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In re Resource Technology

November 7, 2008

IN RE: RESOURCE TECHNOLOGY, CORPORATION, DEBTOR.


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

MEMORANDUM OPINION AND ORDER

This bankruptcy appeal arises from an order entered in the bankruptcy of Resource Technology Corporation (RTC) denying the motion of RTC's Chapter 7 trustee and appellant Illinois Investment Trust No. 92-7163 (IIT) to assume and assign certain leases and a subsequent order denying IIT's motion for a new trial. For the reasons set forth below, the Court affirms the bankruptcy court's ruling.

Background

In 1995 and 1996, RTC entered into contracts with the owners of four landfills (the Landfill Contracts). Appellees the City of Peoria and the County of Peoria (collectively Peoria) owned one of those landfills. The three other landfills were owned by various entities that assigned their rights in those landfills and/or the Landfill Contracts to appellees Allied Waste Industries Inc., American Disposal Services of Illinois, Inc. and Sangamon Valley Landfill, Inc. (collectively Allied). The Landfill Contracts granted RTC the exclusive right to develop and install gas-to-energy conversion projects at each of the landfills.

RTC has been in bankruptcy since 1999. The bankruptcy court approved a settlement between RTC and its secured creditors, including Leon Greenblatt, Chiplease, Inc. (Chiplease), and Scattered Corporation (Scattered), under which Scattered and Chiplease, or their designee, would obtain the right to seek to assume and assign the Landfill Contracts. The bankruptcy court set July 7, 2006 as the deadline for motions to assume and assign RTC's executory contracts, including the Landfill Contracts. On that date, RTC's trustee filed such a motion, seeking to assign the Landfill Contracts to IIT.*fn1

IIT is a trust established under Illinois law. Greenblatt served as trustee of IIT from its formation until shortly before trial in the bankruptcy court, when he was replaced by John Connolly. This change was made because it was anticipated that Connolly would run the business of IIT after it was assigned the Landfill Contracts. Connolly had extensive experience running gas-to-energy facilities at landfills as an employee of RTC. IIT, however, had never operated any sort of business. The beneficiaries of IIT were Chiplease and Scattered. Chiplease is owned by Greenblatt, and Scattered is owned by Greenblatt and Andrew Jahelka. Greenblatt and Jahelka were formerly the owners of RTC.

After the parties reached agreement on several aspects of the motion to assume and assign, including how to cure existing breaches of the Landfill Contracts, the only remaining disputed issue was whether IIT could provide adequate assurance, as required by section 365 of the Bankruptcy Code, of its future performance of the Landfill Contracts. The parties engaged in discovery on this issue and the matter was tried in the bankruptcy court on February 12-13, 2008.

Connolly, Greenblatt, and Jahelka all testified on behalf of IIT in an attempt to provide adequate assurance that IIT would perform its obligations under the Landfill Contracts in the future if they were assigned to it. Connolly, based on pro forma financial statements he had prepared for IIT, testified that IIT would require $3 million of funding to bring the Landfill Contracts current and perform its future contractual obligations. At the time of trial, IIT had less than $1,000 in cash, no financial statements, and no operating history. Accordingly, it was proposed that Chiplease and Scattered would loan the necessary $3 million to IIT. Though Greenblatt and Jahelka testified that Chiplease and Scattered would loan the necessary funds, the documents introduced to support this contention only required IIT to repay funds it borrowed -- they did not actually require Chiplease and Scattered to loan any money to IIT in the first place. Connolly admitted that he had not investigated whether Scattered and Chiplease had the ability to loan IIT $3 million and stated he likely would not sue them in the event that they failed to fund IIT.

Greenblatt and Jahelka also testified regarding Chiplease's and Scattered's respective abilities to loan $3 million to IIT. Though both testified regarding the assets of the entities, IIT offered no financial statements to corroborate their testimony. Chiplease's and Scattered's assets included very few liquid assets.

Allied and Peoria presented evidence of past regulatory violations by RTC and under Connolly's management in an effort to demonstrate that IIT was incapable of performing the Landfill Contracts.

On February 13, 2008, the bankruptcy court made an oral ruling denying the motion to assign because it found that IIT had not carried its burden to provide adequate assurance of the future performance of the Landfill Contracts. The bankruptcy court's primary reason was the "multitudinous" evidence indicating that the $3 million of required funding was not "sufficiently available." Mar. 5, 2008 Tr. at 4. This finding was based on a number of considerations: (1) the note for the loan between Chiplease, Scattered, and IIT did not actually require Chiplease and Scattered to loan any money to IIT; (2) Scattered and Chiplease, as the lenders to and beneficiaries of IIT, could remove Connolly as trustee at their leisure; (3) IIT had not shown that Scattered and Chiplease had the ability to provide IIT with $3 million; (4) the loan agreement did not require IIT to use funds loaned to it for performance of the Landfill Contracts; and (5) Peoria and Allied had no meaningful way to enforce the Landfill Contracts because IIT, on the evidence presented, was a common law trust as opposed to a business trust.

In its oral ruling, the bankruptcy court noted actions that, if taken, might provide adequate assurance of future performance. IIT took these observations as an invitation to file its post-trial motion. The bankruptcy court made clear, however, that it would consider a wholly new arrangement for assignment of the Landfill Contracts only if such a request was timely. IIT filed a post-trial motion in which it proposed the formation of a new corporation that would be assigned the Landfill Contracts, as well as other changes to attempt to allay the bankruptcy court's concerns. The bankruptcy court denied the motion, finding that it was untimely.

Discussion

The Court has jurisdiction pursuant to 28 U.S.C. § 158(a), because denial of a motion to assume and assign a contract is a final, appealable order. Chiplease, Inc. v. Steinberg (In re Resource Tech. Corp.), 528 F.3d 467, 474 (7th Cir. 2008). The bankruptcy court entered its order denying the motion to assume and assign the Landfill Contracts on February 19, 2008. Ten days later, RTC's trustee and IIT filed a post-trial motion. Though not entirely clear from its title, that motion was ostensibly filed pursuant to Federal Rules of Civil Procedure 59(a) and 59(e), as incorporated by Federal Rule of Bankruptcy Procedure 9023. The motion sought to present new evidence to the bankruptcy court and requested, among other things, modification of the order entered on February 19, 2008. Thus, though not expressly saying so, the post-trial motion included a request for a new trial as well as amendment of the ...


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