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,
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
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
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 agreement until January 31, 2006. The text of that order expressly acknowledged Allied’s position that all but the Pontiac portion of the ADS agreement had already terminated and preserved Allied’s right to so assert in future proceedings.
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
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 motion to assume our contract back in 2003.
THE COURT: Right. It’s covered by the same remarks that I just made.
MS. RZEPKA: Yes.
THE COURT: All that is happening here is that to the extent the trustee does have unexpired leases or unterminated executory contracts, this preserves the trustee’s right to assume or assign those contracts. It would otherwise be cut off, and the contracts would be deemed rejected. If you’ve got a contract that’s already terminated, it’s not going to be affected by an extension.
The bankruptcy court’s decision to grant the trustee’s motion was memorialized in an order dated January 27, 2006; and, consistent with the trustee’s motion, the attached list of contracts as to which the extension of time was being granted did not include the Pontiac portion of the ADS agreement. In accord with the court’s remarks at the hearing on the motion, the order contained the following provisions qualifying the nature of the extension that the court was granting to the trustee:
1. With respect to certain landfills identified on Exhibit A which are owned by American Disposal Services, Inc. and Allied Waste Industries, Inc. (collectively, along with its respective subsidiaries and affiliates, “Allied”):
(a) In regards to that portion of the December 21, 1995 contract involving the Wheatland, Clarion, and Wyandot landfill sites (the “Disputed Contract Sites”), and only to the extent RTC possesses any contract rights to or at the Disputed Contract Sites (which Allied disputes), the time by which the Trustee can move to assume or reject the Disputed Contract Site portion of the contract is extended to February 28, 2006.
* *
5. Nothing in this Order shall extend the right to assume or reject any contract that has already expired or been terminated and nothing in this Order shall be deemed to be a release or waiver of any right, claim or cause of action of any kind that any party (and/or its affiliates and subsidiaries) to such contracts may have that such contracts have expired and/or been terminated prior to the date of this Order.
The following month, as the February 28, 2006 deadline for assumption or rejection of these contracts approached, the trustee sought another extension of time to April 28, 2006. Again, although other Pontiac-related contracts were included in the list of contracts as to which the trustee was seeking additional time, the Pontiac portion of the ADS agreement was not among them. The court granted that motion on March 16, 2006. Its order contained the same qualifying language as the January 27 order.
It was also on March 16, 2006, that the bankruptcy court signed the order approv
The bankruptcy court heard Scattered’s motion on June 13, 2006 and concluded that because the trustee had no plausible basis on which to assume the ADS agreement, which had clearly expired, he had properly refused Scattered’s demand to seek assumption. The ADS agreement was one of a number of agreements as to which the trustee had declined to file motions to assume and that were consequently the subject of motions to compel. The essential inquiry, as the court acknowledged at the start of the hearing, was whether the trustee would be making a frivolous motion, subject to sanctions under Rule 9011, were he to move to assume these contracts.
The underlying question with all of these is whether the trustee is reasonably asserting that to pursue a motion here would violate the trustee’s obligations under Rule 9011, and so the question here is whether the trustee has a good basis for believing that pursuing an assumption here would violate 9011.
The court went on to agree with Allied’s counsel that the ADS agreement had expired on December 31, 2005, with the result that there was no longer a valid contract for the trustee to assume and assign to Scattered. The court rejected the suggestion of Scattered’s counsel that a hearing was required in order to determine whether the extensions of time the court had granted the trustee to assume or reject the agreement had also extended the time to renew the agreement.
There is ... no need for a hearing. The question that’s being raised now is whether an order extending the time for assumption or rejection of an unexpired [contract] somehow has the effect of extending the [contract] or extending a deadline for renewal under the [contract], Those really are two separate questions. And each time that there was a motion to extend the time for assumption or rejection, I heard arguments to the effect that this has already expired, to which my response was if it’s already expired, extending the time for assumption or rejection will have no impact on the expiration.
So given that we’re dealing with two separate issues (1) whether the contract has expired and (2) whether the time for assumption or rejection of the contract can be extended, I think unless you can point to something, an agreement, an order of the court that extended the time for extending the contract under the contract terms, there is no basis for the trustee to assume this contract.
When pressed to identify any court order or agreement extending the renewal date of the ADS agreement beyond its expiration date of December 31, 2005, Scat
Okay. I don’t think so. We have always made a distinction between extending the time for the estate to assume or reject and the question of whether the underlying agreement was terminated. And given that there is that distinction, which, again, was repeatedly made as I granted motions to extend the time for the trustee to assume or reject, the distinction was always made that granting the motion in no way implied that the underlying agreement had not terminated. That was always a separate consideration. If there is nothing that prevents the expiration of the underlying agreement according to its terms other than an allegation that an order extending the time for the estate to assume or reject is in place, the trustee does not have a basis for going forward on it.
When Scattered’s attorney suggested that the trustee might nonetheless have understood or have intended for these orders to extend the renewal date, the court pointed out that the trustee’s subjective and unilateral understanding would not have been sufficient to override the terms of the orders and the underlying contract. Acknowledging that a bilateral agreement between the trustee and Allied would have been necessary to extend the life of the agreement, Scattered’s counsel suggested that there might be a factual question as to whether Allied too had intended for the orders to extend the renewal date; but the court found no basis to support such a question:
No, you’re not going to find anything, I am confident, in the record where Allied’s counsel acknowledges that an extension of time to assume or reject constitutes an extension of the underlying agreement that’s subject to assumption or rejection. They’ve been here vociferously arguing for a substantial period of time that the agreement had terminated. And entering an order granting the trustee a right to continue the time for assumption or rejection has no impact on that....
The court therefore denied Scattered’s motion to compel the trustee to assume and assign the ADS agreement.
Scattered appealed to the district court, which affirmed the bankruptcy court’s decision. The court first rejected Scattered’s contention that the bankruptcy court, in determining whether the ADS agreement had expired, strayed beyond the issue that was actually before it,
i.e.,
whether the trustee had a good faith belief that he would be sanctioned under Rule 9011 if he sought to assume and assign the agreement as Scattered had demanded. “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.”
II.
Our first task is to confirm that we have jurisdiction to hear this appeal,
e.g., JMS Dev. Co. v. Bulk Petroleum Corp.,
Scattered’s threshold contention is that the bankruptcy court prematurely and improperly determined that the ADS agreement had expired. Under the terms of the settlement between Scattered and RTC, the essential question before the bankruptcy court was whether the trustee had a good faith belief that he would be subject to sanctions if he moved to assume the ADS agreement as Scattered wished him to do. In Scattered’s view, it was neither necessary nor appropriate for the court to resolve whether the ADS agreement had expired; all that the court needed to determine was whether a motion by the trustee to assume the agreement would be frivolous, and therefore subject to sanctions under Bankruptcy Rule 9011.
Cf. Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.),
However, the record leaves no doubt that the bankruptcy court understood what the relevant inquiry was and properly answered it. The court not once but twice remarked that the underlying question posed by the motions to compel the trustee to assume various contracts was whether the trustee would be violating his obligations under Rule 9011 by moving for assumption. With respect to the ADS agreement, the trustee’s concern about Rule 9011 sanctions arose from the apparent expiration of the agreement. Scattered itself agrees that “[i]f the ADS Agreement expired, there would be nothing for the Trustee to assume or reject.” Scattered Br. 13.
See
R. Ginsberg & R. Martin, Ginsberg
&
MaRtin on Bankruptcy § 7.01[C], at 7-8 n. 37 (4th ed.1995) (updated & current through 2007) (“Of course, if the executory contract (or lease) expires by its own terms during the postpetition, pre-assumption/rejection period, the trustee will have nothing to assume or reject.”). Scattered is certainly correct in contending that the susceptibility of a claim (or argument) to sanctions under Bankruptcy Rule 9011 or Federal Rule of Civil Procedure 11 does not necessarily require resolution of the merits of the underlying claim.
See Cooter & Gell v. Hartmarx Corp.,
Here as below, Scattered points to the orders extending the time for the trustee to assume or reject the ADS con
Scattered suggests that there are unexplored questions as to what the trustee’s intent was in moving to extend the time to assume or reject — questions that Scattered thinks raise doubts as to whether the ADS agreement actually expired— but we disagree. Scattered offers no explanation as to why the trustee’s (unexpressed) intent could have any impact on the expiration of the agreement.
See, e.g., Sethness-Greenleaf Inc. v. Green River Corp.,
Scattered also suggests that Allied may have somehow waived or become es-topped from asserting the expiration of the ADS agreement, but the record bespeaks the contrary. As we have just said, Allied consistently took the position that all but the Pontiac portion of the ADS agreement had already been terminated before the trustee began seeking additional time to assume or reject the agreement, and once the extended renewal date of December 31, 2005, passed without the trustee renewing the Pontiac portion of the agreement, contended that that portion of the agreement had expired as well. Allied’s counsel always maintained that the extensions of time to assume or reject could have no impact on the expiration of the agreement. Judge Wedoff expressly acknowledged that this had always been Allied’s position, and his own remarks and orders in granting the trustee’s motions for additional time to assume or reject recognized that these extensions would not revive an otherwise expired agreement. The notion that Allied somehow sat on its rights and could be precluded from arguing that the ADS agreement expired is untenable.
Finally, we, like the district court, reject Scattered’s contention that the bankruptcy court was obliged to conduct an evidentiary hearing before denying its motion to compel the trustee to assume and assign the ADS agreement. The notion that an evidentiary hearing was required assumes that the existing record as to the expiration of the ADS agreement was somehow ambiguous or incomplete and that additional evidence was necessary to fill in the gaps. But as we have discussed, nothing in the record before the bankruptcy court raised any doubt as to the expiration of the ADS agreement. Moreover, Scattered has never articulated what evidence it might present at such a hearing that would be relevant to the expiration of that agreement and to the trustee’s good faith in refusing to seek the assumption of that agreement. Even when asked at oral argument, Scattered’s counsel was unable to identify any evidence that it might have produced at such
III.
As the district court held, the bankruptcy court committed no error in denying Scattered’s motion to compel the trustee to assume and assign the ADS agreement. Because the agreement had expired and there was no plausible argument to the contrary, the trustee would have been violating his obligations under Bankruptcy Rule 9011 had he sought to assume the agreement. For these and the other reasons we have discussed, we Affirm the district court’s judgment.