In the decision granting the motion to dismiss, Judge Cote (who was recently assigned the case after Judge Sullivan was elevated to the Second Circuit), agreed with Weils arguments that the trustees claims were barred by the in pari delicto
defense, which prohibits the trustee from pursuing claims against third parties such as Morgan Stanley when the trustee alleges that the company itself through its management and directors engaged in the very wrongdoing that caused Tribune to fall into bankruptcy.
The Supreme Court applied the concept of 'in pari delicto
.' This Latin term connotes that if the two parties to a controversy are equally culpable or at fault, they have no action against each other.
A college whose financial aid director committed fraud could sue its auditor under the doctrine of in pari delicto
, the Supreme Judicial Court has ruled, finding that because the employee was not a member of senior management, her conduct could not be imputed to the school.
Q: Is the doctrine of in pari delicto
applicable in this ejectment case?
CRIMINAL LAW--Second Circuit Applies Defense of in Pari Delicto
to Racketeer Influence Corrupt Organization Act Claim--Republic of Iraq v.
Under the doctrine of in pari delicto
("in equal fault"), an auditor cannot lie held liable for negligently failing lo detect wrongdoing or lor even participating in die wrongdoing if the corporation also participated at least equally.
One of the strongest legal weapons available to audit firms sued by shareholders or creditors following revelations of corporate fraud is the defense of in pari delicto
, This legal doctrine, over two centuries old, is grounded in the policy that a court should not intercede between two wrongdoers.
To apply in pari delicto
, the illegal transaction must have been entered voluntarily and the fault apportioned equally.
In other words, the legislature has eliminated the potential for a defense against a claim brought by an assignee or by his or her initial assignee, based upon the concept of in pari delicto
. (27) Conceptually, the in pari delicto
defense will apply "where the fault of the parties is mutual, simultaneous and relatively equal, and where the plaintiff is an active, essential, and knowing participant in the unlawful activity." (28) Because agency principles attribute the actions of an officer or employee of a corporation to the corporation itself, acts of the officers or directors alleged in a complaint are attributable to the company.
Responsibility for Sovereign Debt and the In Pari Delicto
In pari delicto
potior est conditio defendentis stands for the proposition that "in the case of equal fault, the position of the defendant is stronger."(20) Many attorneys are employing this defense, in the from of a motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure, when charged with negligence or malpractice by a client.
Under the in pari delicto
principle, public policy dictates that parties who both transgress the law should not be permitted to profit from their wrongdoing.