Stay current on changes and developments in corporate law with a wide variety of resources and tools.
By Che Odom
March 27 — The Delaware Chancery Court March 26 extended the fiduciary duty exception to the in pari delicto doctrine to cover well-pleaded aiding-and-abetting claims against defendants like auditors.
Vice Chancellor Donald F. Parsons considered three motions to dismiss filed by the defendants in a lawsuit brought Nov. 20, 2014 by the Delaware insurance commissioner, which had become the receiver for a liquidated insurance firm, Security Pacific Insurance Co., and related entities.
Parsons dismissed certain claims against the defendants before arriving at the fiduciary duty claims and the proper application of in pari delicto.
Parsons held that in pari delicto will bar breach-of-contract and negligence claims against Wilmington Trust SP Services and two auditors for work done for the insurer.
Security Pacific's sole stockholder and chief executive officer, James M. Jackson, allegedly committed various fraudulent acts that enabled the company's entities to survive, if only temporarily.
For the purposes of this case, the plaintiff, Delaware Insurance Commissioner Karen Weldin Stewart, stands in Security Pacific's shoes as its receiver, the court determined. And whatever bad acts or negligence Wilmington Trust and the auditors committed were equaled by the acts of Security Pacific's agent, Jackson.
However, claims against the defendants for “aiding and abetting breaches of fiduciary duty” are different, and they will not be barred by in pari delicto, the judge wrote.
Wilmington Trust and the auditors played the role of “gatekeeper,” which makes the aiding-and-abetting claims against them “fundamentally unlike those” dismissed in 2009's In re American International Group, Inc. Consolidated Derivative Litigation (AIG II), which carved out Delaware's fiduciary duty exception to the in pari delicto doctrine, Parsons wrote.
Under the exception, “the doctrine has no force in a suit by a corporation against its own fiduciaries,” Parsons noted.
The underlying justification is that parties, such as receivers, trustees and stockholder derivative plaintiffs, “must be able to act on the corporations behalf to hold faithless directors and officers accountable,” Parsons wrote.
While Wilmington Trust and the two auditors were not fiduciaries of the Security Pacific entities, the court ruled that they may have aided and abetted breaches committed by co-defendant Jackson, according to the well-pleaded allegations of the complaint.
The court also refused to dismiss breach-of-fiduciary-duty claims against an employee of Wilmington Trust who also served on the board of Security Pacific.
To contact the reporter on this story: Che Odom in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Ryan Tuck at email@example.com
The opinion is available at http://www.bloomberglaw.com/public/document/THE_HONORABLE_KAREN_WELDIN_STEWART_CIR_ML_INSURANCE_COMMISSIONER_.
Notify me when updates are available (No standing order will be created).
Put me on standing order
Notify me when new releases are available (no standing order will be created)