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operations even after being warned by initial counsel not to do so; adverse interest exception to in pari delicto principle did not preclude conduct of CEO/Chairman being imputed to debtor to bar chapter 11 trustee's claim against subsequent attorneys).
In re Allou Distributors, Inc., 395 B.R. 246 (Bk. E.D.N.Y. 2008) (trustee stated malpractice claim against accountants for departing from generally accepted auditing standards in failing to verify accounts and inventory and identify related party transactions and thus not discovering a massive fraud; also, accountants issued unqualified opinions which permitted business to continue; trustee asserted departure from GAAS led to deepening insolvency and was the proximate cause of damages to the debtor).
In re Security Asset Capital Corp., 390 B.R. 636 (Bk. D. Minn. 2008 ) (denying summary judgment on claims against two directors for breach of fiduciary duty, deepening insolvency, avoidable transfers and claims objection; court holds various claims including deepening insolvency were redundant).
In re Restaurant Dev. Group, Inc., 50 BCD PP 96, 97 (Bk. N.D. Ill. 2008 ) (complex scheme to defraud creditors including back dating of documents in which defendant attorneys allegedly induced, participated in and facilitated; court sustained complaint alleging successor liability, breach of fiduciary duty, fraudulent transfers, conspiracy and actual fraud; court also sustains complaint against attorneys for aiding and abetting a fraudulent transfer (under Illinois law)). Compare In re Elrod Holdings Corp., 394 B.R. 751 (Bk. D. Del. 2008) (no accessory fraudulent transfer liability of insiders unless immediate or mediate transferees).
Adelphia Recovery Trust v. Bank of America, 390 B.R. 64 (S.D.N.Y. 2008) (denying most motions to dismiss claims for aiding and abetting breach of fiduciary duty on basis of in pari delicto defense).
In re Oakwood Homes Corp., 389 B.R. 357 (D. Del. 2008) (action against underwriter on various tort theories for value destroying securitization transactions approved by management and directors; court held underwriter's access to nonpublic information and dependence on debtor on underwriter for financing conferred insider status on underwriter and in pari delicto doctrine was not applicable).
One New York court has held that the adverse interest exception to in pari delicto is very narrow and only applies if the agent has totally abandoned the principal's interest, and is not applicable if the agent has a conflict or does not act primarily for the principal's benefit. The court also declined to recognize the innocent director exception under NY law. Symbol Technologies, Inc. v. Deloitte & Touche, LLP, NY Sup. Ct. (6/18/08)(Emerson, J.).
In re World Health Alternatives, Inc., 385 B.R. 576 (Bk D. Del. 2008) (permitting action against general counsel on various tort theories even if not a participant or aware of fraud; general counsel has a fiduciary duty to assure adequate information and reporting system is implemented).
©2009 Jonathan M. Landers
