New Products Corporation v. Thomas R. Tibble, et al.

Petitioner New Products Corporation (“New Products”) is both an secured and unsecured creditor of Modern Plastics Corporation (“Modern Plastics”), the debtor in a Chapter 7 bankruptcy. As a secured creditor, New Products is the assignee (from Bank for America) of the first mortgage on the former Modern Plastics factory building and land. The bankruptcy trustee had custody and responsibility for the factory building for approaching five years before filing a motion, and obtaining the bankruptcy court’s permission, to abandon the property. In the interim, the Trustee failed to secure, maintain or insure the property, and only visited it once. While the property was in the Trustee’s custody, scrappers stole valuable building materials from the building. This looting caused structural damage, which allowed the elements to further damage and ultimately destroy the building. The bankruptcy court described the damage that occurred to the building during the Trustee’s custody as “shocking, if not revolting”. Nevertheless, the bankruptcy court held that the Trustee had no duty to maintain the property, and was not liable for the damage caused by his gross neglect, because (the bankruptcy court decided) the liens against the property exceeded its market value. This ruling effectively means that the Trustee has no duty to a secured creditor for damage to the secured creditor’s collateral caused by the Trustee’s failure to protect the estate property. This ruling was