Liability of Professional Advisers: The New York Court of Appeals Reaffirms the Doctrine of In Pari Delicto, Which Holds a Company Responsible for the Wrongdoing of Corporate Officers and Prevents a Company from Suing Lawyers, Accountants, Financial Advisers and Others for Its Own Misconduct

Sullivan & Cromwell LLP - November 1, 2010

Courts in recent years have variedly defined the circumstances under which a company can shift responsibility for its own agents’ misconduct to third parties. In Kirschner v. KPMG LLP, No. 151 (N.Y. Oct. 21, 2010) and Teachers’ Retirement System of Louisiana v. PricewaterhouseCoopers LLP, No. 152 (N.Y. Oct. 21, 2010), the New York Court of Appeals held that plaintiffs purportedly acting on behalf of Refco, Inc. and related companies (“Refco”) and American International Group, Inc. (“AIG”) could not sue the companies’ outside advisers for allegedly aiding and abetting or negligently failing to prevent insider misconduct. In doing so, the Court reaffirmed the doctrine of in pari delicto and the so-called “adverse interest” exception, under which the acts of agents are “presumptively imputed to their principals” except where the agents’ misconduct is “committed against a corporation rather than on its behalf.”