### In the



# United States Court of Appeals

For the Seventh Circuit

____________________

Nos. 16

‐ 1690,

‐ 1692

A VENTINE R ENEWABLE E NERGY

, I NC

., Plaintiff

‐ Appellant

,

v.

G LACIAL L AKES E NERGY

, LLC, and A BERDEEN E NERGY

, LLC,

Defendants

‐ Appellees

.

____________________

Appeals from the United States District Court for the

Central District of Illinois.

Nos. 1:13

‐ cv

‐ 01391,

‐ 01392

— Michael M. Mihm

, Judge

.

____________________

A RGUED N OVEMBER 8, 2016

— D ECIDED D ECEMBER 14, 2016

____________________ Before W OOD

, Chief Judge

, and P OSNER and R OVNER

, Cir

‐

cuit Judges

.

P OSNER

, Circuit Judge

. The plaintiff, Aventine, is a dis

‐

tributor of ethanol, a common additive to gasoline. The two

defendants, affiliated companies that for the sake of simplici

‐

ty 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.2 Nos. 16

‐ 1690,

‐ 1692

Until 2009, Aventine bought ethanol from Glacial and

distributed it, but in January of that year the parties executed

“termination agreements.” The agreements required Aven

‐

tine 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.Nos. 16

‐ 1690,

‐ 1692 3

Further bypassing Aventine, Glacial made a deal to lease

the railcars from Union Tank. Although the termination

agreements required Glacial if it wanted to use the railcars to

secure a release of Aventine from its Union Tank leases, Gla

‐

cial didn’t do that and as a result Aventine was required as

part of its bankruptcy plan to make good on what it owed to

Union Tank—to the tune of almost $2.3 million worth of Av

‐

entine stock.

Why wasn’t the dispute resolved in the bankruptcy pro

‐ ceeding? Glacial wouldn’t have filed a claim in bankruptcy

court, because a claim is a right to payment, 11 U.S.C.

§ 101(5)(A), and Glacial was a net loser under the termina

‐

tion agreements. Had it filed a claim Aventine would have

responded with defenses and a counterclaim. See 28 U.S.C.

§ 157(b)(2)(C), (c)(1); Stern v. Marshall

, 131 S. Ct. 2594 (2011).

Aventine could have initiated an adversarial proceeding but

didn’t need to, since its bankruptcy plan explicitly preserved

its cause of action, along with Glacial’s right of setoff.

Still owed lots of money by Glacial, after going through

bankruptcy Aventine sued it in an Illinois state court (Aven

‐

tine is a citizen of Illinois). Glacial removed the suit to feder

‐

al district court, which granted summary judgment for Gla

‐

cial on the ground that while it would be “unjust” to allow

Glacial “to avoid any liability” to Aventine, the latter’s fail

‐

ure to make the true

‐ up payments “dooms the Plaintiff[,] as

performance is an essential element of its claim for breach of

contract.” But to place all the onus on Glacial as the district

judge did was mistaken, as both parties had defaulted on the

obligations they’d agreed to in the termination agreements.

Aventine had just happened to sue first—unsurprisingly

since it was owed more by Glacial than it owed Glacial.4 Nos. 16

‐ 1690,

‐ 1692

The district judge ignored the law of New York (which as

we said the parties agree governs their dispute), under

which a party cannot “at the same time treat the contract as

broken and as subsisting,” Strasbourger v. Leerburger

, 134

N.E. 834, 835 (N.Y. 1922), which is what Glacial did by using

the railcars while insisting that Aventine cannot sue for

breach of contract. Applying New York law the Second Cir

‐

cuit has held that a party’s “refusal to perform its end of the

bargain” after it has affirmed a contract by continuing to ac

‐

cept its benefits is “impermissible.” ARP Films, Inc. v. Marvel

Entertainment Group, Inc

., 952 F.2d 643, 649 (2d Cir. 1991); see

also McDonald’s Corp. v. Robert A. Makin, Inc.

, 653 F. Supp.

401, 403 (W.D.N.Y. 1986). Or as the great Judge Cardozo put

it, a sales contract kept alive “remains alive as much for the

benefit of the buyer as for the benefit of the seller.

... The

buyer may now insist that the seller’s misconduct shall be

cast in the balance with its own.

... If the defendant never re

‐

tracted its unlawful claim of right, the like is true of the

plaintiff. The one as much as the other is chargeable with

wrong.” Rubber Trading Co. v. Manhattan Rubber Mfg. Co.

, 116

N.E. 789, 790 (N.Y. 1917).

Glacial argued in the district court that Aventine would

suffer no loss from failing to obtain any damages from Gla

‐

cial because as a result of its bankruptcy the creditors of Av

‐

entine are now its owners; they’ll take the loss, since if a cor

‐ poration sustains a substantial loss, the owners’ stock is

worth less. But it doesn’t follow that because the owners of

the corporation are hurt, the corporation isn’t. And finally

Glacial argues that the value of Aventine’s indemnification

claim is zero, because Aventine’s debt to Union Tank (which

Glacial promised to cover) was discharged in the bankruptcy

in exchange for stock that Aventine would otherwise haveNos. 16

‐ 1690,

‐ 1692 5

been forced to give to another creditor. But Aventine’s debt

to Union Tank, and therefore Glacial’s liability to Aventine,

was sharply reduced by the bankruptcy. That was enough of

a windfall for Glacial. It’s not entitled to more.

The judgment of the district court is reversed, and the

case remanded with instructions to net out the difference in

the amounts of money owed by the parties to each other and

award the difference to the party to whom it is due.