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Banco Panamericano, Inc. v. City of Peoria, Illinois

United States Court of Appeals, Seventh Circuit

January 11, 2018

Banco Panamericano, Inc., Plaintiff-Appellant,
City of Peoria, Illinois, et al., Defendants-Appellees.

          Argued June 1, 2017

         Appeal from the United States District Court for the Central District of Illinois. No. 13-cv-1064 - James E. Shadid, Chief Judge.

          Before Bauer, Posner/ and Hamilton, Circuit Judges.

          Hamilton, Circuit Judge.

         The central issue in this appeal is whether plaintiff Banco Panamericano has a better claim than the City of Peoria to the gas collection system and certain electrical infrastructure at the Peoria landfill. We agree with the district court that Peoria has the better claim under the terms of the lease that governed the installation and operation of the gas collection system and electrical connections.

         By way of introduction, in 1995 Peoria signed a lease with Resource Technology Corporation (RTC) that allowed the company to construct and operate a gas conversion project at the city's landfill. The system collected the gasses generated as byproducts by the landfill and helped convert those gasses into electricity. The agreement provided that when the lease terminated, the city had an absolute right to retain, at no cost, the "structures" and "below-grade installations and/or improvements" that RTC installed at the city's landfill.

         Several years later, RTC entered bankruptcy proceedings. Banco Panamericano provided the company with postpetition financing secured with liens and security interests in effectively all of RTC's assets. RTC later defaulted on its loan from Banco Panamericano. Litigation ensued, and the city notified RTC that it was terminating the lease and had elected to retain the structures and installations as provided in the lease. After RTC stopped operating the gas conversion project itself, the city modified the system to stay in compliance with environmental regulations for methane and other landfill gasses, and continued to use the property.

         Banco Panamericano then filed this suit against the city (and others, but for simplicity's sake, we refer only to the city) for unjust enrichment. The bank alleged that it had a better claim to the property because its loan was secured by a lien on all of RTC's assets and the bankruptcy court had given its loan "super priority" status. On cross-motions for summary judgment, the district court ruled in favor of the city. We affirm. No matter the priority of the bank's claim to RTC's assets, the undisputed facts show that the bank has no claim to the city's assets. By the terms of the lease between RTC and the city, the disputed structures and installations are city property. The lease gave RTC no post-termination property interest in the disputed property.

         I. Factual and Procedural History

         A. The Gas Conversion Project

         The City of Peoria entered a lease agreement with RTC on November 30, 1995. The lease permitted RTC as lessee to install and manage a gas-to-energy conversion project at lessor Peoria's landfill. The gas collection system is a network of underground wells and pipes that collect and transport the landfill's gas byproducts to a central point. A plant then converted the gas into electricity, which RTC sold to the local electric utility. The transmission of electricity between the gas conversion project and the electric utility used three miles of utility poles, cables, and associated infrastructure built by RTC (the "interconnect"). The property in dispute here is the gas collection system and the interconnect. The plant that converted gas to electricity is not part of this case.

         The lease granted RTC the exclusive right to develop the gas conversion project. The construction, operation, and maintenance of the project were to be at RTC's sole expense. In exchange, RTC agreed to pay the city a royalty of six percent on its energy sales. The lease also allowed the city to retain all "structures" and "below-grade installations and/or improvements" at "no cost" after the lease terminated. The initial term was for ten years, with various options to extend. The lease also provided grounds for early termination.

         B. RTC's Bankruptcy and Banco Panamericano's Financing

         On November 15, 1999, RTC entered involuntary bankruptcy proceedings under Chapter 7 of the Bankruptcy Code. On January 18, 2000, RTC consented to convert its case to a Chapter 11 petition. After the conversion, RTC continued to operate its business as a debtor in possession pursuant to 11 U.S.C. ...

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