Court Opinion

ID: 6332947
Source: CourtListenerOpinion
Date Created: 2022-04-19 19:00:28.773293+00
Date Added: 2024-06-11T09:23:24.303185
License: Public Domain

PUBLISHED

                           UNITED STATES COURT OF APPEALS
                               FOR THE FOURTH CIRCUIT

                                         No. 21-1536

In re: INFINITY BUSINESS GROUP, INCORPORATED,

               Debtor.

------------------------------

ROBERT F. ANDERSON, as Chapter 7 Trustee for Infinity Business Group, Inc.,

               Trustee - Appellant,

        v.

MORGAN KEEGAN & COMPANY, INC.; KEITH E. MEYERS,

               Defendants - Appellees.

Appeal from the United States District Court for the District of South Carolina, at
Columbia. J. Michelle Childs, District Judge. (3:19-cv-03096-JMC)

Argued: March 9, 2022                                      Decided: April 19, 2022

Before RICHARDSON and HEYTENS, Circuit Judges, and KEENAN, Senior Circuit
Judge.

Affirmed by published opinion. Judge Heytens wrote the opinion, in which Judge
Richardson and Senior Judge Keenan joined.

ARGUED: Robert W. Humphrey, II, WILLOUGHBY & HOEFER, P.A., Charleston,
South Carolina, for Appellant. Valerie S. Sanders, EVERSHEDS SUTHERLAND (US)
LLP, Atlanta, Georgia, for Appellees. ON BRIEF: Mitchell Willoughby, Elizabeth Zeck,
WILLOUGHBY & HOEFER, P.A., Columbia, South Carolina; Gerald Malloy, MALLOY
LAW FIRM, Hartsville, South Carolina, for Appellant. Robert C. Byrd, A. Smith Podris,
PARKER POE ADAMS & BERNSTEIN LLP, Charleston, South Carolina; Olga
Greenberg, EVERSHEDS SUTHERLAND (US) LLP, Atlanta, Georgia, for Appellees.

                                         2
TOBY HEYTENS, Circuit Judge:

       Infinity Business Group used a dodgy accounting practice that artificially inflated

its accounts receivable and therefore its revenues. The company’s CEO cooked up the

practice, and the board of directors and outside auditors blessed it. Many of these

wrongdoers have already been held responsible for their conduct through civil lawsuits,

criminal charges, or both.

       Yet Infinity’s bankruptcy trustee remains unsatisfied. He insists the true mastermind

was a financial services company Infinity contracted with to (unsuccessfully) solicit

investments. But even assuming—contrary to the bankruptcy court’s scrupulous

factfinding—that the financial services company played some role in creating or

perpetuating the flawed accounting technique, the trustee still cannot succeed in holding

the financial services company liable. As both the bankruptcy and district courts correctly

held, the trustee’s claims run headlong into the longstanding principle that one wrongdoer

cannot recover from another for joint wrongdoing. We thus affirm.

                                              I.

                                              A.

       Infinity was in the business of pursuing collections on bad checks, such as those that

initially bounce for insufficient funds. The company was governed by a board of directors

and managed by a handful of corporate officers. Infinity’s CEO, Byron Sturgill, also acted

as the chief financial officer from the company’s inception in 2003 until September 2006.

Sturgill was in the habit of claiming he was a certified public accountant, but that was a lie.

In fact, Sturgill failed every part of the exam six times.

                                              3
       As a young business, Infinity required regular infusions of capital. For help in

raising that capital—and potentially plotting an initial public offering—Infinity turned to

Morgan Keegan & Company, Inc., and Keith Meyers, one of Morgan Keegan’s investment

advisers who “focused his work on raising institutional capital” for clients. JA 227. Meyers

was a relatively recent business school graduate who had briefly worked as an accountant

auditing manufacturing businesses before pursuing his MBA. By the time Infinity retained

Morgan Keegan in 2006, however, Meyers’ accounting license had been expired for about

five years.

       Infinity engaged Morgan Keegan for the limited purpose of assisting with “a private

placement of ” Infinity stock. JA 1245. The engagement contract required Infinity to

“furnish Morgan Keegan with such information . . . including financial statements . . . as

Morgan Keegan may reasonably request” and provided that Morgan Keegan could “rely

upon the accuracy and completeness of the [furnished information] without independent

verification.” JA 1246. Infinity remained “solely responsible for the contents of ” all

“written or oral communications to any actual or prospective” investor. JA 1246.

       Morgan Keegan’s first major task was helping prepare a confidential information

memorandum for potential investors, which was to include Infinity’s financial information

from 2003 to 2005. Sturgill (Infinity’s CEO) prepared and provided the relevant

information for all three years.

       The 2005 financials reflected a one-year increase in accounts receivable of more

than $9 million—from approximately $150,000 to $9.9 million. Meyers questioned the

increase on behalf of Morgan Keegan, and Sturgill offered multiple explanations, including

                                             4
a change in reporting practices and an uptick in a new area of business. Sturgill also

explained that, starting in 2005, the numbers now reflected anticipated receivables,

including fees Infinity would be entitled to if it managed to collect a check, with a certain

portion discounted for estimated non-collections.

       Everyone now agrees this accounting practice was inconsistent with the generally

accepted accounting principles endorsed by the Securities and Exchange Commission. At

the time, though, Sturgill “was adamant” that the technique complied with those principles,

JA 233, and Infinity’s external auditors repeatedly corroborated that position. Meyers—

whose limited accounting experience had been in a different sector nearly a decade

before—trusted those representations.

       Morgan Keegan incorporated the 2005 financial statements Sturgill provided into

the memo it prepared for potential investors. The memo’s first page stated that it was based

on “information furnished” by Infinity and reminded prospective buyers of their

“responsibility to perform a thorough due diligence review prior to consummating a

transaction.” JA 1282.

       Bison Capital, a potential investor that received Morgan Keegan’s memo, was

interested and began due diligence. Because the accounts receivable figure purported to

exclude “checks the company feels are not collectable,” JA 1335, Bison asked for data

about Infinity’s historical success rate. A Morgan Keegan employee, Calvin Clark, helped

Infinity prepare its responses. In calculating the historical success rate, Clark excluded any

checks “older than 60 days,” JA 1508, and later described “his methodology” to both

Infinity management and “Bison’s representative,” JA 238. Bison’s contemporaneous

                                              5
writeup reflected its understanding that “[t]he sample of 400 checks is small relative to the

entire portfolio of checks” and therefore that “no inferences can be considered as genuinely

accurate until a larger sample, or ideally the entire population of check data is analyzed.”

JA 1956.

       Bison’s diligence review also included a background check on key members of

Infinity’s management team, which proved the dealbreaker. After learning that Infinity’s

CEO (Sturgill) had been misrepresenting his experience and credentials, Bison turned tail

and the deal collapsed. Another potential investor—Eastside Partners—also bailed after

learning of Sturgill’s unfavorable background check.

       Morgan Keegan attracted no other serious attention from institutional investors

under the 2006 engagement, but it did help Infinity and outside counsel adapt material from

the memo Morgan Keegan prepared for other purposes, including an application for a line

of credit with Regions Bank and other securities offerings to individual investors. During

this period, Infinity also worked with its auditors to redo its 2003 and 2004 financial

statements, including extending the same dubious accounting technique to the 2004

financial statements, which Infinity’s external auditors again approved. Nothing suggests

Morgan Keegan played any significant role in the reworking of the older financials or that

it generated any significant new material in connection with those other projects. Rather,

Morgan Keegan’s involvement was largely limited to adapting the material from its earlier

memo and providing relatively minimal line edits on documents prepared by others.

       After the Bison and Eastside deals fell through, Meyers decided to terminate

Morgan Keegan’s relationship with Infinity on October 31, 2006. Meyers participated in

                                             6
an “exit interview” with Infinity management, where he provided recommendations for

improving the company’s prospects. JA 247. Meyers offered three main pieces of advice:

(1) Infinity’s leadership should share their background reports with one another; (2)

Infinity should hire a “bigger” and “more credible” accounting firm “that understands” the

debt-collection “space” to conduct its external audits; and (3) Infinity should abandon its

existing accounting policy for receivables and adopt more “conservative accounting,”

writing off the current receivables so Infinity “won’t have to continue to explain the

accounting.” JA 247, 946–47.

       Meyers was not the only one questioning the propriety of Infinity’s accounting

practices at the time. Ernst & Young also cast doubt on the policy in an email to Infinity’s

CEO and outside securities counsel (but not to Meyers or anyone else at Morgan Keegan).

       Things came to a head at Infinity’s January 2007 board meeting, where the board

discussed whether to stick with “the way the revenues of the company are booked, i.e.,

checks in the system waiting for collection.” JA 2849. The minutes reflect the board’s

unanimous judgment that it was in the company’s “best interests to maintain the status quo

and not to change the reporting method.” JA 2849.

       “There is no evidence that Morgan Keegan, Meyers or Clark attended or participated

in” the January 2007 board meeting. JA 250. In fact, Morgan Keegan “had little

involvement with [Infinity] in 2007 beyond occasional phone calls and emails checking

in.” JA 252. Meyers also occasionally spoke with potential individual investors (including

colleagues at Morgan Keegan) and personally invested $50,000 in Infinity.

                                             7
       In December 2007, Infinity asked Meyers whether he knew of any new potential

investors and sent Meyers some updated financial information. Meyers was surprised to

learn that the accounts receivable had not been written off as he had recommended. When

Meyers    asked   about    it,   Infinity’s   president   responded,   “[i]n   an   apparent

misrepresentation,” that Infinity was planning to write off the balance at the end of 2007.

JA 255–56.

       Infinity formally engaged Morgan Keegan a second time in April 2008 to attempt

to obtain “mezzanine debt”—debt that is not fully secured but comes with perks (such as

stock or other equity) to make it more attractive to lenders. Unlike the 2006 contract, the

2008 agreement also stated Morgan Keegan would “provide financial advisory services,

including general business and financial analysis” such as “due diligence” of “financial

results and management projections.” JA 3131. Once again, Morgan Keegan’s

compensation hinged on successfully closing a transaction.

       By then, Infinity was (finally) considering “moving to a more conservative

accounting policy” and writing off the inflated receivables balance, JA 260 (quotation

marks and alterations omitted), which Meyers advised Infinity to disclose to any potential

financing partners. Meyers identified two potential lenders, but one dropped out almost

immediately after learning of the potential write-off. The other interested investor was the

Morgan Keegan Strategic Fund, a private equity firm that was affiliated with (but separate

from) the advising group that employed Meyers. The Strategic Fund engaged a firm called

Transaction Services to conduct due diligence on Infinity.

                                              8
       Transaction Services determined that Infinity’s accounting technique was not

compliant with generally accepted accounting principles, and its report was the first-in-

time document in this record saying so. The report went to Meyers and certain management

officials at Infinity, which is how Meyers learned that the policy was not compliant. Meyers

continued to push Infinity to change its policy, but management officials—including

Sturgill—refused, apparently not wanting to explain any change to existing shareholders.

       Even after receiving the Transaction Services report, the Strategic Fund planned to

extend Infinity mezzanine debt and prepared a term sheet. Infinity rejected the deal, finding

the Strategic Fund’s terms too onerous, particularly the amount of stock the Strategic Fund

would be left with even after Infinity paid off the debt. The deal fell apart, meaning Morgan

Keegan once again went uncompensated. Other than providing a “general overview” of

Infinity’s services at a sales conference in 2008, JA 270, and having a brief conversation

with an interested investor in December 2008, that was the end of Morgan Keegan and

Meyers’ involvement with Infinity.

                                             B.

       Infinity limped on for another two years, but ultimately could not raise enough

capital to continue operations. In 2010, after shareholders had removed several key

management figures, Infinity initiated proceedings under Chapter 7 of the Bankruptcy

Code, “in which the debtor’s assets are immediately liquidated and the proceeds distributed

to creditors.” Harris v. Viegelahn, 575 U.S. 510, 512 (2015). The bankruptcy court

appointed a trustee to represent Infinity’s estate. Infinity’s chief financial officer and

auditor pleaded guilty to federal criminal charges stemming from their work with Infinity,

                                             9
and South Carolina’s attorney general pursued civil enforcement proceedings against

Infinity’s top management.

       The trustee filed this adversary proceeding as part of the bankruptcy case, seeking

to recover against several of Infinity’s management officials, its external auditor, Morgan

Keegan, and Meyers. The management and auditor defendants all defaulted, confessed

judgment, or settled; by trial, only Morgan Keegan and Meyers remained. Arguing that the

accounting technique was the overriding cause of Infinity’s downfall and that Morgan

Keegan and Meyers were primarily to blame, the trustee pursued four theories of recovery:

common law fraud and breach of fiduciary duty under South Carolina law (where Infinity’s

operations center was located); aiding and abetting breach of fiduciary duty under Nevada

law (where Infinity was incorporated); and federal securities fraud (which the trustee has

not pursued here).

       After an 18-day bench trial, the bankruptcy court entered judgment in favor of

Morgan Keegan and Meyers. The court found the trustee failed to prove the essential

elements of any of his claims. It also concluded all of the trustee’s claims were barred by

an affirmative defense known as in pari delicto, which bars recovery by a plaintiff who

“bears equal or greater fault in the alleged tortious conduct” than the defendant. JA 292.

Rejecting the trustee’s efforts “to frame [Infinity] as a neophyte to the world of securities

and raising capital that relied heavily on Meyers and Morgan Keegan for advice,” the court

found Infinity, “through its management, bears the greater fault in this matter for the

implementation and consequences of the use of the” faulty accounting technique. JA 328.

                                             10
       The trustee appealed to the district court, which agreed with the bankruptcy court’s

conclusions on both the elements of the claims and in pari delicto and therefore affirmed.

Like the district court, we review legal issues de novo and the bankruptcy court’s factual

findings for clear error. Grayson Consulting, Inc. v. Wachovia Secs., LLC, 716 F.3d 355,

360 (4th Cir. 2013).

                                             II.

       The doctrine of in pari delicto—Latin for “in equal fault”—embodies the equitable

principle “that where parties are . . . equally in the wrong, no affirmative relief will be

given to one against the other.” Proctor v. Whitlark & Whitlark, Inc., 778 S.E.2d 888, 892–

93 (S.C. 2015) (quotation marks omitted). This intuitive principle operates as an

affirmative defense in many actions, precluding a plaintiff who “bears equal or greater

fault” from recovering. Grayson Consulting, 716 F.3d at 367.

       On appeal, the trustee no longer challenges the bankruptcy court’s factual finding

that—even assuming Morgan Keegan played a role in developing or implementing the

accounting policy and that the policy caused all of Infinity’s troubles—Infinity (through

its management) nonetheless bears greater fault than Morgan Keegan or Meyers. Instead,

the trustee asserts four ostensible legal barriers to applying in pari delicto here. Seeing no

such obstacle, we hold that the bankruptcy court properly applied in pari delicto to bar all

the trustee’s claims.

                                             11
                                              A.

       The trustee first contends that he represents not just Infinity but also Infinity’s

creditors. And when acting on behalf of the presumptively blameless creditors, the trustee

insists, he is immune from in pari delicto.

       We do not approach this issue on a blank slate. This Court has recognized that a

trustee generally acts as “the representative of the estate,” 11 U.S.C. § 323(a), and therefore

“can . . . assert those causes of action possessed by the debtor” as part of the power to

secure the “estate” under 11 U.S.C. § 541(a). Grayson Consulting, 716 F.3d at 367

(quotation marks omitted). When exercising such powers, however, a trustee “stands in the

shoes of the debtor” and is “subject to the same defenses as could have been asserted

against the debtor.” Id. (quotation marks and emphasis omitted). We have specifically held

that this includes in pari delicto, stating: “[T]o the extent that in pari delicto would have

barred a debtor from bringing suit directly, it similarly bars a bankruptcy trustee—standing

in the debtor’s shoes—from bringing suit.” Id. For that reason, the trustee is plainly subject

to in pari delicto to the extent he brings this action under Section 541.

       As the trustee correctly notes, however, the Bankruptcy Code grants trustees certain

powers beyond those of the debtor, including the ability “to, in essence, step into [a]

creditor’s shoes to do the same thing [that] creditor could do.” Cook v. United States, 27

F.4th 960, 965 (4th Cir. 2022) (quotation marks omitted) (emphasis added). As relevant

here, 11 U.S.C. § 544(a)(1) grants a trustee the powers of a hypothetical judgment lien

creditor—that is, if a creditor holding a judgment lien against the debtor could pursue a

particular action on the debtor’s behalf, the trustee may do so too even if no actual creditor

                                              12
holds such a lien. See Angeles Real Estate Co. v. Kerxton, 737 F.2d 416, 418 (4th Cir.

1984). The trustee’s argument that he may evade in pari delicto by proceeding instead

under Section 544(a)(1) therefore raises two questions: (1) would a judgment lien creditor

be able to bring the debtor’s causes of action under “applicable state law,” Angeles Real

Estate, 737 F.2d at 418; and (2) if so, would that (again, hypothetical) creditor be subject

to in pari delicto?

       The trustee largely skips over the first question, simply assuming a judgment lien

creditor would be able to pursue each of his causes of action. We are less certain. True, the

trustee cites a bankruptcy court decision stating that, “[u]nder Colorado law, judgment lien

creditors have the right to pursue all claims available to a debtor corporation before

bankruptcy was declared.” Sender v. Porter, 231 B.R. 786, 793 (D. Colo. 1999). But no

one asserts that the underlying claims here are governed by Colorado law, and the trustee

identifies nothing in the laws of South Carolina or Nevada—the States under whose laws

the trustee has asserted claims, see supra at 10—bestowing such expansive rights on

judgment lien creditors. Cf. Reynolds v. Tufenkjian, 461 P.3d 147, 148 (Nev. 2020)

(Nevada law grants judgment creditors the power to pursue only “those claims that the

judgment debtor has the power to assign”).

       Even assuming such rights exist, moreover, the logic of Grayson Consulting

explains why in pari delicto would be available as a defense in such an action. In Grayson

Consulting, we held that a trustee proceeding under 11 U.S.C. § 541 is subject to the same

defenses as the debtor because the trustee stands in the debtor’s shoes in such an action.

716 F.3d at 367. Under the trustee’s Section 544(a)(1) theory here, the underlying shoes

                                             13
would still be the debtor’s—just now it would be the (hypothetical) judgment lien creditor

standing in the debtor’s shoes in the first instance rather than the trustee. For that reason,

the creditor would also be subject to the same defenses as the debtor. See id.; accord

Reynolds, 461 P.3d at 149 (stating that, as a matter of Nevada law, “a judgment creditor

can acquire no greater right in the property levied upon than that which the judgment debtor

possesses” (quotation marks omitted)); Howard v. Allen, 176 S.E.2d 127, 130 (S.C. 1970)

(same principle in South Carolina). So, at the risk of wearing through the metaphor entirely,

when a bankruptcy trustee steps into the shoes of a hypothetical creditor who would herself

stand in the shoes of the debtor in bringing a given action, the trustee is still subject to the

same defenses as the debtor, including in pari delicto. 1

       The trustee’s complaint also purports to base this action on his power to avoid

unlawful preferences under 11 U.S.C. § 547 and fraudulent transfers under Sections 548

and 550. But the trustee has not explained how Morgan Keegan and Meyers—who never

received any compensation from Infinity—could have received such a preference or a

transfer. Nor has the trustee actually invoked those sections on appeal because his brief

clearly states that his claims are brought only under “§ 541 and § 544.” Trustee Br. 72. We

therefore do not consider whether a trustee pursuing an avoidance action under Sections

547, 548, or 550 would be subject to an affirmative defense such as in pari delicto. Cf.

McNamara v. PFS, 334 F.3d 239, 246 (3d Cir. 2003) (holding in pari delicto does not apply

       1
         This conclusion does not run afoul of 11 U.S.C. § 544(a)’s prohibition on
considering “any knowledge of the trustee or of any creditor” because in pari delicto has
nothing to do with the knowledge of those actors. At most, the defense implicates the
knowledge (and deeds) of the debtor, which Section 544 says nothing about.

                                              14
to a trustee acting under Section 548); Podell & Podell v. Feldman, 592 F.2d 103, 110–11

(2d Cir. 1979) (similar for trustee pursuing avoidance action under earlier version of the

Bankruptcy Code). We hold only that when a trustee pursues a right of action that

ultimately derives from the debtor—even if the trustee is nominally exercising a creditor’s

powers when doing so—the trustee remains subject to the same defenses as the debtor.

                                            B.

       The trustee next contends that agency law principles preclude “those who collude

with corporate insiders” from asserting an in pari delicto defense. Trustee Br. 64. But even

assuming (without deciding) that this argument accurately states Nevada or South Carolina

law, it founders on factual grounds.

       The bankruptcy court found that Morgan Keegan and Meyers did not engage in

collusion—or even have knowledge of wrongdoing—about Infinity’s accounting practices,

and that finding was not clearly erroneous. No undisputed testimony or document in the

record establishes that Morgan Keegan or Meyers understood that the accounting technique

was illegitimate (as opposed to merely aggressive) until the Transaction Services report

informed everyone as much in 2008. The trustee asks us to draw a contrary conclusion

based on an inferential chain of reasoning—essentially positing that Meyers must have

recognized the problem given his accounting background. But the bankruptcy court

reasonably declined to draw that inference, deeming it “speculative.” JA 319. Instead, the

court credited Meyers’ testimony that “he relied on the repeated assurances of ” Infinity’s

CEO and auditor “that the [a]ccounting [p]ractice was proper” and that Meyers’ limited

accounting experience in an altogether different sector (manufacturing) did not clue him

                                            15
into the problems. JA 321–22. “Weighing the competing evidence presented by the parties

and arriving at a conclusion is exactly the task that the bankruptcy court must carry out as

fact-finder,” and we see nothing requiring us to set aside that court’s “very detailed and

exhaustive factual analysis” here. Bate Land Co. LP v. Bate Land & Timber LLC, 877 F.3d

188, 198 (4th Cir. 2017).

                                             C.

       The trustee also argues that the actions of Infinity’s management officers cannot be

imputed to Infinity (and therefore to the trustee) because the relevant officers were acting

adversely to Infinity’s interests. Here, too, we are unpersuaded.

       Despite agreeing that some adverse interest exception to in pari delicto exists, the

parties debate just how adverse the officers’ actions must be to trigger it. The trustee does

not dispute that Nevada, apparently in line with most jurisdictions, requires “that the

agent’s actions must be completely and totally adverse to the corporation to invoke the

exception”—not merely misguided but akin to “outright theft or looting or embezzlement.”

Glenbrook Capital Ltd. P’ship v. Dodds, 252 P.3d 681, 695 (Nev. 2011) (quotation marks

omitted); see JA 298 n.50 (collecting cases in other jurisdictions). But the trustee insists

South Carolina would adopt a less stringent approach, citing an intermediate appellate

decision stating that “the ‘adverse interest’ exception applies where the actions of one

wrong-doer, usually an agent, are clearly adverse to the other party’s interests.” Myatt v.

RHBT Fin. Corp., 635 S.E.2d 545, 547 (S.C. Ct. App. 2006).

       We are hard-pressed to see much daylight between actions that are “totally adverse”

to a principal and those that are “clearly adverse.” But even assuming that some delta exists

                                             16
and that South Carolina follows the less stringent standard, the trustee still cannot prevail

because this simply is not a close case. Indeed, the bankruptcy court identified all sorts of

benefits Infinity derived from the accounting technique at issue, including growing the

business’s base, raising capital, paying other debt, and extending the company’s life before

liquidation. See JA 300–15. In essence, the trustee insists that the adverse-interest

exception applies any time misfeasance might eventually result in significant liability to

the principal. But that is true of all kinds of tortious conduct, so adopting the trustee’s

proposed approach to the adverse-interest exception would virtually swallow the in pari

delicto rule. We see no basis to conclude that Nevada or South Carolina would adopt such

a capacious interpretation of adversity.

                                              D.

       Finally, the trustee contends that in pari delicto is categorically inapplicable in cases

involving fiduciary duties. 2 In making this argument, the trustee asserts that Nevada and

South Carolina would follow the Delaware Court of Chancery, which has held that in pari

delicto “has no force in a suit by a corporation against its own fiduciaries” or against

“claims against defendants like auditors” who participate in “aiding and abetting breaches

of fiduciary duty.” Stewart v. Wilmington Trust SP Servs., Inc., 112 A.3d 271, 304, 319

(Del. Ch. 2015). Otherwise, the Delaware court feared, “faithless directors and officers”

could attribute their own bad acts back to the corporation itself, making it difficult for

       2
          This argument also presumes—contrary to the bankruptcy court’s analysis—that
Morgan Keegan and Meyers either had a fiduciary duty to Infinity or abetted a breach of
duty by someone else who did. Because we hold that in pari delicto applies whether or not
that is true, we do not consider those issues.

                                              17
“parties like receivers, trustees, and stockholder derivative plaintiffs” to hold such directors

and officers accountable. Id. at 304.

       Regardless of the merits of such a rule, the trustee can mount no plausible argument

that Nevada has adopted it. To the contrary, the Supreme Court of Nevada has squarely

held that in pari delicto “applies to corporations and shareholder derivative suits” in an

aiding-and-abetting breach of fiduciary duty case. Glenbrook Capital, 252 P.3d at 694–97.

The court specifically sought to incentivize companies “to carefully select and monitor

those who are acting on the corporation’s behalf,” id. at 695—a goal that would not be

furthered by adopting the blanket exception discussed in Stewart. And the Nevada court

accounted for the policy concerns expressed in Stewart by adopting a multifactor test that

neutralizes in pari delicto in specific cases when, among other things, “the public cannot

be protected” or the defendant would “be unjustly enriched.” Id. at 696 (quotation marks

omitted).

       The case law is somewhat less developed in South Carolina. But the State’s only

appellate decision implicating this issue held that in pari delicto barred a breach of

fiduciary duty claim in a case whose facts resemble those found here—a corporation’s

receiver sued a bank that had enabled the corporation’s fraud but did not mastermind or

benefit from it. See Myatt, 635 S.E.2d at 546–47. And, in that case, the South Carolina

court held that in pari delicto barred the claims without airing any of the policy concerns

discussed in Stewart. Id. at 546–48.

       The trustee urges us to treat Myatt as a drive-by holding and impute the Delaware

trial court’s reasoning in Stewart to South Carolina. We decline the invitation. In pari

                                              18
delicto is well-established in South Carolina, see Proctor, 778 S.E.2d at 892–93, and Myatt

is, at minimum, a strong signal that South Carolina has little concern about applying the

defense in situations where defendants do not seek to impute their own wrongful actions

to the corporation, 635 S.E.2d at 546–47. That is precisely the case here. Morgan Keegan

and Meyers are not seeking to avoid liability by pointing to their own wrongful conduct

and asserting it should be attributed to Infinity. Instead, they are arguing that the wrongful

conduct of Infinity’s own officers and directors exceeds any of theirs and thus bars

recovery. We see no indication that South Carolina would prohibit application of in pari

delicto in such circumstances.

                                       *      *      *

       As the bankruptcy court found, Infinity’s officers and auditors were the authors of

the company’s demise—not Morgan Keegan or Meyers. At worst, the latter simply failed

to stop a ship that was already sinking, and the law does not hold them responsible for that

failure. The judgment in favor of Morgan Keegan and Meyers is therefore

                                                                               AFFIRMED.

                                             19