The Time Has Come to Reconsider Whether Trustees Are Subject to In Pari Delicto

September 20, 2024

The Time Has Come to Reconsider Whether Trustees Are Subject to In Pari Delicto

Bound by circuit precedent, the Eighth Circuit held that a prior receivership does not cleanse the bankruptcy estate of the in pari delicto defense.

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Opinion Link

View Opinion

https://abi-opinions.s3.amazonaws.com/Kelley+v+BMO.pdf

Case Details

Case Citation

Kelley v. BMO Harris Bank N.A., 23-2551 (8th Cir. Sept. 12, 2024).

Case Name

Kelley v. BMO Harris Bank N.A.

Case Type

Court

8th Circuit

Bankruptcy Tags

Bankruptcy Litigation

Fraud

Fraudulent Transfers

Comments

Submitted by Thomas Salerno on September 20, 2024

Bill--this case confuses me and would have turned out differently in the 9th Circuit. The in pari delicto defense does not apply to Sections 544/548 claims because the trustee stands in the shows of a hypothetical creditor, not the debtor. See Goernitz v. Kohner (In re Kohner), 2014 WL 4639920 *3-4 (Bankr. Ariz. 2014), citing In re Porter McLeod, Inc., 231 B.R. 786 (D. Colo. 1999), wherein the district court draws a clear distinction between the trustee's assertion of state law claims in his role as a creditor, under Section 544, rather than as the debtor. This is in accord with the Ninth Circuit's reasoning in FDIC v. O'Melveny & Myers, 61 F. 3d 17, 19 (9th Cir. 1995), followed by Biltmore Assocs., L.L.C. v Thimmesch, 2007 WL 9723941 (D. Ariz. 2007). See also, In re Hawaiian Telcom Commc'ns, Inc., 483 B.R. 217, 221 (Bankr. D. Haw. 2012); In re Maui Indus. Loan & Fin. Co., 454 B.R. 133, 136 (Bankr. D. Haw. 2011) ("in pari delicto defense is inapplicable when a trustee brings an action under sections 544(b) and 548."). This issue is regularly litigated in the 9th circuit and defendants get no relief when the claims being asserted are based on 544/548. Tom Salerno