Harvey W. wrote, asking, “I’m concerned I will be sued by a bankruptcy trustee for some things I did when I was a director and officer of a company. A friend from my country club mentioned something about the in pari delicto defense. Can you explain what that is?”
In pari delicto is Latin for “in equal fault.” It’s essentially a particularized application of the more general equitable doctrine of unclean hands, and it bars a plaintiff who has been damaged from its own intentional wrongdoing from recovering those damages from “another party whose equal or lesser fault contributed to the loss.”1
If a bankruptcy trustee (or a debtor in possession, post-confirmation estate, or liquidating trust (collectively, a “fiduciary”)2) sues you for something you did (or failed to do) while you were a director or officer of the company of which it is trustee, then you may have an in pari delicto defense.
Assuming that what you did was legally actionable, Harvey, the question of whether you can use the defense may depend on whether your former company (the debtor) benefited from your wrongful act. If so, that action may be imputed to the company, and an in pari delicto defense may bar the claim.
But if you acted adversely to the interests of the corporate debtor, an in pari delicto defense cannot be established. This would be the case if your bad act involved you (1) acting outside the scope of your employment; (2) breaching your fiduciary duties; or (3) acting in your own self-interest.
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