In the decision of Hon. Karen Weldin Stewart, et al. v. Wilmington Trust Services, Inc., C.A. No. 9306-VCP (Ct. Ch. Mar. 26, 2015), the Court of Chancery provided a thorough analysis of the in pari delicto doctrine and its various exceptions.  Of note, the Court declined to find a blanket “auditor exception” to the doctrine, despite the fact that several states have adopted such an exception.

As discussed in this case, the in pari delicto doctrine is an affirmative defense by which a party is barred from recovering damages if his losses are substantially caused by activities the law forbade him to engage in.  There are several exceptions to the doctrine under Delaware law, such as the adverse inference exception, the fiduciary duty exception, and the so-called public policy exception.

The Court rejected the Receiver’s assertion that an auditor should not be permitted to invoke the doctrine because of the special role auditors play in informing corporate fiduciaries.  However, the Court found that the doctrine did not apply to well-pled aiding and abetting claims against defendants like auditors. Thus, while the court dismissed claims against the auditors for breach of contract and negligence under the doctrine of in pari delicto, the claims for aiding and abetting breaches of fiduciary duty survived the motion to dismiss.

If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.