In Pari Delicto: The Seventh Circuit Gives New Life to Evil Zombies

In April 3, 2012, the United States Court of Appeals for the Seventh Circuit decided Peterson v. McGladrey & Pullen, LLP, 676 F.3d 594 (7th Cir. 2012), which held that bankruptcy trustees are not immune from the litigation defense known as “in pari delicto” ' the argument that if opposing parties in a lawsuit are equally in the wrong, then neither has a colorable claim against the other. See Schlueter v. Latek, — F.3d —, No. 11-3679, 2012 WL 2044362, at *4 (7th Cir. June 6, 2012). In so deciding, the Seventh Circuit brought itself into alignment with several other courts of appeals and severely limited the applicability of Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995), perhaps the court's most cited decision addressing in pari delicto (and independently notable for its use of the term “evil zombies”). As the authors discuss in this article, Peterson is a critically important decision to bankruptcy lawyers, particularly those who prosecute and defend causes of action brought by bankruptcy estates and their representatives.