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

et al.1 ) ) Debtors. ) ) ) ) ) ) _________________________________________) Chapter 11 Case No. 05-55927 (SWR) (Jointly Administered) (Tax Identification #13-3489233) Honorable Steven W. Rhodes

RESPONSE IN OPPOSITION TO VARIOUS CLAIMANTS OBJECTION TO THE COLLINS & AIKMAN POST-CONSUMMATION TRUSTS TWENTY-FIRST OMNIBUS OBJECTION TO CLAIMS (IMPROPER CLASSIFICATION) In response to the Objections of Kenneth D. Heiny, Gary S. Banker, Mark C. Davis, Norman F. Arnold, Rajesh K. Shah, Timothy M. Sparks, Daniel P. Ludwig, Steven C. Daugherty, and William S. Hagar (collectively, Claimants) to the Collins & Aikman PostConsummation Trusts (the Trust) Twenty-First Omnibus Objection to Claims (Improper Classification) (the Twenty-First Omnibus Objection), the Trust states as follows:

The Debtors in the jointly administered cases include: Collins & Aikman Corporation; Amco Convertible Fabrics, Inc., Case No. 05-55949; Becker Group, LLC (d/b/a/ Collins & Aikman Premier Mold), Case No. 05-55977; Brut Plastics, Inc., Case No. 05-55957; Collins & Aikman (Gibraltar) Limited, Case No. 05-55989; Collins & Aikman Accessory Mats, Inc. (f/k/a the Akro Corporation), Case No. 05-55952; Collins & Aikman Asset Services, Inc., Case No. 05-55959; Collins & Aikman Automotive (Argentina), Inc. (f/k/a Textron Automotive (Argentina), Inc.), Case No. 05-55965; Collins & Aikman Automotive (Asia), Inc. (f/k/a Textron Automotive (Asia), Inc.), Case No. 0555991; Collins & Aikman Automotive Exteriors, Inc. (f/k/a Textron Automotive Exteriors, Inc.), Case No. 05-55958; Collins & Aikman Automotive Interiors, Inc. (f/k/a Textron Automotive Interiors, Inc.), Case No. 05-55956; Collins & Aikman Automotive International, Inc., Case No. 05-55980; Collins & Aikman Automotive International Services, Inc. (f/k/a Textron Automotive International Services, Inc.), Case No. 05-55985; Collins & Aikman Automotive Mats, LLC, Case No. 05-55969; Collins & Aikman Automotive Overseas Investment, Inc. (f/k/a Textron Automotive Overseas Investment, Inc.), Case No. 05-55978; Collins & Aikman Automotive Services, LLC, Case No. 05-55981; Collins & Aikman Canada Domestic Holding Company, Case No. 05-55930; Collins & Aikman Carpet & Acoustics (MI), Inc., Case No. 05-55982; Collins & Aikman Carpet & Acoustics (TN), Inc., Case No. 05-55984; Collins & Aikman Development Company, Case No. 05-55943; Collins & Aikman Europe, Inc., Case No. 05-55971; Collins & Aikman Fabrics, Inc. (d/b/a Joan Automotive Industries, Inc.), Case No. 05-55963; Collins & Aikman Intellimold, Inc. (d/b/a M&C Advanced Processes, Inc.), Case No. 05-55976; Collins & Aikman Interiors, Inc., Case No. 05-55970; Collins & Aikman International Corporation, Case No. 05-55951; Collins & Aikman Plastics, Inc., Case No. 05-55960; Collins & Aikman Products Co., Case No. 05-55932; Collins & Aikman Properties, Inc., Case No. 0555964; Comet Acoustics, Inc., Case No. 05-55972; CW Management Corporation, Case No. 05-55979; Dura Convertible Systems, Inc., Case No. 05-55942; Gamble Development Company, Case No. 05-55974; JPS Automotive, Inc. (d/b/a PACJ, Inc.), Case No. 05-55935; New Baltimore Holdings, LLC, Case No. 05-55992; Owosso Thermal Forming, LLC, Case No. 05-55946; Southwest Laminates, Inc. (d/b/a Southwest Fabric Laminators Inc.), Case No. 05-55948; Wickes Asset Management, Inc., Case No. 05-55962; and Wickes Manufacturing Company, Case No. 05-55968.

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I.

FACTUAL BACKGROUND 1. Claimants filed their claims asserting priority entitlement to certain funds in the

Shadow Retirement Income Benefits Plan (the Shadow Plan). Claimants filed their claims relying entirely on 11 U.S.C. 507(a)(5). 2. On March 28, 2008, the Trust filed the Twenty-First Omnibus Objection to

Claimants claims, as well as a variety of other claims. [Dckt. #9032] 3. On May 12, 2008, the Court received Claimants non-substantive response to the

Twenty-First Omnibus Objection. [Dckt. #9400] 4. At or around the time of the filing of Claimants initial response, the current

counsel for Claimants contacted the undersigned and was granted a continuance with regard only to these Claimants. 5. Most other claimants identified on the Twenty-First Omnibus Objection did not

respond. For those few claimants who did file a response but were not granted a continuance, this Court held a hearing on May 22, 2008. 6. At the hearing on May 22, 2008, the Court was advised that the statutory formula

for determining whether contributions to the Shadow Plan were entitled to a priority was exceeded such that no employee benefit plans were entitled to that priority. 7. On June 5, 2008, the Court entered the Order Granting In Part the Collins &

Aikman Post-Consummation Trusts Twenty-First Omnibus Objection to Claims (Improper Classification). [Dckt. #9590] 8. On June 24, 2008, Claimants for the first time filed a substantive Objection to the

Twenty-First Omnibus Objection. [Dckt. #9640] Without reference to the Bankruptcy Code or relevant case-law, Claimants now assert that their claims somehow attain a statutory priority by

application of ERISA, and that the Shadow Plan assets should have been held in a segregated account outside of the general assets of Collins & Aikman. (Claimants Objection at 4.) Claimants do not deny, however, that 11 U.S.C. 507(a)(5)(B) bars priority status for the Shadow Plan because the aggregate amount paid to the participants in the Shadow Plan under 11 U.S.C. 507(a)(4) was far greater than the number of employees covered by the Shadow Plan multiplied by $10,000. 9. Claimants Objection should be denied and their related Adversary Proceeding

dismissed with prejudice for at least two reasons: (1) Claimants are barred from raising this issue because Claimants failed to raise it during the extensive confirmation proceedings for the First Amended Joint Plan of Collins & Aikman Corporation and Its Debtor Subsidiaries, filed July 9, 2007 [Dckt. #7731] (the Plan); and (2) well-established law provides that ERISA cannot provide Claimants a priority that is not contained in the Bankruptcy Code.2 II. CLAIMANTS OBJECTION IS BARRED BECAUSE IT PROCEEDINGS TO CONFIRM THE PLAN 10.
WAS

NOT RAISED DURING

THE

The Bankruptcy Code provides that a courts confirmation order is a final

judgment on the merits. See 11 U.S.C. 1141. 11. As outlined in the Order Confirming First Amended Joint Plan of Collins &

Aikman and its Debtor Subsidiaries, entered July 18, 2007 [Dckt. #7827] (the Confirmation Order), ample notice was provided regarding consideration, approval, and confirmation of the Plan. (Confirmation Order at 1-2, D.) 12. Paragraph NN of the Confirmation Order provides that all objections to the Plan

were resolved before entry of the Confirmation Order.

The Trust does not challenge the application of ERISA only for the purposes of this Response. This Response is not to be considered a waiver of the Trusts objection to the application of ERISA. Instead, the Trust relies on these clear legal prohibitions of Claimants position to prevail on the Twenty-First Omnibus Objection. The Trust anticipates challenging whether ERISA applies to the Shadow Plan in its initial responsive pleading to the corresponding Adversary Proceeding filed by Claimants on June 24, 2008.

13.

The Plan expressly provided that all employee benefit plans were terminated upon

the Effective Date of the Plan: On the Effective Date . . ., the Debtors existing employee benefit policies, plans and agreements that are not identified on Exhibit D and have not been terminated by the Debtors prior to the Effective Date will terminate pursuant to the Plan. (Plan at IV.H.1.) 14. at 9, 99.) 15. Claimants do not appear to have objected to the Plan or the Confirmation Order, Priority Claims are expressly governed in the Plan by 11 U.S.C. 507(a). (Plan

and Claimants did not file an appeal of the Confirmation Order. 16. Now, nearly one year after entry of the Confirmation Order, Claimants assert that

they are entitled to a constructive trust to protect their Shadow Plan funds. Even if this matter were raised before entry of the Confirmation Order, Claimants would have had to overcome the substantial presumption that constructive trusts are contrary to the provisions of the Bankruptcy Code because such trusts permit a creditor, no matter how badly he was had by the debtor, to lop off a piece of the estate under a constructive trust theory [permitting] that creditor to circumvent completely the Codes equitable system of distribution. XL/DataComp v. Wilson, 16 F.3d 14434, 1451 (6th Cir. 1994). 17. Claimants failure to object to the Plan or challenge the Confirmation Order

prevents Claimants from now challenging the exclusive application of 11 U.S.C. 507(a)(5) as set forth in the Plan confirmed by the Confirmation Order. See, e.g., In re Friedmans, Inc., 356 B.R. 766 (Bankr. S.D. Ga. 2006) (In failing to make such an objection or motion, creditors assume a risk that they will be bound by a later interpretation of a provision whose impact might otherwise have been avoided).

18.

The Trust has resolved nearly all of the other priority claims. The Trust cannot

now be expected to somehow reverse its efforts to remedy an untimely request for a priority that is presumptively at odds with the Bankruptcy Code. Claimants have simply waited too long to assert the novel and unsupportable theory that ERISA works to protect employee benefit plans outside of the express provisions of the Bankruptcy Code. III. CLAIMANTS CANNOT RELY THEIR CLAIMS 19.
ON

ERISA

TO

OBTAIN PRIORITY TREATMENT FOR

The Supreme Court has recently confirmed the long-standing notion that

provisions allowing priorities must be tightly construed so as not to dilute the other creditor interests. Howard Delivery Serv. Inc. v. Zurich Am. Ins. Co., 547 U.S. 651, 655 (2006). In the Howard Delivery case, the Supreme Court held that courts cannot use ERISA to define the phrase employee benefit plans in order to afford certain claimants a priority under 11 U.S.C. 507(a)(5). Id. at 662. 20. The Sixth Circuit was already in agreement with the Supreme Courts conclusion

in the Howard Delivery case. The Sixth Circuit has held that where, as here, ERISA would be used to discriminate between claimants, ERISAs application will not prevail over the application of the Bankruptcy Code. See Pension Benefit Guar. Corp. v. Belfance, 232 F.3d 505, 508 (6th Cir. 2000). The Sixth Circuit noted that Congress has made clear that when ERISA conflicts with another provision of federal law such as the Bankruptcy Code, ERISAs application is subordinate to that other federal law. Id. (citing 29 U.S.C. 1144(d)). Other courts also agree that ERISA definitions will not be read into the Bankruptcy Code. Employers Ins. v. Ramette, 183 B.R. 852, 855 (Bankr. D. Minn. 1994) (refusing to use the broad ERISA definition for employee benefit plan even though the Bankruptcy Code leaves that phrase undefined).

21.

Two reasons bar the application of ERISA to afford Claimants a priority. First,

Claimants would have this Court apply ERISA to avoid the application of 11 U.S.C. 507(a)(5). Effectively, Claimants assert that the Bankruptcy Code should be read to incorporate ERISA to secure their claims. The Supreme Court has made clear that this Court cannot supplant the decision of the legislature to broadly interpret the priority statute. See Howard Delivery, 547 U.S. at 662. 22. Second, Claimants cannot rely on ERISA to protect their claims because they

would attain an inequitable distribution over other creditors. Because Claimants failed to contest the Plan or the Confirmation Order, and because Claimants failed to appear at the previous hearing on the Twenty-First Omnibus Objection, the remaining Shadow Plan claimants have been dismissed. Now, at the eleventh hour, Claimants seek to apply a statute that should be absolutely subordinated in order to obtain a priority status to which they otherwise would not be entitled. Both the Supreme Court and the Sixth Circuit prohibit the application of ERISA for this purpose. 23. Contrary to the clear Supreme Court and Sixth Circuit precedent, Claimants cite

nothing to support their assertion that ERISA protects their claims. Therefore, Claimants Response should be rejected.

WHEREFORE, the Trust respectfully requests that Claimants claims be reclassified as general unsecured claims because: (1) Claimants are barred from pursuing a theory of recovery under ERISA; and (2) 11 U.S.C. 507(a)(5) cannot be subordinated to, or defined by, the provisions of ERISA. Respectfully submitted, BOYLE BURDETT By:s/H. William Burdett, Jr. Eugene H. Boyle, Jr. H. William Burdett, Jr. 14950 East Jefferson, Suite 200 Grosse Pointe Park, Michigan 48230 (313) 344-4000 (313) 344-4001 (facsimile) burdett@boyleburdett.com Attorneys for the Collins & Aikman Post-Consummation Trust

Dated: June 25, 2008