IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) ) Chapter 11 STONE & WEBSTER, INCORPORATED, ) et al., ) Case No. 00-2142 (PJW) ) Debtors. ) Jointly Administered ____________________________________) ) SHAW GROUP, INC., ) ) Plaintiff, ) ) Adversary Proceeding v. ) No. 01-6661 ) XABEQUE, L.L.C.; ) GULF INSURANCE COMPANY; and ) NEXT FACTORS, INC., ) ) Objection Deadline: November 23, 2005 Defendants. ) Hearing Date: December 1, 2005 @ 3:30 p.m. (ET) ____________________________________)
NEXT FACTORS, INC.’S RESPONSE IN OPPOSITION TO THE MOTION OF THE SHAW GROUP INC.
FOR SANCTIONS AGAINST NEXT FACTORS, INC.
Next Factors, Inc. (“NFI”), by and through its counsel, hereby responds to the “Motion of
The Shaw Group Inc. for Sanctions Against Next Factors, Inc.” (Docket No. 71, the “Motion for
Sanctions”) filed in the above-captioned Adversary Proceeding. In support of this Opposition,
Next Factors respectfully states the following:
Background
1. On June 2, 2000, the Debtors filed their voluntary petitions for relief under
chapter 11 of title 11 of the United States Code, 11 U.S.C. sec. 101, et seq. (the “Bankruptcy
Code”).
2. Shortly after the Debtors’ cases were commenced, The Shaw Group, Inc. or its
designee (hereinafter “Shaw”) purchased substantially all of the assets of the Debtors and
assumed most of the Debtors’ liabilities pursuant to an Asset Purchase Agreement (the “APA”).
It is undisputed that the claim at issue in the above-captioned adversary proceeding was among
the liabilities assumed by Shaw.
3. NFI is the rightful owner of the claim at issue in this matter. The claim, which
was filed in the main bankruptcy proceeding, seeks the principal sum of $125,358.99, plus
interest, attorneys’ fees and other costs, as well as sanctions, arising out of an unexplained loss
of shrimp from a warehouse operated by Nordic Refrigerated Services (“Nordic”), one of the
Debtors in the above-captioned bankruptcy proceedings. Although this Adversary Proceeding
had been initiated partly to resolve a dispute as to ownership of this claim, referred to as the
“Xabeque Claim,” that ownership dispute between NFI and Gulf Insurance Company has been
resolved.
4. Shaw assumed approximately sixty (60) claims owned by NFI. In the main
bankruptcy proceeding, Shaw objected to essentially all of the claims, many of them more than
once. Shaw served discovery requesting support for the claims, despite these claims having been
scheduled by the Debtors as undisputed claims. Clearly, the Debtors had records concerning
their own schedules. Those records should have been retained by either Shaw or by the Debtors.
Expoliation of such records would be a serious concern. Under the Asset Purchase Agreement,
Shaw would clearly have had access to the Debtors’ records. Despite this, Shaw purported to
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have no information concerning any of the NFI claims. NFI was also subjected to repeated
objections by the Debtors based partly on Shaw’s refusal to acknowledge that many of the NFI
claims were Shaw’s liabilities.
5. Shaw’s objections in the main bankruptcy proceeding were in most instances filed
against NFI’s claims despite the fact that the agreed deadline for Shaw to object to disputed
claims had expired without application for an extension. By Letter Agreement dated December
27, 2000, Shaw was required to list disputed claims by January 15, 2001, and to file objections to
those claims by January 31, 2001. See, Exhibit 1 hereto. The Xabeque Claim was not listed as a
“disputed claim,” and no objection was filed to that claim on or before January 31, 2001. With
respect to the Xabeque Claim, Shaw’s first objection to that claim was filed in April, 2001, after
the expiration of the deadline for objections and, therefore, all objections to the Xabeque Claim
by Shaw were untimely and inappropriate. Despite that fact, over five years after the main
bankruptcy case commenced, Shaw continues to hold funds due to NFI. NFI has addressed
Shaw’s waiver of its right to object to the Xabeque Claim in the “Next Factors, Inc.’s Motion for
Summary Judgment,” filed on October 28, 2005. Briefing is almost completed on the Motion for
Summary Judgment. The arguments in that Motion for Summary Judgment are incorporated by
reference rather than being repeated at length herein.
Shaw Filed its Motion in the Wrong Proceeding
6. Numerous pleadings have been filed in the main bankruptcy case and this
Adversary Proceeding concerning the dispute between NFI and Shaw. However, for some
unexplained reason, Shaw has filed this Motion for Sanctions only in the Adversary Proceeding.
Shaw’s Motion for Sanctions appears to be predicated on a gross misunderstanding of the nature
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of a settlement proposal submitted directly by NFI to Shaw. Shaw addresses the settlement
proposal as if the only claim subject to the proposal was the Xabeque Claim.
7. However, a plain reading of the settlement proposal makes it clear that NFI was
addressing all of its claims against Shaw and third parties, such as Nordic Cold Storage, LLC or
its other principals at Wareing Athon and Company, covering approximately sixty (60) claims,
including but not limited to the Xabeque Claim. The settlement proposal was submitted within
the context of the main bankruptcy proceeding. The full extent of Shaw’s conduct cannot be
ascertained from the docket in the Adversary Proceeding. The Motion for Sanctions needs to be
reviewed in the context of the pleadings filed in the main bankruptcy proceeding. Therefore,
Shaw has filed its Motion for Sanctions in the wrong proceeding.
Motion for Sanctions Violates Confidentiality of Settlement Offers and Mediation
8. Despite Shaw’s repeated assertions that NFI is delaying this matter and filing
vexatious pleadings, Shaw’s inclusion of a confidential settlement proposal and information
concerning the mediation violates the letter and spirit of Federal Rule of Evidence 408. Under
the guise that Shaw is bringing some alleged “criminal conduct” to light, Shaw lays out NFI’s
settlement position before the Court, although not Shaw’s own positions. The unauthorized
revelation of NFI’s settlement positions will not only have a chilling effect on settlement
negotiations in this matter, it may have a chilling effect on settlement negotiations by other
parties in other cases.
9. Since Shaw has disclosed certain of NFI’s settlement positions, it is only fair that
NFI be able to counter with information concerning Shaw’s settlement postures. Shaw fails to
disclose its own efforts to negotiate steep discounts of NFI’s claims. Shaw could have had a
zero percent (0%) premium had it not objected to claims. Prior to paying the full principal of all 4
of the other NFI claims assumed by Shaw, Shaw sought to have NFI accept fifty percent (50%)
of the principal value of each claim. See, Exhibit 2 hereto. Shaw apparently believes it is fair to
demand that NFI reduce their claim by half, but does not believe that NFI’s settlement attempts
to collect an additional ten percent (10%), twenty percent (20%) or more to cover interest,
attorneys’ fees and other costs incurred by NFI is reasonable. With the passage of time, NFI’s
losses continue to increase so it is not unforeseeable that NFI’s demands will rise as well.
Whether Shaw agrees with NFI’s strategy for settlement negotiations is not an appropriate
inquiry for the trier of fact or for a motion for sanctions.
10. NFI’s settlement proposals also need to be considered in context. The NFI claims
should have been paid when the Asset Purchase Agreement between the Debtors and Shaw
became effective in 2000. By the end of January, 2001, Shaw had waived any right to object to
most of the NFI claims. At the time they were assumed by Shaw, many of these liabilities had
already been outstanding for months or even longer. If Shaw had not objected to these claims,
but instead paid them at their full principal value in a timely fashion, NFI would not have even
sought interest, attorneys’ fees or other pecuniary losses or sanctions from Shaw. The proof of
claim only seeks such amounts in the event of an objection. Therefore, it was Shaw’s own
conduct that created this controversy. Shaw’s conduct violated the provisions of the Sale Order
requiring prompt payment. Under these circumstances, it is reasonable for NFI to believe that it
is entitled to more than just the principal amount of these claims. These issues should be
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addressed in the main bankruptcy proceeding, not in the context of a motion in the Adversary
Proceeding.
11. Although Shaw alleges that it has redacted all references to the mediation, it is
obvious that they have not done so. Shaw selectively includes references to certain events
which took place at the mediation between the parties earlier this year, while omitting other
information, likely for tactical purposes. For instance, Shaw indicates that racketeering was
discussed at the mediation, although it does not stress that the term “RICO” was first introduced
into the discussion by one of the Shaw representatives at the mediation.
12. Shaw’s revelation of these confidential communications to the trier of fact
jeopardizes the impartiality of the forum. Such breaches of the confidentiality put NFI in the
position of having to determine whether to seek a recusal of the trial judge in order to avoid
tainting the process. These breaches of confidentiality also diminish NFI’s faith in the judicial
system.
13. Despite Shaw’s inference that it had no choice but to bring the settlement offer
before the Court, Shaw had another option. If Shaw truly believed that NFI’s settlement offer
constituted illegal conduct, Shaw could readily have referred that matter to the office of the
United States Attorney for their review. If a grand jury indictment were issued, Shaw could have
made reference to the indictment at a later time. Why would Shaw choose to allege “criminal
conduct” by NFI just at the time when NFI has filed a Motion for Summary Judgment?
14. It is apparent that Shaw did not feel that NFI’s conduct warranted referral directly
to law enforcement authorities. Instead, Shaw attempts to use its “criminal conduct” theory as a
strategic weapon in yet another tactic designed to delay resolution of the Xabeque Claim.
6
Shaw Mischaracterizes the Settlement Offer
15. Shaw goes to great lengths to mischaracterize the settlement offer. For instance,
in Paragraph 4, Shaw indicates that NFI “threatens to leak damaging information about Shaw in
order to harm Shaw, and apparently the Bush Administration as well…” Instead, the settlement
offer references NFI’s view that there are parallels between the conduct of Halliburton and
Shaw, and that “enemies” of the Bush Administration seek to cast a disparaging light on that
administration. The settlement offer goes on to speculate that if Shaw were revealed as a less
than credible corporation, that revelation could have a negative effect on their business. Shaw
has attached a redacted copy of the settlement offer. It is only fair that the entire letter be read in
context. Therefore, NFI has attached a full copy herein as Exhibit 3. Now that Shaw has
breached the confidentiality of both settlement negotiations and the mediation in part, NFI has
the right to have the Court review the entire settlement offer.
16. While some of the matters in the settlement offer extend into world issues outside
of the Stone & Webster bankruptcy, the real world does sometimes rear its “ugly” head in
litigation. Shaw may disagree that those consequences will come to bear. NFI is entitled to its
own opinion. There is absolutely nothing in the settlement offer which explains how NFI
intends to make any of those consequences occur, other than NFI’s view that revelation of
Shaw’s conduct in this matter will shed an unfavorable light on the company. That is one
consideration in assessing a settlement offer. There is nothing in the letter which even implies
that NFI has other information, unrelated to its claims, which would harm Shaw. Shaw is free to
agree or disagree with NFI’s opinions expressed in the settlement offer. Shaw can find the tone
of the letter distasteful and inappropriate if they so choose. However, that does not make the 7
settlement offer less than such. Therefore, Shaw’s unilateral decision to publicly file the
settlement offer with the trier of fact is appalling.
17. As is noted above, the settlement offer is not addressed simply to the Xabeque
Claim. The amount at issue with all of the NFI claims is significantly more than $125,358.99.
Contrary to Shaw’s attempts to trivialize NFI’s claims, the amounts are significant to NFI’s
business. Shaw has already paid NFI over $200,000.00 just for the principal of the other claims
with the provision that NFI may seek interest, attorneys’ fees, other pecuniary losses and
sanctions for Shaw’s repeated objections and other delays in paying liabilities it assumed.
18. NFI also became aware just recently that Shaw also mischaracterized the “settled
at closing” issue which was the basis for the first untimely objection to the Xabeque Claim.
Shaw’s Second Omnibus Objection was apparently based upon a transfer of assets from Shaw to
a third party, Nordic Cold Storage, LLC. Shaw never revealed to NFI that Shaw had retained a
19.5% interest in that entity until Shaw’s August 2005 deposition. NFI discovered information
on Shaw’s own filings with the Securities and Exchange Commission that raised a question
concerning the cold storage transaction in which Shaw retained an interest. Once Shaw was
confronted with that information, Shaw’s General Counsel confirmed at the Shaw deposition that
the transaction at issue related to the Nordic cold storage issue, although Shaw still could not
confirm at that point that Nordic Cold Storage, LLC had assumed liability for the Xabeque
Claim despite the filing of an objection on that alleged basis over four years earlier. See, Exhibit
4. The description of that transaction in the securities filings is unusual at best. It reads as if the
assets were sold to Nordic Cold Storage, LLC for $70 million, but that Shaw acquired its 19.5%
stake for $1 million. See, Exhibit 5 hereto. While there may be some legitimate business
justification for the strange mathematics, that justification is not apparent on the face of the 8
transaction and has not yet been explained by Shaw. Shaw also did not attempt to seek this
Court’s approval to transfer its liabilities to another entity. NFI is entitled to explore that
transaction to determine whether the transaction contained irregularities and whether the Second
Omnibus Objection was, in fact, meritless.
19. There are other claims in the main bankruptcy proceeding which are not involved
with the Nordic cold storage business. It is conceivable that discovery will be needed on the
issue of additional amounts to which NFI is entitled in the main bankruptcy proceeding. Those
issues will become ripe once the status of the principal amount on this last NFI claim has been
resolved. It is not likely that Shaw will voluntarily agree to pay those amounts. Therefore, NFI
expects that those issues will become a contested matter. As such, the issues will be amenable to
discovery. If NFI exceeds the bounds of reasonable discovery requests in such a contested
matter, Shaw has remedies available to them at that time.
20. Shaw attempts to characterize NFI’s settlement offer as unreasonable. For the
sake of argument, even if that were the case, there is a world of difference between unreasonable
settlement postures and extortion. For instance, in United States v. Albertson, 971 F.Supp. 837
(D. Del. 1997), in a case involving alleged economic threats under the Hobbs Act, Judge
Schwartz explained the distinction between “hard bargaining” and extortion, and found that not
all economic threats were “wrongful.” 971 F.Supp. at 842-843. The inquiry concerning such
conduct must be conducted on a case-by-case basis. However, the case also stands for the
proposition that a threat of economic harm is only “wrongful” under the Hobbs Act where the
party making the threat has “no lawful claim.” 971 F.Supp. at 843. Here, NFI reasonably
believes that it has a lawful claim to additional funds. NFI’s conduct is clearly hard bargaining.
The fact that Shaw finds the hard bargaining distasteful or heavy-handed does not convert the 9
conduct into extortion. Shaw, on the other hand, pretends to be innocent of its own hard
bargaining. Objecting to all of a claims traders’ claims in order to gain leverage is clearly hard
bargaining, if not worse.
21. Assuming for the sake of argument that NFI were threatening criminal charges,
there is no law prohibiting a party from presenting or threatening to present criminal charges
where the criminal matter is related to the client’s civil claim. See, e.g., ABA Formal Opinion
92-363 (1992). If a party can merely threaten to present criminal charges, then a party can also
settle a dispute and forego the presentation of such criminal charges. Whether or not Shaw is
persuaded by the logic of NFI’s settlement offer, Shaw has been at all times free to accept or
reject the offer. The legal system permits zealous advocacy, which permits a litigant to fight
vigorously and not accept defeat willingly merely because their opponent desires that they do so.
22. The settlement offer does provide NFI’s perspective on the consequences of
Shaw’s failure to settle this matter. The “ill gotten gains” referenced in the settlement proposal
refers to Shaw’s efforts to avoid paying the liabilities it assumed. NFI has sought, but not yet
obtained from Shaw, information concerning the extent to which Shaw has avoided those
liabilities. Such information may resolve NFI’s concerns or raise bigger concerns for this Court.
NFI is reasonable in its belief that the information will not be favorable to Shaw because of
Shaw’s refusal to supply that type of information to date.
23. Nothing in the settlement offer indicates that NFI is privy to information
unrelated to its claims but related to alleged criminal activity by Shaw. In fact, all of the
extraneous information in NFI’s settlement offer comes from public sources. Even Shaw’s own
securities filings reference a pending investigation by the United States Securities and Exchange 10
Commission. The settlement offer merely reflects NFI’s views of the “character” of the Shaw
Group, Inc. and the risks which NFI believes Shaw faces if it continues with the “slash and burn”
litigation tactics to avoid paying NFI’s Xabeque Claim or additional amounts on its other claims.
24. The tone of the settlement offer is admittedly adversarial and harsh. Perhaps the
tone was ill advised. However, adversarial and harsh language does not equate to an extortion
demand. Therefore, sanctions are not warranted for the language.
Referral of Alleged Criminal Conduct
25. Shaw is using its allegations of criminal conduct for strategic advantage only. If
Shaw truly believed that it was the victim of criminal conduct, would it have wasted any time
referring this matter to the appropriate law enforcement authorities? Allegations of criminal
conduct interposed solely for strategic advantage are an improper use of the litigation process.
26. If the Court is convinced that NFI’s or Shaw’s conduct warrants the suspicion of
criminal conduct, the Court has no option but to refer this matter to the United States Attorney
pursuant to 18 U.S.C. § 3057. This Court does not have the jurisdiction to determine whether
NFI engaged in criminal conduct. If the matter is not referred to the United States Attorney, this
Court should consider recusal as the present trier of fact would be tainted by Shaw’s baseless
allegations. Instead, Shaw is not even suggesting that the Court conduct a hearing on the extent
to which the conduct is “criminal conduct.” Shaw also does not suggest that the conduct be
referred to the United States Attorney. The lack of such a suggestion puts into doubt Shaw’s
intentions for alleging “criminal conduct” at this stage in the Adversary Proceeding. The
conduct by both parties would likely need to be scrutinized in the law enforcement process by
parties uninvolved in the bankruptcy claim issues. Such a neutral assessment would be more
appropriate than an adversaries’ strategic timing of such allegations. 11
27. The contentious nature of this litigation was not initiated by NFI and none of the
objections to NFI’s claims were filed by NFI or at its behest. What the Court and the United
States Attorney would likely find is that Shaw commenced the extremely adversarial tone and
filed repeated, meritless objections in order to compel NFI to accept less than the full amount of
their valid claims, Shaw sought pecuniary gain by claiming a separate third party paid various
amounts when Shaw was affiliated with such party and had reason to know otherwise, and as a
result of what NFI perceives to be grossly unfair treatment by Shaw, NFI is increasingly
frustrated at the lengths to which Shaw will go to object to what should not have been major
claims to Shaw at the outset. The Stone & Webster bankruptcy involved hundreds of millions of
dollars in claims. It is just unclear why Shaw would go to such extreme lengths to object to the
principal amount of a claim worth approximately $125,000, and that is NFI’s largest principal
amount on its claims against Shaw. Shaw spent a great deal of time and likely expense objecting
to even the smallest NFI claims. Ultimately, NFI’s frustration will appear justified, although the
venting of that frustration may have been aggressive. It will not amount to “extortion.”
12
Other Sanctions Not Warranted
28. What Shaw does not divulge is that Shaw’s representative and NFI had private
discussions at the mediation. Shaw’s representative invited NFI to submit a settlement proposal
directly to Shaw. Now that NFI has done so, it is clear that the two parties are still worlds apart
on their views of the case. However, nothing prohibited NFI from sending such a proposal.
Obviously, the proposal was not what Shaw wanted to receive.
29. Shaw now seeks to cut-off all direct contact between the clients. Based upon
Shaw’s filing of the settlement offer with the trier of fact and revelation of confidential
settlement negotiation and mediation details, there may be little incentive for NFI to continue
attempts to settle this matter. Shaw’s counsel paints a picture that Shaw does not wish to engage
in settlement negotiations which exceed the principal amounts of the claims. However, there
appears to be a disconnect between Shaw and its counsel. Shaw’s counsel indicated at the
deposition that Shaw never informed their counsel of the retained interest in the cold storage
business or even the identity of the purchaser. As a result, direct communication between the
clients may be the only course of a voluntary resolution of this matter. Shaw is always free to
ignore such communications. However, if there is a chance that they will engage in fruitful
settlement discussions, the Court should not prohibit such direct contact in order to insulate
Shaw’s counsel from the effects of direct communications between the parties. Both parties are
commercial entities capable of handling such matters without undue influence. Therefore, the
harm from banning such communications outweighs the risk of further communications from
NFI to Shaw.
13
30. As for the attorneys’ fees, this matter is filed in the wrong matter and, more
importantly, could have been referred to law enforcement authorities by Shaw for little or no
expense. Shaw has addressed minor, resolved matters and a host of other issues which are not
even related to the Adversary Proceeding. Shaw did not even request that NFI voluntarily agree
not to submit any further settlement demands to Shaw directly. Their expenditure of time and
expense on this Motion for Sanctions is unreasonable under the circumstances. Therefore, NFI
requests that the Court deny Shaw’s request for attorneys’ fees and costs relating to this Motion
for Sanctions, even if the Court grants the requested relief of a communication ban.
Shaw Mischaracterizes the State of the Law
31. If Shaw were citing cases solely for the proposition that the Court has the
authority to award sanctions under an appropriate set of facts, the cases would have merit. There
is no dispute that there are occasions in which the Court can award sanctions. However, the
cases cited by Shaw are not helpful in ascertaining whether NFI’s settlement offer warrants the
imposition of sanctions. None of the cases cited by Shaw address a situation in which a party
made a settlement offer concerning additional amounts due on claims to which the proponent of
the offer had already received some funds. None of the cases arose in the context of civil
litigation between two private parties. Shaw’s attempt to imply that NFI has no lawful claim is
outrageous in light of the fact that Shaw does concede it owes NFI approximately $55,000 on the
Xabeque Claim. Despite that fact, Shaw never attempted to pay that amount to NFI or deposit
those funds into the Court. Shaw continues to gain the benefit of the use of those funds which
they concede would be due to NFI.
14
32. In United States v. Smith, 228 F.Supp. 345 (E.D. La. 1964), the defendant was a
carpenter’s union which was attempting to organize workers at the alleged victim’s plant. The
parties were not adversaries in litigation. There was no litigation to settle. The alleged extortion
did not involve attempts at settlement negotiations. The union contacted the alleged victim’s
attorneys with an offer to refrain from reporting an alleged use of substandard materials on a
contract with the Federal Government if certain discharged employees were given back their
jobs. It is also important to note that the decision does not involve an appeal from a conviction
for extortion. Instead, the court was ruling on a motion to dismiss the grand jury’s indictment. It
strains the imagination how this case applies to the present allegations.
33. Litigation was involved in Gomez v. Vernon, 255 F.3d 1118 (9th Cir. 2001). In
that case, inmates brought an action against prison officials alleging that the officials had
retaliated against the inmates for their exercise of their rights to seek redress from the courts.
That case clearly involved government officials acting under color of official authority. The
sanctions were sought in that case because counsel for the prison officials had “improperly
acquired and used privileged and confidential litigation materials belonging to inmate litigants.”
255 F.3d at 1122. The Court found that the Department’s counsel had improperly obtained
privileged attorney-client, confidential materials. There is no allegation here that NFI or its
counsel had somehow gained access to confidential materials other than through legitimate
discovery channels. NFI and its counsel have also not violated any confidentiality provision.
The prison officials and their counsel clearly had the upper hand in gaining access to the
15
privileged communications between the captive inmates and their attorneys. NFI and its counsel
are not in a position to gain illicit access to privileged communications of Shaw. It is difficult to
imagine how the cases relate to each other.
34. Attorney misconduct was the subject of Carroll v. The Jaques Admiralty Law
Firm, P.C., 110 F.3d 290 (5th Cir. 1997). In that case, involving a client’s fraud action against
his former law firm, the defendant attorney engaged in verbally abusive conduct during his
deposition. He cursed at the plaintiff’s attorney or the plaintiff on numerous occasions. There
are no similar allegations here.
35. Shaw also cites Chambers v. Nasco, Inc., 501 U.S. 1269 (1991). The case
involved a contract dispute between the parties. Mr. Chambers had agreed to sell a television
station to the defendant, but subsequently Mr. Chambers changed his mind. Nasco filed an
action for specific performance and injunctive relief. The defendants and their counsel were less
than candid with the court about a transfer of assets to a trust for the benefit of the defendant’s
three adult children and lease back to the defendant. The defendant also filed what the District
Court felt were numerous meritless pleadings. The attorney in question was ultimately
disbarred, with a three year ban on application for readmission. Other attorneys involved were
also suspended. It is apparent from a reading of the opinion that numerous meritless pleadings
were filed by the attorneys. Further, the rules governing sanctions awards against attorneys
recognize the fact that attorneys are a regulated profession and a held to a higher standard. It is
not clear to what extent the Supreme Court would have upheld the sanctions if the defendant had
acted without counsel. Therefore, this case seems to hold little value in determining the
appropriate course in the circumstances in the present case.
Basis for NFI’s Frustration 16
36. It is also apparent from the settlement offer and other pleadings in this matter that
this case has been extremely contentious and financially burdensome. NFI’s extreme frustration
is evident in its settlement offer.
37. While Shaw argues on one hand that NFI has unduly delayed the process and
taken vexatious positions, the documents attached to the Motion for Sanctions show just the
opposite. The negotiation concerning the conduct of the Shaw deposition is a prime illustration.
Shaw did not advise the Court at the hearing on its Motion for Protective Order that one of the
two Shaw designees would be Christopher Sontchi, Esquire, who works in Wilmington. Shaw
indicated that its witnesses were located in Louisiana and the Court indicated its preference that
the deposition take place there.
38. After the conclusion of the hearing on the Motion for Protective Order, Shaw
revealed that there would be two witnesses and one would be Mr. Sontchi. Based upon that
revelation, NFI was well within its rights to seek a compromise of the deposition location.
During this negotiation process, an area including the Baton Rouge, Louisiana area was literally
devastated by Hurricane Katrina. Under Shaw’s original position, five people would have been
required to travel from the Delaware area only to sleep in hotel lobbies for the purpose of
deposing one man from Baton Rouge for a few hours and a second man from Delaware. Shaw
relented in requiring all witnesses to be deposed in Louisiana. NFI relented and took the
deposition of the Louisiana deponent by telephone. It is absurd that Shaw should devote so
much time in their Motion for Sanctions on a compromise that actually accomplished its
objective – the completion of the deposition ordered to go forward.
39. Shaw also raises a muddled issue concerning NFI’s former counsel’s withdrawal
from representation of NFI. It is not clear why Shaw deems that information to be significant 17
here. NFI respectfully requests that the Court review NFI’s opposition to the motion of its
former counsel for withdrawal from the representation. That pleading, which was originally
filed under seal, was unsealed and filed publicly on May 5, 2004, at D.I. 5090 in the main
bankruptcy proceeding. See, Exhibit 6 hereto. NFI submits that the exhibits to the opposition
show that NFI’s former counsel withdrew because they were reluctant to pursue the basis for
Shaw’s Second Omnibus Objection to the Xabeque and other NFI claims. NFI’s former counsel
appeared to have been intimidated or otherwise influenced by the fact that the former Judge in
this matter had previously been a partner in the firm of Shaw’s counsel. Had either Shaw
admitted that there was no basis for the untimely “settled at closing” objection in the Second
Omnibus Objection, or had NFI’s former counsel pursued discovery concerning that issue, the
parties may have avoided these five (5) years of litigation.
40. Shaw also indicates that NFI has not been diligent in pursuing this matter. Shaw
is the plaintiff in the Adversary Proceeding. NFI has not failed to respond to pleadings filed by
Shaw. As for Shaw’s comment that NFI conducted no discovery until the end of discovery, that
argument, which Shaw has raised before, is disingenuous. NFI did serve discovery in the main
bankruptcy proceeding covering all of its claims, including the Xabeque Claim.
Shaw’s Position on the Need to Compromise Valid Claims is Inappropriate
41. The Shaw Motion for Sanctions also reveals the root of the problem in this matter
and the main bankruptcy proceeding for the issues between NFI and Shaw. It is apparent from
18
Shaw’s motion that Shaw believes that all claims are subject to compromise, no matter how valid
the claim. Shaw used the Court’s rules to file objections to essentially all of the NFI claims as
leverage to force NFI to settle their claims. Why was Shaw not willing to pay the undisputed
claims at their full principal value early in the case? Shaw had already waived its right to object
to most of those claims in the December 27, 2000, Letter Agreement, when the objections were
not filed by January 31, 2001. It is not clear whether Shaw used similar tactics on other
creditors, but at the deposition, Shaw’s designees testified that Shaw may not have used a similar
approach with creditors with whom Shaw continued to have regular business dealings. See,
Exhibit 7. For those creditors, Shaw likely just paid the full claim, without forcing the creditor
to compromise their claim.
42. It should be remembered here that Shaw’s assumption of liability was part of the
consideration for their purchase of substantially all of the assets of the Debtors. The Sale Order
required Shaw to pay the claims promptly. None of the NFI claims were paid promptly.
However, despite many objections to the other NFI claims assumed by Shaw, Shaw has paid the
full principal amount of all of the other claims, but for most of the claims that was only after NFI
was forced to endure numerous objections and Shaw failed to produce any documentation
supporting their objection, or the scheduled amounts of the claims. Some of the claims were just
a few hundred dollars. Even the few claims which Shaw agreed to pay in 2002 were not paid in
a routine fashion. Most of the principal amounts were not paid until after NFI filed a motion to
compel payment. It is questionable that Shaw would have forced the trade creditors with whom
19
they regularly conduct business to jump through such hurdles. If that is so, Shaw singled out
NFI for objections based upon their status as a claims trader. That is certainly not an appropriate
basis for objection.
43. Under these circumstances, it is not a mystery that NFI has been financially
harmed as a result of Shaw’s conduct. NFI has expended a great deal of time and funds
responding to objections and filing pleadings to be paid when other creditors might just have
received a check from Shaw. The Court should not countenance such conduct by Shaw. When
viewed in the context of the full dispute between NFI and Shaw in both the main bankruptcy
proceeding and this Adversary Proceeding, NFI’s settlement offer is understandable rather than
sanctionable.
44. NFI is responds only to the Shaw Motion for Sanctions herein. This response is
not intended to be a complete recitation of the history in the main case, particularly with respect
to the claims not at issue in this proceeding. NFI continues to reserve all rights it has to seek
interest, attorneys’ fees, other pecuniary losses, and sanctions in the main bankruptcy proceeding
related both to the Xabeque Claim and approximately sixty (60) other claims.
20
21
WHEREFORE, Next Factors respectfully requests that this Honorable Court deny the
Motion of The Shaw Group, Inc. for Sanctions Against Next Factors, Inc., and grant such other
relief as the Court deems appropriate.
Respectfully submitted,
DIANE J. BARTELS
By: /s/ Diane J. Bartels_______ Diane J. Bartels (No. 2530) Brandywine Village 1807 N. Market Street Wilmington, Delaware 19802 (302) 656-7207 Attorney for Next Factors, Inc.
Dated: November 23, 2005
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