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Keywords

lawsuitplaintiffdefendantnegligenceequitytrialpleasummary judgmentburden of prooftrustwillbankruptcy
lawsuitplaintiffdefendantnegligenceequitytrialpleasummary judgmentburden of prooftrustwillbankruptcy

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Joint Equity Committee v. Genovese, Not Reported in Cal.Rptr., 2014 WL 4162318

Facts

Real Estate Partners, Inc. (REP) raised over $50 million from investors through securities offerings between 2003 and 2006, leading to a lawsuit by the SEC for securities fraud in 2007. Following REP's bankruptcy filing, the bankruptcy trustee appointed the Joint Equity Committee as the representative of the bankruptcy estates. The plaintiff filed suit against various parties, including the defendants, alleging professional negligence and other claims related to REP's fraudulent activities. The defendants moved for summary judgment, asserting the in pari delicto defense, which the court ultimately upheld.

Real Estate Partners, Inc. (REP) raised over $50 million from investors through securities offerings between 2003 and 2006, leading to a lawsuit by the SEC for securities fraud in 2007. Following REP's bankruptcy filing, the bankruptcy trustee appointed the Joint Equity Committee as the representative of the bankruptcy estates. The plaintiff filed suit against various parties, including the defendants, alleging professional negligence and other claims related to REP's fraudulent activities. The defendants moved for summary judgment, asserting the in pari delicto defense, which the court ultimately upheld.

Issue

Did the trial court err in granting summary judgment based on the defendants' in pari delicto affirmative defense?

Did the trial court err in granting summary judgment based on the defendants' in pari delicto affirmative defense?

Rule

The doctrine of in pari delicto dictates that when a participant in illegal, fraudulent, or inequitable conduct seeks to recover from another participant in that conduct, the parties are deemed in pari delicto, and the law will aid neither, but rather, will leave them where it finds them.

The doctrine of in pari delicto dictates that when a participant in illegal, fraudulent, or inequitable conduct seeks to recover from another participant in that conduct, the parties are deemed in pari delicto, and the law will aid neither, but rather, will leave them where it finds them.

Analysis

The court found that the defendants met their initial burden of proof regarding the in pari delicto defense by demonstrating that REP engaged in wrongful conduct, including securities fraud. The plaintiff's own admissions in previous pleadings established that REP was involved in a scheme to defraud investors, which was sufficient to apply the in pari delicto defense. The court concluded that the misconduct of REP could be imputed to the plaintiff, and thus the claims against the defendants were barred.

The court found that the defendants met their initial burden of proof regarding the in pari delicto defense by demonstrating that REP engaged in wrongful conduct, including securities fraud. The plaintiff's own admissions in previous pleadings established that REP was involved in a scheme to defraud investors, which was sufficient to apply the in pari delicto defense. The court concluded that the misconduct of REP could be imputed to the plaintiff, and thus the claims against the defendants were barred.

Conclusion

The court affirmed the summary judgment in favor of the defendants, concluding that the in pari delicto defense applied and that the plaintiff failed to present evidence of a triable issue of material fact.

The court affirmed the summary judgment in favor of the defendants, concluding that the in pari delicto defense applied and that the plaintiff failed to present evidence of a triable issue of material fact.

Who won?

Defendants Michael Genovese and Grant, Genovese & Baratta LLP prevailed because the court found that the plaintiff's claims were barred by the in pari delicto defense due to REP's misconduct.

Defendants Michael Genovese and Grant, Genovese & Baratta LLP prevailed because the court found that the plaintiff's claims were barred by the in pari delicto defense due to REP's misconduct.

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