Sarah Michaels, Inc., was a customer of Certified Packaging Corporation. Michaels declared bankruptcy, and the trustee in bankruptcy brought an adversary proceeding against Certified seeking to avoid transfers that Michaels had made to that company to pay for packaging. The trustee obtained a default judgment for $2 million but ran afoul of LaSalle Bank, which claimed a security interest in Certified’s assets and proceeds thereof. In December 2000, after LaSalle had made the loan, a fire broke out at one of Certified’s plants and damaged equipment in it. Certified brought two lawsuits in the wake of the fire. One was against its insurance broker, Rothschild, for negligence in having failed to list the plant on a business-losses insurance policy that Rothschild had procured for Certified. That suit was settled for $88,000. Certified’s other suit was against Commonwealth Edison and claimed that the fire had been due to Com Ed’s negligence in maintaining one of its power lines. In that suit, Certified sought damages of $2,000,000 for property damage and business losses, the latter accounting for about ninety percent of the claimed damages. To whom should the settlement proceeds and potential proceeds from the Com Ed lawsuit belong—the bankruptcy estate or LaSalle? What are the reasons for your answers?

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