Strange seedling death

After potting up a number of seedlings that had sprouted in their bags, I placed the pots outside. Sadly, a number of the seedlings experienced a death similar to damping off–but I’m not sure that is the problem for two reasons:

  1. I used new pots with sterile potting soil.

  2. The place where the stem was shriveled was not at the soil line, but above the soil line and somewhat below the cotyledons.

I am in the PNW and we have had rain keeping the pots wet (surprise!). Also I sprayed lightly with a malathion/lime-sulfur mix while spraying established plants.

Can anyone give me a clue as to what has been happening and what might be done to avoid having it happen again? I’m wondering if the tiny plants could have experienced sunburn, windburn, or chemical burn, or . . . .