Nicholson v. Shapiro & Associates, LLC
2017 IL App (1st) 162551
| Ill. App. Ct. | 2017Background
- Illinois Stock Transfer Company (IST), an SEC-registered transfer agent, suffered fraud by its president and sole shareholder, Robert Pearson, who diverted client funds to payroll.
- The SEC filed a federal enforcement action; Pearson was removed and a federal court appointed Jill Nicholson as receiver for IST and Pearson, authorizing her to sue on IST’s behalf.
- The receiver sued outside auditor Shapiro & Associates in Illinois state court for accounting malpractice, breach of contract, and aiding and abetting Pearson’s fraud.
- Shapiro moved to dismiss under section 2-619.1, arguing the in pari delicto doctrine barred the receiver because IST (through Pearson) was equally at fault.
- The trial court denied dismissal; Shapiro sought certification under Illinois Supreme Court Rule 308 on two legal questions about in pari delicto’s application to an SEC receiver.
- The appellate court accepted the certified questions and reviewed only those issues de novo.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does in pari delicto bar a court-appointed SEC receiver from suing the company’s outside auditor for failure to detect the owner’s fraud? | Receiver: She is not the wrongdoer; appointed to recover for creditors/victims, so in pari delicto shouldn’t apply. | Shapiro: IST benefited from the fraud; the receiver stands in IST’s shoes so in pari delicto should bar the suit. | No — in pari delicto does not bar a court-appointed SEC receiver from bringing such claims. |
| Does departure/removal of the fraudulent actor prevent application of in pari delicto to the receiver’s claim? | Receiver: Removal of the wrongdoer means the defense’s purpose (preventing wrongdoer profit) is gone. | Shapiro: Whether the wrongdoer remains with the company should not change the availability of the defense. | Yes — the fraudulent actor’s removal prevents application of in pari delicto to the receiver’s claim. |
Key Cases Cited
- King v. First Capital Fin. Servs. Corp., 215 Ill. 2d 1 (2005) (defines doctrine of in pari delicto and its basic principle)
- Albers v. Continental Illinois Bank & Trust Co., 296 Ill. App. 592 (1938) (court-appointed receiver not barred by in pari delicto; receiver is not the wrongdoer)
- McRaith v. BDO Seidman, LLP, 391 Ill. App. 3d 565 (2009) (liquidator/receiver is an administrative officer whose role to recover for victims makes in pari delicto inapplicable)
- Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995) (in pari delicto aims to prevent wrongdoer profit and loses force once wrongdoer is removed)