The Honorable Karen Weldin Stewart
126 A.3d 1115
Del.2015Background
- Receiver of an insolvent Delaware insurer appealed dismissal of breach of contract and professional negligence claims against Wilmington Trust (captive manager), Johnson Lambert and McSoley McCoy (auditors).
- Receiver alleged CEO/majority stockholder James M. Jackson perpetrated pervasive fraud and the insurer was inadequately capitalized from the start.
- Complaint claimed Wilmington Trust, Johnson Lambert, and McSoley McCoy knowingly ignored the insurer’s improper accounting and thus aided and abetted Jackson’s breaches; also asserted professional negligence and contract claims.
- Court of Chancery dismissed the negligence and contract claims under the in pari delicto doctrine but allowed aiding-and-abetting claims to proceed against Wilmington Trust and Johnson Lambert (not McSoley McCoy, whose claim failed to state a claim).
- Delaware Supreme Court affirmed the Court of Chancery, endorsing its balance between holding advisors accountable and limiting excessive exposure to liability, and declined to adopt receiver’s proposed insurer-specific or broad exception to in pari delicto.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether in pari delicto bars insurer’s contract and professional negligence claims | Receiver: doctrine should not bar claims because the defendant is an insurer and claims should survive to make creditors whole | Defendants: receiver stands in insurer’s shoes and cannot sue for harm caused by its own wrongdoing | Court: upheld dismissal of contract and negligence claims under in pari delicto |
| Whether fiduciary-exception limits in pari delicto for aiding-and-abetting claims against professionals | Receiver: all claims should proceed; professionals not protected by in pari delicto here | Defendants: in pari delicto should bar aiding-and-abetting where plaintiff is equally culpable | Court: allowed aiding-and-abetting claims against Wilmington Trust and Johnson Lambert (consistent with a limited exception), but not against McSoley McCoy for failure to state a claim |
| Whether Delaware should create insurer-specific exception to in pari delicto | Receiver: insurers are special and exceptions should apply so receivers can pursue all causes | Defendants: no special rule for insurers; uniform application of doctrine preferred | Court: rejected insurer-specific exception; left such policy changes to Legislature |
| Whether courts should create broad exception allowing claims for professional negligence or breach of contract despite manager wrongdoing | Receiver: courts should permit these claims to hold professionals accountable when their conduct causes economic harm | Defendants: broad exception would unduly expose advisors to liability and increase litigation costs | Court: rejected broad exception; endorsed Chancery’s calibrated approach balancing accountability and limiting excessive risk |
Key Cases Cited
- Stewart v. Wilmington Trust SP Servs., Inc., 112 A.3d 271 (Del. Ch. 2015) (Court of Chancery opinion discussing in pari delicto and aiding-and-abetting claims in this matter)
- In re Am. Int’l Grp., Inc., Consol. Derivative Litig., 965 A.2d 763 (Del. Ch. 2009) (Del. Ch. decision addressing in pari delicto issues in large corporate fraud context)
- In re Am. Int’l Grp., Inc., Consol. Derivative Litig., 976 A.2d 872 (Del. Ch. 2009) (companion Chancery decision concerning in pari delicto and related doctrines)
- In re Am. Int’l Grp., Inc., 11 A.3d 228 (Del. 2011) (Delaware Supreme Court opinion affirming aspects of the Chancery Court’s handling of in pari delicto issues)