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In re Resource Technology Corp.

March 20, 2007

IN RE: RESOURCE TECHNOLOGY CORPORATION, DEBTOR.
CHIPLEASE, INC. AND SCATTERED CORPORATION, APPELLANTS,
v.
JAY A. STEINBERG, AS CHAPTER 7 TRUSTEE FOR RESOURCE TECHNOLOGY CORPORATION, ALLIED WASTE INDUSTRIES, INC., AND AMERICAN DISPOSAL SERVICES OF ILLINOIS, INC., APPELLEES.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

On June 29, 2006, Chief Bankruptcy Judge Eugene Wedoff issued an order denying creditors Chiplease, Inc. and Scattered Corporation's motion to compel the Chapter 7 trustee of Resource Technology Corp. (RTC) to seek assumption and assignment of an agreement between RTC and American Disposal Services, Inc. (ADS). Chiplease and Scattered Corp. appeal from that order. For the reasons stated below, the Court affirms the bankruptcy judge's ruling.

Background

Before it was put into involuntary bankruptcy, RTC was in the business of collecting methane gas emitted from garbage landfills and converting it into usable energy. In 1995, RTC and ADS entered into an agreement pursuant to which RTC constructed and operated landfill gas-to-energy plants at four ADS landfills located in Pontiac, Illinois, Clarion, Pennsylvania, Wheatland, Kansas, and Wyandot, Ohio (ADS agreement). The ADS agreement had an initial term of ten years unless extended by the parties. To extend the agreement, RTC had to provide written notice of its intent to renew "by certified or registered mail . . . not less than thirty days prior to the expiration [of the term]," which was November 21, 2005. Appellee's Ex. A ¶ 4.

RTC was put into involuntary Chapter 7 bankruptcy in 1999 and later converted the case to a Chapter 11 reorganization. RTC assumed the portion of the ADS agreement related to the Pontiac, Illinois landfill in 2002. In September 2005, RTC's bankruptcy case was reconverted to a Chapter 7 liquidation, and a trustee was appointed. On November 16, 2005, the trustee asked ADS to extend to December 31, 2005 the deadline by which the ADS agreement could be renewed. ADS agreed. Neither of the parties sought a further extension.

In March 2006, the trustee and appellants, who had various legal disputes with RTC, entered into a settlement agreement whereby the appellants would purchase certain RTC assets. The settlement agreement allowed appellants to designate executory contracts that the trustee would be required to assume and then assign to appellants or their designees. Appellants did not have the right "to designate any Contract . . . if the Estate believes in good faith that a particular designation will result in the Estate being subject to sanctions pursuant to Fed. R. Bankr. P. 9011 or allegations of bad faith." Appellee's Ex. F. ¶ 14. If the trustee refused to seek the bankruptcy court's approval to assume and assign a contract designated by appellants, appellants had the right to file a motion to compel the trustee to act.

On May 12, 2006, the trustee identified contracts, including the ADS agreement, that he would not move to assume and assign unless compelled by the bankruptcy court. The trustee informed appellants that he had received numerous objections regarding the assumption of these contracts, "particularly as to whether various contracts have terminated." Appellee's Ex. H at A. Among these objections was a letter from ADS informing the trustee that the ADS agreement had expired. On May 26, 2006, appellants moved the bankruptcy court to compel the trustee to assume the ADS agreement. On June 13, 2006, the court determined that the ADS agreement had expired and, therefore, the trustee would not have a good faith basis to assume the contract. Accordingly, the court denied the motion to compel.

Standard of Review

The Court reviews the bankruptcy judge's conclusions of law de novo but reviews his factual findings for clear error. In re Sheridan, 57 F.3d 627, 633 (7th Cir. 1989). "The clearly erroneous standard . . . does not permit a trier of fact to be overturned 'simply because [the appellate court] is convinced it would have decided the case differently.'" In re Bonnett, 895 F.2d 1155, 1157 (7th Cir. 1989) (quoting Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985)). Rather, if "two permissible conclusions can be drawn, the factfinder's choice cannot be clearly erroneous." Id. (citing EEOC v. Sears, Roebuck & Co., 839 F.2d 302, 309 (7th Cir. 1988)). The bankruptcy court's interpretation of its own orders may not be reversed absent a "clear abuse of discretion." Endois Corp. v. Employers Ins. of Wausau (In re Consolidated Indus. Corp.), 360 F.3d 712, 716 (7th Cir. 2004) (quotation omitted).

Discussion

Appellants identify three issues that they claim require the reversal of the bankruptcy court's order: the bankruptcy court erred when it denied appellants' motion to compel; the bankruptcy court erred when it held that a motion by the trustee to assume the ADS agreement would be sanctionable; and the bankruptcy court erred when it refused to hold an evidentiary hearing on appellants' motion to compel. See Appellants' Brief at 2-3. Appellees dispute appellants' statement of the second issue; they argue that the bankruptcy court did not conclude that a motion to assume the ADS agreement would be sanctionable. Rather, they say, the issue before the bankruptcy court was whether the trustee "believe[d] in good faith" that assumption of the ADS contract would subject it to sanctions pursuant to Bankruptcy Rule 9011. Appellees' Brief at 1. In their reply brief, appellants appear to concede that this is the proper inquiry. Reply Brief at 1, 3. Though appellants identify three issues, the second is really a subset of the first, as it is one basis for appellants' contention that the bankruptcy court should have granted its motion to compel. Accordingly, the Court will address appellants' arguments that the bankruptcy court erred by denying their motion to compel and by refusing to hold an evidentiary hearing.

1. Appellants' Motion to Compel

Appellants argue that the bankruptcy court erred by addressing the issue of the expiration of the ADS agreement. They say that the issue properly before the court was whether the trustee had a good faith basis to believe that pursuing an assumption and assignment of the agreement would subject him to Rule 9011 sanctions. According to appellants, this threshold issue differed from the ultimate determination of the merits that, they say, the bankruptcy court made. In other words, appellants say, the court "was only required to determine whether the Trustee could present an argument in favor of assumption and assignment without subjecting himself to sanctions," not "that the ADS agreement could [actually] be assumed." Reply Brief at 3, 4.

Appellants have misread the bankruptcy court's decision. Though the court may not have used the magic words that appellants seem to think were necessary, it is clear that the court was considering the correct issue. Near the outset of ...


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