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Margaret Kinney v. HSBC Bank USA

Summarizing by Lars Fuller

In re Resource Technology Corp.

No. 10-3948 (7th Cir., October 31, 2011)
In affirming the lower courts' denial of Roti's administrative claim, the Seventh Circuit explained that the emission of foul odors as a result of negligent maintenance of a gas collection and control system which interfered with Roti's use and enjoyment of his property and caused economic loss and property damage was a nuisance, and thus a tort for which RTC was responsible by virtue of its control over the gas collection and control system at CDC's landfill. The Seventh Circuit further explained that while there was no longer an RTC chapter 11 estate to sue (the RTC case had been converted before the gas leak occurred), and that the RTC chapter 7 trustee individually was not personally liable, Roti did have a claim against the RTC chapter 7 estate. However, the Seventh Circuit held that Roti's claim was not entitled to administrative priority. In so holding, the Seventh Circuit recognized the Supreme Court's holding in Reading v. Brown, 391 U.S. 471 (1968) that, at least in a chapter 11 bankruptcy, tort claims arising from the continued operation of the bankrupt business should be treated as administrative claims, indicated that the principle of Reading could be extended to chapter 7 cases (at least while the chapter 7 trustee is operating the debtor's business and has not yet liquidated its assets), but concluded that RTC was not operating in any meaningful sense when the chapter 7 trustee took over, and that the trustee's only option was to liquidate RTC's assets as quickly as possible. Under these circumstances, the Seventh Circuit held, there was no basis for applying the Reading doctrine or according Roti's claim administrative priority.
Procedural context:
Creditor appealed from the District Court's affirmance of the Bankruptcy Court's denial of his administrative claim. The Seventh Circuit affirmed the District Court's ruling.
Roti owned and operated a Holiday Inn adjacent to a landfill owned and operated by CDC. In 1996, CDC hired RTC to build a gas collection and control system for the landfill. RTC filed a chapter 11 bankruptcy case in 1999. In 2005, RTC's case was converted to a chapter 7 case and a trustee was appointed. Four days after the trustee was given operational control over RTC's business, RTC's gas collection and control system at CDC's landfill failed, releasing foul odors into Roti's hotel. Thereafter, CDC terminated its contract with RTC, and the trustee abandoned all of RTC's assets at CDC's landfill. In 2006, Roti sold the hotel for $5 million. Claiming that had it not been for the odors released by CDC's landfill he could have sold the hotel for almost $25 million, he asserted an administrative claim against RTC for the difference.
Posner, Flaum, Hamilton

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