State of Illinois v. Chiplease, Incorporated , 721 F.3d 796 ( 2013 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 11-1633
IN RE:
R ESOURCE T ECHNOLOGY C ORP.,
Debtor.
S TATE OF ILLINOIS,
Claimant-Appellant,
v.
C HIPLEASE, INC.
Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 10 C 4703—Matthew F. Kennelly, Judge.
A RGUED D ECEMBER 7, 2012—D ECIDED JUNE 28, 2013
Before P OSNER, W OOD , and W ILLIAMS, Circuit Judges.
W OOD , Circuit Judge. In 1987 the Illinois General Assem-
bly enacted a program under which funds were made
available to subsidize the development of certain power-
generating facilities. The Public Utilities Act, 220 ILCS
§ 5/8-403.1 (the Act), required subsidized facilities to
2 No. 11-1633
repay these monies (which in substance were loans)
as soon as they retired all of the capital costs or indebted-
ness incurred to develop the facility. In June 2006, the
Act was amended to provide additional conditions that
would trigger the obligation of a subsidized facility to
repay its loans.
The question before us is whether these new condi-
tions, which essentially provide additional grounds on
which the state can demand repayment, can be applied
retroactively. We find the answer in Illinois’s Statute
on Statutes, which guides the interpretation of all Illinois
statutes and provides that laws apply prospectively
absent a clear indication of retroactive temporal reach.
Caveney v. Bower, 797 N.E.2d 596, 601-02 (Ill. 2003) (quoting
5 ILCS § 70/4). Because the 2006 amendment does not
clearly indicate that the new repayment conditions
apply to monies received prior to the amendment, we
must construe the statute prospectively. This in turn
leads us to affirm the district court’s judgment.
I
The program at issue was designed to encourage the
development of power plants that convert solid waste to
electricity. Public Utilities Act, 220 ILCS 5/8-403.1. Power
plants were entitled to apply to the Illinois Commerce
Commission (ICC) for designation as qualified solid
waste energy facilities (Qualified Facilities). Qualified
status brought along with it a significant commercial
advantage: the ICC required local electric utilities to
enter into ten-year agreements to purchase power from
No. 11-1633 3
the Qualified Facility at a rate exceeding the rate estab-
lished under federal law. The state compensated electric
utilities for these mandatory overcharges by allowing
them to take a tax credit equal to the difference between
the elevated price they paid for qualified electricity and
the federal rate. Subsection (d) of the Act provided that
a Qualified Facility became obliged to reimburse the
state for the tax credits its customers had claimed, but
this obligation arose only after the facility had repaid
all of the capital costs it incurred for development and
implementation of the plant.
Many Qualified Facilities failed before they repaid
their capital costs. An important consequence of these
failures was that Illinois never got its money back for
the tax credits taken by the electric utilities that had
bought power from the facility (implicitly, the loans to
the Qualified Facility). This was seen as a problem, and
so the Illinois General Assembly amended the Act
effective July 1, 2006. Its aim was to terminate the
Qualified Facility program and close what it saw as a
serious loophole. The amendment establishes a morato-
rium on new Qualified Facilities, provides additional
grounds for disqualifying facilities from the subsidy,
and expands the conditions under subsection (d) that
trigger a facility’s liability to repay electric utilities’ tax
credits, adding the italicized language to the former law:
Whenever a qualified solid waste energy facility
has paid or otherwise satisfied in full the capital costs
or indebtedness incurred in developing and imple-
menting the qualified solid waste energy facility,
4 No. 11-1633
whenever the qualified solid waste energy facility ceases
to operate and produce electricity from methane gas gener-
ated from landfills, or at the end of the contract entered
into pursuant to subsection (c) of this Section, whichever
occurs first, the [Qualified Facility] shall reimburse
the Public Utility Fund and the General Revenue
Fund in the State treasury for the actual reduction
in payments to those Funds caused by this subsec-
tion (d).
220 ILCS 5/8-403.1(d) (emphasis added).
The events underlying this case began in 1997, when
the ICC issued an order designating ten facilities owned
by Resource Technology Corporation (RTC) as Quali-
fied Facilities. The ICC then ordered Commonwealth
Edison (ComEd), an electric utility, to sign three ten-year
power purchase agreements with RTC; those agree-
ments covered facilities at Lyons, Congress/Hillside, and
Pontiac. Things did not go smoothly for long. In 1999,
RTC’s creditors filed an involuntary Chapter 7 bank-
ruptcy petition against RTC; the trustees of its estate
continued to operate its Qualified Facilities as a debtor-in-
possession. (The case was converted to a Chapter 11
proceeding in January 2000, but it fell back into
Chapter 7 status in 2005.) ComEd reported tax credits
as compensation for purchasing electricity at the
elevated Qualified-Facility rate from September 2005
until July 2006.
In 2005, RTC’s trustee filed a suit against Chiplease
(a debtor of RTC) and some others. The bankruptcy court
approved a settlement of that case in 2006, under which
Chiplease was assigned certain leases and executory
No. 11-1633 5
contracts. At that point, the trustee shut down the
estate’s operations at all three plants. Under other
control, however, the facility at Pontiac continued to
operate until July 2006; payments (at the retail rate) were
sent to RTC’s bankruptcy “lockbox.”
Along with the assets, Chiplease acquired RTC’s
liability for the tax credits ComEd had taken to com-
pensate it for buying Qualified-Facility power at inflated
rates. On January 4, 2007, the State of Illinois filed an
administrative expense claim against the estate for all of
the tax credits ComEd took for power bought from
RTC’s Pontiac, Congress/Hillside, and Lyons facilities. As
amended, the state sought a total of $1,518,048.72, plus
another $14,358.82 for a separate tax-related claim that
is not contested at this point. Since some of ComEd’s
purchases had occurred before the 2006 amendment and
others after it, the bankruptcy court raised the question
whether the amendment to the Act applies only pros-
pectively (in which case Chiplease would have no duty
to reimburse for credits taken before June 6, 2006) or
retroactively (in which case it would be required to reim-
burse all credits). Ultimately, the bankruptcy court con-
cluded that the Illinois Statute on Statutes, 5 ILCS § 70/4,
requires the amendment to be construed prospectively.
Based on that legal determination, the court held Chip-
lease liable only for the $175,710.58 in credits that
ComEd took after the effective date of the amendment.
The district court affirmed the bankruptcy court’s ruling;
it commented that “[h]ad the legislature intended other-
wise, it could have said so in plain language.”
6 No. 11-1633
II
We review de novo the conclusions of law made by
both the district court and the bankruptcy court. Ojeda
v. Goldberg, 599 F.3d 712, 716 (7th Cir. 2010). And the
only question before us is one of law: whether the 2006
amendment to the Act has retroactive effect. Under
Illinois law, the answer depends on “whether the legisla-
ture has clearly indicated the temporal reach of an
amended statute.” Caveney, 797 N.E.2d at 601 (citing
Landgraf v. USI Film Prods., 511 U.S. 244 (1994)); Doe A.
v. Diocese of Dallas, 917 N.E.2d 475, 483 (Ill. 2009) (“Illinois
courts need never go beyond th[is] threshold step . . .
because the legislature will always have clearly in-
dicated the temporal reach of an amended statute, either
expressly in the new legislative enactment or by default
in section 4 of the Statute on Statutes.”). Thanks to the
Statute on Statutes, we know that “[i]f the amendatory
act does not contain a clear indication of legislative
intent, then it is to be assumed that the amendatory act
was framed in view of the provisions of [5 ILCS § 70/4].”
Caveney, 797 N.E.2d at 603 (emphasis in original) (inter-
nal quotation marks omitted).
A term in a statute is ambiguous “if it is capable of
being understood by reasonably well-informed persons
in two or more different ways.” Krohe v. City of
Bloomington, 789 N.E.2d 1211, 1213 (Ill. 2003). An act
that “does not state whether it is to be applied retroac-
tively or prospectively is ambiguous to that extent.”
Randal v. Wal-Mart Stores, Inc., 673 N.E.2d 452, 455 (Ill.
App. 1996). Illinois courts have found that an amend-
No. 11-1633 7
ment clearly indicates retroactive reach when a statutory
provision specifically refers to actions or events taking
place before enactment. E.g., Lazenby v. Mark’s Const., Inc.,
923 N.E.2d 735, 743 (Ill. 2010) (“[T]he legislature clearly ex-
pressed its intent that the statute be given retroactive
effect. [It] states that ‘[t]his Section applies to all causes
of action that have accrued, will accrue, or are currently
pending before a court . . . .’ ”); Diocese of Dallas, 917
N.E.2d at 483 (“[The statute] specifically provides that
the 2003 amendment applies to actions pending when the
changes took effect on July 24, 2003 . . . . By its terms, the
amendment is not limited to situations where the
events giving rise to the cause of action took place
after the amendment’s effective date.”); Allegis Realty
Investors v. Novak, 860 N.E.2d 246, 254 (Ill. 2006) (“[T]he
new section 6-620 of the Illinois Highway Code is specifi-
cally directed to . . . taxes authorized by . . . meetings
during certain years prior to Public Act 94-692’s enact-
ment. . . . [T]hey are intrinsically retroactive.”).
The 2006 amendment to the Act does not, on its face,
appear to meet Illinois’s high standards for retroactiv-
ity. There is no express language calling for retroactive
application, nor does the amendment contain any pro-
vision specifically purporting to make the law ap-
plicable to events or actions that took place before its
effective date. Illinois nevertheless has advanced sev-
eral arguments in support of retroactivity, to which
we now turn.
8 No. 11-1633
III
Illinois begins by asserting that the General Assembly
never intended simply to forgive the subsidies that
buyers like ComEd had received, yet a finding against
retroactivity would have precisely that unintended
effect for firms like RTC that went bankrupt. The state
concedes, however, that the initial step is to determine
whether the legislature clearly indicated the statute’s
temporal reach, and that if it did not, the law is presumed
to be prospective. It also acknowledges that in Caveney,
the state supreme court ruled that courts would seldom
if ever have to proceed beyond that first question,
because if the particular law did not specify temporal
reach, the Statute on Statutes provides the answer. See
797 N.E.2d at 601-02. We grant that it is a fair inference
from the 2006 amendments that the legislature wanted
to call a halt to a program that was supposed to pay
for itself (tax credits up front, reimbursement by
Qualified Facilities at the end) but was instead leaving
the state with a pile of bad loans. And it is true that
new sections (e-5) and (m) indicate that all pre-amend-
ment subsidies are still reimbursable and must be re-
paid. But the critical question relates to the trigger for
the repayment obligation. Before the 2006 amendment,
section 8-403.1(d) read as follows:
Whenever a [Qualified Facility] has paid or otherwise
satisfied in full the capital costs or indebtedness
incurred in developing and implementing the [Quali-
fied Facility], the [Qualified Facility] shall reimburse
the Public Utility Fund and the General Revenue
No. 11-1633 9
Fund in the State treasury for the actual reduction
in payments to those Funds caused by this subsec-
tion (d).
Thus, one and only one trigger for the reimbursement
obligation existed: payment in full of the Qualified Facil-
ity’s capital costs or indebtedness. As amended in 2006,
here is how the same section reads:
Whenever a [Qualified Facility] has paid or otherwise
satisfied in full the capital costs or indebtedness
incurred in developing and implementing the [Quali-
fied Facility], whenever the [Qualified Facility] ceases
to operate and produce electricity from methane
gas generated from landfills, or at the end of the
contract entered into pursuant to subsection (c) . . .
whichever occurs first, the [Qualified Facility] shall
reimburse the Public Utility Fund and the General
Revenue Fund in the State treasury for the actual
reduction in payments to those Funds caused by
this subsection (d).
The difference is plain. In place of one condition giving
rise to the reimbursement obligation, there are now
three alternatives: (1) retirement of capital costs or in-
debtedness; (2) cessation of operations; or (3) end of a
contract term. Had that language been in place all
along, Illinois would have been entitled to press its
claim against RTC’s bankruptcy estate (or its successor,
Chiplease). But it was not.
Illinois nonetheless contends that the amended condi-
tions apply retroactively because the legislature meant
for these subsidies to be loans, not gifts. But this does
10 No. 11-1633
not get around the Statute on Statutes, nor does it
change the fact that RTC’s facilities ceased operations
before they repaid their capital costs. Unfair though it
may be to the state, RTC’s Qualified Facilities never
will meet the condition obligating them to repay the
tax credits until June 2006. Illinois argues that this inter-
pretation of the plan results in an “unreasonable absur-
dity” that is contrary to the legislature’s purpose of
providing loans to Qualified Facilities. That may be, but
it was the legislature that created a program that gave
a tax credit to one party (here, ComEd) that a second
party (Chiplease, standing in RTC’s shoes) would repay
to the state upon the fulfillment of one condition. The
fact that the Qualified Facility might never meet that
condition, or that it might default on its repayment ob-
ligation, does not mean that the terms of the arrange-
ment provided a gift. Any time a loan is made, the
lender faces the risk that the borrower may default or
fail to meet the repayment conditions. The fact that a
borrower fails to repay a loan or takes advantage of a
contractual excuse may suggest that the terms of the
loan were poorly devised, but it does not transform
the money from a loan to a gift.
Illinois also argues that because the two new condi-
tions in amended subsection (d) state that repayment
becomes due “whenever” either of the new conditions
obtains, those triggers are available no matter when
they are met, even if that was a time before the enact-
ment of the 2006 law. The district court properly noted
that this argument merely points out that the statute
draws no distinction between pre-amendment and post-
No. 11-1633 11
amendment events. Failing to distinguish between
future and past events is different from expressly ap-
plying the new terms to past events.
The state also tries to gain some purchase from the
fact that the 2006 amendment added subsections that
provide new grounds for disqualifying a power plant
from receiving subsidies, but at the same time do not
excuse the plant from its repayment obligations. Be-
cause these subsections require disqualified facilities to
repay their subsidies in accordance with subsection (d),
Illinois contends that the repayment conditions added
in 2006 must apply retroactively. This does not follow.
The requirement that a facility must repay as required
by subsection (d) says nothing about whether the
facility must repay in accordance with the grounds in
effect prior to June 2006 or those in effect thereafter.
Finally, Illinois argues that the amendment must apply
retroactively because it was enacted to phase out the
failing subsidy program. But this logic is also flawed.
From June 2006 onward, Qualified Facilities that cease
operating before repaying capital costs are obligated to
begin repayment, even though they would not have
been under the pre-2006 version. In fact, the state cap-
tured some money from Chiplease for the months fol-
lowing June 2006 under the new provisions—funds that
it would not have had to pay if the Act had remained
unchanged. More facilities will be disqualified under
the new grounds in the 2006 amendment, and these
additional facilities will also become obligated to repay.
All this means is that the amendment has meaningful
12 No. 11-1633
effect even if it is understood to be prospective only; it
does not help the state’s retroactivity argument.
IV
Because we find that the Act is not retroactive, we
need not reach Chiplease’s argument that retroac-
tively changing the terms of the loan program would be
unconstitutional under the Due Process or Contracts
clauses. We A FFIRM the judgment of the district court.
6-28-13