The application of the in pari delicto defence in the
United States is subject to significant jurisdictional
variability. Case law reveals at least two different approaches to
the scope of the defence: (i) a narrow application available to
innocent but negligent (not complicit) defendants; and (ii) a broad
application available to both negligent and complicit defendants in
circumstances in which the plaintiff bears at least equal
responsibility for the wrong alleged.
For example, in 2010, the Supreme Court of Pennsylvania applied
in pari delicto narrowly in Official Committee of
Unsecured Creditors of Allegheny Health Education and Research
Foundation (AHERF) v. PricewaterhouseCoopers LLP, 607 F3d 346.
The members of senior management of a non-profit corporation
misstated financial results to conceal the corporation's
financial difficulties. Following discovery of the fraud and the
corporation's bankruptcy, a group of innocent unsecured
creditors brought an action against the company's auditors,
alleging that they had colluded with senior management to issue
clean audit reports. The Court held that the purpose of the defence
of in pari delicto is to protect innocent third parties
where the corporation's agent has acted within the actual or
apparent authority delegated to it by the corporation. Therefore,
in Pennsylvania, in pari delicto is available to negligent
auditors, to the extent that they acted in good faith and did not
By way of contrast, in Kirschner v. KPMG LLP
("Kirschner") and Teachers' Retirement System of
Louisiana and the City of New Orleans v.
PricewaterhouseCoopers LLP ("Teachers"), 15
N.Y.3d 446, the Court of Appeals of New York applied in pari
delicto broadly to protect both innocent and colluding
auditors on the basis that corporations and their owners, rather
than third parties (including auditors), are in the best position
to monitor the corporation's management and so there was no
good reason to "immunize" so-called innocent
shareholders. In Kirschner, the trustee in bankruptcy of a
brokerage clearinghouse claimed that the auditors failed to detect
the concealment of millions of dollars in uncollectable debt by the
company's president and Chief Executive Officer. In
Teachers, shareholders brought a derivative action on
behalf of American International Group ("AIG") against
the auditors for failing to detect the senior officers'
fraudulent misstatement of AIG's financial affairs. In both
cases, the plaintiffs invoked the adverse interest exception to the
corporate attribution doctrine. They argued that where the
wrongdoers benefitted personally from the impugned conduct, it
should not be attributed to the corporation, even if the
corporation also benefitted in the short term. The Court disagreed
and held that the adverse interest exception does not apply where
the corporation also receives a benefit to avoid the difficult task
of measuring the benefit or adversity to the corporation of the
wrongdoer's action. Therefore, in pari delicto was a
defence available to the auditors.
The recent decision of the Ontario Superior Court of Justice in
Livent Inc. v. Deloitte & Touche LLP, 2014 ONSC 2176,
canvassed in our next blog, was the perfect opportunity for the
Ontario Courts to consider these approaches.
It's not often that our little blog intersects with such titanic struggles as the U.S. presidential race – and by using the term "titanic" I certainly don't mean to suggest that anything disastrous is in the future.
J.J. v. C.C., is an interesting case in which the court held that an automotive garage owes a duty to minor children to secure the vehicles on the premises by locking the cars and safely storing the car keys...
In Irwin v. Alberta Veterinary Medical Association, 2015 ABCA 396, the Alberta Court of Appeal found that the "ABVMA" failed to afford procedural fairness to a veterinarian undergoing an incapacity assessment.
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