UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

In re: COLLINS & AIKMAN CORPORATION et al. Case No. 05-55927 Hon. Steven W. Rhodes Debtors. Chapter 11 case Jointly Administered ______________________________________________________________________ VISTEON CORPORATION'S REPLY BRIEF IN SUPPORT OF ITS MOTION FOR RELIEF FROM STAY TO EFFECT SETOFF Visteon Corporation ("Visteon"), by its attorneys, Dickinson Wright PLLC, submits this Reply Brief in Support of Its Motion for Relief from Stay to Effect Setoff. I. VISTEON'S PREPETITION DEBT AND THE DEBTOR'S PREPETITION DEBT SATISFY THE "MUTUALITY" REQUIREMENT OF 11 U.S.C. 553. Debtors' Brief in O pposition to Visteon's Motion for Relief from Stay to Effect Setoff ("Brief in Opposition") is premised on a misunderstanding of the law applicable to Visteon's Motion for Relief from Stay to Effect Setoff. Contrary to Debtors' assertions, the "mutuality" requirement of 11 U.S.C. 553 is satisfied. A party may exercise the right of setoff codified in 533 if (1) the obligations at issue arose prepetition and (2) the debts are mutual. U.S. v. Gordon Sel-Way, Inc. (In re Gordon Sel-Way, Inc.) 239 B.R. 741, 751-752 (E.D.Mich. 1999), aff'd 270 F.3d 280 (6th Cir. 2001). Debtors concede that the obligations arose prepetition. See Brief in Opposition at 2. Thus, the only subject of contention is the "mutuality" requirement. The mutuality requirement provides that "the debts and credits are in the same right and are between the same parties, standing in the same capacity." Scherling v. Hellman Electronic Corp (In re Westchester Structures, Inc.,), 181 B.R. 730, 739

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(Bankr.S.D.N.Y. 1995). However, this "mutuality" requirement is satisfied where the parties have agreed at the outset to treat both the debtor and its subsidiaries and the creditor and its subsidiaries as single entities for setoff purposes particularly when the parties have an express agreement to do so. See generally 9D Am.Jur.2d, Bankruptcy 2563 (2005). See also In re Balducci Oil Co., 33 B.R. 847, 853 (Bankr.D.Co. 1983) ("The courts have found mutuality between three parties, as a matter of contract law, where there was an express contractual agreement clearly evincing the intent of the parties to treat the parent and subsidiary as one entity."); Bloor v. Shapiro, 32 B.R. 993, 1002 (S.D.N.Y 1983); In re Hill Petroleum Co., 95 B.R. 404, 411 (Bankr.W.D.La. 1988) ("The narrow exception to the rule against three party "triangular" setoffs occurs where there is a formal agreement by the debtor that two entities may aggregate debts owed to and from the debtor.") In this case, all transactions between Visteon and Debtors were subject to Visteon's Global Terms for Production Parts and Non-Production Goods and Services (the "Global Terms"), which provides: Seller agrees that all its accounts with Buyer will be administered on a net settlement basis and that Buyer may set off debits and credits, including Buyer's attorney fees and costs of enforcement, against any Seller's accounts regardless of basis for such debits and credits and without advance notice. In this Section 9(c), "Buyer includes Buyer's parent, subsidiaries and affiliates, and "Seller" includes Seller's parent, subsidiaries and affiliates. [Emphasis added]. Under the setoff provision quoted above, the parties agreed to treat all corporate affiliates as single entities for setoff purposes. Thus, given of the terms of the

prepetition contracts between Debtors and Visteon, the mutua lity requirement of 11

U.S.C. 533 is satisfied if the debts at issue are owed by or to the parents, subsidiaries, or affiliates of Debtors and Visteon. Debtors concede that the debts at issue are owed by and to the parents, subsidiaries, and affiliates of Debtors and Visteon. See Brief in Opposition at 4.

Therefore, the debts at issue are mutual and are subject to setoff under 11 U.S.C. 553. For these reasons, the Court should grant Visteon relief from the automatic stay provisions of 11 U.S.C. 362 so that Visteon may pursue a setoff claim under state law and 11 U.S.C. 553. II. GECC'S SECURED INTEREST DOES NOT PROHIBIT THIS COURT FROM GRANTING VISTEON'S MOTION FOR RELIEF FROM STAY IN ORDER TO EFFECT SETOFF Debtors also argue that this Court may not grant Visteon's relief from the stay because General Electric Capital Corporation ("GECC") presently holds a secured interest in Debtors' prepetition receivables.1 This argument takes two forms in Debtors' brief. First, Debtors argue that, because Debtors are directed to collect on the accounts receivable under two stipulated orders between Debtors and GECC, Debtors' Visteon accounts cannot be subject to setoff under 11 U.S.C. 533. Debtors cite no law in support of this proposition, and Visteon is aware of none. Nor do Debtors explain why their contractual obligation to exercise their rights as Visteon's creditor ought to reduce or eliminate their obligations to Visteon as a debtor. Indeed, in asking this Court to deny Visteon's motion because of GECC's secured interest and Debtors' related
1

As described on pages 2-3 of Debtors' Brief in Opposition, C&A and its corporate affiliates transferred certain accounts receivableincluding its Visteon accountsto Carcorp, Inc. Carcorp, in turn, granted GECC a secured interest in these accounts.

obligations, Debtors ask this Court to engage in the "absurdity of making A pay B when B owes A." Westinghouse Credit Corp. v. D'Urso, 278 F.3d 138, 149 (2nd Cir., 2002). Even if Debtors are legally obligated to collect amounts owed by Visteon, the fact remains that Visteon's debt to Debtors is overshadowed by Debtors' substantially greater debt to Visteon and must, therefore, be offset by that amount. Second, Debtors argue that Visteon's motion should be denied because, in their view, GECC acquired its secured interest "free of any potential claim arising from" Debtors' debt to Visteon. For this proposition, Debtors rely on section 9-404(a) of the Uniform Commercial Code (M.C.L. 440.9404(a)): (a) Assignee's rights subject to terms, claims, and defenses; exceptions. Unless an account debtor has made an enforceable agreement not to assert defenses and claims, and subject to sections (b) through (e), the rights of an assignee are subject to: (1) all terms of the agreement between the account debtors and assignor and any defense or claim in recoupment arising from the transaction that gave rise to the contracts; and (2) any other defense or claim of the account debtors against the assignor which accrues before the account debtors received a notification of the assignment authenticated by the assignor or the assignee. [Emphasis added]. Under 9-404(a)(1), GECC's security interests in the Visteon account are subject to any defense or claim that Visteon has against Debtors that arise from its transactions with Debtors. Because Visteon's rights of setoff and recoupment arise from its transactions with the Debtors, such rights are superior to GECC's security interests. In re U.S.

Aeroteam, Inc., 327 B.R. 852, 870-71 (Bankr.S.D. Ohio 2005) (holding that 9-404 is applicable to setoff rights and that creditor who held security interest in account took subject to the contractual setoff rights of the account debtor).

Alternatively, GECC is not immune to Visteon's setoff rights because GECC did not provide the required notification of the assignment. Section 9-404(a)(2) requires "actual notice" of an assignment for purposes of "notification." In re Iowa Oil Company, 2004 WL 2326377, p.7 (N.D. Iowa 2004). This requirement is fatal to Debtors'

argument, for Debtors do not establish or even allege that Visteon received the signed notification required by 9-404(a)(2). Rather, Debtors merely argue that Visteon had constructive notice that its accounts were assigned to GECC because of a 2001 filing with the Securities and Exchange Commission. See Brief in Opposition at 6. Yet

Debtors do not provide a single citation to support its novel construction of 9-404. "Constructive" notice, quite obviously, cannot be "authenticated." See In re

Communication Dynamics, Inc., 300 B.R. 220, 224-225 (Bankr.D.Del. 2003) (noting that "the addition of the authentication requirement in section 9-404 must mean that something more than actual or constructive notice is required"). See also, Aeroteam, 327 B.R. at 871 (filing of a financing statement does not amount to notification); In re Davidson Lumber Sales, Inc., 66 F.3d 1560, 1565-66 (10th Cir. 1995); In re Communication Dynamics, Inc., 300 B.R. 220, 223 (Bankr.D.Del. 2003); Sections 9102(1) (M.C.L.A. 440.102(1)) (knowledge means actual knowledge) and 9-102(2) (M.C.L.A. 440.9102(2)) (authenticate means to sign). Therefore, assuming arguendo that a filing with the SEC provides constructive notice of an assignment, constructive notice alone will not suffice under 9-404. Accordingly, GECC acquired its security interest subject to Version's setoff claim against Debtors.

III.

CONCLUSION

For the foregoing reasons, Visteon respectfully requests this Court to grant it relief from the automatic stay provisions of 11 U.S.C. 362 in order to exercise its state law right to offset a mutual, prepetition debt pursuant to 11 U.S.C. 533.

Dated: September 22, 2005

DICKINSON WRIGHT PLLC

By:/s/ Dawn R. Copley Michael C. Hammer (P41705) Dawn R. Copley (P53343) Attorneys for Visteon Corporation 301 E. Liberty, Suite 500 Ann Arbor, MI 48104 (734) 623-7075 dcopley@dickinsonwright.com

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