placed at issue by the Fee Objection. Accordingly, KZCS is entitled to their discovery. IV. The Court Should Bar the Trust from Using Any Document it Fails to Produce KZCS has previously asked the Trust to consent to being barred from using any document it fails to produce for any purpose in these cases, whether at deposition or trial. The Trust has to date failed to consent to such a request, which KZCS respectfully submits is required by fundamental fairness and amply within the Courts discretionary power over these proceedings under Federal Rule 37 or section 105 of the Bankruptcy Code. NOTICE KCZS has provided notice of this Motion to (i) the Office of the United States Trustee for the Eastern District of Michigan, and (ii) counsel for the Trust. KZCS submits that no other or further notice is necessary under the circumstances. CONCLUSION The Trust has an obligation to produce non-privileged documents relevant to the Fee Objection, especially since it will not pose a hardship on Trust to do so. The documents that KZCS seeks are highly germane to the issues raised by the Fee Objection, and are necessary for

KZCS to fairly defend itself from serious allegations seeking to impose enormous financial consequences on KZCS. Moreover, the Trust and Capstone are sophisticated parties who do not lack the resources needed to comply with the obligation to produce relevant documents. Since Capstone and the Trust will not produce those documents consensually, KZCS prays for the Courts assistance in obtaining what it is clearly entitled to. WHEREFORE, KZCS respectfully requests that the Court enter an order (i) directing and compelling the Trust to respond fully, completely and accurately to the Document Requests within five (5) calendar days of the date of the order granting the relief requested herein; (ii) bar the Trust from using any documents not produced for any purpose in these proceedings; and (iii) grant any other and further relief as this Court deems just and proper. Dated: March 5, 2008
Respectfully submitted, NATHAN ZOUSMER, P.C. By: ___\s\ Kenneth A. Nathan____ Kenneth A. Nathan 29100 Northwestern Hwy., Ste. 260 Southfield, MI 48034 (248) 351-0099 knathan@nathanzousmer.com -andWOLLMUTH MAHER & DEUTSCH LLP Paul R. DeFilippo Steven R. Wirth 500 Fifth Avenue, 12th Floor New York, New York 10110 (212) 382-3300 pdefilippo@wmd-law.com swirth@wmd-law.com Co-counsel for KZC Services, LLC and John R. Boken

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