By Ron Peterson and Landon Raiford
Jenner & Block, LLP
On July 7, the Seventh Circuit delivered two opinions involving trustee Ronald Peterson. In one case, the Trustee's claim was dismissed under the doctrine of in pari delicto, while in the second, the trustee's malpractice claim against a law firm stated a plausible claim. In both cases, the trustee for Lancelot Investors Fund, Ltd. had sued professionals for contributing to the debtor's demise. (Click on the style of the case for a link to the decison).
Peterson v. McGladrey LLP, No. 14-1986 (7th Cir. July 7, 2015)
In McGladrey, the Seventh Circuit recently expanded on an earlier decision (also in the same litigation) that the doctrine of in pari delicto may apply to a bankruptcy trustee if the doctrine otherwise would apply under the relevant state law. In McGladrey, the trustee alleged that McGladrey negligently committed its audit of the debtor, and that if McGladrey had not done so, it would have discovered that the debtor was actually investing in a Ponzi scheme thereby saving the debtors millions of dollars lost through further investments in that scheme. McGladrey argued that even if the trustee’s contentions were correct, McGladrey could not be liable because the debtors committed their own fraud by giving false information to its investors regarding certain safeguards the debtors stated they had put in place but which were not. The question before the Seventh Circuit was whether the in pari delicto doctrine only applies if the plaintiff and defendant commit the same misconduct.