Commercial Division Blog

Posted: March 31, 2017 / Categories Commercial, Equitable Remedies and Defenses

Claims Barred by in Pari Delicto Doctrine

On March 28, 2017, the First Department issued a decision in Romanoff v. Romanoff, 2017 NY Slip Op. 02385, holding that claims were barred by the in pari delicto doctrine, explaining:

The court properly applied the doctrine of in pari delicto to dismiss the fourth cause of action for rescission and second cause of action for aiding and abetting, and to deny leave to amend the second cause of action. The doctrine of in pari delicto mandates that the courts will not intercede to resolve a dispute between two wrongdoers. Under the doctrine, which operates under agency principles, the acts of a corporation's authorized agents, such as its officers, are imputed to the corporation even if the particular acts were unauthorized. The doctrine requires immoral or unconscionable conduct that makes the wrongdoing of the party against which it is asserted at least equal to that of the party asserting it.

Absent the application of an exception to the in pari delicto rule, Gerald's conduct, as an officer and director of GHC and New Roads, is imputed to the corporations. While the other defendants are alleged to have aided and abetted Gerald's conduct, those defendants' culpability is at most equal to that of Gerald. The adverse interest" exception does not apply as Gerald, by the complained of conduct, did not totally abandon his principal's interests" or act entirely for his own or another's purposes. Plaintiff's contention that GHC received absolutely no benefit from this arrangement is belied by the settlement agreement at issue, which resolved a foreclosure action, releasing $9 million in debt that was incurred by GHC, resolved a judgment of over $16 million entered against GHC as guarantor, and provided GHC with a $245,000 payment.

(Internal quotations and citations omitted).