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1 EDMUND G. BROWN JR.

Attorney General of the State of California 2 THEODORA BERGER Senior Assistant Attorney General 3 MARY E. HACKENBRACHT Senior Assistant Attorney General 4 PEARL LATTAKER, Cal. SBN 74680 MARILYN H. LEVIN, Cal. SBN 92800 5 Deputy Attorneys General 300 S. Spring St, 11th Floor- North Los Angeles, California 90013 6 Telephone: (213-) 897-2612 Fax: (213) 897-2802 7 Attorneys for the California Department of Toxic 8 Substances Control, and the Central Valley Regional Water Quality Control Boards 9 IN THE UNITED STATES BANKRUPTCY COURT 10 FOR THE EASTERN DISTRICT OF MICHIGAN 11 12 13 14 15 16 17 18 19 20 21 22 23 Subject to and without waiving sovereign immunity, the California Department of Toxic Hearing: June 5, 2007 Objections Due: May 7, 2007 Time: 10: 00 a.m. Judge: Hon. Steven Rhodes In re: COLLINS & AIKMAN CORPORATION, et al., Debtors, Chapter 11 CASE NO. 05-55927 (SWR) Jointly Administered OBJECTION OF CALIFORNIA DEPARTMENT OF TOXIC SUBSTANCES CONTROL AND THE CENTRAL VALLEY REGIONAL WATER QUALITY CONTROL BOARD TO FIRST AMENDED JOINT CHAPTER 11 PLAN

24 Substances Control (DTSC) and the Central Valley Regional Water Quality Control Board 25 (Regional Water Board) (collectively, California Environmental Entities), by and through their 26 attorneys, make this special and limited appearance to object to the First Amended Joint Chapter 11 27 Plan of Collins & Aikman Corporation And Its Debtor Subsidiaries (Plan), dated February 9, 28 2007. Each of the California State Entities is a creditor with at least one unliquidated unsecured 1

California Environmental Entities Objection to First Amended Joint Chapter 11 Plan

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1 Claim. The California Environmental Entities state as follows: 2 1. The DTSC and the Regional Water Board are environmental agencies of the State of

3 California. Each of these agencies is authorized to protect the public welfare and environment of 4 the State of California. The Debtors previously owned and operated a facility in California, and 5 voluntarily agreed to comply with certain administrative orders, and thus, are subject to regulation 6 and enforcement by the California Environmental Entities. 7 2. DTSC regulates all aspects of hazardous waste management in California and enforces

8 laws related to the cleanup of hazardous substances in Californias environment. On January 10, 9 2006, DTSC filed a Proof of Claim in which DTSC sought pre-petition, post-petition and future 10 estimated environmental response costs against the Debtors in the total amount of not less than $17, 11 074, 068. 20. The DTSC stated that a part of its claim for post confirmation response costs was 12 filed as a protective measure to the extent that DTSC reserves its right to seek injunctive relief 13 against the Debtors to comply with environmental obligations. 14 3. The Regional Water Board is part of the principal state agency which regulates water

15 quality pursuant to state and federal environmental laws. On January 10, 2006, the Regional Board 16 filed a Proof of Claim for pre-petition, post-petition and future environmental oversight costs in an 17 estimated amount of $44, 546.35, penalties for violations of the Water Code in the amount of 18 $30,000 and a reservation of rights to seek injunctive relief against the Debtors to comply with 19 environmental obligations. 20 4. The Proofs of Claim and any future environmental costs or remediation relate to the

21 former Wickes Forest Industries Site (Elmira Site). The Elmira Site is a former wood treatment 22 facility located on approximately 7.5 acres in Elmira, California. Pacific Wood Preserving (a

23 Domestic Corporation, dissolved effective September 11, 1980) operated a wood treatment facility 24 at the Elmira Site until September 1979. Collins and Aikman Products Company (CAPCO); 25 formerly known as Collins and Aikman Group; formerly known as Wickes Companies; formerly 26 known as The Wickes Corporation; operating through its former Wickes Forest Industries Division, 27 purchased the Elmira Site from Pacific Wood Preserving and then operated the Wood treatment 28 facility at the Site. Operations at the Elmira Site included treating lumber with preservative 2
California Environmental Entities Objection to First Amended Joint Chapter 11 Plan CASE NO. 05-55927(SWR)

1 solutions containing arsenic, chromium, and copper. Investigations have shown that the Elmira Site 2 soils have been affected by these inorganic metals. Groundwater beneath the Elmira Site and 3 beneath adjacent properties has also been contaminated by chromium, arsenic and copper. 4 5. On September 9, 1983, the DTSC, the Regional Water Board, and Wickes Companies,

5 Inc. entered into an Agreement requiring the Wickes Company to remove and treat groundwater and 6 manage storm water at the Elmira Site. On February 26, 1984, the State Environmental Entities 7 adopted an Order approving the Settlement Agreement. On February 26, 1996, the DTSC and 8 Collins & Aikman Products Company entered into an Operations and Maintenance Agreement 9 requiring Debtors to maintain an asphalt cap (placed to contain the contamination) and to operate 10 a groundwater extraction and treatment system. 11 6. Since 1983 to early 2005, Collins and Aikman Products Company, Inc. conducted

12 groundwater cleanup of pollution at 6109 A Street at the intersection of Holdener Road in Elmira. 13 The address of record at the Solano County Assessors office for this Site includes 147A Street and 14 5358 Holdener Road and includes Solano County Assessors Parcel Numbers 142-010-130-, 14215 010-140, and 142-042-010, which are 4.31, 0.24 and 1.0 acre respectively. The Elmira Site is within 16 T6N, R1E, S19, MDB&M. Since 1983 to early 2005, Collins and Aikman Products Company, Inc. 17 operated a groundwater extraction, treatment and disposal system (GWTS). 18 7. On June 4, 2004, the Regional Board issued to Collins & Aikman Products Company,

19 Inc., a National Pollution Discharge Elimination System permit (NPDES Permit No. CA0081531, 20 Waste Discharge Requirements Order No. R5-2004-0066.) In addition, Collins & Aikman Products 21 Company, Inc. was issued WDR Order No. R5-2005-0022 on January 27, 2005, (Order) that permits 22 a pilot study that includes the subsurface injection of calcium polysulfide in the area of monitoring 23 well E-6 for the treatment of soil and groundwater polluted with hexavalent chromium. 24 8. On May 1, 2002, Collins &Aikman Products Company, Inc. entered into the Regional

25 Water Board cost recovery program for regulatory oversight. 26 9. The California Environmental Entities object to the Plan on the grounds that its

27 discharge, injunction and release language are overly broad in many respects. As written, the Plan 28 does not comply with applicable provisions of the Bankruptcy Code and it is proposed by means 3
California Environmental Entities Objection to First Amended Joint Chapter 11 Plan CASE NO. 05-55927(SWR)

1 forbidden by the law. As such, it is not feasible. ( 11 U.S.C. 1129(a)(1), (2), (3), and (11).). In 2 addition, the Plan is forbidden by law in that it fails to provide compliance with existing Orders, 3 Permits and Agreements for the contaminated Site. The California State Entities respectfully

4 request that the Court not approve the Plan in its present form.1/ 5 6 A. 1. The Discharge Is Too Broad. Article XII.C of the Plan attempts to discharge or release the Debtors not only from

7 Claims, but also for causes of action and any other debts, obligations, rights, suits, damages, 8 actions, interests, remedies and liabilities..... This language seems to provide a discharge or release 9 to the Debtors from any and all appropriate environmental liabilities that are not within the 10 definition of claim in 11 U.S.C. 101 (5). (Chapter 11 Plan, p. 41-42.) 11 2. Article XII C of the Plan attempts to discharge or release the Debtors from claims that

12 arise on or after the confirmation date. The Plan releases the Debtors from claims whether known 13 or unknown, forseen or unforseen, suspected or unsuspected.... currently existing or herafter 14 arising....based in whole or in part on any act, omission, transaction or other occurrence.... (Chapter 15 11 Plan, p. 41-42.) 16 3. The Bankruptcy Code does not provide for or allow this broad discharge. Section 1141

17 of the Bankruptcy Code states only that the confirmation of a plan discharges the debtor from any 18 debt that arose before the date of such confirmation. . . . 11 U.S.C. 1141(d)(1)(A). The broad 19 discharge language conflicts with the Bankruptcy Code and must be stricken from the Plan. 20 The above language in the Plan also makes it non-confirmable because it provides the Debtor with 21 a superdischarge. It is well established that the Bankruptcy Code permits only the discharge of 22 claims as defined in the Bankruptcy Code at 11 U.S.C. 101 (5). However, many environmental 23 compliance obligations are not monetary claims within the Codes definition of claim and thus 24 are not discharged. See, AM Intl, Inc. v. Datacard Corp., 106 F. 3d 1342, 1348 (7th Cir. 1997); In 25 re Chateaugay, 944 F. 2d 997 (2d Cir. 1991.) However, the current language in the Plan would 26 discharge not only monetary claims but also injunctive claims. Equitable remedies are critical to 27 1. Modifications to the Plan that would resolve some, but not all, of the California 28 Environmental Entities objections are identified below in bold type. 4
California Environmental Entities Objection to First Amended Joint Chapter 11 Plan CASE NO. 05-55927(SWR)

1 regulators enforcement authority and ability to protect the environment and public health and 2 welfare. The language in the Plan purports to discharge injunctive claims. Because the language 3 extends the discharge provision beyond the definition of claim under the Bankruptcy Code, the Plan 4 cannot be confirmed. Furthermore, a post-confirmation claim is not discharged if the facts or legal 5 bases were not known, or if they did not exist, prior to the confirmation date. 6 4. Accordingly, the California Environmental Entities respectfully request that the

7 following language be added to the Plan: 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 (a) Nothing in the Plan or Confirmation Order discharges, releases, or

precludes any liability to a governmental unit that is not a claim. (b) Nothing in the Plan or Confirmation Order discharges, releases, or

precludes any claim of a governmental unit that arises on or after the confirmation date. (c) Nothing in the Plan or Confirmation Order releases any entity from

liability under environmental law as the owner or operator of property that such entity owns or operates after the confirmation date. (d) Nothing in the Plan or Confirmation Order (i) discharges, prejudices,

releases or otherwise affects any obligations of the debtor to comply with all applicable environmental laws and regulations or (ii) impairs or restricts any governmental units ability to pursue all of its applicable rights and remedies against the debtor. B. 5. The Injunction Is Too Broad Article XII, E of the Plan purports to permanently enjoin all Persons that have held,

23 currently hold or may hold a Claim or other debt or liability that is discharged....from: 24 25 26 27 28 (a) commencing or continuing in any manner any action or other proceeding against the [covered entities], (b) enforcing, attaching, collecting or recovering....any judgment, award, decree or order against the Debtors....(e) commencing or continuing any action, in any manner, in any place that does not comply with or 5
California Environmental Entities Objection to First Amended Joint Chapter 11 Plan CASE NO. 05-55927(SWR)

1 2 (Plan at 43.) 3 6.

is consistent with the provisions of the Plan.

This language encroaches upon the police and regulatory authority of governmental units

4 to enforce laws and regulations, even though such authority clearly withstands a bankruptcy 5 discharge. The Third Circuit has affirmed that a governmental unit may force the debtor to comply 6 with applicable environmental laws by remedying an existing hazard, if the government is seeking 7 to exercise its inherent regulatory and police powers rather than attempting to get money from the 8 debtor. In re Torwico Electronics, Inc., 8 F.3d 146, 150-51. The language used by the Debtors in 9 the Plan works to shield the Debtors against post-confirmation actions which may be brought by 10 environmental regulators, such as the California Environmental Entities, under federal 11 environmental laws, such as RCRA, the Clean Water Act, and CERCLA, as well as actions under 12 state counter-parts of those laws. As such, the Plan is unlawful and cannot be confirmed. See In 13 re Cajun Electric Power Co-op, Inc., 150 F.ed 503, 519 (5th Cir. 1988) (Plan may not propose 14 independent illegality); see also Collier on Bankruptcy 1129.03 [4][ii] (plan that would violate 15 other regulatory law would be forbidden by law and would preclude confirmation even if no 16 provision of Title 11 was violated). 17 7. As drafted, the Plan injunction could prevent a governmental unit, such as the California

18 Environmental Entities, from commencing an action to enforce an environmental law or to abate a 19 hazardous situation against the Debtors or any of its successors. In order to prevent this overly20 broad application of the injunction, the California Environmental Entities respectfully request 21 that the following language be included in Article XII, E of the Plan: 22 23 24 25 26 // 27 // 28 // 6
California Environmental Entities Objection to First Amended Joint Chapter 11 Plan CASE NO. 05-55927(SWR)

Nothing in the Plan or Confirmation Order shall preclude a governmental unit from obtaining or from enforcing an injunction, or from liquidating a claim, under a police and regulatory statute or regulation in any tribunal that has jurisdiction.

C.

The Plan Has Not Been Proposed in Good Faith and Conflicts with Applicable Law In

2 That The Plan Fails to Provide For Environmental Remediation of the Elmira Site 3 8. The Debtors have included in its Plan a Post-Consummation Trust (Trust) but have

4 failed to include any list of the sites to be included in the Trust. While the California Environmental 5 Entities have been informed by Debtors that the Debtors do not intend to include the prior owned 6 Elmira Site in the Trust, the California Environmental Entities object to this omission on the grounds 7 that it is the Debtors continuing obligation to clean up and remediate discharges of waste for which 8 they are responsible and are legally and statutorily bound in State Administrative Orders, in Permits 9 and in contractual agreements. Debtors have simply walked away from the Elmira Site, leaving the 10 California taxpayers with the burden to remediate the site. U.S.A. v Whizco, Inc., 841 F. 2d 147 (6th 11 Cir. 1988.) does not assist the Debtors. The Court in Whizco stated that its holding is very narrow. 12 In that case, the individual Debtor, Defendant Lueking, was the vice-president and sole shareholder 13 of defendant Whizco. Defendant Lueking was 63 years old, surrendered all his mining equipment 14 and coal leases in his bankruptcy, had neither the physical ability to perform the reclamation work 15 himself nor the financial ability to post a reclamation bond or hire anybody to do the reclamation 16 work. Based upon those specific facts, the Appellate Court held that the relief sought against the 17 individual debtor could not be accomplished by anything other than an expenditure of money by the 18 debtor, and that therefore it was a claim discharged in bankruptcy. (USA v Whizco, 841 F. 2d at 149.) 19 In this case, the remediation required does not constitute a Claim. Debtors are legally bound by 20 Administrative Regulatory Orders, Permits and contracts requiring Debtors to remediate the Elmira 21 Site, nothwithstanding the fact that the Debtors no longer own or operate the property. As such, the 22 Plan must include provisions for remediation of the Elmira Site. 23 // 24 // 25 // 26 // 27 // 28 // 7
California Environmental Entities Objection to First Amended Joint Chapter 11 Plan CASE NO. 05-55927(SWR)

For the above

reasons, the California Environmental Entities respectfully object to

2 confirmation of the Plan in its present form. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8


California Environmental Entities Objection to First Amended Joint Chapter 11 Plan CASE NO. 05-55927(SWR)

Dated: May 4, 2007

Respectfully submitted,

BILL LOCKYER Attorney General of the State of California THEODORA BERGER Senior Assistant Attorney General MARY HACKENBRACHT Senior Assistant Attorney General PEARL LATTAKER MARILYN H. LEVIN Deputy Attorneys General

_____________________________ Attorneys for the California Department of Toxic Substances Control, and the Central Valley Regional Water Quality Control Board