In Re Foodsource, Inc.

MEMORANDUM OPINION

I. SUMMARY

This case involves a dispute between sureties and a bankruptcy trustee over liability for certain defalcations that Charles E. Duck committed during his term as Chapter 11 trustee in the FoodSource consolidated bankruptcy proceedings. It comes on appeal from an interlocutory order of the federal bankruptcy court for the Northern District of California. This Court has jurisdiction pursuant to 28 U.S.C. section 158 (a).

The issue, on appeal is whether a surety that issues a Chapter 11 bankruptcy trustee bond subsequent to the filing of the initial trustee bond is liable for defalcations committed prior to the time it issued the latter bond. Based upon its review of the relevant bankruptcy statutes, bankruptcy rules, common law decisions, and the circumstances of this case, the Court affirms the decision of the bankruptcy court in part, reverses in part, vacates in part, and remands the case for further findings in accordance with this Opinion.

II. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

On January 29, 1985, Mr. Charles E. Duck was appointed Chapter 11 trustee in the consolidated bankruptcy proceedings of FoodSource, Inc. and FoodSource Sales…