Commercial Update: Adverse Interest Exception to the In Pari Delicto Defense

Commercial division update: The adverse interest exception to the in pari delicto defense

New York Law Journal

Publication December 2019

In pari delicto is a centuries-old doctrine that prevents courts from intervening to resolve  disputes between two wrongdoers.  Rooted in principles of equity, in pari delicto acts as an affirmative defense to deny relief to an injured party where both parties are equally at fault.  As explained by the Court of Appeals, the doctrine serves two important public policy purposes: (1) deterring illegality by denying judicial relief to an admitted wrongdoer and (2) deterring courts from involving themselves in cases between two wrongdoers.  Kirschner v. KPMG LLP, 15 N.Y.3d 446, 464 (2010). 

New York courts are often tasked with determining the application of the in pari delicto defense to acts committed by a corporation's agent.  Corporations act through their officers and agents and, when those agents commit bad acts or fraud, those bad acts can be imputed to the corporation, regardless of whether those acts are authorized or known by the corporation.  See id. at 465-66.  The adverse interest exception to this fundamental agency principle prevents an agent's acts from being imputed to the corporation and, thus, bars the application of the in pari delicto defense.

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