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 Honorable Steven W. Rhodes (Jointly Administered)

MOTION FOR RELIEF FROM STAY TO EFFECT SETOFF/RECOUPMENT HAYASHI OF AMERICA, INC. (HOA), through its undersigned counsel, for its Motion for Relief from Stay to Effect Setoff/Recoupment (the Motion), states as follows: JURISDICTION 1. The Court has jurisdiction over the Motion under 28 U.S.C. 157 and 1334.

This matter is a core proceeding within the meaning of 28 U.S.C. 157(b)(2)(G). 2. 3. Venue in this District is proper under 28 U.S.C. 1409. The statutory bases for the relief requested herein are Sections 362 and 553 of

Title 11 of the United States Code, as amended (the Bankruptcy Code), Federal Rules of Bankruptcy Procedure 4001, 9013 and 9014 and L.B.R. 4001-1 (E.D.M.) and 9014-1 (E.D.M.). RELIEF REQUESTED 4. HOA is entitled to recoup, and does not need relief from the stay, to deduct

certain amounts Collins & Aikman Corporation (C & A) owes HOA from certain amounts HOA owes C & A. In the alternative, HOA is entitled to relief from the automatic stay so that it may take setoffs against pre-petition amounts that HOA owes C & A.

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0555927051019000000000003

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BACKGROUND 5. In general, HOA and C & A have two business arrangements. The first is

whereby HOA purchases for its own account from C & A fabric which is then resold by HOA to HOA customers (the Non-Commission Arrangement). The second is whereby HOAs

customers will purchase directly from C & A and HOA receives a commission from C & A based upon the quantity purchased by HOAs customers directly from C & A (the Commission Arrangement). A copy of the Commission Agreement is attached hereto as Exhibit B. 6. Relative to the Non-Commission Arrangement, HOA and C & A have entered

into certain Master Purchase Orders which are attached hereto as Exhibit C. All subsequent orders for goods from HOA to C & A are governed by the Master Purchase Orders. After C & A delivers goods to HOA, or its agents, the goods are inspected for defects and other problems in the fabric. Whenever defects or other problems are observed, C & A will provide a credit to HOA for such defects and problems against amounts owed by HOA to C & A under the Master Purchase Orders. 7. To date, C & A owes to HOA under the Non-Commission Arrangement and

Commission Arrangement $20,728.98 (the Recoupment/Setoff Amount). 8. HOA estimates that it owes C & A $16,204.25 on a pre-petition basis as well as in

excess of $5,000.00 on a post-petition basis relative to HOAs purchasing of goods from C & A under the Master Purchase Orders (collectively, the HOA Payable). RECOUPMENT 9. HOA is entitled to recoupment of $17,859.99 of the Recoupment/Setoff Amount

because it arises under the same orders and contracts under which the HOA Payable arises. The 2

$17,859.99 represents the amount of goods rejected by HOA ordered by it pursuant to the Master Purchase Orders. HOA also owes to C & A on a pre-petition and post-petition basis in excess of $17,859.99 relative to amounts purchased by HOA from C & A under the Master Purchase Orders. As a result, HOA is entitled to recoup the entire amount of $17,859.99. SETOFF 10. The right of setoff exists when (a) the creditor owed a pre-petition debt to the

debtor, (b) the creditor has a claim against the debtor that also arose pre-petition, (c) the debt and the claim are mutual obligations, and (d) a right exists to setoff the debts under non-bankruptcy law. 11. The Recoupment/Setoff Amount and the HOA Payable each arose pre-petition

(see 11 U.S.C. 502(g)) and are owing between the same parties. They are therefore mutual so that the right of setoff exists. 12. HOA has a right to relief from the automatic stay because a valid right to setoff

constitutes cause under 11 U.S.C. 362(d)(1). 13. Attached as Exhibit A is the proposed Order Allowing Recoupment or, in the

alternative, Lifting the Automatic Stay to Effect Setoff. WHEREFORE, HOA requests that the Court: a. Determine that HOA can recoup $17,859.99 of the Recoupment/Setoff Amount

from the HOA Payable;

b.

In the alternative, grant HOA relief from the automatic stay to take a setoff

against the HOA Payable for the Recoupment/Setoff Amount; and c. Grant such further relief as is proper and just. ALLARD & FISH, P.C. /S/Daniel M. Katlein 2600 Buhl Building 535 Griswold Detroit, MI 48226 Email: dkatlein@allardfishpc.com P33474 and MASUDA, FUNAI, EIFERT & MITCHELL, LTD. Rein F. Krammer, Esq. 203 N. LaSalle Street, Suite 2500 Chicago, Illinois 60601-1262 (312) 245-7500 Attorneys for Hayashi of America, Inc. Dated: October 19, 2005
U:\HOA\Motion to Lift Stay.doc

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 Honorable Steven W. Rhodes (Jointly Administered)

ORDER GRANTING RELIEF FROM STAY TO EFFECT SETOFF/RECOUPMENT This matter having come on to be considered upon the Motion For Relief From Stay To Effect Setoff/Recoupment (the Motion) filed by HAYASHI OF AMERICA, INC. (HOA), the Court having considered the Motion, the exhibits thereto and the brief in support, any objections, arguments of counsel and the testimony and exhibits offered into evidence and the record in this cause, no further notice or hearing being necessary, capitalized terms not defined herein having the meanings as defined in the Motion, and the Court being fully advised in the premises; THE COURT FINDS: A. HOA is entitled to recoup the $17,859.99 of Recoupment/Setoff Amount against

the HOA Payable; B. There is cause to lift the stay for HOA to effect setoff of the entire

Recoupment/Setoff Amount against the HOA Payable; IT IS HEREBY ORDERED THAT: 1. HOA is entitled to recoup $17,859.99 of the Recoupment/Setoff Amount against

the HOA Payable.

EXHIBIT A

2. 3.

The automatic stay is lifted as provided in this Order. HOA may set off its entire Recoupment/Setoff Amount against the HOA Payable.

U:\HOA\Motion to Lift Stay.doc

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 Honorable Steven W. Rhodes (Jointly Administered)

NOTICE OF MOTION FOR RELIEF FROM AUTOMATIC STAY TO EFFECT SETOFF/RECOUPMENT HAYASHI OF AMERICA, INC. (HOA), by its undersigned attorneys has filed a Motion for Relief from Automatic Stay to Effect Setoff/Recoupment with this Court (the Motion). Your rights may be affected. You should read these papers carefully and discuss them with your attorney, if you have one. If you do not want the Court to enter an Order approving the Motion, or if you want the Court to consider your views on the Motion, within 15 days, your or your attorney must: 1. File with the court an objection explaining your position, at: U.S. Bankruptcy Court 211 West Fort Street Detroit, MI 48226 If you mail your objection to the court for filing, you must mail it early enough so that the Court will receive it on or before the date stated above. You must also mail a copy to: Daniel M. Katlein, Esq. Allard & Fish, P.C. 2600 Buhl Building 535 Griswold Detroit, MI 48226 2. Rein F. Krammer, Esq. Masuda, Funai, Eifert & Mitchell, Ltd. 203 N. LaSalle Street, Suite 2500 Chicago, IL 60601-1262

If an objection or answer is timely filed and served, the clerk will schedule a hearing on the Motion and you will be served with a notice of the date, time and location of the hearing.

If you or your attorney do not take these steps, the Court may deem that you do not oppose the relief sought in the Motion and may enter an Order granting that relief. ALLARD & FISH, P.C. /S/Daniel M. Katlein 2600 Buhl Building 535 Griswold Detroit, MI 48226 Email: dkatlein@allardfishpc.com P33474 and MASUDA, FUNAI, EIFERT & MITCHELL, LTD. Rein F. Krammer, Esq. 203 N. LaSalle Street, Suite 2500 Chicago, Illinois 60601-1262 (312) 245-7500 Attorneys for Hayashi of America, Inc. Dated: October 19, 2005
U:\HOA\Motion to Lift Stay.doc

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 Honorable Steven W. Rhodes (Jointly Administered)

MEMORANDUM IN SUPPORT OF MOTION FOR RELIEF FROM STAY TO EFFECT SETOFF/RECOUPMENT HAYASHI OF AMERICA, INC. (HOA), through its undersigned counsel, for its Memorandum in Support of Motion for Relief from Stay to Effect Setoff/Recoupment (the Motion), states as follows: JURISDICTION 1. The Court has jurisdiction over the Motion under 28 U.S.C. 157 and 1334.

This matter is a core proceeding within the meaning of 28 U.S.C. 157(b)(2)(G). 2. 3. Venue in this District is proper under 28 U.S.C. 1409. The statutory bases for the relief requested herein are Sections 362 and 553 of

Title 11 of the United States Code, as amended (the Bankruptcy Code), Federal Rules of Bankruptcy Procedure 4001, 9013 and 9014 and L.B.R. 4001-1 (E.D.M.) and 9014-1 (E.D.M.). RELIEF REQUESTED 4. HOA is entitled to recoup, and does not need relief from the stay, to deduct

certain amounts Collins & Aikman Corporation (C & A) owes HOA from certain amounts HOA owes C & A. In the alternative, HOA is entitled to relief from the automatic stay so that it may take setoffs against pre-petition amounts that HOA owes C & A. 1

BACKGROUND 5. In general, HOA and C & A have two business arrangements. The first is

whereby HOA purchases for its own account from C & A fabric which is then resold by HOA to HOA customers (the Non-Commission Arrangement). The second is whereby HOAs

customers will purchase directly from C & A and HOA receives a commission from C & A based upon the quantity purchased by HOAs customers directly from C & A (the Commission Arrangement). A copy of the Commission Agreement is attached as Exhibit B to the Motion. 6. Relative to the Non-Commission Arrangement, HOA and C & A have entered

into certain Master Purchase Orders which are attached as Exhibit C to the Motion. All subsequent orders for goods from HOA to C & A are governed by the Master Purchase Orders. After C & A delivers goods to HOA, or its agents, the goods are inspected for defects and other problems in the fabric. Whenever defects or other problems are observed, C & A will provide a credit to HOA for such defects and problems against amounts owed by HOA to C & A under the Master Purchase Orders. 7. To date, C & A owes to HOA under the Non-Commission Arrangement and

Commission Arrangement $20,728.98 as follows (the Recoupment/Setoff Amount): Debit Memo Date 4/18/05 5/02/05 5/17/05 5/16/05 5/24/05 Description Cut and sew downtime charge for Dune short fibers ordered pre-petition April 2005 Commission Payment Sorting charges for module narrow width, Aura bow bias, and Dune short fibers (2/28 - 4/17) ordered pre-petition May 2005 Commission Payment through 5/16/05 Sorting charges for Aura bow bias and Dune short fiber material from April 18 to May 22 relating to pre-petition order 2 Total $1,315.04 $1,972.70 $3,523.16 $896.29 $3,149.15

Debit Memo Date 5/31/05

Description Dune weekly cut parts rejection including Folios 94 & 95; also one roll of Cipher Dk. Gray sent by mistake, label read Cipher Blues but it was Dk. Gray. (Relating to Pre-Petition Order) Aura rejection for bow (Relating to Pre-Petition Order) Fusion report debit for April delivery of roll goods inspection defects (Relating to Pre-Petition Order) Fusion report debit for May delivery of fabric to Japan roll goods inspections (Relating to PrePetition Order) Aura cut parts rejected for bow bias. 50/50 split with customer based on utilization of rolls with bias in the first 3 to 5 yards and last 3 to 5 yards of the roll (Relating to Pre-Petition Order) Total

Total $1,323.93

6/13/05 6/20/05 6/28/05 8/04/05

$227.86 $2,371.06 $4,719.00 $1,230.79

$20,728.98

8.

HOAs counsel has been corresponding with C & As counsel relative to HOAs

right to recoup and/or offset the Recoupment/Setoff Amount. The respective parties counsels were negotiating the noticing and entry of a stipulated order relative to HOAs recoupment and/or setoff rights. Recently, C & As counsel advised that an agreed order would no longer be possible and instead a motion to lift stay would be required. In those discussions, C & As counsel was advised that HOA had withheld payment to C & A of $16,204.25 relating to amounts due from HOA to C & A under the Master Purchase Orders. 9. HOA estimates that it owes C & A $16,204.25 on a pre-petition basis as well as in

excess of $5,000.00 on a post-petition basis relative to HOAs purchasing of goods from C & A under the Master Purchase Orders (collectively, the HOA Payable). RECOUPMENT 10. HOA is entitled to recoupment of $17,859.99 of the Recoupment/Setoff Amount

because it arises under the same orders and contracts under which the HOA Payable arises. The 3

$17,859.99 represents the amount of goods rejected by HOA ordered by it pursuant to the Master Purchase Orders. HOA also owes to C & A on a pre-petition and post-petition basis in excess of $17,859.99 relative to amounts purchased by HOA from C & A under the Master Purchase Orders. The doctrine of recoupment is overall more expansive than the doctrine of setoff. As a general rule, the 553 requirements and limitations applicable to setoff do not apply to recoupments. 5 Collier on Bankruptcy 553.10 at 553-99 (15th Ed. Rev. 2002). As a result, HOA is entitled to recoup the entire amount of $17,859.99. SETOFF 11. Further, 11 U.S.C. 553(a) provides that this title does not affect any right of a

creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that rose before the commencement of the case . 12. The right of setoff exists when (a) the creditor owed a pre-petition debt to the

debtor, (b) the creditor has a claim against the debtor that also arose pre-petition, (c) the debt and the claim are mutual obligations, and (d) a right exists to setoff the debts under non-bankruptcy law. 13. The Recoupment/Setoff Amount and the HOA Payable each arose pre-petition

(see 11 U.S.C. 502(g)) and are owing between the same parties. They are therefore mutual so that the right of setoff exists. 14. HOA has a right to relief from the automatic stay because a valid right to setoff

constitutes cause under 11 U.S.C. 362(d)(1). 15. Attached as Exhibit A to the Motion is the proposed Order Allowing

Recoupment or, in the alternative, Lifting the Automatic Stay to Effect Setoff.

WHEREFORE, HOA requests that the Court: a. Determine that HOA can recoup $17,859.99 of the Recoupment/Setoff Amount

from the HOA Payable; b. In the alternative, grant HOA relief from the automatic stay to take a setoff

against the HOA Payable for the Recoupment/Setoff Amount; and c. Grant such further relief as is proper and just. Respectfully submitted, ALLARD & FISH, P.C. /S/Daniel M. Katlein 2600 Buhl Building 535 Griswold Detroit, MI 48226 Email: dkatlein@allardfishpc.com P33474 and MASUDA, FUNAI, EIFERT & MITCHELL, LTD. Rein F. Krammer, Esq. 203 N. LaSalle Street, Suite 2500 Chicago, Illinois 60601-1262 (312) 245-7500 Attorneys for Hayashi of America, Inc. Dated: October 19, 2005
U:\HOA\Motion to Lift Stay.doc

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 Honorable Steven W. Rhodes (Jointly Administered)

CERTIFICATION OF SERVICE I, Regina Drouillard hereby certify that on October 19, 2005, I electronically filed the foregoing: Motion for Relief from Stay to Effect Setoff/Recoupment; Memorandum in Support of Motion for Relief from Stay to Effect Setoff/Recoupment; and Notice of Motion for Relief from Stay to Effect Setoff/Recoupment. With the Clerk of the Court using the ECF system which will send notification of such filing to the following: Office of the U.S. Trustee See list attached.

and I hereby certify that I have mailed by United States Postal Service the Papers to the following nonECF participant: See list attached. ALLARD & FISH, P.C. /S/Regina Drouillard 2600 Buhl Building 535 Griswold Detroit, MI. 48226 (313) 961-6141 Dated: October 19, 2005
U:\HOA\Motion to Lift Stay.doc

05-55927-swr Notice will be electronically mailed to: Erin Lindsay Abrahams Jason W. Bank Leonora K. Baughman Brendan G. Best James R. Bruinsma Charles D. Bullock Dan E. Bylenga Kevin C. Calhoun Judy B. Calton Marc Carmel eabrahams@foley.com, jbank@schaferandweiner.com lbaughman@kaalaw.com bbest@dykema.com jbruinsma@mnds-pllc.com, cbullock@gatecom.com, cdbullock@msn.com dbylenga@rhoadesmckee.com, kcc@cdg-law.com, kevin@lawyermich.com jcalton@honigman.com jgoldfinger@kirkland.com, mcarmel@kirkland.com; rschrock@kirkland.com; dmoran@kirkland.com; akelly@kirkland.com; sroberts@kirkland.com; jay.knoll@colaik.com; jboken@krollzolfocooper.com; ipanizales@kirkland.com; bfriedman@kirkland.com dcopley@dickinsonwright.com curlingj@michigan.gov, bradleys@michigan.gov jdawson@quarles.com, donaldh@michigan.gov sdrucker@clarkhill.com, eerman@ermanteicher.com fusco@millercanfield.com, tgers@kotzsangster.com rmgiunta@lambertleser.com

Dawn R. Copley Julius O. Curling John J. Dawson Heather L. Donald Seth A. Drucker Earle I. Erman Timothy A. Fusco Todd M. Gers Rozanne M. Giunta

Stuart A. Gold Timothy R. Graves Richard A. Green Lisa Sommers Gretchko Paula A. Hall Michael C. Hammer Juandisha Harris Ryan D. Heilman Timothy Hillegonds Terrance A. Hiller William L. Huebner Michael J. Kaczka Mimi D. Kalish Dennis W. Loughlin Ralph E. McDowell David G. Michael Judith Greenstone Miller James P. Murphy Max J. Newman Judy A. O'Neill Michael R. Paslay

sgold@glmpc.com, tgraves@allardfishpc.com, rgreenbankruptcyeast@yahoo.com lgretchko@howardandhoward.com, dbrandon@howardandhoward.com hallp@butzel.com mhammer@dickinsonwright.com, Harrisjm@michigan.gov, Ga! mep@michigan.gov rheilman@schaferandweiner.com thillegonds@wnj.com, jnikodemski@wnj.com tah@kompc.com, whuebner@glmpc.com, mkaczka@mcdonaldhopkins.com, mimi@stillmanlaw.com, dloughlin@raypro.com, sfraser@raypro.com rmcdowell@bodmanllp.com, david.michael@waltondonnelly.com, jmiller@jaffelaw.com, jtravick@jaffelaw.com murph@berrymoorman.com, mnewman@schaferandweiner.com, joneill@foley.com, krose@foley.com mike.paslay@wallerlaw.com, Cathy.thomas@wallerlaw.com; Chris.cronk@wallerlaw.com; wallerbankruptcy@wallerlaw.com; robert.welhoelter@wallerlaw.com

Robert A. Peurach Thomas B. Radom Louis P. Rochkind Ronald L. Rose Alicia S. Schehr Craig S. Schoenherr Ray C. Schrock Robert K. Siegel Julie Beth Teicher Sheryl L. Toby Jonathan T. Walton Scott A. Wolfson

rpeurach@ameritech.net, Radom@butzel.com, lrochkind@jaffelaw.com rrose@dykema.com, aschehr@jaffelaw.com ecf@orlaw.com rschrock@kirkland.com, jgoldfinger@kirkland.com rob@jacobweingarten.com, jteicher@ermanteicher.com, stoby@dykema.com, mabela@dykema.com jonathan.walton@waltondonnelly.com, swolfson@honigman.com,

05-55927-swr Notice will not be electronically mailed to: Josef S. Athanas Lathan & Watkins LLP 233 South Wacker Drive Sears Tower, Suite 5800 Chicago, IL 60606 Frederick A. Berg 400 Renaissance Center Detroit, MI 48243-1602 William T. Burgess One Detroit Center 500 Woodward Ave. Suite 4000 Detroit, MI 48226 Ralph Colasuonno 12900 Hall Road, Ste. 350 Sterling Heights, MI 48313-1151 Robert N. Bassel 201 W. Big Beaver 6th Floor Troy, MI 48099 Kellie M. Blair 1111 W. Long Lake Road Suite 300 Troy, MI 48098-6333 Richard M. Cieri 153 East 53rd Street New York, NY 10022-4611

Vincent A. D'Agostino 65 Livingston Avenue Roseland, NJ 07068

James E. DeLine 500 Woodward Avenue Suite 2500 Detroit, MI 48226 Joseph M. Fischer Carson Fischer, PLC 300 E. Maple Road, 3rd Floor Birmingham, MI 48009 Christopher A. Grosman 300 East Maple Road, Third Floor Birmingham, MI 48009

Randy Doub 110 Arlington Boulevard PO Drawer 8668 Greenville, NC 27835-8668 Niraj R. Ganatra 8000 E. Jefferson Ave. Detroit, MI 48214-2699 Jeffrey K. Helder CUNNINGHAM DALMAN, P.C. 321 Settlers Road P.O. Box 1767 Holland, MI 49422-1767 John C. Louisell 300 Talon Centre Detroit, MI 48207 Arthur W. Miller 535 Griswold Suite 800 Detroit, MI 48226 Paul J. Randel 211 W. Fort St. Suite 700 Detroit, MI 48226 Daniella Saltz 1 American Rd. Suite 323WHQ Dearborn, MI 48126 Mary Kay Shaver 333 Bridge, NW, Ste. 1700 Bridgewater Building P. O. Box 352 Grand Rapids, MI 49501-0352 Michael S. Stamer Akin, Gump, Strauss, Hauer & Feld, LLP 590 Madison Avenue, 20th Floor New York, NY 10022

William H. Horton Tenth Floor Columbia Center 101 West Big Beaver Road Troy, MI 48084-5280 Paul A. Lucey 100 East Wisconsin Ave. Suite 3300 Milwaukee, WI 53202 Bruce A. Miller 600 W. Lafayette Blvd., 4th Floor Detroit, MI 48226 Robotic Production Technology 1255 Harmon Road Auburn Hills, MI 48326 William E. Schonberg 2300 B P America Bldg 200 Public Square Cleveland, OH 44114-2378 Donald F. Slavin 1200 N. Telegraph Rd. Pontiac, MI 48341

Mary K. Whitmer One Cleveland Center 20th Floor 1375 East 9th Street Cleveland, OH 44114-1793 Michael I. Zousmer 29100 Northwestern Hwy. Suite 260 Southfield, MI 48034
U:\HOA\Service List.doc

Robert B. Weiss 2290 First National Bldg. 660 Woodward Ave. Detroit, MI 48226-3506

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 Honorable Steven W. Rhodes (Jointly Administered)

EXHIBIT LIST Exhibit B C Description Commission Agreement Master Purchase Orders