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In re Resource Technology Corp.

May 15, 2008

IN RE: RESOURCE TECHNOLOGY CORPORATION, DEBTOR,
CHIPLEASE, INC. AND SCATTERED CORPORATION, PLAINTIFFS-APPELLANTS,
v.
JAY A. STEINBERG, AS CHAPTER 7 TRUSTEE FOR RESOURCE TECHNOLOGY CORPORATION, ET AL., DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 06 C 5541-Matthew F. Kennelly, Judge.

The opinion of the court was delivered by: Rovner, Circuit Judge.

ARGUED DECEMBER 7, 2007

Before POSNER, ROVNER, and WILLIAMS, Circuit Judges.

Plaintiffs-appellants Chiplease, Inc. and Scattered Corporation (collectively, "Scattered") wanted to step into the shoes of debtor Resource Technology Corporation ("RTC") in a contract that RTC had with American Disposal Services of Illinois, Inc. ("ADS"). After the trustee of RTC's estate refused to seek the bankruptcy court's permission to assume the ADS agreement and assign it to Scattered, Scattered asked the bankruptcy court to compel the trustee to do so. The bankruptcy court denied Scattered's request, concluding that the agreement had already expired and that a motion by the trustee to assume the agreement would consequently be frivolous and subject to sanctions. Scattered appealed to the district court, which affirmed the bankruptcy court's decision. Chiplease, Inc. v. Steinberg (In re Resource Tech. Corp.), No. 06 C 5541, 2007 WL 898423 (N.D. Ill. Mar. 20, 2007). Scattered again appeals, and we affirm.

I.

RTC is a Delaware corporation that installs collection systems at landfills to capture the methane gas created by degrading waste and then either uses it to fuel electric generators and produce electricity or sells the gas to others. In December 1995, RTC entered into a contract with ADS pursuant to which RTC committed to build and operate gas-to-energy facilities at four ADS landfills in Pontiac, Illinois, Wheatland, Kansas, Wyandot, Ohio, and Clarion, Pennsylvania (hereinafter, the "agreement" or the "ADS agreement"). The agreement was for an initial term of ten years, expiring on December 21, 2005. RTC had a right to extend the agreement beyond this term (provided that the parties had not already terminated their arrangement) for up to three consecutive periods of five years. In order to exercise its right to extend the agreement beyond its initial term, RTC was required to send ADS by certified or registered mail written notice of its intent to renew at least thirty days prior to the December 21, 2005 expiration date, i.e., no later than November 21, 2005. Allied Waste Industries ("Allied") later succeeded to ADS's rights under this agreement.

In 1999, RTC was placed involuntarily into Chapter 7 bankruptcy by certain of its creditors. RTC converted the proceeding to a Chapter 11 reorganization. RTC subsequently assumed that portion of its agreement with Allied relating to the landfill in Pontiac, Illinois, see 11 U.S.C. §§ 365(a), 1107(a), but did not assume the balance of the agreement concerning landfills in Wheatland, Wyandot, and Clarion. In September 2005, on the motion of several creditors, then-Chief U.S. Bankruptcy Judge Eugene Wedoff converted the case back to a Chapter 7 proceeding and appointed Jay A. Steinberg as the trustee of RTC's estate.

On November 16, 2005, the trustee's counsel wrote to counsel for Allied seeking to extend the deadline by which the ADS agreement could be renewed. The letter sought Allied's agreement to move the renewal deadline from November 21, 2005 to December 31, 2005. Allied's counsel replied on November 19, 2005, agreeing to the extension through December 31, 2005 insofar as the Pontiac landfill was concerned. Counsel added that it was Allied's view that the agreement had already terminated as to the three other landfills outside of Illinois (Wheatland, Wyandot, and Clarion). She therefore noted that Allied was consenting to the trustee's request for an extension of time to renew the ADS agreement only insofar as RTC had any remaining rights under that agreement and without prejudice to Allied's position that all but the Pontiac portion of the agreement had terminated. Id.

Although the deadline for renewing the Pontiac portion of the ADS agreement had thus been extended, the final day of 2005 came and went without any renewal of the agreement. Nor did the parties agree to any further extensions of the renewal date.

In March 2006, the Trustee entered into a settlement agreement with Scattered, among other entities, resolving certain disputes (the "settlement"). That agreement was subsequently approved by the bankruptcy court. Pursuant to the court's order approving the settlement, Scattered obtained the right to designate certain of RTC's contracts that Scattered wanted to take over. Once Scattered designated a contract in which it was interested, the trustee would seek the bankruptcy court's permission to assume the contract and, upon securing that authority, assign the contract to Scattered pursuant to sections 365(a) and (f) of the Bankruptcy Code. However, the order provided further that Scattered "shall 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 . . . ." In the event that the trustee refused to pursue assumption and assignment of a contract on that basis, the settlement entitled Scattered to ask the bankruptcy court to compel the trustee to assume and assign the contract in question.

Prior to the execution and court approval of the settlement, the trustee had sought and obtained from the bankruptcy court a series of extensions of time in which to assume or reject executory contracts and unexpired leases. The first of these motions was filed on November 8, 2005. In it, the trustee sought an extension of time until January 31, 2006, to assume or reject a number of contracts, among them the ADS Agreement. The motion indicated that the ADS agreement was set to expire on December 21, 2005, and that there was a deadline of November 21, 2005 by which date notice of an intent to extend the contract had to be sent. The motion did not seek an extension of the life of the ADS agreement itself, only an extension of time for the trustee to assume or reject that contract and the others listed in the motion. Indeed, at the hearing on the motion, when Judge Wedoff inquired, "If [a] contract was terminated . . . , what more can be done?", the trustee's counsel responded, "If a contract was terminated, then it's terminated." In that vein, the trustee acknowledged Allied's position that a number of its agreements with RTC, including portions of the ADS agreement concerning facilities other than the Pontiac facility, had already been terminated. For that reason, the Trustee's request to assume the balance of the ADS agreement was continued. Following that hearing, the bankruptcy court on November 17, 2005, entered an order granting the trustee's motion and thereby extending until January 31, 2006, the time in which the trustee could assume or reject the Pontiac portion of the ADS agreement. The attachment to that order listing the contracts as to which time had been extended again indicated that the Pontiac portion of the ADS agreement was set to expire on December 21, 2005, and that the trustee had until November 21, 2005, to send a notice of his intent to extend the term of that contract. As we noted above, on November 19, 2005, Allied's counsel agreed to the trustee's request that the renewal deadline for ADS agreement be extended until December 31, 2005.

Subsequently, on November 30, 2005, the bankruptcy court entered a second order, this one expressly agreed to by and between the trustee and Allied, extending the trustee's time to renew or reject all portions of the ADS Scattered points out that there were two additional orders that granted extensions of time to the trustee for purposes of assuming or rejecting unexpired contracts and leases. On or about January 18, 2006, the trustee sought an extension of time to assume or reject from January 31, 2006 to February 28, 2006. The attached list of contracts as to which the trustee sought the extension included several contracts relating to the Pontiac facility, but not the Pontiac portion of the ADS agreement. Interestingly, the trustee did seek additional time to assume or reject the portions of the ADS agreement concerning the Wheatland, Wyandot, and Clarion landfills. And when the parties appeared before the bankruptcy court for the hearing on the motion, Allied's counsel objected to the request for more time on the ground that these portions of the agreement had already been terminated. Judge Wedoff made the following remarks concerning Allied's objection and a similar objection raised by the City of Columbus: THE COURT: [W]hat will happen, Ms. Gelman [counsel for Allied], is that I can grant this motion. And if the trustee should hereafter attempt to assume a contract that's already been terminated, I am sure you will let me know. And I am also sure that Mr. Steinberg wouldn't waste his time trying to assume an already terminated contract. So I think it is safe to grant this motion.

MS. RZEPKA: Your Honor, Natalia Rzepka for the City of Columbus. I just wanted to state our objection on the record. I believe Your Honor denied the debtor's ...


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