The Supreme Court on Monday said it won't consider a case brought by a bankrupt company that charged several large, well-known accounting firms and investment banks with enabling a fraudulent transaction that it says led to the company's Chapter 11 filing.
Crown Paper Liquidating Trust, the bankruptcy trustee for Crown Vantage Inc., which went bankrupt in 2001, accused several companies and individuals, including Merrill Lynch & Co. Inc., PriceWaterhouseCoopers LLP and a unit of Credit Suisse Group, of approving a fraudulent transaction executed by Crown's parent company at the time, James River Corp.
In that transaction, James River set up Crown as a subsidiary, then saddled it with hundreds of millions of dollars in debt and underperforming assets, according to the Crown trust's court filings, and then spun off Crown as a separate company.
The investment banks and accounting firms, Crown's trust charges, "falsely represented" that Crown "would be solvent and viable" after the transaction and helped defraud the company's creditors. The company went bankrupt approximately five years later.
PriceWaterhouseCoopers and the other defendants argued in court filings that Crown's corporate managers were equally guilty of any wrongdoing and as a result, the company's trust cannot sue them. The defendants invoked a legal doctrine that bars a participant in an unlawful act from recovering damages from another participant in the unlawful act.
A district court and the 9th Circuit Court of Appeals agreed with the accounting firms and investment banks and dismissed the case. The appeals court said that suits to recover damages should be brought by the actual creditors, rather than the trustee, according to an attorney following the case.
JP Morgan Chase & Co., representing itself and other creditors, would receive 50 percent of any damages recovered, according to a court filing by the trust.
The case is Crown Paper Liquidiating Trust v. PriceWaterhouseCoopers, 06-870.
