Ritchie Capital Management v. GECC

Ritchie Capital Management, LLC v. General Electric Capital Corp., Case No. 15-2816 (2d Cir. May 11, 2016) (per curiam)
The Second Circuit Court of Appeals affirmed the District Court's holding that an investor in a Ponzi scheme lacks standing to bring claims for aiding and abetting fraud and civil conspiracy to commit fraud because the causes of action were the exclusive property of the bankruptcy estate. The Second Circuit noted Plaintiff's argument that a trustee would be unable to bring these causes of action due to the doctrine of in pari delicto, but did not directly address the issue, thus leaving open the possibility that federal bankruptcy law protects co-conspirators from state law claims otherwise available to harmed investors -- the investors are barred from bringing suit because the actions are property of the bankruptcy estate, and the bankruptcy trustee cannot recover due to the doctrine of in pari delicto.
Procedural context:
Appeal from a judgment of the United States District Court for the Southern District of New York in favor of the Defendant. The District Court dismissed the complaint due to lack of standing and failure to state a claim. Ritchie Capital Mgmt. v. General Elec. Capital, 121 F.Supp.3d (2015).
General Electric Capital Corporation ("GECC") had a lending relationship with entities related to Thomas Petters. After law enforcement officials discovered that Petters was operating a ponzi scheme, bankruptcy cases were commenced for the Petters-affiliated entities. The bankruptcy trustee filed a complaint against GECC seeking turnover of alleged fraudulent transfers. The bankruptcy court eventually approved a settlement of all claims of the trustee, the estates, and the debtors. The Plaintiff subsequently filed its own lawsuit against GECC seeking recovery for aiding and abetting fraud, civil conspiracy to commit fraud, and negligence. The District Court found that the Plaintiff's complaint raised causes of action which were the exclusive property of the bankruptcy estates, which had already settled and released their claims. The District Court specifically held that the protection afforded to co-conspirators by the doctrine of in pari delicto did not change the result - the "mere possibility" that a successful claim could not have brought by the trustee could not remove the claim from property of the estate.

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