When a once high-flying company suddenly fails amid accusations of fraud and mismanagement by company insiders, litigation is sure to follow. The company — or others standing in the shoes of the company, such as trustees or receivers – will often file claims against accountants, banks, attorneys and other professional service providers alleging that these entities caused the destruction of the company. The stakes in such cases can be high, with the company claiming hundreds of millions — if not billions — of dollars in damages.
The third parties targeted with such claims often defend on the ground that the company’s own insiders are to blame for the company’s demise. They may claim, for example, that the company failed because the insiders cooked the books or stole corporate assets. As a legal matter, they argue that the insiders’ wrongdoing should be “imputed” to the corporation itself, and that the corporation’s own culpable conduct bars the corporation’s claims under the doctrine of in pari delicto, a doctrine providing that where a plaintiff has at least equal fault with the defendant, the plaintiff cannot recover.
