In re American Cartage, Inc.

Debtor, a waste disposal firm, borrowed from FFC, giving FFC a security interest before filing a Chapter 11 petition in 2003. In 2005 a trustee, appointed to run the business, moved to convert to a Chapter 7 proceeding and assented to having Allied service debtor's customers. The court granted the motion and lifted the equitable stay to allow FFC to sell secured equipment. FFC later foreclosed against additional property, which it sold to City Sanitation. A consultant who had been retained by the trustee to assist in operating the business went to work for Allied. In 2007 City Sanitation sued Allied and the consultant, purportedly as the debtor's successor in interest, alleging conversion. The bankruptcy court reopened the bankruptcy case to allow the trustee to take over the case against Allied. The district court and First Circuit affirmed. The right to pursue commercial tort claims cannot be passed to a secured creditor as proceeds of original collateral. The court rejected an argument that FFC's security interest conferred the right to prosecute claims arising from interference with the collateral. The alleged wrongdoing occurred while the consultant was in debtor's employ; any harm was to debtor and belongs to the estate.