Cox v. Central Illinois Energy LLC et al
Filing
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ORDER AND OPINION entered by Chief Judge James E. Shadid on 1/25/2016. For the reasons stated above, the Court Affirms the Bankruptcy Court's November 2014 Order and Opinion and March 2015 Affirmance. See full written Order and Opinion.(VH, ilcd)
E-FILED
Monday, 25 January, 2016 03:54:39 PM
Clerk, U.S. District Court, ILCD
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
In re CENTRAL ILLINOIS ENERGY
COOPERATIVE,
Debtor,
A. CLAY COX, not individually but
as trustee for the estate of Central
Illinois Energy Cooperative,
Plaintiff/Appellant,
v.
NOSTAW, INC., an Illinois corporation,
Defendant/Appellee.
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Case No. 15-1118
ORDER AND OPINION
This matter is now before the Court on Trustee for Central Illinois Energy Cooperative’s
appeal from the November 2014 Order and Opinion and March 2015 Affirmance issued by
United States Bankruptcy Judge Thomas Perkins. That Order denied Appellant’s partial motion
for summary judgment and granted Defendant Appellee Nostaw’s cross motion for summary
judgment. For the reasons set forth below, this Court Affirms the Bankruptcy Judge’s grant of
summary judgment in favor of Nostaw.
Background
Central Illinois Energy Cooperative (the “Coop” or “the Debtor”) was formed by a group
of farmers in October 2001 for the purpose of constructing and operating an ethanol facility for
the processing of its members’ corn into ethanol. In March 2004 Central Illinois Energy, LLC
(“CIE”) and Central Illinois Holding Company, LLC (“HoldCo”) were formed. The Coop owned
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a 71% interest in HoldCo, and CIE was a wholly owned subsidiary of the holding company. CIE
was formed to construct and operate the ethanol production plant; the Coop was responsible for
construction of the adjacent grain handling facility. In March 2005 the Coop contracted with
Nostaw, the general contractor, to construct the grain handling facility for $5.4 million. In order
to partially finance the grain handling facility construction, the Coop borrowed $2 million from
Whitebox CIE Pledgors, Inc., evidenced by a note requiring payment in full on May 17, 2007.
By June of 2007, both the CIE ethanol facility construction and the Coop grain handling facility
construction were facing financial difficulties. The Coop was unable to pay the Whitebox note
when it became due, and was unable to pay the invoices from Nostaw, who was owed
$2,490537.67 and contemplating ceasing work on the project and filing a lien.
On June 12, 2007, the Coop sold almost all of its assets, including the unfinished grain
handling facility, to Green Lion Bio-Fuels, LLC for $7.75 million, subject to a repurchase
obligation (the “Green Lion Purchase Agreement”). Green Lion agreed to assume the Coop’s
liabilities to Nostaw ($976,295.67 and $258,777.83) and another contractor ($251,722.29) in
order to offset the purchase price. Under the Green Lion Purchase Agreement, the Coop
remained responsible for the construction and completion of the grain handling facility, while
Green Lion, through its lender Ridgestone Bank, was responsible for construction pay requests.
Nostaw was not a party to the Purchase Agreement.
A separate agreement, the Green Lion Payment Agreement, was entered into between the
Coop, Green Lion, and Nostaw on the same date. Under the Payment Agreement, Nostaw agreed
to accept as full payment of its contract: (1) $1,236,857.33 in cash from the Coop at the close of
Green Lion’s purchase; (2) $258,777.83 in cash from Green Lion as progress payments; and (3)
a promissory note from Green Lion for $976,295.67 with a maturity date of October 15, 2007,
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secured by a second mortgage on the grain handling facility. The promissory note included a
‘best efforts” clause whereby Green Lion was to use its best efforts to pay down the note by
August 15, 2007.
A third agreement, the Green Lion Recapitalization Agreement, was also executed on
June 12, 2007. In that agreement, Green Lion agreed to transfer title to the assets purchased in
the Green Lion Purchase Agreement to CIE for $7.75 million plus expenses. If CIE’s
recapitalization plan was not consummated by November 1, 2007, the Coop was required to
repurchase the assets for the same price. Although Nostaw was not a party to the Recapitalization
Agreement, it did execute a written consent that acknowledged the rights of CIE, and the
conditional obligation of the Coop, to purchase the grain handling assets from Green Lion and to
honor those rights and obligations in the event that Nostaw pursued foreclosure proceedings
against Green Lion.
At closing, Nostaw was paid the $1,236,857.33 from the Coop as promised in the Green
Lion Payment Agreement. Thereafter, Green Lion made one payment to Nostaw for $255,777.83
on August 24, 2007. In September 2007 Nostaw refused to complete work on the facility without
further assurance of payment from Green Lion after it learned of Green Lion’s prospective
inability to pay the promissory note by the October 15, 2007, maturity date. In order to save the
project, on September 28, 2007, the Coop agreed to assume to obligation to pay Nostaw the
$988,859.83 it was owed in exchange for Nostaw continuing construction and completing the
facility. The written agreement (the “September Agreement”) called for the Coop to make a
down payment of $300,000, with the balance to be paid as work progressed. The Coop financed
the September Agreement with a $1,000,000 loan from Whitebox Advisors and made three
payments of $300,000 each on October 9, October 26, and November 23, 2007.
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CIE ceased work on the ethanol plant and filed for Chapter 11 bankruptcy on December
13, 2007. An involuntary Chapter 11 petition was filed against the Coop on May 1, 2009 and was
thereafter transferred to Chapter 7 in July of 2009. The Trustee brought an adversary proceeding
to avoid and recover the $900,000 paid to Nostaw as actual or constructively fraudulent transfers.
The first Count was brought under section 548(a) for actual or constructive fraud, the second and
third Counts alleged actual or constructive fraud under the Illinois Uniform Fraudulent Transfer
Act via section 544(b) of the Bankruptcy Code.
The Trustee sought partial summary judgment with respect to the constructive fraud
allegations in Counts 1, 2, and 3; Nostaw filed a cross motion for summary judgment on all
counts. The Bankruptcy Judge granted summary judgment to Nostaw on all counts. The Trustee
then filed a motion to reconsider, and the Bankruptcy Court issued a second opinion affirming its
earlier decision. This Opinion follows.
Standard of Review
This Court has jurisdiction to review the decision of the Bankruptcy Judge pursuant to 28
U.S.C. § 158(a). District courts apply a dual standard of review in bankruptcy appeals—the
Bankruptcy Judge’s findings of fact are reviewed for clear error, while conclusions of law are
reviewed de novo. In re Midway Airlines, 383 F.3d 663, 668 (7th Cir. 2003); In re Smith, 286
F.3d 461, 464-65 (7th Cir. 2002). “As a conclusion of law, a grant of summary judgment by the
bankruptcy court is therefore reviewed de novo.” In re Midway Airlines, 383 F.3d at 668. A
bankruptcy court’s grant of summary judgment will be affirmed if “there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(c). The reviewing court may affirm summary judgment “on any ground supported by the
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record, even if it was not relied upon by the court below.” In re Midway Airlines, 383 F.3d at
668; Johnson v. Gudmundsson, 35 F.3d 1104, 1115 (7th Cir. 1994).
Issues Presented
The Trustee appeals the Bankruptcy Judge’s grant of summary judgment in favor of
Nostaw. Specifically, the issues presented are whether the Bankruptcy Judge erred in finding: (1)
that the Trustee was time-barred from attempting to avoid the obligations incurred under the
September Agreement, and avoidance of the obligation was necessary in order to avoid the
payments made thereunder; (2) that the September agreement was supported by adequate
consideration; and (3) that the Trustee was unable to establish that the Coop had not received
reasonably equivalent value.
Analysis
(1) Trustee was Barred from Avoiding the September Agreement, and
Avoidance of the Agreement was as a Prerequisite to Avoidance of the
Transfers Under the Agreement
Section 548 of the Bankruptcy Code sets forth the trustee’s avoidance powers for
fraudulent transfers and obligations. It states:
(a)(1) The trustee may avoid any transfer . . . of an interest of the debtor in
property, or any obligation . . . incurred by the debtor, that was made or incurred
on or within 2 years before the date of the filing of the petition, if the debtor
voluntarily or involuntarily —
(B)(i) received less than a reasonably equivalent value in exchange for such
transfer or obligation; . . .
11 U.S.C. §548 (emphasis added)
Section 5 of the Illinois Uniform Fraudulent Transfers Act (“IUFTA”) provides:
§ 5. (a) A transfer made or obligation incurred by a debtor is fraudulent as to a
creditor, whether the creditor's claim arose before or after the transfer was made
or the obligation was incurred, if the debtor made the transfer or incurred the
obligation:
(1) with actual intent to hinder, delay, or defraud any creditor of the debtor; or
(2) without receiving a reasonably equivalent value in exchange for the transfer or
obligation . . . .
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740 Ill. Comp. Stat. Ann. 160/5 (emphasis added)
Section 6(a) of the IUFTA further provides:
§ 6. (a) A transfer made or obligation incurred by a debtor is fraudulent as to a
creditor whose claim arose before the transfer was made or the obligation was
incurred if the debtor made the transfer or incurred the obligation without
receiving a reasonably equivalent value in exchange for the transfer or obligation
and the debtor was insolvent at that time or the debtor became insolvent as a
result of the transfer or obligation.
740 Ill. Comp. Stat. Ann. 160/6
In its November 2014 grant of summary judgment for Nostaw, the Bankruptcy Court
rejected the Trustee’s contention that the September Agreement could be avoided under either
Section 548 of the Bankruptcy Code, or under the IUFTA through Section 544 of the Bankruptcy
Code. See In re Central Illinois Energy Co-op, 521 B.R. 868, 874 (Bankr. C.D. Ill. 2014) (“The
problem for the Trustee is that he has not filed a complaint seeking to avoid the [September]
Agreement as fraudulent and the time for doing so has long since expired.”). The Trustee moved
for reconsideration, and the Bankruptcy again rejected Trustee’s argument that the September
Agreement was avoidable as a fraudulently incurred obligation. See In re Central Illinois Energy
Co-op, 526 B.R. 786, 791 (Bankr. C.D. Ill. 2015). In that opinion, the Bankruptcy Judge stated
that “[i]t is widely recognized by courts that where a debtor makes prepetition payments on a
contractual debt, in order for those payments to be avoidable as constructively fraudulent, it is
necessary for the trustee to first avoid the underlying contract as a fraudulently incurred
obligation.” Id., citing In re Tanglewood Farms, Inc. of Elizabeth City, 487 B.R. 705, 710-11
(Bankr. E.D.N.C. 2013); In re Incentium, LLC, 473 B.R. 264 (Bankr. E.D. Tenn. 2012); In re
TSIC, Inc., 428 B.R. 103 (Bankr. D.Del. 2010); In re All–Type Printing, Inc., 274 B.R. 316
(Bankr. D.Conn. 2002).
Trustee’s argument on appeal is that it was not required to avoid the September
Agreement in order to recover the $900,000 paid to Nostaw in October and November of 2007.
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Specifically, the Trustee asserts that the four cases cited by the Bankruptcy Court do not support
the conclusion that the September Agreement must have been avoided as a precondition to
avoidance of the payments. A review of those cases follows.
Tanglewood
In the case of In re Tanglewood Farms, the debtor executed a $600,000 promissory note
in favor of defendant Endcom, secured by an interest in debtor’s harvested corn. 487 B.R. 705,
707-08 (Bankr. E.D.N.C. 2013). The proceeds of the loan were deposited into the personal
account of Tanglewood’s president and sole shareholder. The debtors made a $50,000 payment
to Endcom a month later. However, Endcom was unaware that the debtors also sold the corn
crop pledged as security for the note, the proceeds from which were not paid to Endcom. The
debtor then filed a voluntary Chapter 11 petition which was later converted to Chapter 7. The
trustee initiated an adversary proceeding to avoid the note and security agreement and recover
the fraudulent transfers under Section 544, 548, 550, and 551 of the Bankruptcy code, together
with North Carolina’s version of the UFTA. Id. at 708.
Addressing the defendant’s motion to dismiss, that court found that the debtor did not
receive reasonably equivalent value for the note because the proceeds of the loan were not
distributed to Tanglewood, Inc., but rather to the personal bank account of Tanglewood’s
president and sole shareholder. Id. at 711. Because the note was not given in exchange for
reasonably equivalent value, the trustee sufficiently pleaded the requirements to avoid the
obligation as fraudulent. And because the obligation was avoidable, “the debtor's payment to the
defendant was for less than reasonably equivalent value because the debt itself may be avoided
and, therefore, eliminated.” Id. at 713.
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Trustee contends that nothing in Tanglewood indicates why the Tanglewood trustee
sought to avoid the note and security agreement, and nothing in the opinion held that it was
necessary to avoid the note in order to avoid the payments made thereunder. However, the
Tanglewood court stated, “[a]lthough the defendant asserts that this payment was a partial
repayment of an antecedent debt, where the underlying obligation or debt has been avoided, any
payments on account thereof could no longer be supported by the value of debt satisfaction since
no debt would exist.” Id. at 712-13, citing TSIC, Inc. v. Thalheimer, 428 B.R. 103, 115 (Bankr.
D.Del. 2010). Thus, without avoidance of the underlying obligation, “the dollar-for-dollar
discharge of indebtedness” is, ipso facto, for “value.” In re Central Illinois Energy Co-op, 521
B.R. at 874; see 11 U.S.C. § 548 (“’value’ means property, or satisfaction or securing of a
present or antecedent debt of the debtor, but does not include an unperformed promise to furnish
support to the debtor or to a relative of the debtor”). Therefore, Tanglewood supports the
Bankruptcy Court’s conclusion that avoidance of the September Agreement was a precondition
to avoiding the payments to Nostaw under that agreement.
TSIC
The Trustee also claims that the Bankruptcy Court erroneously relied on In re TSIC, Inc.
to support its conclusion that avoidance of the September Agreement was necessary in order to
avoid the payments to Nostaw. 428 B.R. 103 (Bankr. D.Del 2010). Specifically, the Trustee
claims in his brief that “TSIC unquestionably demonstrates that a trustee’s failure to expressly
challenge an unenforceable agreement which is the ‘source’ of a fraudulent conveyance does not
bar a trustee’s right to recover the payments made pursuant to that unenforceable agreement.”
While that proposition may be factually correct, it stands for nothing more than the platitude that
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an unenforceable agreement need not be avoided because it is unenforceable. Moreover,
Trustee’s characterization of TSIC directly conflicts with the actual text of the case:
Unlike the trustee in All–Type, the Debtor in this case seeks to avoid both the
transfer and the obligation and is within its rights to do so under Section 548.
Debtor can avoid the underlying obligation thereby effectively eliminating the
debt. Because no debt existed, Debtor's transfer of Thalheimer's severance
payment was for less than reasonably equivalent value.
In re TSIC, Inc., 428 B.R. 103, 115 (Bankr. D. Del. 2010) (emphasis added).
Incentium
The Trustee makes a similar argument regarding the Bankruptcy Court’s reliance on In re
Incentium, LLC, 473 B.R. 264 (Bankr. E.D. Tenn. 2012). In that case, the defendant was hired by
the debtor, Incentium, as its CEO and president. The employment agreement of October 2008
provided for a base salary of $250,000 per year, and further provided that if defendant was
terminated without cause he would be entitled to continue receiving his salary for six months. Id.
at 265. Defendant was subsequently terminated without cause, and debtor and defendant signed a
termination agreement in March 2010 providing for the same termination benefits stated in the
employment agreement. After defendant received about $104,000 in severance payments, an
involuntary Chapter 7 petition was filed against the debtor in February 2011 where the plaintiff
sought to avoid the separation agreement as a fraudulently incurred obligation and to avoid the
severance payments as fraudulent transfers. Id. at 267.
On cross-motions for summary judgment, the Incentium court concluded that because
“the severance obligation in the Separation Agreement was the same severance obligation
created by the original Employment Agreement,” it was “not changed to a different severance
obligation within two years of the debtor’s bankruptcy filing that could be avoided on grounds
that reasonably equivalent value was not received by the debtor.” Id. at 272. Therefore, the court
concluded, the obligation was not avoidable under §548(a)(1)(B)(ii)(IV). Because the underlying
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obligation was unavoidable, “the transfers of severance pay to the defendant satisfied the prior,
unavoidable severance obligation, so the debtor received ‘value’ in exchange for the transfers.”
Incentium, 473 B.R. at 272. Therefore, “[i]t follows that the severance payments are not
avoidable either.” Id. Again, Trustee’s characterization of Incentium as “lending no support” to
the Bankruptcy Court’s conclusion that the Trustee was obligated to set aside the September
Agreement before seeking recovery of the transfers is without merit.
All-Type
Finally, the Trustee takes issue with the Bankruptcy Court’s reliance on In re All–Type
Printing, Inc., 274 B.R. 316 (Bankr. D.Conn. 2002). In that case, the trustee for All-Type
attempted to avoid payments All-Type made to a retired shareholder under a retirement
agreement. Id. at 319-21. That court held that the trustee lacked standing to avoid the payments
because it failed to show that All-Type had at least one creditor at the time of each payment. Id.
at 323-24. Moreover, even if the trustee could establish standing, “he would still be unable to
avoid them since they were supported by “reasonably equivalent value.” Id. at 324. The court
reasoned that in each of the payments, “All-Type made [a] Payment to or for the benefit of
[retired shareholder], and received in exchange a dollar-for-dollar satisfaction of the Retirement
Debt.” Because satisfaction of an antecedent debt was explicitly acknowledged as value for
Connecticut’s fraudulent transfer analysis, “the individual satisfactions flowing from each
Payment provided ‘reasonably’—indeed, perfectly—equivalent value in exchange for such
Payment.” Id. Finally, the court noted that its conclusion was premised on the fact that AllType’s obligation under the retirement agreement had not been avoided, and that the analysis
would have been different “had the Trustee also sought and obtained an avoidance of the
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incurring of that obligation.” Id. Had the obligation been avoided, “the Payments could no longer
be supported by the value of debt satisfaction since no debt would exist.” Id.
Here, Trustee insists that “it is unclear how the court’s analysis or the result would have
differed had the trustee challenged the settlement agreement as opposed to the individual
payments.” To the contrary, the All-Type opinion clearly stated that if the retirement agreement
been avoided, any payments made thereunder could not be supported by the value of debt
satisfaction because no debt would exist. Id. In sum, All-Type, like Incentium, TSIC, and
Tanglewood, all supported the Bankruptcy Court’s conclusion that Trustee could not avoid the
payments made to Nostaw—payments representing a dollar-for-dollar discharge of debt—
without first avoiding the September Agreement itself.
(2) The September Agreement was Supported by Consideration
Because the Trustee was time barred from avoiding the agreement as a fraudulently
incurred obligation by asserting its avoidance powers under Section 544 or 548, the Bankruptcy
Court found that the Trustee’s power to challenge the agreement “necessarily arises under
Section 541.” In re Central Illinois Energy Co-op, 526 B.R. 786, 791-92. Section 541 defines the
property accruing to the estate; thus, the rights and claims held by the trustee as successor to the
debtor’s interests included as property of the estate include all rights the debtor may have under
and arising from its contracts. Id.; 11 U.S.C. § 541. In contrast to the trustee’s avoidance powers
under Sections 544 or 548 of the Bankruptcy Code, the trustee’s rights under Section 541 are
derivative of those held by the debtor—he cannot assert greater rights than the debtor had on the
day the bankruptcy case was commenced. Id., citing In re Majestic Star Casino, LLC, 716 F.3d
736, 748 (3d Cir. 2013); 11 U.S.C. §§ 541, 544. And since the trustee “stands in the debtor’s
shoes,” a trustee “asserting a debtor’s rights under Section 541 is subject to the same defenses as
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could have been asserted by the defendant had the action been instituted by the debtor.” In re
Central Illinois Energy Co-op, 526 B.R. at 792, citing In re Derivium Capital LLC, 716 F.3d
355, 367 (4th Cir. 2013).
The Bankruptcy Court framed the consideration issue as “whether the Debtor would have
prevailed in an action against Nostaw to have a court declare the [September] Agreement
unenforceable for want of consideration, based upon the facts as they existed on the date of the
order for relief, taking into account any defenses then available to Nostaw.” In re Central Illinois
Energy Cooperative, 526 B.R. at 792. The Bankruptcy Court concluded that the September
Agreement was a valid bilateral contract supported by consideration in the form of mutual and
concurrent promises between the Coop and Nostaw, and thus enforceable under Illinois law.
Further, the court noted that under Illinois law, even if adequate consideration was absent, the
Coop could not have succeeded in setting aside the obligation to pay Nostaw after accepting
Nostaw’s performance. Because the Coop would have been unsuccessful in challenging the
enforceability of the September Agreement, and the Trustee stands in the shoes of the Debtor,
the Bankruptcy Court held that the Trustee could not succeed in attacking the Agreement for lack
of consideration. Id. at 798.
The Trustee argues that the September Agreement was not supported by consideration
because the Coop was merely agreeing to pay Green Lion’s antecedent debt. In support of this
argument, the Trustee claims that (1) Nostaw’s promise to the Coop to complete the Grain
Handling Facility was not new consideration because it was already obligated to Green Lion for
the same; (2) the $976,000 note was for work already performed as of June 12, 2007, the date of
the Green Lion Payment Agreement; and (3) the note was not yet due at the time the Coop
entered into the September Agreement with Nostaw.
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At the time of the Green Lion Payment Agreements, Nostaw was owed $2,490,537.
Under the Green Lion Payment Agreement, Nostaw received: $1,236,847 from the Coop at the
time of the agreement; a secured promissory note in the principal amount of $976,295 whereby
Green Lion was to use its best efforts to pay the note by August 15, 2007, with full payment due
on October 15, 2007; and $258,777 in progress payments. The agreement also required Green
Lion to make payments to Nostaw within ten days of receipt of an invoice. Green Lion breached
this requirement on at least four invoices when it did not pay Nostaw for work invoiced on June
28 and July 16 until July 30, 2007. Nostaw’s attempts to collect the $258,777 in progress
payments under the Green Lion Payment Agreement also went unanswered until Green Lion
tendered $255,777.83 on August 24, 2007. Although Green Lion was to use its best efforts to pay
down the note by August 15, 2007, Nostaw only received $8,193.32 from Green Lion by that
date. More significantly, in September 2007 Nostaw demanded—and Green Lion refused to
provide—further assurance of payment. As a result of Green Lion’s stated inability to pay,
Nostaw threatened to case work on the grain handling facility.
“A breach occurs when it is reasonably certain that the other party is not going to meet its
obligations under the contract in timely fashion.” Cent. States, Se. & Sw. Areas Pension Fund v.
Basic Am. Indus., Inc., 252 F.3d 911, 919 (7th Cir. 2001). Green Lion’s late payments, failure to
make material progress in paying down the note by the August 15, 2007 “best efforts” date, and
inability to pay or provide further assurances of payment to Nostaw indicated with reasonable
certainty that Green Lion was not going to meet its obligations under the contract in a timely
fashion. Id. Because Green Lion was in breach of its contractual duties, Nostaw was “freed from
its own contractual obligations and authorized to take reasonable self-protective measures . . .
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[Nostaw] is not required to twiddle its thumbs . . . while the prospects of recovering what it is
owed ooze away.” Id. Thus, Nostaw was within its rights to stop construction on the facility.
In order to assure timely completion of the grain handling facility, the Coop re-obligated
itself to Nostaw for $988,859 in exchange for Nostaw’s promise to complete the grain handling
facility. “Valuable consideration for a contact consists of some right, interest, profit or benefit
accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or
undertaken by the other.” In re Central Illinois Energy Co-op, 526 B.R. 786 (Bankr. C.D. Ill.
2015) citing Dohrmann v. Swaney, 2014 IL App (1st) 131524. The Coop’s promise of payment
and Nostaw’s promise of performance represented a bargained-for exchange of mutual promises
sufficient to form consideration to support a contract. As the Bankruptcy Court correctly noted,
even if the Coop received nothing of value from Nostaw, consideration would still be present so
long as Nostaw promised some forbearance, detriment, loss or responsibility. In re Central
Illinois Energy Co-op at 796.
The Trustee’s contention that the Coop did not receive value for the September
Agreement because Green Lion—and not the Coop— owned the grain handling facility
overlooks the terms of the Recapitalization Agreement and the Coop’s interest in its timely
completion. While it is true that Green Lion owned the grain handling facility at the time, the
Recapitalization Agreement provided CIE with the right, and the Coop with the conditional
obligation if CIE was not recapitalized by November 1, 2007, to repurchase the assets upon
completion of the facility. The Coop had a strong interest in having the facility completed as
soon as possible: CIE would not be able to operate the ethanol production and power plant until
the grain handling facility was completed. CIE, a wholly owned subsidiary of HoldCo, of which
the Coop owned a controlling 71% interest, financed the construction of the ethanol production
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plant with loans exceeding $87,500,000. In order for the Coop’s grain handling facility—and by
extension CIE’s ethanol facility—to begin to generate revenue, both facilities needed to be
operational in time for the fall harvest. With both the Coop and CIE in dire financial straits,
allowing Nostaw and Green Lion to litigate their payment dispute while the grain handling
facility sat uncompleted would have resulted in an inability to generate revenue paired with a
massive accumulation of debt through accumulated interest. Thus, the Coop had a strong interest
in completing the grain handling facility as soon as possible, and Nostaw, with its experience and
equipment on-site, was in the best position to achieve that goal.
The Trustee’s argument that the September Agreement was for work already performed
by June 12, 2007, is unsupported by the record. Nostaw’s deposition testimony was consistent
with the invoices, which indicated that note was for work yet to be performed by Nostaw (the
“balance to finish”). Similarly, the Trustee’s argument that the Green Lion note was not yet due
at the time the Coop and Nostaw entered the September Agreement is misplaced. Although the
Green Lion note was not due for 17 more days, Green Lion had already expressed its intent not
to pay and refused to provide Nostaw with further assurances of payment. Thus, Nostaw was
“reasonably certain that the other party [was] not going to meet its obligations under the contract
in timely fashion.” Cent. States, Se. & Sw. Areas Pension Fund v. Basic Am. Indus., Inc., 252
F.3d 911, 919 (7th Cir. 2001). In other words, Green Lion was in breach of its contractual
obligations. Finally, the Trustee fails to address the Bankruptcy Court’s holding that the Trustee
is barred from challenging September Agreement for lack of consideration because both parties
had performed their duties under the contract before the bankruptcy petition was filed.
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(3) The Trustee is Unable to Establish that the Coop did not Receive
Reasonably Equivalent Value
Illinois courts have not definitively interpreted “reasonably equivalent value” under the
IUFTA, but they have defined what it is not—a transfer lacks reasonably equivalent value if
there is no consideration or inadequate consideration. Creditor's Comm. of Jumer's Castle Lodge,
Inc. v. Jumer, 472 F.3d 943, 946-47 (7th Cir. 2007) (citing Regan v. Ivanelli, 246 Ill.App.3d 798,
804, 187 Ill.Dec. 351 (1993)). However, because the IUFTA is a uniform Act, courts may look to
cases decided under 11. U.S.C. § 548 and to cases interpreting other states’ versions of the
UFTA to determine the meaning of reasonably equivalent value. Jumer, 472 F.3d at 947. The
Seventh Circuit has articulated a test to determine reasonably equivalent value in the context of a
fraudulent conveyance under § 548 as requiring “the court to determine the value of what was
transferred and compare it to what was received.” Id. (quoting Barber v. Golden Seed Co., Inc.,
129 F.3d 382, 387 (7th Cir. 1997)).
Here, it is unnecessary to determine whether the Coop’s transfers to Nostaw under the
September Agreement were for reasonably equivalent value because the Trustee did not seek to
avoid the obligation as constructively fraudulent and the time for doing so has long since passed.
See In re Incentium, LLC, 473 B.R. 264, 272 (Bankr. E.D. Tenn. 2012). Since the Trustee was
barred from challenging the September Agreement under a fraudulent transfer theory, it was
confined to challenging the Agreement on the grounds that it was unenforceable for lack of
consideration. See In re Central Illinois Energy Co-op, 526 B.R. at 792, citing In re Derivium
Capital LLC, 716 F.3d 355, 367 (4th Cir. 2013) As discussed above, the September Agreement
represented a valid and enforceable bilateral contract between the Coop and Nostaw. The Coop
promised payment to Nostaw in exchange for Nostaw’s promise to complete the construction of
the grain handling facility. Thus, the mutual exchange of promises represented valuable
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consideration. Dohrmann v. Swaney, 2014 IL App (1st) 131524. Further, because the payments
made to Nostaw were in satisfaction of an enforceable, unavoidable obligation, the transfers
were for reasonably equivalent value as a matter of law. In re All–Type Printing, Inc., 274 B.R.
324 (Bankr. D.Conn. 2002)
CONCLUSION
For the reasons stated above, the Court Affirms the Bankruptcy Court’s November 2014
Order and Opinion and March 2015 Affirmance.
Entered this 25th day of January, 2016
s/ James E. Shadid
James E. Shadid
United States District Judge
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