Opinion ID: 2783176
Heading Depth: 2
Heading Rank: 2

Heading: Associated Bank’s Affirmative Defenses

Text: In Associated Bank’s memorandum in support of its motion to dismiss, it also urged dismissal pursuant to the doctrines of res judicata and in pari delicto. The district court did not reach these issues because it dismissed the receiver’s complaint for failure to state a claim. In its appellate brief, Associated Bank renewed the two arguments as alternative bases for affirmance. The receiver then filed a “motion to determine whether issues raised by [Associated Bank] without having filed a cross- -12- appeal are within the scope of this appeal,” claiming Associated Bank should have filed a cross-appeal for this court to consider either of the alternative bases for dismissal. The U.S. Supreme Court informs us when a cross-appeal is needed: “[A] party who does not appeal from a final decree of the trial court cannot be heard in opposition thereto when the case is brought there by the appeal of the adverse party. In other words, the appellee may not attack the decree with a view . . . to enlarging his own rights thereunder.” United States v. Am. Ry. Exp. Co., 265 U.S. 425, 435 (1924). “But it is likewise settled that the appellee may, without taking a crossappeal, urge in support of a decree any matter appearing in the record, although his argument may involve an attack upon the reasoning of the lower court or an insistence upon matter overlooked or ignored by it.” Id.; see also Spirtas Co. v. Nautilus Ins. Co., 715 F.3d 667, 670-71 (8th Cir. 2013) (explaining when a party “is attempting only to sustain the same judgment on a different basis in the record, a cross-appeal is not required”). The receiver alleges a judgment of dismissal on the basis of res judicata “would enlarge [Associated Bank’s] rights under the judgment” because it would allow Associated Bank to “contend that all future hypothetical counts whose gravamen is the Bank’s assistance in defrauding investors — no matter what form, and regardless of whether it is ripe or presently-knowable — would be barred.” The receiver also proposes “[a] judgment of in pari delicto” would allow Associated Bank “to contend that all hypothetical claims of any form by any of the Receivership entities — even those that are not yet ripe because they are hidden by the Bank’s concealment, thus tolling any limitations period — would be doomed.” The receiver “confuses a party’s rights under a judgment . . . with preclusive effects that the judgment might have in future proceedings.” Jennings v. Stephens, 574 U.S. ___, ___, 135 S. Ct. 793, 799 (2015). “Whenever an appellee successfully -13- defends a judgment on an alternative ground, he changes what would otherwise be the judgment’s issue-preclusive effects. Thereafter, issue preclusion no longer attaches to the ground on which the trial court decided the case, and instead attaches to the alternative ground on which the appellate court affirmed the judgment.” Id. No cross-appeal was required for Associated Bank to suggest alternative bases for the same judgment the district court issued—dismissal of the complaint.
In October 2009, six defrauded investors of this Ponzi scheme brought suit against Associated Bank in Wisconsin state court, which dismissed their complaint for failure to state aiding and abetting claims, among others. Affirming, the Wisconsin Court of Appeals concluded “the circuit court properly dismissed [the plaintiffs’] aiding and abetting claim because [they] did not allege that Associated intended to assist the customer’s tortious conduct—a necessary element of aiding and abetting liability.” Grad v. Associated Bank, N.A., 801 N.W.2d 349, 2011 WL 2184335, at  (Wis. Ct. App. 2011) (unpublished table decision). Associated Bank argues the Grad decision precludes the receiver from pursuing any claims against Associated Bank on behalf of any of the receiver entities, even though the entities were not parties to the Grad action, because the receiver was in privity with the Grad plaintiffs. Without the district court’s careful examination of the circumstances of this case and “the benefit of the district court’s analysis,” Bell v. Pfizer, Inc., 716 F.3d 1087, 1096 (8th Cir. 2013), we decline to address the res judicata defense. “‘[W]e leave [it] to be addressed in the first instance on remand, without expressing any view as to [its] merit.’” Beckon, Inc. v. AMCO Ins. Co., 616 F.3d 812, 820 (8th Cir. 2010) (second and third alterations in original) (quoting Discovery Grp. LLC v. Chapel Dev., LLC, 574 F.3d 986, 990 (8th Cir. 2009)). -14-
The doctrine of in pari delicto, an “equitable defense,” “operates to prevent wrongdoers at equal fault from recovering against one another and ‘is based upon judicial reluctance to intervene in disputes between [wrongdoing] parties.’” Christians v. Grant Thornton, LLP, 733 N.W.2d 803, 814 (Minn. Ct. App. 2007) (alteration in original) (quoting State by Head v. AAMCO Automatic Transmissions, Inc., 199 N.W.2d 444, 448 (Minn. 1972)). “[E]quitable decisions are discretionary.” Id. at 815. “A paramount public interest . . . may call for judicial intervention in favor of one wrongdoer against the other in order to effectuate the enforcement of a public policy which overrides considerations of a benefit inuring to a wrongdoer.” AAMCO, 199 N.W.2d at 448. The district judge, in a case related to this case, ordered the appointment of the receiver in response to an SEC motion and memorandum determining “a receiver is necessary during the pendency of this litigation to marshal, conserve and recover assets for investors and to prevent any further dissipation of assets.” Thus the plaintiff here was appointed receiver for the estates of Cook and Kiley, and entities controlled by them. Another related case held that “[b]ecause this case involves a Ponzi scheme, the Receivership Entities are considered victims of the fraud and thus creditors of the Ponzi scheme.” Zayed v. Peregrine Fin. Grp., Inc., Civ. No. 12-269, 2012 WL 2373423, at  (D. Minn. June 22, 2012) (unpublished); see also Scholes v. Lehmann, 56 F.3d 750, 754 (7th Cir. 1995) (“Freed from [the schemers’] spell [the receiver entities] became entitled to the return of the moneys—for the benefit not of [the schemers] but of innocent investors—that [the schemers] had made the [receiver entities] divert to unauthorized purposes.”). We are mindful that the Minnesota Supreme Court advises that the in pari delicto doctrine should be applied critically, see AAMCO, 199 N.W.2d at 448 (“We do not forecast an uncritical application of this doctrine, for it is not without exception”), and we consider Christians’ emphasis on the discretionary nature of this -15- equitable decision, see Christians, 733 N.W.2d at 815. We decline to “judicial[ly] interven[e],” AAMCO, 199 N.W.2d at 448, without the benefit of the district court having addressed the in pari delicto defense in the first instance. We remand to the district court for its determination of the issue and, as with the res judicata affirmative defense, we do not express any view on the merits.