In Re Resource Technology Corporation

• Decision Date: 01 October 2010
• Docket Number: 08-4310.,No. 08-4118,08-4118
• Citation: 624 F.3d 376
• Parties: In re RESOURCE TECHNOLOGY CORPORATION, Debtor. Appeal of Illinois Investment Trust No. 92-7163, Appellant, v. Allied Waste Industries, Inc., American Disposal Services of Illinois, Inc., Sangamon Valley Landfill, Inc., City of Peoria, Illinois, and County of Peoria, Illinois, Appellees. In re Resource Technology Corporation, Debtor. Appeal of Chiplease, Incorporated, Appellant, v. Jay A. Steinberg, Chapter 7 Trustee for Resource Technology Corporation, Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

624 F.3d 376

In re RESOURCE TECHNOLOGY CORPORATION, Debtor.

Appeal of Illinois Investment Trust No. 92-7163, Appellant,

v.Allied Waste Industries, Inc., American Disposal Services of Illinois, Inc., Sangamon Valley Landfill, Inc., City of Peoria, Illinois, and County of Peoria, Illinois, Appellees.

In re Resource Technology Corporation, Debtor.

Appeal of Chiplease, Incorporated, Appellant,

v.Jay A. Steinberg, Chapter 7 Trustee for Resource Technology Corporation, Appellee.

Nos. 08-4118, 08-4310.

United States Court of Appeals,Seventh Circuit.

Argued May 29, 2009.

Decided Oct. 1, 2010.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

Louis D. Bernstein, Attorney (argued), Bernstein Law Firm, Chicago, IL, for Appellant.

Robert S. O'Meara, Reed Smith LLP, Chicago, IL, for Allied Waste Industries, Inc., American Disposal Services of Illinois, Inc., Sangamon Valley Landfill, Inc.

Linda M. Kujaca, Attorney (argued), Wood Dale, IL, for City of Peoria, Illinois, County of Peoria, Illinois.

George P. Apostolides, Attorney, Arnstein & Lehr LLP, Chicago, IL, for Trustee.

Gregory E. Ostfeld, Attorney, Greenberg Traurig, Chicago, IL, for Debtor.

Before RIPPLE, ROVNER, and SYKES, Circuit Judges.

SYKES, Circuit Judge.

These appeals challenge several rulings of the bankruptcy court in lengthy Chapter 7 proceedings involving Resource Technology Corporation (“RTC”). Prior to its involuntary placement in bankruptcy, RTC was in the business of developing gas-to-energy conversion systems at solid-waste landfills. Other aspects of this bankruptcy have been addressed in several earlier appeals. See Ill. Inv. Trust No. 92-7163 v. Am. Grading Co., 562 F.3d 824 (7th Cir.2009); In re Res. Tech. Corp., 528 F.3d 467 (7th Cir.2008); In re Res. Tech. Corp., 430 F.3d 884 (7th Cir.2005). We have consolidated these two cases for decision because they are procedurally interrelated and share a common factual background.

Section 365 of the Bankruptcy Code allows a bankruptcy trustee to assume certain executory contracts of the debtor and assign them to a third party as long as the bankruptcy court has received “adequate assurance of future performance.” 11 U.S.C. § 365(a), (f)(2)(B). RTC had contracts with four Illinois landfills for the exclusive right to develop gas-to-energy conversion projects at the landfill sites. During the course of the bankruptcy, RTC's key officers assumed managerial positions in two companies-Chiplease, Inc. and Scattered Corp.-and then had these companies designated as beneficiaries of a long-dormant investment trust known as Illinois Investment Trust No. 92-7163 (“the Investment Trust” or “the Trust”). The idea was to have the trustee assume and assign RTC's gas-conversion contracts to the Trust.

The plan ran into trouble, however, when the bankruptcy trustee applied to the court for permission to assume and assign the contracts, as § 365(f)(2)(B) requires. The owners of the four landfills objected; they did not believe the Investment Trust could demonstrate adequate assurance of future performance because it had not explained how it would obtain the $3 million necessary to perform RTC's obligations under the contracts. The bankruptcy court agreed with the landfill owners and rejected the proposed assignments. The district court affirmed, and the Investment Trust appealed to this court.

The second case is an appeal by Chiplease, and it challenges several orders made in connection with a court-approved settlement requiring Chiplease to pay RTC's Chapter 7 operating expenses in exchange for the assignment of certain RTC contracts. While the dispute involving the Trust was working its way through the lower courts, a group of administrative claimants challenged Chiplease's failure to comply with a court order requiring it to deposit $500,000 in an escrow account as security for RTC's ongoing operating expenses. Chiplease claimed it was excused from the escrow-deposit requirement because it had independently paid about $1 million in RTC's operating expenses. The bankruptcy court disagreed and ordered Chiplease to make the deposit. Chiplease appealed to the district court, which affirmed and also found Chiplease in contempt for failing to comply with the order. Chiplease appealed.

We affirm in both cases. The bankruptcy court carefully evaluated the assumption-and-assignment proposal under § 365(f)(2)(B), and its decision to deny the trustee's motion was sound. We likewise see no reason to disturb the bankruptcy judge's determination that Chiplease failed to comply with the court order requiring an escrow deposit. Finally, the district court's contempt finding is fully supported by the record; the court thoroughly considered and properly rejected Chiplease's defense to contempt.

I. Background

In the 1990s RTC was in the business of collecting gas emitted from garbage landfills and either selling it or converting it into electricity. RTC had contracts with the owners of several Illinois landfills that gave it the exclusive right to develop and install gas-to-energy conversion projects at the landfills. Four of these agreements are at issue in this appeal. RTC never collected enough revenue from its gas-to-energy operations to offset the expense of capturing the gas, and by 1999 the company became the subject of an involuntary Chapter 7 petition. For a time during the course of the lengthy bankruptcy proceedings, RTC's case proceeded under Chapter 11 as a reorganization, but as the prospects for RTC's recovery grew increasingly dim, the bankruptcy court converted the case back into a Chapter 7 proceeding.

The bankruptcy trustee eventually entered into a settlement agreement with some of RTC's creditors, including Chiplease and Scattered, the two companies whose principals are former owners and directors of RTC. (Leon Greenblatt and Andrew Jahelka owned RTC; Greenblatt owned Chiplease, and Greenblatt and Jahelka together owned Scattered.) As part of this agreement, the trustee was to assume some of RTC's landfill contracts and assign them to Chiplease and Scattered, and Chiplease was to pay RTC's operating expenses while RTC remained in bankruptcy. The agreement also required Chiplease to establish a $500,000 escrow as security for these expenses. The bankruptcy court approved the settlement agreement.

A. The Investment Trust's Appeal

Pursuant to § 365(f)(2)(B), the bankruptcy trustee asked the court for permission to assume four RTC landfill gas-conversion agreements and assign them to Chiplease and Scattered, which would then reassign to the Investment Trust. The Trust had been organized under Illinois law in 1992 to engage in dividend reinvestment plans but remained dormant for more than a decade and did not engage in any business operations. While the RTC bankruptcy was ongoing, however, Scattered and Chiplease had been made the beneficiaries of the Trust, and intended to use it to receive certain RTC assets and re-enter the gas-to-energy business. With this in mind, John Connolly, RTC's president, was appointed as the trustee of the Investment Trust.

At the time of the bankruptcy trustee's § 365(f)(2)(B) motion, the City of Peoria and Allied Waste Industries (“Allied”) owned the landfills that were the subject of the underlying agreements. They objected to the proposed assignment of their contracts to the Investment Trust; they did not believe the Trust could demonstrate adequate assurance of future performance as required by § 365(f)(2)(B). After lengthy discovery and a two-day trial on the objections, the bankruptcy judge agreed with Peoria and Allied and rejected the proposed assignments. The parties had stipulated that it would cost about $3 million to perform the obligations under the agreements, and at the time of the trial, the Trust had less than $1,000 cash on hand and no operating history. Greenblatt and Jahelka testified that Chiplease and Scattered would lend the required $3 million to the Trust, but the judge was unconvinced. He concluded that the Trust was not financially capable of performing under the agreement, and Scattered and Chiplease had their own financial problems. The judge also doubted that the Trust had any effective way of requiring Scattered and Chiplease-who were the Trust's beneficiaries-to lend it the money it needed to perform the contracts.

Two weeks later Scattered and Chiplease moved the court to reconsider. The motion proposed assigning the same contracts to a new entity called Illinois Generating Station # 1. The judge denied the motion for two reasons. First, interpreting the motion as an entirely new proposal, the court held that it was untimely. Alternatively, if the motion was properly interpreted as a motion to reconsider based on new evidence, the judge concluded that the “evidence” was not “newly discovered.” The Investment Trust appealed to the district court, the district court affirmed, and the Trust appealed to this court.

B. Chiplease's Appeal

As the proposal involving the Investment Trust moved from the bankruptcy court to the district court, two administrative claimants complained to the bankruptcy judge that Chiplease had not complied with its obligations under the settlement agreement to establish a $500,000 escrow as security for RTC's operating expenses. Paragraph 23 of the Settlement Order set forth Chiplease's obligations in detail:

As more fully set forth in Paragraph 11 of the Settlement Agreement: (I) [Chiplease] shall deposit the sum of $500,000.00 to be held in escrow by its counsel ... for the payment of all unpaid Chapter 7 operating expenses above $150,000.00 and any expenses incurred while the Estate continues to operate [RTC's] business....

Paragraph 11 of the Settlement Agreement, in turn, stated:

Chiplease shall pay all unpaid Chapter 7 operating expenses above $150,000 and any expenses incurred while the Estate continues to operate [RTC's] business (“Expenses”). The Estate shall pay the first $150,000 of these expenses....