In Re Resource Technology Corp.
662 F.3d 472
7th Cir.2011Background
- RTC's landfill gas system at CDC's site ruptured, causing odors that allegedly injured Roti's Holiday Inn business; trustee operated RTC's assets for a brief period before liquidation; RTC's failure traced to years of neglect prior to trustee control; Illinois EPA issued violations to RTC and CDC; CDC terminated RTC contract and RTC assets were abandoned; Roti claims the resulting economic harm should be an administrative claim against RTC's estate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Roti's tort damages are an administrative claim | Roti is a tort victim whose claim arose post-petition while operating assets. | RTC estate should not bear post-petition tort costs; Reading pending decisions does not apply. | No administrative claim for Roti. |
| Whether Reading v. Brown extends to Chapter 7 | Reading should treat post-petition torts as administrative expenses in Chapter 7 when operation occurs. | Reading applies only where the debtor is operating to preserve value, not in rapid liquidation. | Reading does not apply in this Chapter 7 liquidation scenario. |
| Whether the Chapter 7 trustee's brief control can trigger liability | Trustee's control during the interval could expose the estate to tort liability. | Trustee had minimal control and could not prevent or exacerbate the condition. | No basis to hold the trustee personally liable; estate bears potential exposure only as RTC. |
| Whether abandonment affected liability or priority | Abandonment of assets by the trustee left RTC as the responsible party. | Abandonment before full liquidation does not create an administrative claim. | Abandonment does not create an administrative priority for Roti. |
Key Cases Cited
- Midlantic National Bank v. New Jersey Dep't of Environmental Protection, 474 U.S. 494 (U.S. Supreme Court 1986) (trustee may not abandon property contrary to public health/safety statutes; environmental cleanup costs in bankruptcy)
- Reading v. Brown, 391 U.S. 471 (U.S. Supreme Court 1968) (tort claims arising from continued operation treated as administrative expenses in Chapter 11)
- In re Sidebottom, 430 F.3d 893 (7th Cir.2005) (discussion of post-petition operating matters in conversion context)
- In re Hemingway Transport, Inc., 954 F.2d 1 (1st Cir.1992) (limitations on Reading extension to non-operating liquidation)
- In re Chicago Pacific Corp., 773 F.2d 909 (7th Cir.1985) (tort and bankruptcy interplay in corporate context)
- In re marchFirst, Inc., 448 B.R. 499 (Bankr.N.D. Ill.2011) (discussion of Chapter 11/7 transition and Reading doctrine)
- In re Zilog, Inc., 450 F.3d 996 (9th Cir.2006) (tort claims in bankruptcy proceedings; administrative treatment noted)