FOR THE NORTHERN DISTRICT OF CALIFORNIA
COMBS LOGGING CO., INC., No. 1-87-00286
COMBS LOGGING CO., INC.,
v. A.P. No. 1-89-0174
U.S. BANK OF CALIFORNIA,
Memorandum of Decision
Plaintiff Combs Logging Co., Inc., is a debtor in a Chapter 11 case with a confirmed plan.
In 1986, it guaranteed an obligation of a related corporation, Combs Lumber Co., Inc., to
defendant U.S. Bank of California. The Bank holds security interests in the personal property
of both debtors.
The Combs Lumber case has been converted to Chapter 7. Because the landlord in that case
claims a lien on the personal property in that case superior to that of the Bank, the Bank
consented to the Trustee's sale of the property free and clear of its lien. The Trustee liquidated
the property at a court-approved auction, with liens attaching to the proceeds pending a
determination of the parties' rights.
The complaint in this matter filed by Combs Logging alleges that the Bank has lost its lien
rights in its personal property because it did not receive notice of the auction and the auction was
not commercially reasonable. The Bank then filed a cross-complaint against the Trustee, alleging
that if plaintiff's allegations are true that she must indemnify the Bank. The Trustee's motion to
dismiss the cross-complaint is now before the court.
The cross-complaint against the Trustee completely fails to state a claim upon which relief
can be granted. It only alleges that she did not notice the guarantors and that the sale was not
commercially reasonable, not that the sale was improperly conducted under bankruptcy law.
Whatever duty the Bank may have had to give notice to the guarantors or to hold a sale in a
certain manner did not devolve upon the Trustee merely because the Bank consented to her sale
free and clear of its lien. Her only obligation was to give notice to those persons entitled to
notice pursuant to Bankruptcy Rule 2002, and it appears that such notice was properly given.
If the Bank wanted something more, it should have made the additional notice a condition of its
consent. Also, nothing kept the Bank from giving its own notice.
Moreover, since the Trustee obtained a court order approving the auction sale she is immune
from any personal liability for conducting the sale in accordance with the order. In re Jacksen
(9th Cir.BAP 1989) 105 B.R. 542. Any alleged liability of the Combs Lumber estate is properly
asserted by the filing of a proof of claim, not by a suit against the trustee; 28 U.S.C. section 959,
by its own terms, does not apply to liquidation cases. See In re Campbell
13 B.R. 974, 976, and authorities therein cited.
The Trustee's motion to dismiss will therefore be granted. Counsel for the Trustee shall
submit an appropriate form of order and a form of judgment dismissing the cross-complaint
against the Trustee.
Dated: December 13, 1989 _______________________