Litigators of the Week: The Eighth Circuit Knocks Out a $564M Verdict Against BMO in Ponzi Case

In November 2022, BMO Bank was hit with the largest verdict in Minnesota history. After a four-week trial, federal jurors handed down a $564 million verdict finding the bank’s predecessors aided and abetted Ponzi schemer Tom Petters and his accomplices in laundering billions in proceeds. Last year, U.S. District Judge Wilhelmina Wright in St. Paul tacked on pre- and post-judgment interest to bring the tally to more than $1 billion.

The bank appealed and oral arguments at the Eighth Circuit in May featured a match-up of former U.S. Solicitors General: Don Verrilli of Munger, Tolles & Olson argued for BMO and Paul Clement of Clement & Murphy argued for Douglas Kelley, the bankruptcy trustee who has been pursuing claims against the bank.

Last week the Eighth Circuit reversed the judgment below, finding the trustee essentially stood in the shoes of Petter’s sham company Petters Company Inc. and the doctrine of in pari delicto—Latin for “in equal fault”—barred all claims.

Our Litigators of the Week are members of BMO’s defense team: John Gleeson of Debevoise & Plimpton, Richard Spehr of Mayer Brown and Elaine Goldenberg of Munger, Tolles & Olson.

Who was your client and what was at stake?

John Gleeson: Our client is BMO Bank N.A. (f/k/a BMO Harris Bank N.A.), as successor in interest to BMO Harris Bank N.A. and Marshall & Ilsley (“BMO”). BMO acquired Marshall & Ilsley Bank (“M&I”) in 2011, after the PCI Ponzi scheme was discovered and Petters and PCI pleaded guilty to criminal conduct. At trial, the plaintiff not only sought approximately $1.9 billion in damages (plus prejudgment interest), but also to be the first bankruptcy trustee to avoid defenses, like in pari delicto, that are normally applicable to a bankruptcy estate—and to do so merely because the company at the center of the Ponzi scheme passed through receivership before bankruptcy.


Who was on your team and how have you divided the work—both at the trial court and on appeal?

Gleeson: This case was a true team effort. Debevoise was lead trial counsel, along with Mayer Brown and Stinson. BMO’s in-house lawyers, Jeffrey Jamison and Julie Rodriguez Aldort, were in court every day and played an instrumental role in guiding and supporting our strategy throughout the trial. Because Munger Tolles was brought on before trial, the trial team was able to benefit from their input and expertise on appellate preservation, among other issues. Mayer Brown and Munger Tolles collaborated on trial and post-trial briefing in the district court, which helped set the case up for appeal. Munger Tolles drafted the appellate briefs and argued the appeal with support from trial counsel.


Why was the Munger Tolles appellate team brought on prior to the trial? And how was that beneficial to this outcome?

Elaine Goldenberg: It’s always a good idea to think proactively about appeal before and during trial—and that’s particularly key in cases that are as complex and high-stakes as this one. Coming into the case before the trial allowed our appellate team to work with the trial team to shape the way legal issues were presented to the district court, including the in pari delicto issue that ultimately led to reversal at the Eighth Circuit. It also meant that, when we took charge at the appeal stage, we already knew the ins and outs of the case extremely well and weren’t trying to simultaneously brief the issues and get caught up on thousands of pages of transcripts and an extensive procedural history. Just as important, being involved early on meant that Munger was able to develop great relationships with the rest of the team, including the fantastic and deeply involved in-house lawyers at the bank. By the time we got to the appeal, we had built a tight-knit group of lawyers who, after years of closely working together, gained deep understanding of and respect for one another.

The jury sided with your client on three of the four claims that went to trial. What were those claims and how did they differ from the claim for aiding and abetting a breach of fiduciary duty that the jury decided against your client?

Gleeson: The plaintiff lost on its claims for violation of the Minnesota Uniform Fiduciaries Act, breach of fiduciary duty and aiding and abetting fraud. We appealed the verdict on the sole count for which the jury found in the plaintiff’s favor (aiding and abetting a breach of fiduciary duty to the Ponzi entity—PCI) on multiple grounds, but the Eighth Circuit did not have to reach those issues because of its holding that in pari delicto required judgment for BMO as a matter of law.

PCI was in receivership before it filed for bankruptcy. What complications did that provide for you?

Spehr: It led the bankruptcy trustee suing BMO (Kelley) to argue that the brief receivership cleansed PCI of any wrongdoing and immunized the trustee from any in pari delicto defense. The bankruptcy and district courts accepted that argument—erroneously, as the Eighth Circuit has now ruled.

You raised this in pari delicto defense in the bankruptcy and district court below. On what grounds did those courts go against your client there?

Spehr: The bankruptcy and district courts rejected BMO’s in pari delicto arguments at the dismissal, summary judgment and trial stages principally because those courts concluded that PCI’s brief receivership cleansed PCI of any wrongdoing and immunized the bankruptcy trustee from any in pari delicto defense.

What were the keys to persuading the Eighth Circuit to reverse the judgment below?

Goldenberg: This case has an extensive history, starting at the bankruptcy court and proceeding through the multi-week district court trial. There were an unusually high number of issues that we could have pressed on appeal. Our team spent a great deal of time thinking carefully about which issues to raise—assessing not just which arguments were strongest, but which would lead to the greatest relief for the client and how different issues worked (or didn’t work) in tandem. Given the sheer number of issues, it was important to think about how to order and frame each issue and how much space we could devote to each one. The in pari delicto issue on which we won was the issue we put first in our brief and was one on which we lavished a lot of attention. We did so because we thought it was a clear legal error that was case-dispositive—and that assessment was vindicated by the Eighth Circuit’s decision holding that this trial never should have happened and that judgment should be entered in favor of our client.

With this decision in-hand, are there any moments that stick out from the oral argument back in May?

Goldenberg: It was a terrific argument. The panel was very well prepared and engaged and expressly acknowledged the case’s significance. And the quality of the oral advocacy was exceptional on both sides. Don knew this case—the facts and the law—extraordinarily well and really dug down into every single detail. His rebuttal argument was particularly masterful. Among other things, he was able to pluck out language from deep within a Minnesota Supreme Court decision that was directly responsive to points about that decision that plaintiff made at argument on the in pari delicto issue—the very issue that was ultimately the basis for the Eighth Circuit’s decision in our favor. Don’s ability to come up with that kind of granular answer on the fly is one of the reasons he’s such a phenomenal advocate.

What’s important in this decision for other banks who might face claims similar to what your client faced here?

Gleeson: The Eighth Circuit’s decision confirms that businesses engaging in criminal misconduct cannot use receiverships or other pre-bankruptcy changes in control to evade the usual rule that bankruptcy trustees are subject to in pari delicto and other defenses that could be asserted against those businesses. It should provide additional comfort to banks and other service providers that may be facing claims like those asserted in this case.

What will you remember most about this matter?

Gleeson: The incredible collaboration and camaraderie among all of the firms and BMO’s in-house counsel. Lawyers from each firm and BMO holed up together in the Intercontinental St. Paul for the four weeks between the pre-trial conference and the verdict. Everything we did—from the voir dire to post-trial briefs and then the appeal—reflected input from the whole team and was stronger as a result.

Spehr: Seeing the words “The judgment of the district court is reversed, and the case is remanded with directions to enter judgment in favor of BMO” at the end of the Eighth Circuit’s opinion.

Goldenberg: Two things stand out in this case. First, this was an extraordinary team. There were a lot of lawyers that all worked together incredibly smoothly, productively, and without ego. The exceptional support we got from the trial team during the appeal made our job in writing the briefs and preparing for oral argument so much easier and helped make the work product the very best that it could be. Second, in our view, the bankruptcy and district courts got things very wrong here, and it was gratifying to see the court of appeals take a fresh look at the case and correct those errors. That’s of course how the appellate system is supposed to work, but it’s unusual to have such a resounding and total reversal, particularly in a case this sprawling. Seeing the words “enter judgment in favor of BMO” in the Eighth Circuit’s decision made the victory especially sweet.

Reprinted with permission from the September 20th edition of The AmLaw Litigation Daily © 2024 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.