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Illinois Investment Trust No. 92-7163 v. American Grading Co.

November 19, 2007

ILLINOIS INVESTMENT TRUST NO. 92-7163, APPELLANT,
v.
AMERICAN GRADING COMPANY, APPELLEE.



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

MEMORANDUM OPINION AND ORDER

After a trial, Chief Bankruptcy Judge Eugene Wedoff denied a motion filed by Jay A. Steinberg, bankruptcy trustee of Resource Technology Corporation ("RTC"), to assume an agreement between RTC and American Grading Company and assign the agreement to Illinois Investment Trust ("IIT"). IIT has appealed from Judge Wedoff's order. For the reasons stated below, the Court affirms the bankruptcy court's decision.

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. On December 27, 1995, RTC and American Grading entered into an agreement ("the Agreement") pursuant to which RTC installed and operated a gas collection and conversion facility on a landfill owned by American Grading in Lyons, Illinois (the "McCook landfill"). The Agreement had an initial term of ten years, to expire on December 27, 2005. The Agreement provided that RTC could extend its term for up to three consecutive periods of five years by providing written notice of its intent to renew at least ninety days before the expiration of the preceding period.

In return, RTC agreed to pay American Grading royalties from the sale of electrical energy. RTC was required to pay American Grading a $100,000 advance royalty payment on January 1, 1996 "and each January 1 thereafter during the life of the contract." Agreement ¶2. The Agreement also imposed other obligations on RTC. Finally, the Agreement contained a termination clause that stated:

TERMINATION. If either party or its assigns defaults of persistently fails or neglects to perform any duty or obligation under this Lease, the other party may terminate the Lease by giving written notice of its intention to terminate. If the responsible party fails to correct the default within thirty (30) days after being given notice, the other party may without prejudice to any other remedy, terminate the Lease.

Agreement ¶16.

RTC was put into involuntary Chapter 7 bankruptcy in November 1999 and later converted the case to a Chapter 11 reorganization. RTC assumed the American Grading Agreement in July 2002. In September 2005, RTC's bankruptcy case was reconverted to a Chapter 7 liquidation, and a trustee was appointed.

In March 2006, the trustee and IIT entered into a settlement agreement under which IIT would be assigned the McCook landfill lease. The settlement agreement allowed IIT to designate executory contracts that the trustee would be required to assume and then assign to IIT. If the trustee refused to seek the bankruptcy court's approval to assume and assign a contract designated by IIT, IIT had the right to ask the court to compel the trustee to act.

On July 7, 2006, IIT moved the bankruptcy court to compel the trustee to assume the American Grading agreement. American Grading filed initial objections, contending that the lease had expired on January 1, 2006. On November 21, 2006, the bankruptcy court ruled that the lease had been extended "by default."

On December 22, 2006, American Grading filed a motion for relief from the automatic stay, asking to send the trustee a notice of default, based on, among other things, RTC's failure to pay its $100,000 advance royalty payment on January 1, 2006. The bankruptcy court granted the motion, and on December 29, 2006, American Grading sent the trustee a notice of default. The trustee failed to cure the stated defaults within the allotted thirty day period, and on January 31, 2007, American Grading sent the trustee a notice of termination.

IIT, the intended assignee of the Agreement, disputed American Grading's termination claim. American Grading requested a trial date to resolve the dispute, and on February 8, 2007, the court set the case for trial on April 4, 2007. On April 6, 2007, following the conclusion of the trial, the bankruptcy court ruled that the Agreement had been terminated because of the trustee's failure to pay the $100,000 advance royalty payment and his subsequent failure to cure the default within thirty days of receipt of the notice of default. On April 17, 2007, the court issued a supplemental ruling with additional findings of fact, including a finding that American Grading had not prohibited the trustee from gaining access to the McCook landfill, as IIT had claimed.

Discussion

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. 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).

IIT identifies four issues that it contends require the reversal of the bankruptcy court's decision. First, IIT argues that RTC's failure to make the $100,000 advance royalty payment to American Grading was not a material breach of the Agreement. Second, it argues the bankruptcy court erred in failing to find that American Grading had prevented RTC from entering the landfill and performing under the Agreement. Third, IIT contends that the bankruptcy court erred in refusing to allow IIT to withdraw exhibits from its exhibit list prior to their tender to the court or admission into evidence. Finally, it argues that the bankruptcy court misinterpreted its February 8, 2007 order setting the matter for trial and erroneously rendered effective American Grading's notice of termination of the lease.

1. Nonpayment of Advance Royalty

IIT argues that the bankruptcy court erred in determining that the nonpayment of the $100,000 advance royalty justified the termination of the Agreement. IIT makes two principal arguments. First, IIT argues that the non-payment was not a material breach of the Agreement. It contends that the breach was technical, reasoning that because no royalties were ultimately due during the 2006 period, payment of the 2006 advance royalty was ...


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