Peterson v. McGladrey LLP

(7th Cir. July 7, 2015)

The Seventh Circuit affirms the bankruptcy court’s decision recognizing the in pari delicto defense and dismissing the trustee’s suit against the accounting firm for malpractice. The debtors were mutual funds that were essentially a vehicle for a ponzi scheme. The accounting firm argued that under Illinois law the trustee’s claims were barred by the in pari delicto doctrine. The trustee argued that Illinois courts only apply the doctrine when the parties have committed the same wrong. He argued it should not apply here, where the debtors committed fraud and the firm committed malpractice for failing to detect the fraud. The court applies the doctrine, finding Illinois law does not have such a requirement. Opinion below.

2015-07-07 – peterson v mcgladrey

Author: Matt Lindblom

Hagan v. Baird (In re B & P Baird Holdings, Inc.)

(6th Cir. Jan. 2, 2015)

The Sixth Circuit reverses the bankruptcy court’s decision denying the trustee’s motion to amend his complaint. The debtor’s principals had received funds from the debtor prepetition while the debtor was defending against a patent infringement claim. The trustee asserted a conversion claim against the principals. The bankruptcy court dismissed the complaint, pursuant to the in pari delicto doctrine, and denied the trustee’s motion to amend the complaint to assert one of the principals was an innocent recipient of the funds (although still liable for conversion under Michigan law). The Sixth Circuit reverses, holding that the amendment would not be futile, as the principal could be liable for conversion even if the principal had not intended to convert the funds. The in pari delicto doctrine should not be applied until that principal’s role in the alleged conversion is determined. Opinion below.

2015-01-02 – hagan v baird