In the last eighteen months, two Major League Baseball teams, the Chicago Cubs and the Texas Rangers, were sold in bankruptcy. Although both teams engaged in very similar processes leading up to their respective bankruptcy filings, the bankruptcy cases took very divergent paths.

In a decision that may come as a surprise to many, the Court of Chancery of the State of Delaware (the “Court”) recently dismissed a derivative suit brought by a creditor on behalf of an insolvent limited liability company. See CML V, LLC v. Bax et al., 6 A.3d 238 (Del. Ch. 2010)(JetDirect Aviation Holdings, LLC, Nominal Defendant).

It is well established that the automatic stay imposed under section 362 of the United States Bankruptcy Code (the “Bankruptcy Code”) in a typical bankruptcy case applies extraterritorially. Thus, creditors of a Chapter 11 debtor are generally prohibited from exercising any remedies against a debtor or its assets anywhere in the world. Up until recently, no court had addressed the scope of the stay applicable in a Chapter 15 case.

On October 21, 2010, the Ninth Circuit overruled what many thought to be well-settled law, and held that a bankruptcy trustee does not have standing to pursue alter ego claims, at least in cases governed by California law. The court first held that California state law does not recognize a general alter-ego cause of action that allows an entity and its equity holders to be treated as alter egos for purposes of all of the entity’s debts.

In a partial reversal of a decision from Bayou Group LLC's bankruptcy case, the US District Court for the Southern District of New York reconsidered a controversial ruling that sent shivers down the spines of institutional investors in 2008. See In re Bayou Group , LLC, No. 09 Civ. 02577 (S.D.N.Y. Sept. 17, 2010).

In a May 28, 2010 decision, Judge Alan Gold of the United States District Court for the Southern District of Florida granted a motion to dismiss claims filed against lenders on a revolving loan agreement to the Fontainebleau resort and casino project in Las Vegas. The claims were brought by two term loan lenders for the project, Avenue CLO Fund, which had provided term loan funding, and Aurelius Capital, which had acquired the interests of other term lenders following the project’s bankruptcy.

After nearly fifteen years of unsuccessful attempts to recover $71 million worth of securitized bonds after the 1990 bankruptcy of Continental Airlines, Inc., Bluebird Partners L.P. may have suffered its final defeat. In a recent decision by a New York trial court in Bluebird Partners v. The Bank of New York, et al., No. 601016/1996 (New York Co. June 7, 2010), the court granted summary judgment to defendant Bank of New York (“BNY”), holding that the bank behaved prudently in establishing a litigation reserve fund as the collateral trustee in the airline’s bankruptcy.

In a decision that may create a significant roadblock for companies saddled with environmental clean-up liability to continue as a going concern, the Seventh Circuit in U.S. v. Apex Oil Company, Inc., 579 F.3d 734 (7th Cir. 2009) affirmed a district court injunction requiring the clean-up of a contaminated site in Illinois under section 7003 of the Resource Conservation and Recovery Act (RCRA) despite the company's bankruptcy. On September 27, 2010, the Supreme Court is scheduled to discuss whether to grant review of the Apex decision.

The California Court of Appeal recently rejected the argument that directors and officers owe fiduciary duties to the company's creditors when the company is in the so-called "zone of insolvency," or is even clearly insolvent. In Berg & Berg Enterprises, LLC v. John Boyle, et al., 100 Cal. Rptr. 3d 875 (Cal. Ct. App. 6th Dist. Oct. 29, 2009), the California court expounded that "there is no broad, paramount fiduciary duty of due care or loyalty that directors of an insolvent corporation owe the corporation's creditors solely because of a state of insolvency." Id. at 893-94.

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