UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION - DETROIT In re COLLINS & AIKMAN

CORPORATION, et al., Debtors. ) ) ) ) ) ) ) ) ) ) )

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

POLYONE CORPORATION'S MEMORANDUM OF IMPROPER SERVICE WITH REGARD TO ADVERSARY PROCEEDING NOS. 07-05440, 07-05443, 07-05449, 07-05454, AND 07-05548 PolyOne Corporation ("PolyOne"), by and through counsel, and pursuant to the Court's Orders Establishing Procedures and Deadlines for Adversary Proceedings "Track II" and "Track III" (Docket Nos. 4596 and 4597)(collectively, the "Adversary Procedural Orders"), hereby submits this Memorandum of Improper Service with Regard to Adversary Proceeding Nos. 0705440, 07-05443, 07-05449, 07-05454, and 07-05548. PolyOne respectfully submits that the referenced adversary proceedings should be dismissed for failure of the captioned debtors and debtors-in-possession (the "Debtors") to file timely proofs of service showing proper service as required under Paragraph 5 of the Adversary Procedural Orders. In further support of this Memorandum, PolyOne states as follows: On May 17, 2005 (the Petition Date), the Debtors filed their voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). The

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Debtors are operating their businesses and managing their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. On the Petition Date, the Court entered an order jointly administering these cases pursuant to Bankruptcy Rule 1015(b). On May 12, 2007, a few days prior to the expiration of the statute of limitations for Section 547 avoidance actions,1 the Debtors commenced and asserted several preference actions against what are purportedly PolyOne affiliates. These cases included Adversary Proceeding Nos. 07-05440, 07-05443, 07-05449, 07-05454, and 07-05548 (the "Adversary Proceedings"). The various alleged defendants named in these Adversary Proceedings include "PolyOne Distribution Canada", "PolyOne Corporation Canada", "PolyOne Polymer Coating", "PolyOne Distribution", and "O'Sullivan Films, Inc.". The various adversary dockets reflect that the

Debtors first attempted to effect service on May 29, 2007 in each of these matters, after the expiration of the limitations period. On May 1, 2007, the Court entered its Adversary Procedural Orders. Paragraph 4 of each Adversary Procedural Order requires that the Debtors file all proofs of service in the Adversary Proceedings by June 28, 2007. Paragraph 5 of each Adversary Procedural Order, in turn, sets a hearing on July 10, 2007 at 2:00pm at which time the Court is to "determine whether to dismiss
1

11 U.S.C. 546(a) sets the limitations period for certain avoidance actions under the Bankruptcy Code, including preference actions brought under Section 547. Section 546, titled "Limitations on avoiding powers," states as follows: (a) An action or proceeding under section 544, 545, 547, 548, or 553 of this title may not be commenced after the earlier of-(1) the later of-(A) 2 years after the entry of the order for relief; or (B) 1 year after the appointment or election of the first trustee under section 702, 1104, 1163, 1202, or 1302 of this title if such appointment or such election occurs before the expiration of the period specified in subparagraph (A); or (2) the time the case is closed or dismissed. Because there is no trustee appointed in the Debtors' jointly administered cases, the limitations period for Section 547 avoidance actions expired two years following the Petition Date, i.e., on May 17, 2007. 11 U.S.C. 546(a).

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any Adversary Proceedings in which Plaintiff has not filed a timely proof of service showing proper service." See Adversary Procedural Orders at 5 (emphasis added). Although the Debtors filed timely proofs of service in each of the Adversary Proceedings prior to June 28, they have failed to show that service was properly effected as required under Paragraph 5 of the Adversary Procedural Orders. Specifically, they have attempted to serve entities that do not exist, and/or serve various divisions of PolyOne instead of a proper corporate entity. Furthermore, many of the addresses that the Debtors have attempted service upon are not corporate offices of PolyOne affiliates and do not have officers present. Due to the multitude of service errors committed by the Debtors, the following table has been prepared for the Court's convenience to highlight the various service problems:

Defendant PolyOne Distribution Canada

Adv. Proc. No. 07-05440

Service Error(s) PolyOne Distribution Canada is no longer an existing entity. The Company merged with PolyOne Distribution Canada, Inc. on January 1, 2005. As such, there can be no active registered agent for this non-existent entity. Furthermore, the Debtors served the alleged entity at a warehouse not operated by PolyOne or any of its affiliates. To PolyOne's knowledge, there has never been an entity in existence with this name. As such, there can be no active registered agent for this non-existent entity. Furthermore, the Debtors served the alleged entity in Canada and at a small plant in Michigan with service addressed to the attention of "Stephen D. Newton, CEO" a person who does not exist (presumably a typographical on the part of the Debtors as Stephen Newlin is the current CEO of the company). Mr. Newlin does maintain an office at either location. Named defendant is an internal division of PolyOne and not an existing corporate entity. Named defendant is an internal division of PolyOne and not an existing corporate entity. Named defendant did not come into existence until December 15, 2005, nearly seven (7) months after the Petition Date.

PolyOne Corporation Canada

07-05440

PolyOne Polymer Coating PolyOne Distribution O'Sullivan Films, Inc.

07-05549 07-05454 07-05548

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Due to the fact that (i) the applicable statute of limitations has expired under Section 546(a) of the Bankruptcy Code, and (ii) initial service of the summons was attempted following the expiration of the limitations period, the various service errors identified above may not be corrected by the Debtors because any amendments to the Debtors' complaints in this regard will not relate back to the original filings under Rule 15(c) of the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 15(c)(limiting relation back of amendments where limitations period has expired);2 Schiavone v. Fortune, 477 U.S. 21 (1986)(where corporate division was mistakenly named as defendant and service was attempted after expiration of applicable limitations period, Rule 15(c) precluded subsequent amendment of complaint to correct service error). In Schiavone, supra, the United States Supreme Court was faced with analogous service errors and upheld the dismissal of the plaintiffs' complaints. In that case, the plaintiffs filed libel actions against Fortune magazine, by filing various complaints in the Federal District Court for the District of New Jersey. Each complaint alleged that the plaintiff was libeled in a story that appeared in the May 31, 1982, issue of Fortune magazine, and mistakenly described Fortune in their complaints as a foreign corporation having its principal offices at Time and Life Building in New York City. In fact, Fortune was just an internal division of Time, Inc. and not an existing corporate entity. The complaints were served by mail to Time's registered agent in New Jersey, who received them on May 23 but refused service because Time was not named as a defendant.

Fed. R. Civ. P. 15(c) provides that: Whenever the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of the original pleading. An amendment changing the party against whom a claim is asserted relates back if the foregoing provision is satisfied and, within the period provided by law for commencing the action against him, the party to be brought in by amendment (1) has received such notice of the institution of the action that he will not be prejudiced in maintaining his defense on the merits, and (2) knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against him.

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On July 19, 1983, each petitioner amended his complaint to name as the captioned defendant, and to refer in the body of the complaint to, Fortune, also known as Time, Incorporated. The amended complaints were then served on Time by certified mail on July 21. The District Court dismissed the complaints under the New Jersey statute of limitations, which requires a libel action to be commenced within one year of the publication of the alleged libel. The District Court held that, although the amended complaints adequately named Time as a defendant, the amendments did not relate back under Federal Rule of Civil Procedure 15(c) to the filing of the original complaints (which named a division of Time) because it had not been shown that Time received notice of the institution of the actions within the applicable statute of limitations period. On appeal, the Supreme Court ultimately upheld the District Court's

dismissal, holding that the plain language of Rule 15(c) of the Federal Rules of Civil Procedure required this result given that a division and not a corporate entity was named and further considering that the applicable limitations period had expired: It seems to us inevitably to follow that notice to Time and the necessary knowledge did not come into being within the period provided by law for commencing the action against Time, as is so clearly required by Rule 15(c). That occurred only after the expiration of the applicable 1-year period. This is fatal, then, to petitioners' litigation. Schiavone, 477 U.S. 21, *30, 106 S.Ct. 2379, **2384 (U.S.N.J.,1986). Similar to the plaintiffs in Schiavone, the Debtors in this case did not properly name corporate entities and first attempted service after the Section 546(a) limitations period had already expired. As such, the Debtors are precluded from amending their various Adversary Proceeding complaints by naming the proper entities or otherwise correcting their numerous service errors at this late stage. WHEREFORE, for these reasons, PolyOne respectfully requests that the Adversary Proceedings be dismissed for the Debtors' failure to properly effect service upon the appropriate entities within the limitations period prescribed under Section 546(a) of the Bankruptcy Code.
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Dated: July 9, 2007

Respectfully submitted, /s/ Robert C. Folland Robert C. Folland, Esq. (Ohio #0065728) THOMPSON HINE LLP 3900 Key Center 127 Public Square Cleveland, OH 44114-1291 (216) 566-5500 (216) 566-5800 fax rob.folland@thompsonhine.com Attorneys for PolyOne Corporation

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CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing was served on July 9, 2007, by email via the Courts electronic filing system upon those parties registered to receive notice thereby.

/s/ Robert C. Folland Attorney for PolyOne Corporation

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