Debevoise & Plimpton LLP partner John Gleeson has been recognized as “Litigator of the Week” by The American Lawyer for helping overturn a billion-dollar trial judgment against BMO Bank N.A. (f/k/a BMO Harris Bank N.A.), as successor in interest to M&I Marshall & Ilsley (“BMO”), resulting in a remand with instructions to enter judgment in BMO’s favor. This ruling marks the culmination of a years-long legal battle involving allegations that BMO, as successor-in-interest to M&I Marshall & Ilsley Bank (“M&I”), aided and abetted one of the largest Ponzi schemes in U.S. history. Debevoise represented BMO Bank with Mayer Brown LLP, Munger, Tolles & Olson LLP and Stinson LLP.
In 2022, following extensive pretrial proceedings in District of Minnesota bankruptcy and district courts, Debevoise, Mayer Brown, and Stinson represented BMO in a St. Paul, Minnesota federal district court in a trial against Douglas A. Kelley, the litigation trustee appointed in connection with the chapter 11 bankruptcy of Petters Company, Inc. (“PCI”). PCI was a sham business that Tom Petters used to orchestrate a multibillion-dollar Ponzi scheme. When the scheme unraveled in 2008, Petters and his co-conspirators were arrested, and PCI was placed into receivership. Petters was sentenced to 50 years in prison after pleading guilty to fraud, money laundering, and conspiracy. PCI pled guilty to the Ponzi scheme as well.
PCI maintained bank accounts at M&I Bank.
Mr. Kelley sued BMO, alleging that M&I had knowingly facilitated the fraudulent activities of Petters and his co-conspirators by providing banking services to PCI, and sought approximately $1.9 billion in damages. After a 17-day trial, the jury returned defense verdicts on three of the four counts, but it found for Kelley on one count of aiding and abetting a breach of fiduciary duty to the sham company, PCI, and awarded approximately $500 million in damages. Because of pre- and post judgment interest, the total at issue rose to more than $1 billion.
Following the trial, BMO appealed the verdict to the Eighth Circuit. Munger Tolles, which was retained as appellate counsel before trial, led the briefing with support from the trial teams from all three firms. The May 2024 oral argument turned out to be a battle of the former Solicitors General: Don Verrilli argued for BMO, and Paul Clement argued for Kelley.
On September 12th, the Eighth Circuit panel issued a unanimous decision, authored by Chief Judge Colloton, that delivered a complete victory to BMO. Although the bankruptcy and district courts had rejected an in parli delicto (“in equal fault”) defense that would have categorically barred Kelley’s claims, BMO ultimately prevailed on that basis. The Eighth Circuit concluded that the in pari delictodefense barred Kelley’s claims against BMO, reasoning that Kelley, acting as bankruptcy trustee, stepped into the shoes of PCI, the debtor, and was therefore subject to any defenses applicable to the PCI. This ruling, consistent with Second Circuit precedent from the Madoff Ponzi scheme, required reversal of the judgment against BMO. The court further found that PCI was created solely to operate the Ponzi scheme and therefore in pari delicto applied as a matter of law.
The Eighth Circuit remanded the case with instructions to enter judgment in BMO’s favor, not only reversing the over-$1 billion judgment but also vindicating BMO’s in pari delicto defense, underscoring the significance of the win.
In addition to partner John Gleeson, the Debevoise team was led by partners Michael Schaper, Susan Reagan Gittes, and Morgan A. Davis, and included associates Molly Maass, Jillian Tancil and Elise Coletta and former associate Josh Burger.