As Francine McKenna, a recognized authority on the liability of auditors and accountants, explains here, in response to a certified question from the Delaware Supreme Court, as noted on this blog here, the New York Court of Appeals determined recently that the doctrine of in pari delicto bars claims by shareholders of AIG in litigation against PricewaterhouseCoopers, the auditors of AIG.
The Delaware Court of Chancery, in a 100-plus page opinion, determined that New York law applied to the issue, and barred the shareholders’ claims. Highlights of the Chancery opinion are available here. The concept of in pari delicto is somewhat esoteric and nuanced, (some would say archaic). I refer you to Francine’s extensive treatment at the link above. A simplified thumbnail sketch of the concept is to say that the shareholders in a derivative claim for fraud against the company and its auditors, under that theory, are considered agents of AIG, and thus equally at fault with those they are pursuing claims against. Under that theory, if one is equally at fault, he is not entitled to a remedy.
Much can be, and has been, written on this topic and this case. Francine explains above why the theory involved may be outdated (and worse), especially as it was applied in this case.
On appeal from the Chancery decision, the Delaware Supreme Court asked the New York Court of Appeals to opine on the in pari delicto issue, which was controlled by New York law. In reply, New York’s highest court explained New York law on the defense of in pari delicto as it applied to this case. The opinion of the New York Court of Appeals, with vigorous dissent, is available here,
The case now goes back before the Delaware Supreme Court where the plaintiffs face an uphill battle.