Does The In Pari Delicto Defense Apply In Derivative Actions?

“In pari delicto” is a Latin phrase meaning in equal fault. It is an equitable defense that precludes a plaintiff from recovering for an injury that arose from a wrongdoing in which she participated. In a shareholder derivative suit, the plaintiff is the corporation. If a shareholder derivative suit is brought against the corporation’s directors and officers, is the in pari delicto defense available?

Court Holds That In Pari Delicto Doctrine May Apply To Shareholder Derivative Suits

Recently, the Nevada Supreme Court held that the in pari delicto defense is available in shareholder derivative actions. In re Amerco Derivative Litigation, 127 Nev. Adv. Op. 17 (2011). In assessing whether to apply the doctrine, the court found that a corporate agent’s actions are normally imputed to the corporation. The rationale for doing so is to encourage corporate managers to select and monitor carefully corporate agents.

The “Adverse Interest” Exception

However, the court also found that an agent’s action won’t be imputed to the corporation if the agent’s actions are “completely and totally adverse” to the corporation. The Nevada Supreme Court found that this “adverse interest” exception did not apply because the plaintiffs had not alleged...

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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