Document Type
Article
Publication Date
2006
Publication Title
Tennessee Law Review
Keywords
in pari delicto, corporate complicity, innocent decision-maker, Wagoner rule, bankruptcy
Abstract
This Article evaluates the innocent decision-maker exception in light of the doctrinal foundations of the in pari delicto defense and the Wagoner rule, general principles of agency law, and the lower court decisions that address these issues. It concludes that the innocent decision-maker exception is a doctrinal error, traceable to the logical misstep of a single lower court whose decision continues to be mistakenly followed. The innocent decision-maker exception is inconsistent with the basic principles of agency law that underlie imputation in the context of in pari delicto and the Wagoner rule. No court of appeals has explicitly addressed the innocent decision-maker exception, but one can predict that a court of appeals would reject the exception if squarely presented with the issue. Part II of this Article describes, in more detail, the substance of corporate complicity claims and explains how the doctrines of in pari delicto-an affirmative defense-and the Wagoner rule-a rule of standing-pose obstacles to such claims. Part III describes the legal exceptions to the general rule of imputing the wrongdoing of corporate officers to the corporation: First, the narrow adverse interest exception, and second, the recently-articulated innocent decision-maker exception. Part III goes on to show that the innocent decision-maker exception began as a doctrinal error by one federal district court, which was subsequently repeated by other lower courts, and then highlights one court's decision that correctly exposes this error and rejects the existence of the innocent decision-maker exception. Part IV discusses the general principles of agency law that undergird imputation rules and examines how imputation operates in contexts like in pari delicto outside of corporate bankruptcies, corporate liability for damages based on wrongful intent, and corporate criminal liability. Part IV shows that an innocent decision-maker exception has no foundation in agency law and has not been recognized in any other legal context. Finally, Part V considers whether the innocent decision-maker exception, apart from its flawed origins, is desirable as a matter of policy, concluding that continued recognition of the exception is not vindicated by the underlying policies put forth by the courts.
Repository Citation
Jonathan Witmer-Rich, Corporate Complicity Claims: Why There Is No Innocent Decison-Maker Exception to Imputing an Officer's Wrongdoing to a Bankrupt Corporation, 74 Tennessee Law Review 47 (2006)
Publisher's Statement
This article was published originally at 74 Tenn. L. Rev. 47 (2006) and is reproduced here by permission of the Tennessee Law Review Association, Inc. (www.law.utk.edu/publications).
