Date: 11-02-2015

Case Style: The Honorable Karen Weldin Stewart, et al. v. Wilmington Trust SP Services, Inc., et al.

Case Number: 204, 2015

Judge: Leo E. Strine, Jr.

Court: IN THE SUPREME COURT OF THE STATE OF DELAWARE

Plaintiff's Attorney: Diane Bartels, Kevin Guerke, Malcolm Cochran, Chad M. Shandler, Christine Haynes, Blake Rohrbacher

Defendant's Attorney: Norm Monhait, Chris Viceconte, Jack McLaughlin

Description: This 2nd day of November 2015, upon consideration of the parties’ briefs and the
record below, it appears to the Court that:
(1) On this appeal, a receiver of an insolvent insurer seeks to appeal the Court of
Chancery’s decision to dismiss its claims for breach of contract and professional
negligence against Wilmington Trust, which the insurer retained as its captive manager in
Delaware and Johnson Lambert and McSoley McCoy, which the insurer retained to
prepare its audited financial statements. The receiver’s complaint alleges that the sole
stockholder and CEO of the insurer, James M. Jackson, engaged in pervasive fraud and
that the insurer was never adequately capitalized. Wilmington Trust, Johnson Lambert,
and McSoley McCoy are alleged to have knowingly been complicit in Jackson’s
behavior, by understanding that the insurer was not adequately accounting for its assets
and for knowingly turning a blind eye to the unacceptable state of affairs for several
years. For that reason, the receiver pled a count against these three defendants for aiding
and abetting a breach of fiduciary duty. At the very least, the receiver alleged,
Wilmington Trust, Johnson Lambert, and McSoley McCoy breached their duty of care as
professional advisors to the insurer, and are responsible in tort and contract for resulting
damages. The Court of Chancery dismissed the professional negligence and contract
claims, holding that they were barred by the doctrine of in pari delicto.1 By contrast, the
Court of Chancery did not dismiss the aiding and abetting claims against Wilmington
Trust and Johnson Lambert, reasoning that under Delaware law, the doctrine of in pari
delicto should, consistent with the recognized fiduciary exception to that doctrine, not bar
claims against professional advisors for aiding and abetting.2 By so holding, the Court of
See Stewart v. Wilmington Trust SP Servs., Inc., 112 A.3d 271, 319 (Del. Ch. 2015). 2 See id. at 319–23. The Court of Chancery dismissed the aiding and abetting claim as to McSoley McCoy for failure to state a claim upon which relief could be granted. Id. at 323. That decision was not appealed.
Chancery took into account various policy factors, such as the need to hold professional
advisors accountable for serious wrongdoing while avoiding a litigation-intensive
approach that would expose professional advisors to more than an optimal threat of
liability in situations when their clients had engaged in unlawful behavior.3
(3) On appeal, the receiver’s main argument is that the Court of Chancery erred in
its application of the in pari delicto doctrine and should have: i) allowed the receiver to
raise all claims the insurer possessed and disregard the doctrine because the underlying
company was an insurer; and ii) allowed for an exception to the in pari delicto doctrine to
allow a company to bring claims of professional negligence or breach of contract
regardless of whether the economic damages at issue flow from unlawful behavior of the
company’s own managers. We do not embrace either argument. Rather, we agree with
the Court of Chancery’s careful analysis of this difficult area of the law.4
(4) The balance the Court of Chancery struck between the need for accountability
of professional advisors and the costs of exposing professional advisors to potentially
excessive risks is a sensible one, and reflects the one chosen by sister states, such as New
York, whose laws are often involved in situations involving Delaware corporations.5
This harmony is beneficial and if it is to be disturbed, that decision is best made by the
General Assembly.

Outcome: NOW, THEREFORE, IT IS ORDERED that the well-reasoned decision of the
Court of Chancery of April 27, 2015 is AFFIRMED.

Plaintiff's Experts:

Defendant's Experts:

Comments: