The In Pari Delicto Defense to Bankruptcy and Other Claims Against Directors, Officers, and Third Parties

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Anticipating or Raising the Defense in Bankruptcy and Other Asset Recovery Litigation

Bankruptcy trustees, receivers, creditors, assignees for the benefit of creditors, investors, and other plaintiffs in asset recovery actions often aggressively pursue claims against the management as well as outside professionals and lenders of distressed and insolvent entities, including accountants, auditors, attorneys, banks, and advisers.A significant defense for professionals and banks in such cases is the in pari delicto doctrine. When the plaintiff stands in the shoes of the debtor entity–as do bankruptcy trustees, receivers, assignees for the benefit of creditors, and some others often do–and attempts to recover for the debtor’s conduct in which the debtor’s officers, directors, or employees were complicit, the defendants often seek to bar recovery arguing that the plaintiff is “of equal fault” with defendants.This defense has been rapidly evolving in the past few years, and its scope varies by jurisdiction. The Madoff and MF Global litigation, among many other high-profile cases, featured this defense prominently. Additionally, insight has emerged from the U.S. Circuit Courts of Appeal and the defense is expected to play a prominent role in the cryptocurrency bankruptcies.Listen as our authoritative panel of trial lawyers discusses recent trends in asset recovery litigation against officers, directors, and outside professionals of distressed companies, as well as banks, and the evolving scope and application of the in pari delicto defense as a potential shield to recovery by trustees, receivers, creditors, assignees for the benefit of creditors and investors.

Questions Addressed:

What are the trends in asset recovery litigation in which the in pari delicto defense may apply, and what are the conventional theories of liability?
Is the in pari delicto defense or an asserted lack of standing a problematic obstacle to filing suit against professionals and professional firms who represented the distressed or insolvent company, or against banks and other third-party non-professionals alleged to have been complicit in the wrongdoing?
What are some of the best arguments for and against the application of the defense?
What are the most recent developments in case law?

On Demand CLE Webinar

A Strafford production specially selected for HB audiences.

Speakers

Ronald R. Peterson
Of Counsel
Jenner & Block
rpeterson@jenner.com

James D. Silver
Partner
Kelley Kronenberg
jsilver@kklaw.com

Outline

Common claims against D&Os and outside professionals, as well as claims against banks and other allegedly complicit third-party non-professionals
1. Fraud
2. Aiding and abetting fraud and breach of fiduciary duties
3. Malpractice
4. Fraudulent conveyance
Applicability and scope of the in pari delicto defense
1. Standing to pursue claims
2. Exceptions to the doctrine
3. Which state’s laws apply
4. Special state law considerations
Recent case law developments