UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION In re: COLLINS & AIKMAN CORPORATION, et al.

, Debtors. ___________________________________ Case No. 05-55927-SWR Chapter 11 (Jointly Administered) Hon. Steven W. Rhodes

MEMORANDUM OF LAW OF DAIMLERCHRYSLER CORPORATION

IN OPPOSITION TO THE MOTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS FOR AN ORDER DIRECTING EXAMINATION AND PRODUCTION OF DOCUMENTS BY DAIMLERCHRYSLER CORPORATION, GENERAL MOTORS CORPORATION, FORD MOTOR COMPANY, AND THEIR RESPECTIVE ADVISORS, PURSUANT TO RULE 2004 OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE

INTRODUCTION DaimlerChrysler Corporation ("DaimlerChrysler"), by its attorneys, Dickinson Wright PLLC, opposes the Motion of the Unsecured Creditors' Committee (the "Committee") for an Order directing discovery against DaimlerChrysler and states as follows: 1. On June 29, 2005, the Committee filed a Motion for Authorization to

Commence Avoidance Actions against, among others, DaimlerChrysler ("the 2005 Authorization Motion"). That 2005 Authorization Motion was filed in order to try and gain leverage for the Committee in on-going negotiations between the Debtors and the Customers; the Committee never set it for hearing such that it could be heard by the Court.

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2.

The 2005 Authorization Motion claimed that "the Debtors have

maintained burdensome, unprofitable contracts with the Customers under which the Debtors have consistently (both pre-petition and post-petition) received less than reasonably equivalent value in exchange for assets transferred to the Customers." (Motion, 1) The Committee claimed that, at the time it filed that Motion, it had

"sufficient facts to support the relief requested." (Motion, 11) 3. Now, over one year later, the Committee has filed a Motion under Rule

2004 seeking broad discovery against DaimlerChrysler, ostensibly in order to "obtain additional evidence relating to potential causes of action," including the very same cause of action the Committee said it already had "sufficient facts" for back in 2005. (Motion, 1 [emphasis added]) 4. The same day it filed the 2005 Authorization Motion, the Committee also

filed a Motion for an Order Directing Examination and Production of Documents Pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure (the "Prior Discovery Motion") requesting, among other things, that the Court authorize the Committee to issue subpoenas requiring DaimlerChrysler, General Motors Corporation ("GM") and Ford Motor Company ("Ford" and collectively with DaimlerChrysler and GM, the "Customers") to produce certain documents and submit to examination under Rule 2004 relating to the Customers' business affairs and proprietary information. On July 7, 2005, the Court denied the Prior Discovery Motion as it relates to the Customers. The Court termed the discovery "broad, burdensome and unreasonable" and quashed the discovery altogether. The Committee was permitted to re-serve a more narrow and

focused set of discovery requests. Those more narrow requests did not include the documents now claimed to be so essential by the Committee. 5. Like last time the Committee sought broad discovery from the Customers,

the Committee's current Motion (along with the filing of a separate discovery Motion against DaimlerChrysler to which DaimlerChrysler has filed a separate response) arrives in the midst of negotiations between the Customers and the Debtors regarding future business. Like last time, the Committee's Motion is not motivated by any

legitimate purpose but rather to harass and intimidate the Customers and to unfairly prejudice their negotiating position vis--vis the Debtors. should again deny the Committee's Motion. 6. The Committee's pattern of filing overbroad discovery requests in an effort Like last time, this Court

to harass the Customers or gain leverage in on-going negotiations is, in this instance, combined with conclusory and baseless allegations of potential anti-trust and fraudulent conveyance claims against the Customers which cannot stand up to even superficial scrutiny. It is telling that the Committee's Motion gives the substance of these serious allegations short shrift (paragraphs 21-28) and zero legal analysis. 7. For the reasons set forth herein and as raised by the Debtors and other

Customers, DaimlerChrysler respectfully requests the Court to deny the Committee's Motion. THE COMMITTEE HAS NOT CARRIED ITS BURDEN UNDER RULE 2004 8. The Committee's Motion is ostensibly filed to investigate two different

theories. Neither one is discussed in detail in the Committee's Motion, neither one is presented with any legal analysis whatsoever, and neither one is presented with any

factual support for the allegations. In this regard, the Committee has failed to support its burden to demonstrate the need for the discovery. 9. Rule 2004 grants both debtors and creditors the right to examine records

of third parties, however, that right is not without limits. Snyder v. Society Bank, 181 B.R. 40, 41-2 (S.D.Tex.1994). Rule 2004 can be legitimately compared to a fishing expeditionhowever, the net, in the discretion of the Court, can be carefully stitched to limit its catch. In re Drexel Burnham Lambert Group, Inc., 123 B.R. 702, 711

(Bankr.S.D.N.Y.1991). See also In re Duratech Industries, Inc., 241 B.R. 291, 296 (Bankr.E.D.N.Y.1999). 10. For example, courts have held that a creditor cannot use Rule 2004 to

examine a witness or request documents about matters that have no relationship or affect on the administration of the estate. See Keene Corp v. Johns-Manville Corp., (In re Johns-Manville, Corp.), 42 B.R. 362, 364 (S.D.N.Y.1984); In re Coffee Cupboard, Inc., 128 B.R. 509, 514 (Bankr.E.D.N.Y.1991). Additionally, production of documents or examination of witnesses under Rule 2004 may not be used to annoy, embarrass, or oppress the party being examined. See Coffee Cupboard, 128 B.R. at 514. Moreover, Rule 2004 cannot include discovery conducted in bad faith or for improper purposes. See Duratech, 241 B.R. at 296; In re Mittco, Inc., 44 B.R. 35, 36 (Bankr. E.D.Wis.1984); 9 Collier on Bankruptcy Ch. 2004 (Examination)(15th rev. ed. 2005). 11. In determining the limits of the scope of Rule 2004, the court must balance

the interests of the parties by weighing the relevance and necessity of the information sought under Rule 2004. Coffee Cupboard, 128 B.R. at 514. Furthermore, even if the documents sought are relevant, that does not automatically mean they must be

produced. Rather, the party seeking the documents must demonstrate that there is good cause for requiring their production. Id. THE COMMITTEE'S PUTATIVE ANTI-TRUST CLAIM IS BASELESS 12. The Committee claims that it seeks the discovery in order to investigate

two possible claims: an antitrust claim and a fraudulent conveyance claim. 13. The Committee advances no facts that give rise to a reasonable inference

of a possible antitrust violation such as would justify the discovery that it seeks. Paragraphs 26 through 28 of the Motion set out the Committees antitrust theory, and it is defective on its face for several reasons. 14. and belief, similar. First, the Committees position boils down to the claim that, on information the Debtors contracts with each of the Customers are in many ways

To begin with, third parties should not be subject to discovery based on

information and belief, where the belief (here, that the contracts are similar) can be tested by discovery from the Debtors, whose interests the Committee purports to represent. Requiring the Committee to first go to the Debtors for documents is

particularly appropriate where, as here, the scope of information sought by the Committee is massive (see further discussion on burden, below). 15. More fundamentally, the Committee simply assumes that this allegedly

parallel behavior may have resulted from agreement, without providing any basis for believing that such an inference is reasonable. Black letter antitrust law provides that parallel conduct is not sufficient to support a claim of agreement under Section 1 of the Sherman Act, as the Committee would do here. See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227 (1993); Theatre Enters. v. Paramount

Film Distrib. Corp., 346 U.S. 537, 541 (1954); American Bar Assn, 1 Antitrust Law Developments 10-11 (5th ed. 2002). This rule is well founded. As the Solicitor General observed just two weeks ago, in an amicus brief submitted with the Antitrust Division of the U.S. Department of Justice, parallel behavior is what one expects in competitive markets. See Brief of the United States as Amicus Curiae Supporting Petitioners at 20, Bell Atl. Corp. v. Twombly, No. 05-1126 (U.S.S.C. Aug. 25, 2006) (Brief of United States). 16. Parallel conduct is not only insufficient as proof of an agreement for

purposes of Section 1 of the Sherman Act, but it also is insufficient for pleading such an agreement. See Brief of the United States at 19-30 (discussing cases). Once again, this rule of law is based on sound policy. As the Solicitor General and Antitrust Division noted in Twombly, the burdensome discovery that an antitrust case entails cannot be justified absent some factual indication of misconduct, and parallel conduct simply does not constitute such an indication. Notably, while the Second Circuit suggested in dictum in Twombly that parallel conduct might suffice to allege (albeit not to prove) an agreement, the courts holding relied on allegations that went beyond mere parallel conduct. Twombly v. Bell Atlantic Corp., 425 F.3d 99, 103, 118 (2d Cir. 2005).

Moreover, that dictum is inconsistent with the overwhelming body of case law, as the Solicitor General and the Antitrust Division emphasize. 17. The Committee seeks to dress up its parallel conduct claim by arguing

that the relevant industry is concentrated and is thus a text book case for collusion. As a matter of law, that is irrelevant. In both concentrated and unconcentrated markets, parallel conduct is expected with or without collusion, and it thus says nothing about

whether collusion has occurred. Brief of the United States at 20. Thus, the rule that consciously parallel conduct is insufficient to state a Section 1 claim applies with full force to concentrated markets. Indeed, in Twombly, where the Solicitor General and the Antitrust Division emphasize that no inference of agreement can be drawn from mere parallel conduct, the market at issue is the highly concentrated local telephone market. 18. Moreover, the Committees argument explicitly rests on the demonstrably

false assertion that what the Debtors sell the Customers is commodity products. In fact, they are precisely the opposite. The parts designed for GM cars, for example, simply are not used in DaimlerChrysler cars. The products are not perfectly

substitutable commodities (as must be the case to create the text book conditions that the Committee claims exist); indeed, they are not substitutes at all. Again, should there be factual issues on this point, all pertinent information may be obtained by the Committee from the Debtors. 19. The Committee also contends that there is a disparity in bargaining

power between the Debtor and its Customers. Relative bargaining power, however, has no bearing on whether an agreement violative of Section 1 has been reached, and the Committee provides neither logic nor case law to the contrary. 20. Finally, it is well settled that claims of agreements that are economically

implausible are not countenanced under the antitrust laws. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Here, the Committees claim is doubly implausible. For one thing, DaimlerChrysler (and presumably GM and Ford as well) have no interest in driving a substantial supplier out of the market -- as reflected by the significant post-Petition accommodations DaimlerChrysler has provided to the

Debtors to keep the Debtors viable. In addition, there would simply have been no need for DaimlerChrysler to collude with GM and Ford with respect to the terms and conditions for purchasing parts pre-Petition. DaimlerChrysler had an independent

interest in obtaining terms favorable to itself, regardless of what GM and Ford did. Unless the Committee maintains and it has not that DaimlerChrysler feared that Debtors would have simply ceased dealing with it unless GM and Ford adopted similar bargaining positions, then there would be no reason for DaimlerChrysler to collude with anyone. 21. Second, the Committees antitrust theory is defective to the extent that it

complains about post-Petition collusion, as it does in paragraphs 27 and 28 of the Motion. As the Seventh Circuit explained just last year, coordination among creditors is normal in bankruptcy and not generally subject to the antitrust laws. United Airlines, Inc. v. U.S. Bank N.A., 406 F.3d 918, 921 (7th Cir. 2005); accord Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 691 F.2d 1039, 1052-53 (2d Cir. 1982) (characterizing as bordering on the frivolous the claim that the antitrust laws prohibit creditors from coordinating their positions in a bankruptcy proceeding). The Seventh Circuit noted the irony that the concerns about collective action in United Airlines were being voiced by the committee of unsecured creditors, an irony equally applicable here. 22. In addition to the general inapplicability of antitrust laws to bankruptcy

proceedings, those laws are inapplicable in this context because of the NoerrPennington doctrine which exempts from antitrust scrutiny attempts to influence

government decisions, even if anticompetitive in intent and effect. See Eastern Railroad Presidents Conf. v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961). This doctrine

applies to concerted action in judicial proceedings, see California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508 (1972), and to bankruptcy proceedings in particular, see United Airlines, 406 F.3d at 921. Thus, to the extent the Committees antitrust theory addresses collusion on the terms of the contracts negotiated by the Customers and Debtor and approved by the Court, it is fatally deficient as a matter of law. THE COMMITTEE'S CLAIM THAT IT NEEDS THE DISCOVERY TO INVESTIGATE A CLAIM FOR FRAUDULENT CONVEYANCES IS BASELESS 23. The Committee's other legal theory is that the pre-Petition terms of the The

Customers' agreements with Debtors may constitute fraudulent conveyances.

nonsensical theory espoused by the Committee is that because the contracts ended up being unprofitable for the Debtors then, a fortiori, they must have been transfers not for reasonably equivalent value. 24. As an initial matter, the Committee's claim is rendered dubious simply by

how and when it has been raised. The Committee already represented to the Court 15 months ago that it had "sufficient" evidence to file this sort of claim against the Customers. The Committee's argument (then and now) is that the pre-petition contracts between the Debtors and the Customers were "under-priced." If that is so, the

Committee has full access to whatever information in might need to support such a claim via the Debtors. Rule 2004 discovery should not be used a surrogate for

discovery in an adversary proceeding even more the case where the Committee has not even obtained permission to file such a claim. 25. Regardless, the Committee makes no effort to demonstrate that it can

satisfy either of the major prerequisites for this claim, i.e., that the Debtors received less than reasonably equivalent value in exchange for the challenged transfers and that

Debtors were insolvent on the date the transfers were made or became insolvent as a result of the transfers. See 11 USC 548(a)(1)(B); MCL 566.35(1). 26. In analyzing whether a debtor received reasonably equivalent value for

fraudulent conveyance purposes, a court should examine (1) the fair market value of the goods received as a result of the transfer, (2) the existence of an arms length relationship between the debtor and the transferee, and (3) the transferees good faith. In re Fruehauf Trailer Corporation, 444 F.3d 203, 212 (3rd Cir. 2006) Fruehauf, 444 F.3d at 212-13; Barber v. Golden Seed Company, Inc., 129 F.3d 382, 387 (7th Cir. 1997); Webster v. Barbara (In re Otis & Edwards, P.C.), 115 B.R. 900, 908 (Bankr.E.D.Mich. 1990). 27. Additionally, the court must look to the value at the time of the transaction.

Allard v. Flamingo Hilton (In re Chomakos), 69 F.3d 769, 770-1 (6th Cir. 1995)(citing Cooper v. Ashley Communications, Inc. (In re Morris Communications NC, Inc.) 914 F.2d 458, 475 (4th Cir. 1990)). A subsequent increase or decrease in value does not affect the question of whether reasonably equivalent value was given. Id; FCC v.

NextWave Personal Communications, Inc. (In re NextWave Personal Communications, Inc.), 200 F.3d 43, 56-7 (2nd Cir. 1999). 28. An arms-length transaction does not require that the parties have equal

bargaining power. Rather, an arms-length transaction generally takes place in an open market between unrelated parties acting in their own self interest. Allard v. Flamingo Hilton, (In re Chomakos), 170 B.R. 585, 593 (Bankr. E.D.Mich. 1993), aff'd 69 F.3d 769 (6th Cir. 1995). Evidence of an arms-length transaction strongly indicates that the

debtor received reasonably equivalent value. Official Unsecured Creditors Committee

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v. Oak Park Village Limited Partnership (In re Long Development, Inc.), 211 B.R. 874, 882 (Bankr.W.D.Mich. 1995). 29. Courts have consistently held that fair market value is the benchmark for

determining reasonably equivalent value. Sun Valley Products, 328 B.R. at 156 (citing BFP, 511 U.S. 531); Barber, 129 F.3d at 387 (7th Cir. 1997). The debtor need not collect a dollar for dollar equivalent to receive reasonably equivalent value. Id. at 387. Rather, intangible or non-monetary benefits to the debtor resulting from the transactions must also be included in any determination of whether the debtor received reasonably equivalent value. In re Image Worldwide, Ltd, 139 F.3d 574, 578 (7th Cir. 1998);

Chomakos, 69 F.3d at 771. Furthermore, where the parties enter into an arms length contractual relationship in a competitive market, the contract price will be an accurate determination of fair market value. Barber, 129 F.3d at 387-88. 30. Here, the Committee's putative claim does not even pass cursory muster.

The Committee does not and cannot challenge the fact that the transactions took place as a result of arms length negotiations, a near-dispositive factor in and of itself. Moreover, the Committee does not suggest that the prices were anything other than market value at the time, a fact which is supported by the hyper-competitive nature of the automotive supplier industry. Rather, the Committee's entire argument is that, after the contracts were entered into, the continued production of parts by the Debtors became unprofitable. This claim fails as a matter of law because subsequent events in the marketplace, or the simple inefficiencies of the seller, do not suddenly transmogrify all prior transactions into fraudulent conveyances.

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31.

Moreover, the Committee has not made even a cursory effort to apprise of

the Court of when it believes the Debtors were insolvent and thus whether the Debtors were insolvent at the time of the transfers. "Debtors" consist of numerous entities, several of which conducted business with the Customers pre-Petition. Each was an independent business entity and each would have to satisfy the insolvency test as of the date of the challenged transfers. All of this information is also available to the

Committee, yet its Motion does not even address this issue, let alone suggest that the Committee can make a showing of insolvency necessary to support these discovery requests. 32. Overall, the Committee's claims are prima facie insufficient to state a claim

and the timing of this Motion speaks volumes as to the Committee's true motivations. The discussions taking place now between the Customers and Debtors may well determine whether the Debtors are able to emerge from bankruptcy. Moreover, as the Debtors' financial condition has continued to deteriorate, the Committee certainly recognizes that its members will likely not realize any substantial value on their claims against the Debtors. As a result, and consistent with its past strategy, the Committee is desperately resorting to the possible in terrorem affect this sort of broad discovery might have and how it would negatively affect the Customers in their discussions with the Debtors (as discussed in more detail below and in DaimlerChrysler's Memorandum of Law in response to the Committee's other pending Rule 2004 Motion). DaimlerChrysler respectfully requests this Court to not condone such tactics.

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THE SCOPE OF DISCOVERY SOUGHT BY THE COMMITTEE IS OVERBROAD, UNDULY BURDENSOME & WOULD NEGATIVELY AFFECT THE ABILITY OF THE DEBTORS AND CUSTOMERS TO COME TO TERMS ON FUTURE BUSINESS NECESSARY FOR THE DEBTORS TO EMERGE FROM BANKRUPTCY 33. The scope of discovery sought by the Committee is tremendously broad

and would impose a significant and undue burden upon DaimlerChrysler. 34. The discovery sought by the Committee in support of its putative

fraudulent conveyance claim (Ex. B to the Committee's Motion) boils down to a blanket request for "all documents" regarding two years of pre-petition dealings between the Debtors and DaimlerChrysler. This period of time would capture approximately over $1 billion in annual business covering 10,000 parts and require the search of documents from thousands of persons from quite literally around the globe. (See Ex. A, Affidavit of Kevin Bell, attached hereto.) 35. Notwithstanding the incredible breadth of the requests, the Committee

ignores the fact that the vast majority of documents it seeks it can obtain from the Debtors without the need to burden the Customers. For example, document categories 1-3 all consist of documents which the Debtors would entirely or predominantly possess, including: all "contracts and other proposals, offers or correspondence regarding the purchase of goods" from the Debtors; all "documents regarding a reduction in prices charged" by the Debtors; and all "documents regarding the terms and conditions pursuant to which the Debtors provided goods" to DaimlerChrysler. 36. In addition, the document requests are so broad as to capture documents

which may be protected by the attorney client privilege or work product doctrine, especially if they were documents created in expectancy or after the Petition date of the Debtors.

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37.

The scope of the documents sought which allegedly relate to the The Committee requests "[a]ll

Committee's antitrust theory is equally oppressive.

correspondence or communications between and among the Principal Customers" from 2003-2006. Aside from the fact that many post-petition communications are protected by a joint defense agreement, the request is massively broad, without regard to subjectmatter (other than "relating to the Debtors") and in no fashion narrowly tailored to the allegedly anti-competitive activities which could form the basis of a viable antitrust theory. CONCLUSION For the above reasons, DaimlerChrysler respectfully requests that the Committee's Motion should be denied. Dated: September 5, 2006 DICKINSON WRIGHT PLLC

By: /s/ James A. Plemmons James A. Plemmons (P42892) Daniel D. Quick (P48109) Attorneys for DaimlerChrysler Corporation 500 Woodward Avenue, Suite 4000 Detroit, MI 48226

DETROIT 22624-407 953979v1

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