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

CORPORATION, et al.1 ) ) Debtors. ) ) -----------------------------------------------------------x Chapter 11 Case No. 05-55927 (SWR) (Jointly Administered) Honorable Steven W. Rhodes

DEBTORS POST-EVIDENTIARY HEARING BRIEF IN OPPOSITION TO PHILLIPS TOOL & MOULD (LONDON) LTDS MOTION FOR ALLOWANCE AND PAYMENT OF ADMINISTRATIVE EXPENSE CLAIM PURSUANT TO 11 U.S.C. 503(b)(1)(A) The above-captioned debtors (collectively, the Debtors) hereby submit this PostEvidentiary Hearing Brief in Opposition to Phillips Tool & Mould (London) Ltd.s (Phillips) Motion for Allowance and Payment of Administrative Expense Claim Pursuant to 11 U.S.C. 503(b)(1)(A) (the Motion).
1

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. 0555958; 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. 05-55964; 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.

0W[;',2

0555927071218000000000009

)-

INTRODUCTION Notwithstanding Phillipss plaintive efforts to miscast this Court in the role of Robin Hood whom Phillips would have come to the aid of its Maid Marian, this is not Sherwood Forest and this Court will surely recognize that Phillips has no arrows in its legal quiver. Stripped of the armor of its self-righteous indignation, this crusade which masquerades as Phillipss case is exposed by the following immutable truths: 1. All of the relevant Purchase Orders were issued by the Debtors and accepted by

Phillips prior to the Petition Date. 2. All of the Tooling was manufactured by Phillips and delivered to the Debtors

prior to the Petition Date. 3. 4. Title to the Tooling passed to the Debtors prior to the Petition Date. With two minor, inconsequential exceptions, Phillips actually invoiced the

Debtors for the Tooling prior to the Petition Date. 5. The Debtors had received the full benefit of the Tooling prior to the Petition Date

because the Debtors possessed and were able to utilize the Tooling for its intended purpose, prior to the Petition Date, being for the Debtors to manufacture and sell component parts to the Debtors OEM customers and to profit thereby. 6. The overwhelming majority of Phillipss claim was originally filed, under penalty

of perjury, as an unqualified Proof of Claim alleging that Phillips has a pre-petition secured claim for virtually all of the very same amounts which Phillips now curiously purports to be an administrative expense claim.

7.

Phillips offered no testimony or documentary evidence to corroborate, with

reference to any specific event, Phillipss amorphous allegation that it provided goods and services to the Debtors post-petition as to the subject Tooling. 8. As part of the discovery process, when requested by the Debtors to do so, Phillips

failed and refused to produce any documents evidencing or relating to any labor, materials or services . . . [allegedly] provided [by Phillips] to the Debtors after the petition date. Instead, Phillipss response was that PTM objects to this document request in that it requests documents beyond the scope of Rule 26(b). 9. Phillips has offered no evidence of any quantifiable damages allegedly incurred

by it after the Petition Date relating to goods and services purportedly provided postpetition as to the Tooling. In the face of all of the foregoing, and despite being the party charged with the burden of proof, Phillips has offered nothing more than the following: A. Phillips has argued that PPAP dates for the Tooling occurred subsequent to the

Petition Date and that the date of PPAP dictated when payment was thereafter due to be made by the Debtors to Phillips. Therefore, Phillips erroneously reasons that it has a post-petition administrative claim. However, the date of PPAP is relevant only, in a nonbankruptcy context, as to when payment might otherwise be due to Phillips. PPAP is irrelevant to when the Debtors received the benefit of the Tooling or when the Debtors obligation arose to Phillips (on passage of title) on account of the Tooling, both of which occurred prior to the Petition Date. Even if Phillips had shown, which it did not, that

Phillips did anything post-petition which contributed to the occurrence of PPAP, that would have no legal significance to Phillipss instant claim. The Debtors could, and did,

receive the benefit of the Tooling pre-petition, prior to PPAP. In a non-bankruptcy context, no payment was due to Phillips prior to PPAP. PPAP was a wholly neutral event to the Debtors. Setting aside the lack of any evidence from Phillips, anything Phillips arguably might have done which contributed to PPAP simply could not confer any benefit on the Debtors for which Phillips would be entitled to an administrative claim. B. Phillips has contended that it was induced (i) to perform services as to the Tooling

post-petition, and (ii) to provide other goods and services to the Debtors post-petition, unrelated to the Tooling, on the basis of representations that it would be paid for the Tooling. However, Phillips was already contractually obligated to the Debtors as to the Tooling and, therefore, Phillips could not be induced to further performance. Moreover, Phillips has filed a Second Motion seeking allowance of a separate and distinct administrative claim for such amounts and, if there is a basis for allowance thereof, there is no evidence that any such amounts, unrelated to the Tooling, cannot or will not be paid. In any event, there is an embarrassing absence of any legal authority which might support Phillipss novel and emotional pleas for promissory estoppel. Bankruptcy law does not countenance any opportunities for either collusive, or innocent but legally misguided, behavior which might alter the priority scheme of the Bankruptcy Code or the overriding principle of equality of treatment of creditors. The parties could not agree to do so. As demonstrated below, and as is otherwise evident from the record, Phillips has not satisfied its burden and the facts and the law compel the denial of Phillipss Motion.

STATEMENT OF FACTS On May 17, 2005 (the Petition Date), Collins & Aikman Corporation and certain of its affiliates (C&A) filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. 101-1330 (the Bankruptcy Code). Pursuant to a series of purchase orders issued by C&A to Phillips and accepted by Phillips (the Purchase Orders), Phillips manufactured certain tooling for C&A (the Tooling). The Purchase Orders were all issued and accepted prior to the Petition Date. See Exhibit 75, Purchase Orders. Phillips also manufactured and delivered all of the Tooling to C&A prior to the Petition Date. See Transcript from the November 15, 2007 Evidentiary Hearing (the Nov. 15, 2007 Transcript), p. 119. Phillips asserts that it is owed $1,123,905 for the Tooling and that such claim is an administrative expense. The Tooling at issue in this matter is summarized in the chart attached hereto as Exhibit A. Phillips filed various proofs of claim, under penalty of perjury, asserting a pre-petition secured claim against the Debtors estates covering the vast majority of the Tooling for which Phillips now seeks an administrative claim. See Proof of Claim Nos. 3773, 4494, 4495, 4499, 4814, 3738, 3741, 4507, 4801, 4835 (the Proofs of Claim). In addition, Ms. Penelope Cloutier, Phillipss Vice President of Finance and Administration testified that Phillips delivered each item of Tooling at issue in this matter to the Debtors prior to the Petition Date. See Nov. 15, 2007 Transcript, p. 119. Similarly, Mark A. Cervi, of Kroll Zolfo Cooper, the Debtors Court-approved financial consultants, testified that, based upon his investigation, the Debtors received the Tooling prior to the Petition Date. See Transcript from the December 4, 2007 Evidentiary Hearing (the Dec. 4, 2007 Transcript), p. 39.

After delivery, each item of Tooling was required to undergo the Production Part Approval Process (PPAP). Every tool or group of tools in a program must go through this process before an original equipment manufacturer (OEM) will pay for the tools. See Nov. 15, 2007 Transcript, p. 36. While the Debtors would generally not be paid for the Tooling prior to PPAP, the Debtors could produce and sell component parts from the Tooling prior to PPAP. See Nov. 15, 2007 Transcript, p. 68. In addition, Mr. Nelson testified that it could take up to a year after production had started to get full PPAP. See Dec. 4, 2007 Transcript, p. 11. With the limited exception of the two highlighted items of Honda-related Tooling noted in Exhibit A, all other Tooling was invoiced by Phillips prior to the Petition Date. See Exhibit 74, Phillipss Invoices. The record is clear, however, that the Honda equivalent of PPAP occurred prior to the Petition-Date. See Nov. 15, 2007 Transcript, p. 134. Ms. Cloutier testified that, shortly after the Petition-Date, on May 27, 2005, following her inquiry into the status of payment on Phillipss outstanding invoices to the Debtors, she received an e-mail from Ann Samul, a representative of the Debtors, which referred to the status of Phillipss claim as secured.. See Nov. 15, 2007 Transcript, p. 89. Ms. Cloutier testified that she understood Ms. Samuls May 27, 2005 e-mail to mean that Phillips would be paid under the normal course of business. See Nov. 15, 2007 Transcript, p. 89. In addition, Ms. Cloutier testified that in reliance upon this e-mail, Phillips made the decision to continue to work with the Debtors going forward, which included servicing tools, making repairs and performing preventative maintenance on tools and tweaking and tuning tools which had not PPAPed. See Nov. 15, 2007 Transcript, p. 91. Further, Ms. Cloutier testified that in reliance on this e-mail, Phillips entered into post-petition contracts with the Debtors to manufacture additional tooling. See Nov. 15, 2007 Transcript, pp. 100-101.

Ms. Cloutier admitted that she had no specific knowledge of Phillips performing any work for the Debtors in connection with the Tooling post-petition and that Phillips does not possess any documentation evidencing any of this alleged post-petition work performed by Phillips related to the Tooling. See Nov. 15, 2007 Transcript, pp. 93-94, 119-120, and 133. Further, during the course of discovery in connection with the evidentiary hearing, Phillips failed to produce any documents responsive to the Debtors request for any documents evidencing or relating to any labor, materials or services Phillips allegedly provided to the Debtors after the Petition Date and instead responded that such a request was outside the scope of discoverable information. Ms. Cloutier also admitted that Phillips could not quantify the value of any of its alleged post-petition activity. See Nov. 15, 2007 Transcript, pp. 133134. Ms. Cloutier further testified that Phillips continued to provide services to the Debtors post-petition based upon the representations of Arthur Nelson of BBK, See Nov. 15, 2007 Transcript, p. 103, and that based upon Mr. Nelsons e-mails, Ms. Cloutier expected that Phillips would be paid for the Tooling in the normal course of business when the Tooling PPAPed. See Nov. 15, 2007 Transcript, pp. 138-139. For his part, Mr. Nelson contradicted Ms. Cloutiers testimony by testifying that: (i) he never promised Ms. Cloutier that Phillips would be paid; (ii) he directed Ms. Cloutier to consult with her attorney regarding this matter; and (iii) any communications he had with Ms. Cloutier were on behalf of BBK or Daimler Chrysler. See Dec. 4, 2007 Transcript, pp. 17-18. Ms. Cloutier testified that on the whole, Phillips does approximately $30,000,000 in annual sales and she believed, pre-filing, C&A represented in excess of twenty (20%) percent of Phillipss total business. See Nov. 15, 2007 Transcript, pp. 109-110. In addition, she testified that even after the Petition Date, C&A still represented a significant portion of Phillipss

business, approximately twenty (20%) percent, and the Debtors were still one of Phillipss four largest customers. See Nov. 15, 2007 Transcript, pp. 109 - 110. ARGUMENT I. PHILLIPS CANNOT SUSTAIN ITS BURDEN WHERE THE UNCONTESTED FACTS AND APPLICABLE LAW CLEARLY ESTABLISH THAT PHILLIPSS CLAIM IS A PRE-PETITION CLAIM. A. Phillips Bears The Burden of Establishing That it is Entitled to an Administrative Expense Claim.

Under Section 503(b)(1)(A), Phillips bears the burden of proving its request is for an actual and necessary expense of preserving the estate. In re Merry-Go-Round Enters., 180 F.3d 149 (4th Cir. 1999); In re OBrien Environmental Energy, Inc., 181 F.3d 527 (3rd Cir. 1999). Phillips has failed to satisfy its burden. It is an absolute requirement for administrative expense priority that the liability at issue arise post-petition. In re Sunarhauserman, Inc., 126 F.3d 811, 816 (6th Cir. 1997). See also In re Kadjevich, 220 F.3d 1016, 1020 (9th Cir. 2000) (Critically, only post-petition debts can be treated as administrative expenses, pre-petition debts may not be granted administrative-expense priority). While post-petition contracts may qualify for administrative expense priority, costs and expenses arising out of pre-petition contracts are treated under the Bankruptcy Code as nonprioritized unsecured claims. See In re Abercrombie, 139 F.3d 755, 757 (9th Cir. 1998). Granting priority status, however, is contrary to the fundamental principle of bankruptcy law that the debtor's limited resources are to be distributed equally among similarly situated creditors; and, therefore, statutory priorities like those under 11 U.S.C. 503 are narrowly construed, and the burden of proving entitlement rests with the party seeking it. Mason v. Official Committee of Unsecured Creditors (In re FBI Distribution Corp.), 330 F.3d 36, 41-42

(1st Cir. 2003) (citations omitted); Ford Motor Credit Company v. Bankruptcy Estates of Benn, 362 B.R. 1 (E.D. Mich 2007). Phillips has not proven such entitlement. B. The Uncontested Facts of This Case Establish That Phillipss Claim is a PrePetition Claim.

There are numerous irrefutable facts of record which clearly evidence that the claims which Phillips is asserting arise from pre-petition contracts performed pre-petition. The relevant Purchase Orders were all issued and accepted pre-petition. All Tooling was manufactured and delivered pre-petition. Additionally, all but two of the Invoices evidencing Phillipss alleged administrative claims were issued by Phillips pre-petition. Phillips filed Proofs of Claim for virtually all of the Tooling asserting such claims as pre-petition secured claims. Phillips manufactured the Tooling for the Debtors pursuant to the Purchase Orders, which are all dated, and were issued by the Debtors and accepted by Phillips, prior to the Petition Date. See Exhibit 75, Purchase Orders. Ms. Cloutier testified that each item of Tooling was delivered by Phillips to the Debtors prior to the Petition Date. See Nov. 15, 2007 Transcript, p. 119. With the limited exception of the two Honda-related invoices, which total only approximately $150,000, (and as to these invoices, Ms. Cloutier testified that the PPAP equivalent occurred prepetition, See Nov. 15, 2007 Transcript, p. 134). Phillips sent to the Debtors all of the Invoices for the Tooling prior to the Petition Date. See Exhibit 74, Phillipss Invoices. These Invoices constitute admissions regarding the value of what was produced for, and delivered to, the Debtors pre-petition. The inescapable conclusion, based on these documents (and Phillipss Proofs of Claim addressed below) between the parties establish that Phillips conveyed title to the Tooling to the Debtors prior to the Petition Date and that the Debtors incurred the obligation to pay for the Tooling prior to the Petition Date.

Further undercutting its present claim, Phillips filed various Proofs of Claim asserting a pre-petition secured claim against the Debtors estates in connection with the majority of the Tooling. See Proof of Claim Nos. 3773, 4494, 4495, 4499, 4814, 3738, 3741, 4507, 4801, 4835. This Court can, and should, take judicial notice of the fact that Phillips filed these Proofs of Claim. These Proofs of Claim belie Phillipss present position. By filing its Proofs of Claim, Phillips conceded that the overwhelming majority of the alleged administrative claim it asserts in the Motion actually arose pre-petition. According to its filed Proofs of Claim (Proof of Claim Nos. 3773, 4494, 4495, 4499, 4814, 3738, 3741, 4507, 4801, 4835) at least $990,170.00 of the $1,123,905.00 now asserted as an administrative claim were previously asserted as pre-petition obligations. C. Phillips is Bound by The Proofs of Claim.

The Proofs of Claim constitute judicial admissions with conclusive binding effect against Phillips in this contested matter. In re Basin Resources Corporation, 182 B.R. 489, 492-493 (Bankr. N.D. Texas 1995) (proofs of claim filed by a creditor in the debtors general bankruptcy case are conclusively binding upon that creditor in a separate adversary proceeding.) Recognizing Phillipss predicament, Ms. Cloutier attempted to rescue Phillips by stating that she believed that she could simply withdraw the Proofs of Claim if Phillips was paid the amounts owing. Phillips took no steps to support its reasoning. If Phillips believed that its claims were administrative expense claims, it could have filed the Proofs of Claim as conditional claims, filed out of an abundance of caution in the event that it was later determined that its claim was not an administrative expense claim. It did not. Minimally, Phillips also could have petitioned the Court for more time to file its Proofs of Claim until a determination was made as to their pre-petition status. It did not. Thus, Phillipss actions do not support its contrived

10

contentions. Accordingly, the binding effect of the Proofs of Claim must be recognized by this Court. D. Title to The Tooling Passed to The Debtors Prior to The Petition Date And The Debtors Incurred The Debt to Phillips Pre-Petition.

It is undisputed that title to the Tooling transferred to the Debtors when the Tooling was delivered, prior to the Petition Date, by Phillips to the Debtor. Section 2401(2) of the Michigan Uniform Commercial Code (the UCC), which governs the passage of title provides as follows: Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading. (a) if the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but (b) if the contract requires delivery at destination, title passes on tender there. M.C.L. 440.2401 (emphasis added). The Purchase Orders and Invoices either required delivery by Phillips at a specific destination (F.O.B. Guelph, F.O.B. Our Plant [C&A], or F.O.B. Your Plant [C&A]) or simply required Phillips to send the goods to C&A. Ms. Cloutier testified that each item of Tooling was delivered to the Debtors prior to the Petition Date. See Nov. 15, 2007 Transcript, p. 119. Consistent with Ms. Cloutiers testimony, Mr. Cervi testified that the Debtors received the Tooling prior to the Petition Date. See Dec. 4, 2007 Transcript, p. 39. Title to the Tooling, therefore, transferred to the Debtors, at the latest, when it was received by C&A. In re Powerine Oil Co., 126 B.R. 790, 793 (9th Cir. B.A.P. 1991) (Under this contract term [FOB shipping point] and Uniform Commercial Code 2-319(1)(a) and 2-401(2)(a), the title to the equipment

11

passed to the debtor at the time of shipment in Illinois, or at the very latest, upon delivery to the debtor in California. See U.C.C. 2-401(2).) See also, In the Matter of Alofs Manufacturing Company, 209 B.R. 83, 95-96 (W.D. Mich 1997) (The seller completes his performance with reference to the physical delivery of the goods and title passes in accordance with section 2401(2) of the UCC when delivery is completed to the proper destination in accordance with the parties contract.) The passage of title determines when the Debtors benefited from, and incurred a debt to Phillips for, the Tooling. In re Powerine Oil Co., 126 B.R. at 793 (The debtor acquired a property interest in the equipment, therefore, at that time [shipment or delivery] and the debtor became obligated to pay and incurred the debt at that time.) Therefore, the Debtors became obligated to pay (as opposed to when the obligation was due), and incurred the debt to, Phillips for the Tooling upon delivery. Phillipss tweaking and tuning after the Petition Date does not change the fact that title to the Tooling passed to the Debtors when the Tooling was shipped to the Debtors. In In the Matter of Alofs Manufacturing Company, 209 B.R. at 95 (W.D. Mich 1997), the court, while interpreting section 2401 of the UCC, stated that title may pass upon delivery even if the goods are nonconforming. Thus, the fact that there was some minor work that remained to be done on the tools did not prevent the passage of title. The court added, the issue is not whether the goods were complete at the time of delivery; rather the issue is whether the seller completes his performance with respect to the physical delivery of the goods. If so, title passes. Id. (emphasis added), citing M.C.L. 440.2401(2). Clearly the physical delivery was completed here pre-petition. Thus, the Debtors acquired title to the Tooling and received a benefit from the Tooling, prior to the Petition Date. As will be discussed in Section II.A. infra, the mere fact that

12

payment was not due until receipt of PPAP or acceptance by the Debtors, does not prevent the passage of title in the Tooling to the Debtors. E. Phillips Has Not Established a Legal or Factual Basis to Negate the Undisputed Facts Which Evidence that Phillipss Claim is a Pre-Petition Claim.

Importantly, Phillips has never disputed any of these facts. Without countervailing evidence, which has not been presented, Phillips cannot sustain its burden to establish a postpetition transaction. In order for Phillips to sustain its burden of proof, it must somehow negate these undisputed facts. Phillips cannot do so. As importantly, it did not do so. As a result, this Court must deny Phillipss Motion. II. PHILLIPSS ATTEMPT TO NEGATE THE UNCONTESTED FACTS AND LAW OF THIS CASE IS PRECLUDED BY APPLICABLE LAW. Phillips asserts two arguments in response to the undisputed evidence supporting that the claims at issue are pre-petition claims. Phillips contends that it is entitled to an administrative claim because: (1) the Tooling allegedly PPAPed after the Petition Date; and/or (2) the Debtors allegedly induced Phillips to complete performance of the pre-petition Purchase Orders by assurances or promises Phillips received from the Debtors. Phillipss arguments, however, are unsupported by controlling law. A. PPAP Date Does Not Control.

Phillips contends that it is entitled to an administrative expense claim because the Tooling allegedly PPAPed after the Petition Date. As indicated by Phillipss counsel in her opening statement, the basis for Phillipss administrative expense claim is that the pre-petition Purchase Orders contained payment terms which required payment to be made upon PPAP and this triggering event for payment did not occur until after the Petition Date. See Nov. 15, 2007 Transcript, p. 7. Debtors do not deny that the PPAP dates for most of the Tooling occurred post-

13

petition. Phillips, however, goes to the absurd length to suggest that Tooling which PPAPed prepetition (the Honda related Tooling), entitles Phillips to an administrative expense claim for those tools as well. Even if this Court were to accept Phillipss theory for recovery (which theory is contrary to the law), Phillips would not be entitled to an administrative expense claim for the Honda related Tooling. As opposed to citing to some legal principle to support that such event results in a postpetition claim, Phillips looks to the Debtors actions. Ms. Cloutier relies upon her understanding of Ms. Samuls May 27, 2005 e-mail, which was that because my tools that I had outstanding had not PPAPed or had PPAP 90 days previously, that I would get paid under the normal course of business. See Nov. 15, 2007 Transcript, p. 89. Assuming, arguendo, Ms. Cloutiers interpretation of Ms. Samuls e-mail to be correct, and notwithstanding such interpretation, effectuating such interpretation is inconsistent with the law. 1. The Due Date For Payment Does Not Determine Administrative Priority.

PPAP date is merely a contractual term relating to when a claim is to be paid. Ms. Samuls testimony confirms this. See Nov. 15, 2007 Transcript, p. 41. Phillips has failed to offer any evidence that the PPAP date is anything more. Title to the Tooling passed to the Debtors pre-petition and it was at that time that the benefit was conferred upon the Debtors. The mere fact that the payment due date occurred subsequent to the Petition-Date did not, and could not, convert Phillipss pre-petition claim into an administrative expense claim. The relevant point, and what Phillips needs to establish, is when the claims arose, not when payment of the claim was due.

14

It is well-settled that a debt is not entitled to administrative priority simply because the right to payment arises after the debtor in possession has begun managing the estate. In re Amarex, Inc., 853 F.2d 1526, 1530 (10th Cir. 1988); Trustees of Amalgamated Ins. Fund v. McFarlins, 789 F.2d 98, 101(2d Cir. 1986); In the Matter of Jartran, Inc., 732 F.2d 584, 587 (7th Cir. 1984). In a contract where payment was due upon advertisements being published, and the publication occurred post-petition, the court denied an administrative expense claim, notwithstanding the post-petition publication and due date. Jartran, 732 F.2d 584. In so holding, the court determined that the mere fact that the Debtors received a post-petition benefit did not entitle the publisher to priority status and reasoned that: [t]his case is more like a situation in which a creditor has supplied a machine, for example, a photocopier, before the filing of the petition in bankruptcy. Questions of secured status aside, the mere fact that the Debtor continued to use the machine after the petition was filed would not entitle a claim for the price of the copier to 503 priority. In the Matter of Jartran, Inc., 732 F.2d at 589. Additionally, in In re A. Marcus Co., 64 B.R. 207 (N.D. Ill. 1986), the court denied a requested administrative expense claim where the claimant entered into an agreement prepetition and delivered tools and parts, pre-petition, to the debtors customs agent. Pursuant to the contract, payment was due in 90 days, and, therefore, became due post-petition. In denying the request for administrative priority, the court held that the transaction was finalized when delivery occurred and that the due date did not determine administrative priority. Id. at 209. 2. Acceptance of Goods by Debtors or Undertaking of Additional Work by Creditors Does Not Control Administrative Priority.

In this case, Phillips is seeking administrative priority for $1,123,905.00 related to Tooling provided to the Debtors prior to the Petition Date. As the above cases evidence, the fact

15

that payment for this work may have become due after the Petition Date does not make Phillipss claim an administrative expense claim. The Debtors incurred the debt to Phillips in connection with the Tooling at the time title transferred shipment or delivery. In circumstances extremely similar to the case at hand, in In re Powerine Oil Co., supra, both acceptance of the goods by debtor; and (2) a due date for payment based upon post delivery installation and training services were rejected by the court as influencing the timing of occurrence of the debt. In re Powerine Oil Co., 126 B.R. 790. Importantly, the Powerine court found such arguments to be inconsistent with the Bankruptcy Codes broad definition of debt and claim: A debt means liability on a claim. Section 101(11). A claim means any right to payment or right to an equitable remedy for breach of performance, whether or not such right is fixed, contingent, matured, unmatured, disputed or undisputed. Section 101(4). Although [the creditor] makes much of the fact that the debtor had the right to inspect the equipment to determine whether the equipment conformed to the contract, there is no contention that the goods were non-conforming. Upon the receipt of conforming goods, [the creditor] was entitled to acceptance of the equipment and payment. [The Creditors] right to payment certainly falls within the definition of claim and the debtor's corresponding liability would be a debt. Even if the Panel considers the issue of conformity at the time of delivery as an open question, as [creditor] contends, the debtor was obligated to either accept and pay or to reject and hold the goods for [creditor] if the equipment did not conform. See U.C.C. 2601 and 2-602. [Creditor] had a right to payment if the equipment was accepted or, in the alternative, a right to compel performance if the equipment was nonconforming and rejected. Although these rights may have been contingent or unmatured prior to any acceptance, in either event, [creditor] had a claim against the debtor and the debtor owed a debt to [creditor] upon the debtor's receipt of the equipment. In re Powerine Oil Co., 126 B.R. at 794 (emphasis added). The court in Powerine held that the debtor acquired title to the equipment, at the very latest, when the debtor received the equipment. Id. See also, In the Matter of Alofs

Manufacturing Company, supra, discussed in Section I.D. above.

16

In this case, the mere fact that the Tooling was awaiting PPAP or acceptance after Phillipss delivery is irrelevant to the determination as to when the claim arose. Consistent with the courts holding in In re Powerine Oil Co., once the Tooling was delivered to the Debtors, the Debtors incurred an obligation to Phillips and Phillips obtained a claim against the Debtors. All of the relevant events occurred pre-petition, thus Phillipss claims are pre-petition and not administrative claims. B. The Debtors Cannot Agree to Convert The Pre-Petition Non-Priority Status of a Debt to a Priority Administrative Expense Claim.

In an effort to blunt the great weight of the evidence supporting (and no evidence countering) Phillipss claims being pre-petition obligations, Phillips chose to ignore the facts and advance a unique and unsubstantiated argument that it is somehow entitled to an administrative expense claim because the Debtors allegedly promised that Phillips would be paid. Pursuant to applicable law, these alleged inducements or promises are insufficient to, and cannot, form the basis of, an administrative expense claim. To the extent Phillips contends that it performed work post-petition pursuant to a new and separate contract with the Debtors, Phillips would not be entitled to recover its pre-petition claim as an administrative expense claim. 1. The Debtors Are Not Authorized to Unilaterally Change The Nature of Phillipss Pre-Petition Debt to an Administrative Expense.

The Sixth Circuit has held that under no circumstances can the debtor-in-possessions authority to operate its business under Section 1108 of the Code or to use property of the estate in the ordinary course of business under Section 363 be interpreted or extended to permit the transformation of pre-petition debt to an administrative expense. In re White Motor, 831 F.2d 106, 111-112 (6th Cir. 1987). Regardless of any alleged representations of the Debtors, the Debtors lacked the legal authority to convert the pre-petition debt to an administrative expense.

17

In re White Motor, supra. Therefore, even if the Court finds that Phillips relied on the Debtors alleged promises to pay, the Debtors were not empowered to alter Phillipss non-priority status on its pre-petition claims and Phillips cannot prevail and recover its pre-petition debt. Pursuant to the Bankruptcy Code, absent appropriate treatment of an allowed claim pursuant to a confirmed plan, or per Court authorization (neither of which existed here or could have been obtained2), the Debtors are precluded from paying a pre-petition debt and creditors are precluded from applying funds of the Debtors against pre-petition debt. In Re Hellums, 772

F2d 379 (7th Cir. 1985). At no point did the Debtors seek Bankruptcy Court approval to pay Phillips for the Tooling. Also, if the payment was not with Code or Court approval, such payment would be avoidable under Section 549 which permits avoidance of post-petition transfers of property that were not authorized under Section 363. This Court must not, and cannot, under the guise of equity, ignore the Codes statutory scheme and redistribute rights in accordance with personal views of justice, however enlightened those views may be. Capital Factors, Inc. v. Kmart Corporation No. 02 C1264, 2003 U.S. Dist. LEXIS 17437, * 10 (N.D. Ill. Sept. 29, 2003) (citing In re Chicago, Milwaukee, St. Paul and Pac R.R. Co., 791 F.2d 524, 528 (7th Cir 1986)). Congress has not elected to permit pre-plan payment of unsecured claims. Capital Factors, 2003 U.S. Dist. LEXIS * 11. This Court does not have the equitable or statutory power to authorize pre-plan payment of pre-petition unsecured claims. Id.; In the Matter of Kmart Corporation 359 F.3d 866 (7th Cir. 2004). Pre-petition debts are not administrative expenses; they are the antithesis of administrative expenses. Kmart at 872. Because this Court cannot prefer Phillipss unsecured pre-petition claim over others, it is axiomatic that neither the Debtors nor their counsel could contract around the Bankruptcy Code.

If a Court order were to be obtained, it would have been obtained pursuant to Debtors, not claimants, request. Clearly no such request was made, nor pursuant to discussion below, would such request have been granted.

18

Therefore, any such alleged promise by the Debtors is irrelevant. A contrary conclusion would give debtors the ability to collude with certain creditors in order to get certain claims paid, which is obviously something for which there is no support under the Bankruptcy Code. C. Assuming, Arguendo, That Phillipss Claim Was Not Precluded by Law, Phillips Has Failed to Establish That it Performed Any Work in Connection With The Tooling Post-Petition.

To the extent Phillips is not seeking an administrative claim based upon the PPAP date, but rather is attempting to recover the value of work performed post-petition, Phillips has failed to present any evidence to substantiate its claim that it performed any work in connection with the Tooling after the Petition Date. When asked what types of services Phillips provided to the Debtors after receiving Ms. Samuls e-mail, Ms. Cloutier offered only vague testimony: We continued to service, tweak and tune all the tools that were not PPAPed. We did service calls, repairs, preventative maintenance. We did whatever was required to keep their plants going. See Nov. 15, 2007 Transcript, p. 91. However, when questioned to provide specific information about the Tooling at issue in this Motion, Ms. Cloutier was unable to provide any evidence of what work, if any, Phillips performed post-petition. She testified that she had no specific recollection of any post-petition work performed by Phillips. She further testified that Phillips had no documentation to support its contention that Phillips performed post-petition work on the Tooling. Specifically, Ms. Cloutier testified: Q. And do you have a specific -- you have a specific recollection of those events where there was tweaking and tooling (sic) post-petition to one of the tools in question today? A. I wouldn't have a specific recollection. At the time I got Ann Sammul's e-mail, I trusted what she told me was correct. I did not ask my salaried staff to record every time they went to the plant to work on a tool or my salaried feasibility guy to record every time he did a feasing on one of

19

these tools for dimensional assistance in PPAP. I would have no reason to believe I would need that information. Q. And as a result you don't have that information? A. I don't have documentation on that, no. Q. And because you don't have documentation, you don't -- you don't have any personal knowledge today that those events actually occurred, other than your assumption that they did? A. I talked to one program manager in particular, and he remembered working. To a toolmaker a tool is almost a personal thing, and Dave remembered working on the one. But other than that, I have to assume that how long these PPAP dates took to arrive, that we would have been in there tweaking these tools. There's no way PPAP would have taken that long without us having to tune them. We're not that good. See Nov. 15, 2007 Transcript, pp. 119-120 (emphasis added). There is no testimony or documentary evidence to indicate what, if anything, prevented the Tooling from achieving earlier PPAP. The record is similarly devoid of any evidence as to what Phillips specifically might have done in connection with each item of Tooling post-petition or whether they enhanced the PPAP process. It is mere speculation that even if Phillips did any work on the Tooling post-petition that there was necessarily any relationship between any such work and the ultimate PPAP. In any event, PPAP conferred no benefit whatsoever on the Debtors. No payment by the Debtors to Phillips was due before PPAP. Thus, without PPAP, Phillips would never have a liquidated claim and the Debtors, which had possession and title to the Tooling, would continue to use the Tooling. Moreover, the Debtors could produce and sell component parts from the Tooling prior to PPAP. See Nov. 15, 2007 Transcript, p. 68. Production of parts was not restricted by lack of PPAP. Mr. Nelson testified that it could take up to a year after production had started to get full PPAP. See Dec. 4, 2007 Transcript, p. 11. Phillips did not have the luxury

20

of ignoring its contractual obligations to perform even if it was prepared to forego PPAPing. Accordingly, PPAP was not something that the Debtors needed. Moreover, the testimony is clear that Phillips was not essential to the PPAP process. Ms. Samul testified that had Phillips failed to complete the PPAP process, the Debtors would have simply hired a new tool shop to complete the PPAP process, see Nov. 15, 2007 Transcript, p. 73, or used the Debtors personnel or the OEMs to do what was necessary to complete the PPAP process. See Nov. 15, 2007 Transcript, p. 81. 1. The Court Should Not Consider Any Evidence Offered by Phillips Concerning Work Performed Post-Petition and Should Presume That This Evidence, if it Existed, Would Have Been Adverse to Phillips.

Despite the self-serving testimony of Ms. Cloutier that Phillips must have done some tweaking and tuning to the Tooling post-petition, Phillips has failed to present a scintilla of admissible evidence that it actually provided any goods or services to the Debtors related to the Tooling post-petition. This is, of course, no surprise to the Debtors because Phillips failed to provide this information during discovery in connection with this matter. In connection with the evidentiary hearing, on September 21, 2007, Debtors served on Phillips Debtors First Set of Interrogatories, Requests for Admissions and Requests for Production of Documents to Phillips Tool & Mould (London) Ltd. (the Discovery Requests). As a part of the Discovery Requests, the Debtors sought information from Phillips concerning any services allegedly performed or any labor or materials allegedly provided by Phillips to the Debtors after the Petition Date, which form the basis of Phillipss alleged administrative expense claim. Specifically, the Debtors sought the following documents as part of its Discovery

Requests: Produce all documents evidencing or relating to any labor, materials or services you allege Phillips provided to the Debtors after the petition date.

21

In response to the document requests, Phillips objected to any production on the basis that the request fell outside the scope of discoverable information. In response to this request Phillips stated the following: PTM objects to this document request in that it requests documents beyond the scope of Rule 26(b). See Phillipss Response to Request to Produce No. 18, attached as Exhibit D to the Debtors Motion in Limine. [Docket #8585]. Federal Rule of Civil Procedure 26(b) provides that parties may obtain discovery regarding any matter that is relevant to the claim or defense of any party. Fed. R. Civ. P. 26(b)(1). Phillips refused to produce any documents in connection with such discovery requests by claming that such requests were beyond the scope of Rule 26(b). Phillips is therefore bound by its contention that the information relating to post-petition labor, materials or services is irrelevant and should not now be allowed to rely upon such information to support its claim. If this Court were to consider any evidence on this subject matter, after Phillips deliberately failed and refused to make any of this alleged evidence available during the course of discovery, this Court would, in essence, be rewarding Phillips for concealing, prior to the evidentiary hearing, what presumably is now relevant evidence on this matter. Where a party deliberately fails to produce evidence, courts generally presume that the evidence operates against the party that failed to produce it. Adkins v. Wolever, 2007 U.S. Dist. LEXIS 12925, *2 (W.D. Mich 2007) citing, Johnson v. Secretary of State, 406 Mich 420, 440 (1979). Debtors are entitled to a presumption that the evidence would have been adverse to Phillips. Accordingly, the Court should presume that this evidence, if it existed, would have been adverse to Phillips.

22

Without evidence of what it may have done post-petition to the Tooling, Phillips cannot sustain its burden relative to any conclusion that would be based upon such services. D. 1. The Debtors Alleged Inducement of Phillips Does Not Provide a Basis For Phillips Administrative Expense Claim. The Debtors Did Not, And Could Not, Assume The Purchase Orders by Allegedly Inducing Phillips to Perform.

Although not asserted by Phillips, inquiries by the Court raised the question of whether the Purchase Orders were assumed, thus giving rise to an obligation to pay. Phillips contends that since both Phillips and the Debtors had post-petition obligations under the Purchase Orders, the Purchase Orders are executory contracts. The Purchase Orders, however, were not assumed. Moreover, the Purchase Orders could not be assumed by the Debtors alleged promises. A debtor-in-possession cannot assume an executory contract by inducing the non-debtor party to continue to perform the pre-petition contract by a promise to honor the terms of that contract. In re FBI Distribution Corp., 330 F.3d at 45. The claimant in FBI Distribution Corp., in an attempt to recover her claim as a post-petition administrative expense claim, argued that in a situation where a debtor-in-possession induced her to continue to perform under a pre-petition contract by a promise to honor the terms of that contract, and that the debtor-in-possession thereby assumed the pre-petition executory contract by its actions. The court expressly rejected this argument, holding that the argument runs directly contrary to not only the general principles governing executory contracts, but also to the language of and policies served by section 365, and, for that matter, to the goals of Chapter 11, which is the successful rehabilitation of the business for the benefit of both the debtor and all its creditors. Id. The court in FBI Distribution Corp. held that it was well-settled that an executory contract could not be assumed by the unilateral acts of the debtor in possession during the

23

reorganization of the business.

Id. at 45 citing Thinking Machs. Corp. v. Mellon Fin. Servs.

Corp. (In re Thinking Machs. Corp.), 67 F.3d 1021, 1025 (1st Cir. 1995) (holding that court approval is a condition precedent); Dewey Freight Sys., Inc., 31 F.3d at 624; Matter of Whitcomb & Keller Mortgage Co., 715 F.2d 375 (7th Cir. 1983); In re Uly-Pak, Inc., 128 B.R. 763, 765 (Bankr. S.D. Ill. 1991). The plain text of section 365 requires express approval by the court. Id. citing 11 U.S.C. 365 ("The trustee, subject to the court's approval, may assume or reject any executory contract . . . ."); See also, In re Thinking Machs. Corp., 67 F.3d at 1025. The court in FBI Distribution Corp. went on to reason that the policy served by court approval is not difficult to discern. Assumption of a pre-petition contract has serious consequences: it not only elevates a pre-petition liability to a post-petition liability, but also entitles the nondebtor party to first priority status. Court approval thus provides protection to the unsecured creditors whose claims could be prejudiced by potentially burdensome contracts--ones that may have driven the business into bankruptcy in the first place. FBI Distribution Corp., supra at 45. The Court further added that while Chapter 11 proves to be a harsh reality for nondebtors like Mason, Mason did have a remedy, being to petition the bankruptcy court, pursuant to 11 U.S.C. 365(d)(2), to order the debtor-in-possession to assume or reject the contract within a specified time, which she did not do. Id. at 46. In the instant case, the Purchase Orders were not assumed. The Purchase Orders were rejected on October 12, 2007 pursuant to the Debtors Joint Plan of Reorganization to the extent the Purchase Orders were otherwise still executory. Phillips could have similarly petitioned this Court to order the Debtors to assume or reject the Purchase Orders or to provide adequate protection. It did not.

24

a.

The Most Phillips is Entitled to Recover is The Reasonable Value of The Services it Provided Post-Petition.

The Supreme Court has held if a debtor-in-possession continues to receive benefits under a contract pending the decision to reject or assume the contract, the debtor-in-possession is only obligated to pay for the reasonable value of those services. National Labor Relations Board v. Bildisco and Bildisco, 465 U.S. 513, 531 (1984). Where, pending its decision to reject or assume, the nondebtor party is induced to provide any services to the debtor, the nondebtor will be entitled to administrative priority only to the extent that the consideration supporting the claim was supplied to the debtor in possession during the reorganization and was beneficial to the estate. See also FBI Distribution Corp., supra at 42-43 (emphasis added). As a result, even assuming that the Debtors induced Phillips to render performance pursuant to the unassumed pre-petition Purchase Orders pending the Debtors decision to reject or assume, the most Phillips could possibly be entitled to recover as an administrative expense is the reasonable value of its services rendered post-petition. Phillips has failed to prove that it performed any work post-petition on the Tooling, and if it did, the reasonable value of those services rendered post-petition. 2. The Fact That Phillips May Have Performed Additional Work in Reliance Upon The Debtors Alleged Promise to Pay Phillips Pre-Petition Claim is Irrelevant.

Phillips contends that but for the Debtors alleged promise to pay Phillips on its prepetition claim, Phillips would not have agreed to undertake approximately $6,000,000 in new additional business. No matter what the reason Phillips had for taking on new work postpetition, such new work would not create an obligation to pay for pre-petition work. The Seventh Circuit dealt with a similar situation in Kmart, supra and determined that in such a

25

situation, the creditor was not entitled to payment on its pre-petition claims, regardless of the services provided post-petition. The Kmart case is particularly illustrative here. Even assuming that this Court does not recognize the ultimate holding in Kmart (precluding critical vendor payments) the reasoning of Kmart is applicable in precluding detrimental reliance as a basis for changing a pre-petition claim to a post-petition one. The trial court in Kmart initially authorized (by order) the critical vendor payments based upon the debtors position that its vendors would not continue to sell to debtors. Kmart, 359 F.3d at 868-869. When the trial court was ultimately overturned, the appellate court found that the existence of the order authorizing the payments was not enough to protect the creditor from having to give back the payments. Kmart, 359 F.3d 866. In other words, even where a court order was entered ostensibly designed to induce creditors to ship, and where such creditors did ship, such inducement did not give the creditors a right to receive payments on pre-petition debt. Here, not only was there no order, there was not even a request for an order. There was merely a singular e-mail from a lower level debtor employee in the early stages of the case, an employee who could not remember from where her purported authority came. Certainly, if a court order is not sufficient inducement to permit the creditor to retain payment, then the unauthorized statement of an employee (later rebutted by other Debtor representatives) cannot justify the payment in the first place. Additionally, to the extent that Phillips attempts to rely on testimony that the Debtors were somehow obligated to pay Phillips for certain of the Tooling because the Debtors had been paid by Chrysler this argument fails as well. Mr. Nelson testified that he believed Chrysler had paid the Debtors for the LX 2004 Trapline portion of the Tooling as part of a settlement agreement between the Debtors and Chrysler. See Dec. 4, 2007 Transcript, p. 27. Further, Mr.

26

Nelson testified that he believed that as part of the settlement, Chrysler received assurances that any money owed to tool suppliers would be paid. See Dec. 4, 2007 Transcript, p. 28. However, even if Mr. Nelsons understanding of the settlement agreement was accurate, which it is not, the Debtors could not agree to contract around the Bankruptcy Code to pay a pre-petition claim. Further, Mr. Nelsons testimony regarding the settlement agreement between Chrysler and the Debtors is inaccurate. While Mr. Nelson could not specify the settlement agreement he was referring to, all indications are that he was referring to the Post-June 30, 2007 Customer Agreement entered into between the Debtors, General Motors, Chrysler and JPMorgan Chase (the Customer Agreement). Contrary to Mr. Nelsons testimony, the Customer Agreement does not obligate the Debtors to pay Phillips for the Tooling. The Customer Agreement was filed as Exhibit B to the motion to approve the Customer Agreement [Docket No.7651]. The schedules to the Customer Agreement were filed under seal. Schedule 5 of the Customer Agreement reflects a commercial resolution between the Debtors and Chrysler. However,

contrary to Mr. Nelsons speculation, the settlement agreement does not obligate the Debtors to pay Phillips for the two LX 2004 trapline invoices. While Schedule 5 is under seal, the Court upon its review of the schedule will see that the amounts paid by Chrysler were to be used by the Debtors to pay the specific suppliers identified on the line items contained in Schedule 5. While Phillips appears on Schedule 5, the Phillips line items do not relate to purchase orders or invoices at issue in this contested matter. All of the Phillips line items in Schedule 5 relate to postpetition purchase orders. Accordingly, the settlement agreement to which Mr. Nelson testified does not create an obligation on the part of the Debtors to pay Phillips for any portion of the Tooling and any inference Phillips attempts to draw to the contrary is inaccurate.

27

Based on the holding in Kmart, it is clear that any alleged promise by the Debtors to Phillips is irrelevant. In Kmart the vendors not only had a promise from the debtors but a court order blessing such promise; nevertheless, the payments were still avoidable. In the present case, Phillips does not have a court order, but merely an alleged promise. This is insufficient. Further, like the critical vendors in Kmart, Phillips has either been paid or is entitled to be paid for the actual post-petition services it provided, which claim is not the subject of the instant Motion. Therefore, any purported reliance by Phillips is irrelevant. E. Phillips Cannot Prevail on a Claim for Promissory Estoppel.

The holdings of FBI Distribution Corp. and Kmart clearly preclude Phillipss reliance on some kind of inducement argument. Even if such holdings were ignored or inapplicable,

Phillipss contention still fails as a matter of law. 1. Michigan Law Forbids Promissory Estoppel Claims When The Parties Agree That an Express Agreement Covers the Same Subject Matter.

Phillipss claim of inducement is really one of promissory estoppel. Promissory estoppel is a quasi-contractual theory which allows for recovery only when no contract exists or where a party doubts the existence of a contract. Ayoub v. Unum Life Insurance Company of America, 2007 U.S. Dist. LEXIS 29556, *17 (2007), citing Advanced Plastics Corp. v. White Consol. Indus., Inc., 828 F. Supp. 484, 491 (E.D. Mich. 1993); Barber v. SMH (US), Inc., 202 Mich. App. 366, 375 (1993) (when an express contract is in force, a contract cannot be implied in law that covers the same subject matter.); Campbell v. City of Troy, 42 Mich. App. 534, 537 (1972) ([t]here cannot be an express and implied contract covering the same subject matter at the same time.); Cloverdale Equipment Co. v. Simon Aerials, Inc., 869 F.2d 934, 939 (CA 6 1989); Noel v. Fleet Finance, Inc., 971 F. Supp. 1102 (ED Mich 1997). If there is a written contract, there can be no implied contract and thus no recovery for unjust enrichment or promissory estoppel.

28

Martin v. East Lansing School District, 193 Mich. App. 166, 177-180 (1992)(emphasis added). A claim for promissory estoppel cannot survive when an express contract covers the same subject matter, even when the contract is between the plaintiff and another party. Superior Ambulance Service v. City of Lincoln Park, 19 Mich. App. 655 (1969), citing Sullivan v. Detroit Ypsilanti & Ann Arbor Railway, 135 Mich. 661, 667 (1904). One cannot perform under a contract and then claim that it is entitled to payment for such performance based upon promissory estoppel. General Aviation, Inc. v. Cessna Aircraft Co., 915 F.2d 1038, 1042 (6th Cir. 1990) (citation omitted). Detrimental reliance, a necessary element of promissory estoppel, cannot be satisfied by performance under the contract. Phillips has agreed that it was obligated to perform the tweaking and tuning of the Tooling to PPAP under the Purchase Orders. See Nov. 15, 2007 Transcript, p. 91. Importantly, it is well established that until the Purchase Orders were rejected, Phillips was under a continuing obligation to fulfill its contractual requirements to the Debtors. In re Pittsburgh-Canfield Corp., 283 B.R. 231, 238 (Bankr. N.D. Ohio 2002); See also In re Greenville Auto Mall, Inc., 278 B.R. 414, 424 (Bankr. N.D. Miss. 2001) (The non-debtor party to an executory contract is required to continue post-petition performance under the contract at least until the debtor makes an election to either assume or reject.) Had Phillips threatened not to perform under the Purchase Orders, it could have been compelled to do so. Phillips has never suggested that there was any legal basis which excused its performance. In fact, Ms. Cloutier testified that Phillips did not threaten nonperformance. See Nov. 15, 2007 Transcript, pp. 89 and 114. Accordingly, the existence of the Purchase Orders and work performed thereunder preclude a claim for promissory estoppel as a matter of law.

29

2.

Phillips Cannot Satisfy the Elements of Promissory Estoppel.

The elements for promissory estoppel are: (1) a promise; (2) that the promisor should reasonably have expected to induce action of a definite and substantial character on the part of the promisee; (3) which in fact produced reliance or forbearance of that nature; and (4) in circumstances such that the promise must be enforced if injustice is to be avoided. Marrero v. McDonnell Douglas Capital Corp., 200 Mich. App. 438, 442 (1993) (citations omitted). The sine qua non of promissory estoppel is a promise that is definite and clear. Id. (emphasis added). a. The Debtors did not Make a Clear and Definite Promise to Phillips.

Ms. Cloutier testified that Ms. Samuls May 27, 2005 e-mail communication induced Phillips to continue to work with the Debtors post-petition with a promise to pay Phillips under the normal course of business. Specifically, the email stated the following: I took a quick look at your account, and it appears you will be in decent shape. The rules are these: Anything in your possession is secured, even if the invoice is dated prior to May 17. I will need a letter stating this and the location it is held at in order to pay. Any tool which has left your possession, but for which you have a lien is secured. Any tool which has left your possession, has PPAP terms on the PO, and we have not completed PPAP, or did so less that 90 priors to filing, is secured. Any work completed and invoiced after May 17 is secured. This e-mail does not equate to a promise to pay if Phillips continued to perform services for the Debtors. This e-mail simply discusses Samuls understanding of the secured nature of Phillipss alleged claims and never mentions payment or Phillipss continued performance in connection with the Tooling. Thus, this e-mail cannot form the basis of Phillipss claim for promissory estoppel and does not establish that Phillips is entitled to an administrative expense claim.

30

Interestingly, Ms. Cloutiers own testimony reveals that she did not interpret this e-mail as a clear and definite promise of payment because she contacted the Debtors representatives several hundred times after receiving the e-mail from Ms. Samul to determine if Phillips was going to be paid. See Nov. 15, 2007 Transcript, p. 128. Ms. Cloutier further testified that Phillips continued to provide services to the Debtors post-petition, and Phillips expected to be paid for the Tooling based upon the representations of Arthur Nelson of BBK, See Nov. 15, 2007 Transcript, pp. 103, and 138-139. Mr. Nelson is not a representative of the Debtors and it is axiomatic that Mr. Nelsons alleged representations cannot bind the Debtors. Further, Mr. Nelson testified that he never promised Ms. Cloutier that Phillips would be paid and, in fact, he directed Ms. Cloutier to consult with her attorney regarding this matter. See Transcript from the December 4, 2007 Evidentiary Hearing, pp. 17-18 (the Dec. 4, 2007 Transcript). As stated previously, whether the debt owed to Phillips is a pre-petition claim or a postpetition claim is a legal determination. Ms. Cloutier understood the legal implications as she and Phillips had been through bankruptcy before. See Nov. 15, 2007 Transcript, pp. 87-88. A statement from an employee of the Debtors to Phillips is irrelevant to this determination. Further, as Ms. Cloutier testified, the email correspondence from Ms. Samul was directly contradicted by later emails sent by other C&A employees. See Nov. 15, 2007 Transcript, p. 124. Phillips further alleges that Debtors counsel assured Phillipss counsel that the Debtors would pay for the Tooling in the ordinary course of business. Assuming arguendo that counsels statements are relevant to the issue at hand, Phillips has offered no evidence that the statements alleged by Phillips were made. Phillips merely offered the testimony of its counsel, Dennis

31

Loughlin. Mr. Loughlin testified that he spoke with Lawrence Lichtman during May or June 2006 and was advised that the Debtors would not be providing adequate protection payments to Phillips because Phillipss claims were not pre-petition claims since the PPAP dates had not occurred yet and that the Debtors would be paying for those claims in the ordinary course of business3. Mr. Lichtman testified that he did not recall having the alleged conversation with Mr. Loughlin. Phillips was unable to provide any written evidence to confirm the alleged

conversation between Mr. Loughlin and Mr. Lichtman. Similarly, Phillips was unable to provide any evidence to support that Debtors counsel had promised that the Tooling would be paid in the ordinary course of business. b. Phillips Has Failed to Establish That it Performed Any Work in Reliance on The Alleged Promise.

Phillips alleges that it was induced to perform additional services in connection with the Tooling by promises made by the Debtors to pay Phillips on its outstanding pre-petition claim. The record, however, is devoid of any facts to substantiate this claim. Phillips has failed to: (i) establish that it actually performed any work on the Tooling post-petition; (ii) provide any evidence of the dates it allegedly performed these post-petition services on the Tooling; nor (iii) identify the Tooling on which it allegedly performed these post-petition services. Further, assuming arguendo that Phillips did perform certain work on the Tooling after the Petition Date, Phillips cannot establish that it performed this work in reliance upon the Debtors promise or that this work entitled Phillips to an administrative expense claim because

Phillips has offered no evidence that it relied on any representations of Debtors counsel in performing any work in connection with the Tooling. Ms. Cloutier testified that Phillips performed work for the Debtors based upon the representations of Ms. Samul and Mr. Nelson. See Nov. 15, 2007 Transcript, pp. 91, 100-101, 103 and 129. Therefore, even if the Court had a basis to find that Debtors counsel made such a promise, such promise would be wholly irrelevant because there is no evidence that Phillips relied, detrimentally or otherwise, on such alleged promise.

32

Phillips was already obligated to perform this work or provide these services to fulfill its obligations to the Debtors pursuant to the pre-petition Purchase Orders. See Nov. 15, 2007 Transcript, p. 91. Therefore, Phillips cannot establish that it performed this alleged work as part of a transaction with the debtor-in-possession as opposed to the preceding entity. As set forth in more detail in Section II.E.1., above, Phillips was obligated to continue to perform it obligations under the Purchaser Orders. In re Pittsburgh-Canfield Corp., 283 B.R. at 238; See also In re Greenville Auto Mall, Inc., 278 B.R. at 424. If Phillips refused to fulfill its obligations under the Purchase Orders, Phillips would have been in breach of the Purchase Orders and subjected itself to a lawsuit seeking significant damages. Phillipss allegation that it entered into approximately $6,000,000 in additional contracts with the Debtors solely as a result of Ms. Samuls May 27, 2005 e-mail allegedly promising payment on its pre-petition claim is disingenuous and fails to satisfy the detrimental reliance requirement for promissory estoppel. Even after filing for bankruptcy, the Debtors were still one of Phillipss largest customers and represented approximately twenty (20%) percent of Phillipss annual sales. What is clear, then, is that Phillips continued to perform work for the Debtors post-petition pursuant to new contracts or its business would suffer significantly. More importantly, Phillips did the postpetition work because it would be paid for it. c. Injustice is Not Avoided if Phillips Receives Priority Treatment on a PrePetition Claim.

The only injustice in this case will occur if Phillips actually prevails on its claim. As indicated above, the granting of priority status is contrary to one of the fundamental principles of bankruptcy law that the debtor's limited resources are to be distributed equally among similarly situated creditors, and these statutory priorities are narrowly construed. In re FBI Distribution

33

Corp., 330 F.3d 41-42 (citations omitted). The priority afforded to those who provide postpetition goods or services to a debtor is limited to the actual, necessary costs and expenses of preserving the estate. Phillips has not established that such services were rendered or the value of same. Phillips has failed to identify any legal basis that would allow this Court, or the Debtors, to transform Phillipss entire pre-petition claim to an administrative expense. In fact, the law specifically forbids such a result. See, In re White Motor, supra at 111-112. If this Court were to prefer Phillips over the other pre-petition creditors who similarly provided pre-petition goods or services to the Debtors by awarding Phillips administrative expense status on its pre-petition claim, this Court would be distributing the Debtors limited resources unjustly. Therefore, Phillips cannot sustain its burden that an injustice would be avoided if its claim were disallowed. 3. The Measure of Damages For a Claim Based on Promissory Estoppel is Limited to The Damages Incurred in Reliance on The Promise.

Assuming Phillips could establish that the Debtors made a promise that induced Phillips to perform certain work, under Michigan law, the guiding principle in determining an appropriate measure of damages in a promissory estoppel case is to compensate the promisee for the loss suffered to the extent of the promisees reliance. Joerger v. Gordon Food Service, Inc., 334 Mich. App. 167, 173-174 (1997) (citations omitted). While damages recoverable for breach of contract are those that arise naturally from the breach or those that were in contemplation of the parties at the time the contract was made, damages for a claim based on promissory estoppel, in contrast, are limited to damages incurred in reliance. Hunter Square Office Building, LLC v. Paragon Underwriters, Inc., 2003 Mich. App. LEXIS 1165 *19-*20 citing Joerger, supra at 173-174 and Lawrence v. Will Darrah & Associates, Inc., 445 Mich. 1, 6 (1994). Furthermore, the doctrine of promissory estoppel must

34

be cautiously applied, Booker v. Detroit, 251 Mich. App. 167, 174 (2002), and damages may be limited as justice requires. Joerger, supra 173. In the instant case, Phillips has provided no evidence: (i) that it performed any work or services in reliance upon the Debtors alleged promise; (ii) of what the work was; (iii) to what tools it relates; or (iv) of the value of the work performed. Assuming, arguendo, that a promise was made to Phillips by the Debtors and Phillips had introduced evidence that it performed work in reliance on that promise, Phillipss damages would be limited to the loss it suffered in reliance on that promise, or in other words, Phillipss out of pocket cost to perform the post-petition work on the Tooling. As discussed in Section II.F., infra, Phillips has not established those damages. F. Phillips Has Failed to Prove Any Damages And its Claim in This Case is Based Upon Guess, Speculation and Conjecture. As a Result, Phillips is Not Entitled to Recover Any Damages From The Debtors.

Assuming, arguendo, that Phillips had established that it was entitled to an administrative claim for: (i) the performance it rendered to the Debtors pursuant to the unassumed Purchase Orders pending the Debtors decision to reject or assume; or (ii) its out of pocket costs for work the Debtors induced it to perform on the Tooling post-petition, Phillips is still precluded from recovering any damages in this case because Phillips has failed to prove, by a preponderance of the evidence, the amount of any damages to be awarded. Damages may not be awarded on the basis of guess, speculation or conjecture. Fera v. Village Plaza, Inc., 396 Mich. 639, 643 (1975). In this case, Phillips has failed to carry its burden of proof, and has failed to establish that it suffered any damages as a direct, natural and proximate result of the Debtors alleged actions. Moreover, Phillipss alleged damages in this case are based wholly upon Ms. Cloutiers speculation.

35

The evidence in this case clearly demonstrates that the work performed by Phillips for the Debtors pursuant to the Purchase Orders was completed prior to the Petition Date. See Invoices, Exhibit 74. Phillips has failed to offer any evidence to substantiate its claim that it performed any work post-petition and has merely speculated that this alleged work occurred. Ms. Cloutier, when asked if she could identify the work Phillips performed post-petition in support Phillipss administrative expense claim in this matter, testified that she did not have a specific recollection nor any documentation to support this claim, and that her belief that Phillips had actually performed work post-petition was based upon an assumption: I have to assume that how long these PPAP dates took to arrive, that we would have been in there tweaking these tools. See Nov. 15, 2007 Transcript, pp. 119120. Moreover, Phillips has failed to offer any evidence to this Court to establish the value or cost of any work it allegedly performed after the Petition Date. In fact, Ms. Cloutier testified that this alleged work was performed by Phillips salaried staff, see Nov. 15, 2007 Transcript, pp. 91 92; and 131-132, and that Phillips could not quantify the value of any of its alleged post-petition activity: Q. Okay. Okay. In any event, with respect to that tweaking and tuning activity post-filing for which there was not a separate billing, okay, can you quantify here today the value of that activity? A. No. No. See Nov. 15, 2007 Transcript, pp. 133134. Therefore, consistent with appropriate Michigan case law, the Court cannot award damages to Phillips, under any theory, because Phillips has failed to prove that it suffered any damages, or the amount of such damages, as a direct, natural and proximate result of the

36

Debtors alleged actions and because Phillipss claim for damages is based upon guesses, speculation and conjecture. CONCLUSION To paraphrase the old adage, if you dont have the facts, argue the law. If you dont have either, make something up! Phillipss argument supports this axiom, but not much else. Phillips bore the burden of proving that it was entitled to an administrative expense claim and Phillips has failed to establish such entitlement. The overwhelming, and uncontested, facts in this case support the conclusion that Phillipss claim is a pre-petition claim and the record is devoid of any indicia of post-petition goods or services provided by Phillips. Phillips has presented precious few facts to support its alleged administrative expense claim. The limited facts it has offered require novel legal support, which does not exist, in order for it to prevail. Disingenuously, Phillips attempted to introduce this limited evidence in support its claim after it failed and refused to provide this same information to the Debtors pursuant to pointed discovery requests. While the Debtors did not bear the burden of proof in this matter, the Debtors have established the following facts to support the conclusion that Phillipss claim is a pre-petition claim: (1) the Purchase Orders were issued and accepted pre-petition; (2) the Tooling was manufactured by Phillips and delivered to the Debtors pre-petition; (3) title to the Tooling was transferred to the Debtors pre-petition; (4) Phillips submitted the vast majority of the Invoices pre-petition; (5) the Debtors received the benefit from, and were utilizing, the Tooling prepetition; (6) Phillips previously filed proofs of Claim, under the penalty of perjury, admitting that the majority of its claim was a pre-petition secured claim; (7) Phillips failed to offer a scintilla of evidence that it actually provided any goods and services to the Debtors post-petition relating to

37

the subject Tooling; and (8) Phillips failed to offer any evidence of any quantifiable damages allegedly incurred by it post-petition relating to goods and services allegedly provided in connection with the Tooling. Perhaps appreciating the scarcity of facts that actually support its alleged administrative expense claim, Phillips attempts to rely upon the alleged statements of the Debtors representatives to convert its pre-petition claim to an administrative expense claim. The law, however, clearly does not support Phillipss position. If this were the law, the bankruptcy code, and the restructuring efforts of debtors, would be turned on their ear. Following Phillipss theory would enable debtors to circumvent the Bankruptcy Code, without ever seeking bankruptcy court approval, by simply agreeing to grant priority to, and pay, the creditors as it sees fit. This Court cannot countenance such an unlawful process. Therefore, for the reasons set forth above, Phillips does not have an administrative expense claim and its Motion should be denied. Respectfully Submitted, CARSON FISCHER, P.L.C. By: /s/ David E. Schlackman Robert A. Weisberg (P26698) David E. Schlackman (P58894) Patrick J. Kukla (P60465) 4111 Andover Road West Second Floor Bloomfield Hills, Michigan 48302 (248) 644-4840 Co-counsel for the Debtors

December 18, 2007

38