Peterson V. McGladrey LLP

(7th Cir. July 7, 2015)

The Seventh Circuit affirms the bankruptcy court's decision recognizing the in pari delicto defense and dismissing the trustee's suit against the accounting firm for malpractice. The debtors were mutual funds that were essentially a vehicle for a ponzi scheme. The accounting firm argued that under Illinois law the trustee's claims were barred by the in pari delicto doctrine. The trustee argued that Illinois courts only apply the doctrine when the parties have committed the same wrong. He argued it should not apply here, where the debtors committed fraud and the firm committed malpractice for failing to detect the fraud. The court applies the doctrine, finding Illinois law does not have such a requirement. Opinion below.