Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

The Bankruptcy StrategistKickerFeaturesSectionsNewsLJN Newsletters

In Pari Delicto Not a Bar to a Bankruptcy Trustee's Recovery

By Travis Powers

The doctrine of in pari delicto stands for the proposition that when parties litigate based on mutual fault, the defending party's position is superior. See Pinter v. Dahl, 486 U.S. 622, 632 (1988); see also Mosier v. Caliter, Nebeker & McCullough, 546 F.3d 1271, 1275 (10th Cir. 2008). The doctrine, rooted in the common law, prevents a wrongdoer from profiting from its own bad acts and promotes judicial efficiency by ensuring “that courts [do] not lend their good offices to mediating disputes among wrongdoers ' .” Mosier, 546 F.3d at 1275.

Bankruptcy trustees are particularly susceptible to this affirmative defense when pursuing certain claims against third parties, as the debtor's own culpability may bar recovery. This is especially relevant in cases of fraud where a trustee pursues an action against a third party that colluded with the debtor or its agents, resulting in pre-petition harm to the debtor. See, e.g., Grassmueck v. American Shorthorn Ass'n, 402 F.3d 833, 837-41 (8th Cir. 2005). Courts have equally found that in pari delicto bars a trustee's recovery against certain professionals whose negligence contributed to the debtor's fraudulent conduct. See Luzinski v. Peabody & Arnold, LLP (In re Gosman), 382 B.R. 826, 838 (S.D. Fla. 2007). However, courts generally have refused to apply the in pari delicto defense to a bankruptcy trustee seeking to avoid certain fraudulent transfers under section 548 of the United States Bankruptcy Code (Code) despite the debtor's pre-petition bad acts. See, e.g., Kapila v. Bennet) In re Pearlman, 472 B.R. 115, 122 (Bankr. M.D. Fla. 2012).

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
The Article 8 Opt In Image

The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.

Major Differences In UK, U.S. Copyright Laws Image

This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.

Beach Boys Songs Written Decades Ago Triggered Current Quarrel With Lawyers Image

There's current litigation in the ongoing Beach Boys litigation saga. A lawsuit filed in 2019 against Nevada residents Mike Love and his wife Jacquelyne in the U.S. District Court for the District of Nevada that alleges inaccurate payment by the Loves under the retainer agreement and seeks $84.5 million in damages.

Strategy vs. Tactics: Two Sides of a Difficult Coin Image

With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.

Transfer Tax Implications on Real Property Leases Image

The real property transfer tax does not apply to all leases, and understanding the tax rules of the applicable jurisdiction can allow parties to plan ahead to avoid unnecessary tax liability.