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.

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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.”

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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.

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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.

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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

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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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