Peterson v. McGladrey & Pullen, LLP

Dist. Ct. erred in dismissing under doctrine of in pari delicto, plaintiff-Bankruptcy Trustee's lawsuit alleging that defendant-accounting firm was negligent in failing to discover that debtor-business entity, which was subject of defendant's audit, lacked any inventory or customers and was involved in elaborate Ponzi scheme by corporate manager who controlled debtor. While said doctrine is potentially available to defeat plaintiff's cause of action to extent that debtor's corporate manager was participant in Ponzi fraud, Dist. Ct. erred in resolving at preliminary stage of lawsuit factual question as to what corporate manager knew about Ponzi scheme. Ct. rejected Trustee's argument that in pari delicto defense is not applicable in bankruptcy proceedings and that any culpability of debtor's corporate manager could never bar recovery against negligent auditor.