This paper discusses the variations in federal common law as to whether a bankruptcy trustee may seek recovery for wrongdoing by a debtor’s co-conspirators under the doctrine of in pari delicto.
In pari delicto is an affirmative defense and equitable principle of law. The doctrine prevents a wrongdoer from recovering damages resulting from their own wrongdoing. However, the application of in pari delicto in the context of bankruptcy may raise several complicated issues. Recently, a troubling line of cases has emerged regarding the applicability of the in pari delicto defense to bankruptcy trustees. Bankruptcy defendants have been using the in pari delicto defense and court rulings to their advantage to prevent victims from recovering for wrongdoing and to set wrongdoers free. Unfortunately, some courts have allowed this use of the defense, which has had the effect of stripping trustees and creditors’ committees of valid claims. The paper discusses this line of cases in detail, as well as the split of authority between federal circuit and district courts on the issue.
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