Nicholson v. Shapiro & Associates, LLC
2017 IL App (1st) 162551
| Ill. App. Ct. | 2017Background
- Illinois Stock Transfer Company (IST), a SEC‑regulated transfer agent, employed Robert Pearson as its president and sole shareholder; Pearson diverted client funds for payroll, prompting SEC enforcement and his removal.
- A federal court appointed Jill Nicholson as receiver for IST and Pearson, authorizing her to bring suits in any jurisdiction on behalf of IST’s estate and creditors.
- The receiver sued Shapiro & Associates (external accountant) in Cook County for accounting malpractice, breach of contract, and aiding and abetting Pearson’s fraud, alleging Shapiro failed to detect Pearson’s misconduct.
- Shapiro moved to dismiss under section 2‑619.1, arguing the in pari delicto doctrine bars the receiver because IST (through Pearson) was equally at fault.
- The trial court denied dismissal; Shapiro sought Rule 308 certification on two questions about whether in pari delicto bars an SEC receiver and whether the wrongdoer’s departure affects the defense.
- The appellate court accepted certification and reviewed only those legal questions de novo.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether in pari delicto bars a court‑appointed SEC receiver from suing the company’s outside auditor for failing to detect the owner’s fraud | Receiver: as a court‑appointed officer acting for creditors/victims, she is not the wrongdoer and may sue | Shapiro: IST would be barred if it sued; receiver stands in IST’s shoes so in pari delicto should apply | No — in pari delicto does not bar a court‑appointed SEC receiver from bringing such claims |
| Whether the fraudulent actor’s departure prevents in pari delicto from applying to a receiver’s claim | Receiver: removal of wrongdoer eliminates risk he would profit; receiver pursues victims’ recovery | Shapiro: departure is irrelevant; plaintiff’s right shouldn’t depend on whether wrongdoer remains | Yes — once the wrongdoer is removed and a receiver appointed, in pari delicto does not apply |
Key Cases Cited
- Albers v. Continental Illinois Bank & Trust Co., 296 Ill. App. 592 (1938) (bank receiver not imputed with bank’s wrongdoing; may sue on behalf of creditors)
- McRaith v. BDO Seidman, LLP, 391 Ill. App. 3d 565 (2009) (insurance liquidator not barred by in pari delicto because liquidator protects public and victims)
- King v. First Capital Financial Servs. Corp., 215 Ill. 2d 1 (2005) (defines in pari delicto as ‘equally at fault’ and explains its effect)
- Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995) (in pari delicto loses force once wrongdoer removed because defense prevents profiting from wrongdoing)