United States District Court, N.D. Illinois
January 13, 2004.
In re RESOURCE TECHNOLOGY CORPORATION, Debtor. RESOURCE TECHNOLOGY CORPORATION, Plaintiff-Appellee V. MOSTARDI-PLATT ASSOCIATES, INC., Defendant-Appellan
The opinion of the court was delivered by: WAYNE ANDERSEN, District Judge
MEMORANDUM. OPINION AND ORDER
This case is before the court on defendant-appellant Mostardi-Platt
Associates, Inc.'s appeal from a decision rendered by the United States
Bankruptcy Court of the Northern District of Illinois. For the following
reasons, the decision of the bankruptcy court is affirmed.
Resource Technology Corporation ("RTC") is in the business of
extracting methane gas from landfills. After extracting the gas from the
landfills, RTC either burns off, or "flares," the gas it collects or, in
some instances, uses the gas to power engines located at the landfills
from which energy is generated and sold. RTC does not own the landfills.
Rather, it contracts with landfill owners to extract the gas.
RTC entered into certain contracts with Mostardi-Platt Associates, Inc.
("MPA") and engaged MPA to provide specific services with respect to a
number of landfill sites in Illinois where RTC had contracts. RTC
contracted with MPA: (1) to prepare applications for permits, which were
required by the Illinois Environmental Protection Agency ("IEPA"), for
continued operation of the landfills; (2) to prepare construction permits
required by the IEPA to place or move engines at the landfills; and (3)
to assist RTC in monitoring its ongoing compliance and reporting
requirements for the permits it received.
On November 15, 1999, an involuntary bankruptcy petition was filed
against RTC pursuant to Chapter 7 of the Bankruptcy Code. On February 1,
2000, RTC consented to an order converting the case to one under Chapter
11 of the Bankruptcy Code. RTC is in possession of its assets and
operates its business as a debtor in possession pursuant to sections
1107 and 1108 of the Bankruptcy Code.
MPA is a claimant in RTC's bankruptcy. MPA filed a proof of claim in
RTC's bankruptcy proceeding based on certain purported mechanics liens,
which were recorded against various landfill sites in Illinois. MPA's
liens represent charges for work it performed for RTC relative to RTC's
operations at the landfills. Although RTC is not the owner of the
landfills, in order to fulfill its contracts with the landfill owners,
RTC is required to cure or otherwise remedy any and all defaults,
including the liens asserted by MPA.
On May 6, 2002, RTC filed an adversary proceeding for declaratory and
injunctive relief seeking, among other things, a declaration that MPA
does not have a right to assert any mechanics liens for work it performed
in connection with RTC's operations at the landfills. This matter was
tried in a bench trial before the Honorable Eugene R. Wedoff. The
determined that RTC had not paid MPA for certain services and that
RTC owed MPA $172,447.87. However, the bankruptcy court further found
that the services performed by MPA did not qualify for any mechanics
liens under the Illinois Mechanics Lien Act (the "Act"). Thus, the
bankruptcy court concluded that MPA's claim, although it is valid, was a
general unsecured claim and entered judgment in favor of RTC on all
MPA filed a motion to reconsider or, in the alternative, to amend the
judgment, arguing that: (1) the bankruptcy court lacked subject matter
jurisdiction to determine the validity of the mechanics liens; and (2)
RTC failed to join the owners of the landfills as necessary parties in
its adversary proceeding. The bankruptcy court denied the motion. MPA now
appeals the bankruptcy court's decision, alleging that the court erred in
entering judgment in favor of RTC and in denying MPA's motion to
I. Standard of Review
This Court has jurisdiction over MPA's appeal pursuant to
28 U.S.C. § 158(a)(1), which vests a district court with jurisdiction over
appeals from "final judgments, orders and decrees" of the bankruptcy
court. Acting as an appellate court, we are bound to accept the
bankruptcy court's findings of fact, unless they are clearly erroneous,
and may only consider evidence presented before the bankruptcy court and
made part of the record. In re Home Comp. Care, Inc., 221 B.R. 202,
205 (N.D. Ill. 1998) (citing In re Lefkas Gen. Partners,
112 F.3d 896, 900 (7th Cir. 1997)); In the Matter of Neis,
723 F.2d 584, 588-89 (7th Cir. 1983) (citing F.R.Bankr.P. 8013). However, we
review any questions of law de novo. In the Matter of UNR
Indus., Inc., 986 F.2d 207, 208 (7th Cir. 1993).
II. The Bankruptcy Court Did Not Err in Holding that the
Permitting Services Performed by MPA Did Not Qualify for a Mechanics
The Illinois Mechanics Lien Act enumerates certain contracts and
services which qualify for a mechanics lien, and the bankruptcy court
correctly began its analysis with the controlling provision of the Act,
which provides in relevant part:
Any person who shall by any contract or contracts
. . . with the owner of a lot or tract of land, or
with one whom the owner has authorized or
knowingly permitted to contract, to improve the
lot or tract of land or to manage a structure
thereon, or to furnish material, fixtures,
apparatus or machinery, forms or form work used in
the process of construction where cement, concrete
or like material is used for the purpose of or in
the building, altering, repairing or ornamenting
any house or other building, walk or sidewalk,
whether the walk or sidewalk is on the land or
bordering thereon, driveway fence or improvement
or appurtenances to the lot or tract of land or
connected therewith, and upon, over or under a
sidewalk, street or alley adjoining; or fill, sod
or excavate such lot or tract of land, or do
landscape work thereon or therefor; or raise or
lower any house thereon or remove any house or
structure therefrom, or perform any services or
incur any expense as an architect, structural
engineer, professional engineer, land surveyor or
property manager in, for or on a lot or tract of
land for any such purpose . . . is known under
this Act as a contractor, and has a lien on the
whole of such lot or tract of land. . . .
770 ILCS § 60/1. Reviewing this statutory provision, the
bankruptcy court concluded that MPA's purported mechanics Hens should be
analyzed in the context of two provisions of section 60/1 of the Act: (1)
whether the services MPA provided were based on a contract to improve a
lot or tract of land; or (2) whether its services qualified as services
of a professional engineer. MPA does not appear to dispute this threshold
finding. We agree with the bankruptcy court's application of section 60/1
of the Illinois Mechanics Lien Act.
The bankruptcy court concluded that the permitting services performed
by MPA did not constitute an improvement to the land. MPA argues that the
bankruptcy court's conclusion was erroneous. We disagree with MPA.
In determining whether a mechanics lien should be granted, the proper
focus of the inquiry is "whether the work performed has enhanced the
value of the land to be charged with lien." Cleveland Wrecking Co. v.
Central Nat'l Bank, 576 N.E.2d 1055, 1060 (Ill.App. Ct 1991). The
bankruptcy court acknowledged that the permits MPA prepared for RTC "were
necessary for the operation of RTC's gas-to-energy collection system."
However, just because the services performed by MPA may have been
necessary and enabled RTC to continue its gas removal operations does not
necessarily mean that MPA's services actually constituted an improvement
to the land. Indeed, MPA concedes that it did not do any design work for
any physical structures on the landfills, and the record shows that the
work performed by MPA was limited to preparing permit applications,
tracking those permits and modifying previously submitted permits.
In L.J. Keefe Co., Inc. v. Chicago & Northwestern
Transportation Co., 678 N.E.2d 41 (Ill.App. Ct. 1997), the Illinois
Appellate Court rejected a claim similar to the one asserted by MPA. In
that case, a land owner granted a license to Commonwealth Edison to
construct and install electric transmission facilities along the
railroad, and the claimant was a subcontractor who was retained to
perform tunneling work and to install steel casing and pipe grouting that
was necessary for ComEd to perform its work. Id. at 42. When the
subcontractor was not paid for its services, it filed a mechanics lien.
The Appellate Court concluded that the lien was not valid because the
services provided were for the benefit of the contractor ComEd and not
for the benefit of the land. Id.
Similarly, in this case, the evidence shows that the services provided
by MPA certainly benefitted RTC, but MPA's services did not directly
benefit or improve the land. MPA simply
prepared the applications which enabled RTC to remove the methane
gas from the landfills. In concluding that MPA's services did not improve
the landfills, the bankruptcy court properly found that MPA's services
were not lienable under the Illinois Mechanics Lien Act.
MPA attacks the bankruptcy court's finding on another basis, arguing
that the court erred in holding that the removal of methane gas from the
landfills is maintenance of, and not improvement to, the properties.
Again, we disagree with MPA.
In Watson v. Watson, 578 N.E.2d 275 (Ill. App, Ct. 1991), the
Illinois Appellate Court rejected an argument that the payment of loan
installments on the property and real estate taxes improved the land.
Id. at 277-78. The state court acknowledged that the payment of
taxes eliminates the obligation to pay interest charges and penalties,
but those payments "in no way increase[d] the value of the real estate
it merely preserve[d] its value." The Appellate Court further
concluded that "[m]ere preservation and maintenance of value does not
reach the level of enhancement required by the Act, and therefore does
not support the imposition of a lien." Id.
In following the reasoning of the Illinois Appellate Court, the
bankruptcy court concluded that simply removing gas from the landfills is
not an improvement to the land. Specifically, the bankruptcy court
stated: "This is not a situation where the land has some identified
problem that can be permanently removed. To the contrary, this is a
situation where the removal of gas is an ongoing maintenance problem."
Thus, because the removal of gas from the landfills is an ongoing
problem, those services provided by RTC simply maintain or preserve the
landfills and do not improve them. Thus, the bankruptcy court's finding
that MPA does not qualify for a mechanics lien is correct.
MPA also argues that the bankruptcy erred in concluding that MPA did
not provide qualifying services of a professional engineer so that MPA
would be entitled to a mechanics lien. Again, we disagree with MPA,
The bankruptcy court articulated the statutory framework for analyzing
the lienability of its services as follows: MPA as a professional
engineer would have to show that its engineering services were provided
for the purpose of improving the landfills. Ultimately, the bankruptcy
court concluded that MPA's "mere status" as a professional engineer in
supplying services RTC did not automatically entitle MPA to a lien.
Rather, the bankruptcy court determined that proper inquiry is whether
those professional engineering services enhanced or resulted in any
improvement to the landfills. In concluding mat MPA's services did not
improve the land, the bankruptcy court properly disallowed MPA's claim
for a mechanics lien. Because we agree with the bankruptcy court's
findings that MPA's services do not qualify for any mechanics liens, the
remaining arguments raised by the parties are moot.
III. The Bankruptcy Court Did Not Err in Denying MPA's Motion
In its post-trial motion, MPA argued for the first time that the
bankruptcy court lacked jurisdiction to determine the validity of its
liens because RTC failed to join all necessary parties in the adversary
proceeding. We disagree.
As a threshold matter, this adversary proceeding is a "core proceeding"
over which the bankruptcy court has subject matter jurisdiction pursuant
to 28 U.S.C. § 157(b)(2)(A) and (O) because this proceeding involved
property of the bankrupt estate. MPA challenges the
bankruptcy court's jurisdiction by arguing that jurisdiction was
not proper because RTC failed to join the owners of the landfills as
necessary parties to the adversary proceeding.
The Illinois Mechanics Lien Act expressly provides that an owner,
contractor and any subcontractors are necessary parties with respect to
the enforcement of a mechanics lien. 770 ILCS 60/28. However, this matter
does not involve the enforcement of a mechanics lien; rather, it only
concerns the validity of MPA's liens. Thus, we affirm the bankruptcy
court's decision denying the motion for reconsideration.
For the foregoing reasons, the decision of the bankruptcy court is
affirmed, terminating the case. This is a final and appealable order.
It is so ordered.
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