Bankruptcy – Breach of Contract

Listen to this article

7^th Circuit Court of Appeals

Case Name: Aventine Renewable Energy, Inc., v. Glacial Lakes Energy, LLC, et al

Case No.: 16-1690; 16-1692

Officials: WOOD, Chief Judge, and POSNER and ROVNER, Circuit Judges.

Focus: Bankruptcy – Breach of Contract

The plaintiff, Aventine, is a distributor of ethanol, a common additive to gasoline. The two defendants, affiliated companies that for the sake of simplicity we’ll pretend are one and call Glacial, manufacture and sell ethanol. The disputants are of diverse citizenship, and have agreed that the law applicable to their dispute is that of New York State. Until 2009, Aventine bought ethanol from Glacial and distributed it, but in January of that year the parties executed “termination agreements.” The agreements required Aventine to pay Glacial $898,000 (we round to the nearest $1000) for ethanol that Aventine had received from Glacial before the termination date specified in the agreements but had not yet paid for (the parties call the payments that Aventine was required to make “true‐up payments”) and required Glacial to pay Aventine $1,250,000 for commissions that Glacial would have had to pay Aventine for marketing the ethanol that Aventine had agreed to buy from it. In addition Glacial agreed to assume Aventine’s leases from Union Tank Car Company of 473 railcars used for transporting ethanol; trembling on the brim of bankruptcy, Aventine didn’t need railcars any more. Glacial used the railcars between February 23 and April 7 (Aventine declared bankruptcy on April 7) without reim‐ bursing Aventine for the lease payments that Aventine owed Union Tank, a sum exceeding $500,000, which Aventine could not afford to pay. When Aventine declared bankrupt‐ cy, Glacial owed it some $1,600,000 for marketing commis‐ sions and railcar leases while Aventine owed Glacial some $900,000 for the ethanol it had bought from Glacial before the termination date specified in the termination agree‐ ments. Netting the two debts would have resulted in Gla‐ cial’s paying Aventine $700,000. But because, or at least os‐ tensibly because, Aventine either couldn’t or wouldn’t pay Glacial any part of the $900,000 that Aventine owed it, Gla‐ cial refused to pay Aventine the $700,000—or indeed any‐ thing, while continuing to use the railcars Aventine had transferred to it.

Reversed and remanded

Full Text

Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.