I was the luncheon speaker on October 10, 2013 at the annual meeting of the Professional Liability Defense Federation (PLDF). Here is the text of my remarks.
Pete Brush at Law.com did a story last week about a story about in pari delicto, the adverse interest exception, and holding third-parties like auditors liable for fraud in bankruptcy cases. I was quoted.
The Supreme Court of the State of Delaware issued an opinion on January 3rd, 2011 affirming the dismissal of claims against PricewaterhouseCoopers (PwC) in the Teachers Retirement System of Louisiana derivative suit. PwC prevailed because the Delaware Supreme Court had little choice but to follow New York’s direction regarding in pari delicto, barring a strong argument otherwise from the plaintiffs.
The New York Court of Appeals decided on October 21, 2010, by a vote of 4-3, to “decline to alter our precedent relating to in pari delicto, and imputation and the adverse interest exception, as we would have to do to bring about the expansion of third-party liability sought by plaintiffs here.”
The decision is flawed, misguided and strongly biased towards corporate interests rather than shareholder and investor interests.
The way I see it, the in pari delicto doctrine is being used like a pair of needle nosed pliers by audit firm defense lawyers to diffuse the bomb – huge liability for some of the biggest frauds in history. The in pari delicto doctrine attempts to pull the auditors’ tails from the fire by excusing any of their guilty acts due to the approval of those acts by potentially equally guilty executives.