In an interesting twist on a run-of-themill case regarding the personal liability of a corporate officer for unremitted sales taxes, the New York State Division of Tax Appeals held an owner (“Petitioner”) personally liable for sales tax even though the corporation was in Chapter 11 bankruptcy and was being run by a bankruptcy court-approved management company. In re Eugene Dinino, Docket Nos. 822605, 822606, 822607, 822608, 822609, 822610 (N.Y.S. Div. of Tax App. June 24, 2010).

In this memorandum opinion, the Court of Chancery considered a motion to dismiss claims brought on behalf of Insilco Technologies, Inc. (“Insilco”) by the plaintiff, a bankruptcy court appointed Creditor Trustee. Among other claims, plaintiff brought claims for breach of fiduciary duty against Insilco’s controlling stockholder, a group of affiliated funds (the “DLJ Funds”) allegedly dominated and controlled by DLJ, Inc. and DLJ Merchant Banking, Inc. (“DLJMB”) (collectively, “DLJ”), and a group of DLJ-affiliated directors who comprised a majority of Insilco’s board.

The Court of Appeals for the Fifth Circuit recently held that Chapter 15 of the Bankruptcy Code does not prohibit a foreign representative from bringing an avoidance action so long as the claim for relief is based on the substantive laws of the jurisdiction where the foreign proceeding is located. The Fifth Circuit’s decision is consistent with the dual policy considerations of comity and predictability. Fogerty v. Petroquest Res., Inc. (In re Condor Ins. Ltd.), 601 F.3d 319 (5th Cir. 2010).

Background

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.

In this memorandum opinion, the Court of Chancery granted plaintiffs’ motion to amend their complaint in part, and denied their motion to appoint a receiver for Advance Realty Group, LLC, a Delaware limited liability company (“ARG”) conducting business as a real estate investment and development company. Plaintiffs, all of whom are members of ARG, initially brought claims for breach of fiduciary duty and contract against ARG and the other defendants, which include members of ARG’s managing board (the “Board”), its senior management, and its principal investors.

Official Committee of Unsecured Creditors of Allegheny Health, Education and Research Foundation v PricewaterhouseCoopers, LLP(3d Cir No 07-1397, May 28, 2010)

CASE SNAPSHOT

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.

On September 30th, the Sixth Circuit affirmed the dismissal of the bankruptcy trustee's lawsuit against Deloitte & Touche, the debtor's former auditor. The trustee alleged that Deloitte negligently failed to uncover and report unsound related-party transactions by the debtor's sole shareholder and CEO, and aided and abetted the CEO's breach of his fiduciary duty to the debtor. Affirming dismissal, the Court held the trustee failed to allege reliance upon Deloitte's audits and the statute of limitations bars the aiding and abetting claim.

The Sixth Circuit continues to liberally define the "actual knowledge" required to trigger the 3-year ERISA statute of limitations and, in doing so, affirmed summary judgment in favor of the defendants in Brown v Owens Corning Investment Review (Case No. 09-3692).

The Texas Rangers were sold in an August bankruptcy auction to a syndicate headed by former baseball great Nolan Ryan and attorney Chuck Greenberg. The final purchase price was $608 million—nearly $100 million more than the original offer for the team—and is a great example of how lenders can use the bankruptcy process to maximize the value of an asset.