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MARSEILLES HYDRO POWER v. MARSEILLES LAND AND WATER CO.

May 28, 2004.

MARSEILLES HYDRO POWER LLC, Plaintiff, V. MARSEILLES LAND AND WATER COMPANY, Defendant


The opinion of the court was delivered by: HARRY LEINENWEBER, District Judge

MEMORANDUM OPINION AND ORDER

In 2000, Plaintiff Marseilles Hydro Power ("MHP") filed suit against Defendant Marseilles Land and Water Company ("MLWC," or "Water Power Company") seeking declaratory and injunctive relief with respect to two agreements for water rights between the parties, known as the 1910 and 1924 Indentures (together, "Indentures"). Following a long litigation history, including a remand from the Seventh Circuit and MLWC's filing of counterclaims, this case has again reached the summary judgment stage. MLWC and MHP both seek summary judgment concerning Count IV of MLWC's Counterclaim. MHP also asks the Court, via summary judgment, to make four declarations as a matter of law. Specifically, MHP requests that the Court find that: (1) MHP is the holder of all rights, title and interests of the Second Party under the Indentures; (2) MHP is entitled to receive and use all the water power producible by the North Head race at Marseilles, Illinois, excepting therefrom only that water power allocated to others under written leases still in effect that predate June 1, 1910; (3) MHP validly extended the Indentures until October 15, 2090; and (4) MHP shall pay for the water power taken under the Indentures according to § 9 of the 1924 Indenture.

For the following reasons herein, the Court hereby denies to MLWC's Motion for Summary Judgment as to Count IV of its Counterclaim and grants MHP Summary Judgment on that issue; grants MHP's Motion for Summary Judgment as to MHP's Issues 1 and 3; partially grants and partially denies MHP's Motion for Summary Judgment as to Issues 2 and 4; and as the allegations made in Count III of MLWC's Counterclaim stand entirely inconsistent with the Court's declarations as to MHP's Issues 1 and 3, the Court sua sponte Grants MHP summary judgment on that claim.

  I. FACTUAL BACKGROUND

  In 1867, the Illinois State legislature formed MLWC. The charter vested in MLWC the responsibility of leasing water power generated by diverting the Illinois River via a dam, through canals constructed by MLWC, to businesses along these canals. Among these canals is the North Race canal, extending around a dam in a crescent shape for approximately 2,800 feet.

  In 1910, MLWC entered into a ninety (90) year lease with H. Eugene Chubbuck ("Chubback"), who owned a power plant and land adjoining the canal, for rights to portion of the water flowing through the canal. By 1924, certain disputes arose between MLWC and the Light Corporation a/k/a Illinois Power ("LC"), the successor In interest to Chubbuck. MLWC and LC resolved this dispute by entering into a 1924 Indenture intended to clarify the 1910 lease.

  Section 12 of the 1910 lease contained the following clause:
Any act or thing which shall have the effect in law to change the right of possession in said premises as an entirety from one party to another shall operate as an assignment of this indenture to the party lawfully entitled to such possession.
  Thus, according to the 1910 "lease," (as detailed below, although the Court occasionally uses the term "lease" for purposes of convenience, it does not technically find that the Indentures constitute "leases") any attempt by Chubback to transfer possession his power plant, or the land under it, would require him similarly to convey the leases to the new possessor. Section 28 of the 1924 Indenture modified this clause as follows:
 
ASSIGNMENT OF WATER LEASES: It is mutually understood and agreed that the rights of the Light Corporation in the use of water granted in its said leases shall not be separated from the right of possession of the premises occupied by its hydroelectric plant or plants. Any act or thing which shall have the effect in law to change the right of possession of said premises from the Light Corporation to another shall operate as an assignment of this indenture, and all of the water leases of the Light Corporation, to the party lawfully entitled to such possession; but the Water Power Company shall, in the event the Light Corporation transfers the right to the possession of said premises to another, separate and apart from the use of the water granted in said leases, have the option to cancel this indenture and the said water leases by notifying the Light Corporation, its successors or assigns, in writing of its election so to do.
  On February 2, 1999, LC sold its interest in the hydroelectric plant to Midwest Hydro, Inc. ("MH"). On August 13, 1999, LC transferred its interest in the water leases to MH. On March 20, 2000, MH transferred ownership of the plant to Marseilles Hydro Power, LLC ("MHP"). On May 19, 2000, MH similarly transferred its interests in the water leases to MHP. Due to a scribe's error, the transfer document erroneously stated that the leases were transferred to Midwest Hydro Power (to this Court's knowledge, a nonexistent company) instead of Marseilles Hydro Power. In any event, during 1999 and 2000, the possession of the "premises" and the interests in the leases got briefly separated not once, but twice, in apparent violation of the 1910 and 1924 contracts.

  The 1910 agreement (and the subsequent 1924 Indenture) provided for the "Second Party" (Chubback and his successors in interest) the option to renew the lease for another ninety years before the lease's conclusion. In October 2000, MHP exercised this option.

  Although MHP, as the purported "Second Party," elected to extend the lease another ninety years, significant disputes existed between it and MLWC. In 1988, LC shut down its hydroelectric power plant, although it continued — after some complications — to pay its required rent. Around the same time that LC closed its power plant, MLWC ceased maintaining the canal. By 1998 or 1999, the canal had fallen into significant disrepair. Much like the water within the dilapidated canal, rental payments stopped flowing to MLWC during fiscal year 1999 (which ended October 15, 2000). During fiscal 1999, LP, MH, and MHP combined paid only $15,000. Since then, MHP has withheld rent, citing the condition of the canal.

  In 2000, MHP began the process of seeking to reopen the power plant. To acquire the necessary permits and licenses, MHP felt that it needed the canal in working order. Since MLWC refused to repair the canal, MHP filed suit in federal court seeking declaratory relief that MLWC was in violation of its obligations under the Indenture, and injunctive relief entitling it to enter onto MLWC's property to enact repairs. On April 27, 2000, MHP filed for a temporary restraining order seeking permission to repair the canal due to its imminent collapse. On appeal, the Seventh Circuit remanded the case back to the District Court on the grounds that Judge Conlon improperly denied MLWC's request for a jury trial. In addition, the Seventh Circuit recommended that the District Court stay the case pending resolution of related claims before the Federal Energy Regulatory Commission ("FERC").

  Meanwhile, in July 2001, MLWC filed a notice with the Recorder of Deeds of LaSalle County stating that it was terminating the water leases. MLWC based its termination on alleged breaches of "specific conditions and covenants of the aforementioned Water Power Leases." This filing led to Count III of MHP's second amended complaint, which charged MLWC with "slander of title."

  Upon remand to the District Court, the case was reassigned to these chambers. After MHP filed an amended complaint and MLWC responded with a motion to dismiss, this Court stayed Count II (calling for injunctive relief) pending resolution of the FERC proceedings. The Court also partially dismissed the newly added Count III. In March 2003, MLWC filed its counterclaim. Counts I and II of the counterclaim allege that MHP committed trespass and negligence by entering onto MLWC's property to enact unauthorized repairs on the canal. Count III seeks a declaratory judgment that the leases were terminated in 2000 because the May 2000 lease transfer entrusted the lease rights to Midwest Hydro Power. Ergo, Marseilles Hydro Power had no authority to renew the leases in October 2000. Lastly, Count IV, pled in the alternative to Count III, seeks money damages for MHP's failure to pay rent under the contract.

  II. DISCUSSION

  A. Is MHP the "Second Party"

  Under the 1910 and ...


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