Musicland examination request draws objection on grounds of redundant, broad discovery request

By Caroline Salls

Pittsburgh, Feb. 24 - Musicland Holdings Corp.'s official committee of unsecured creditors' request for an examination in the company's Chapter 11 case drew an objection Thursday from Sun Music, LLC, Sun Capital Partners III, LP, Sun Capital Partners III QP, LP and some members of Musicland's board of directors, saying the committee is seeking discovery in areas already covered in the case.

While the Sun entities and board members agreed that bankruptcy law is broad in connection with discovery requests, "it should not, however, enable a party to seek multiple bites at the apple in an effort to cobble together some basis for further unproductive litigation."

The Sun entities said the committee's request is also overly broad, containing no limitations on timing, scope or duration of the examination.

The Sun entities said they fully cooperated for the committee's earlier requests for production of documents.

On Feb. 15, the committee requested an examination of current and former members of Musicland's senior management and boards of directors; officers and directors of Sun Music LLC; the trade lien creditors; prior owner Best Buy Co., Inc. and lender Harris Bank NA.

The committee said it wanted the examination to evaluate the merits of any potential committee claims for breaches of fiduciary duty, self-dealing, unreasonable fees, misleading public statements, preferential transfers, improvement in position, fraudulent transfers/ conveyances and/or collusive behavior and to investigate the pre-bankruptcy relationship between Musicland, the Sun entities, Best Buy and Harris Bank.

The motion said the issues related to the senior officers and board include pre-bankruptcy activities and decisions, particularly in connection with the company's decision to enter into a security agreement with the trade lien creditors and the decision to prepay the loan from Harris Bank.

The committee said it also wants the examination to investigate the details concerning Sun Music's acquisition of Musicland.

Musicland, a Minnetonka, Minn., specialty retailer of pre-recorded entertainment software products, filed for bankruptcy on Jan. 12. Its Chapter 11 case number is 06-10064.

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