• January 10, 2012

Twin Cities attorney Douglas Kelley was appointed receiver of the Thomas Petters ponzi scheme empire and, with the help of an army of lawyers from Lindquist & Vennum and elsewhere over the past three years or so, he has been trying to “claw back” money from third-parties who received money at some time or another from Petters.

As “receiver,” Kelley is supposed to “stand in the shoes” of the individuals and/or entities on whose behalf he was appointed receiver.

The doctrine of “in pari delicto” (“at equal fault”) might suggest that one cannot step into thieves’ shoes as Kelley has done — adopting their legal rights and status, no more and no less — and then recover money that the thieves themselves would not have had legal standing to get.

As a matter of historical note (and maybe of legal relevance?) the “in pari delicto” doctrine is short for “in pari delicto melior est conditio possidentis” (when there is equal fault, possession is everything (i.e., the court will not redistribute assets if claimant and possessor are at equal fault)).

No one is suggesting Kelley had any involvement in the Petters wrong-doing, of course, but there is a widespread sense that the Receiver is victimizing the victims with his far-reaching clawback litigation.  At least that is what the accounting firm of Eide Bally would like the U.S. District Court for the District of Minnesota to hold and their case has been assigned to U.S. District Court Judge Patrick J. Schiltz (D. Minn.).  Kelley seeks $25 million from the accounting firm, paid to them, apparently for their accounting services, which were subverted by their criminal clients.

This is one of over 100 clawback cases and other “clawback defendants” will certainly keep an eye on the Eide Bally case.  To many, it seems like the clawback litigation has aggravated rather than alleviated the terrible consequences of Petters’ massive fraud and they have long hoped for a change of course.

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