Randy Sugarman, Chapter 11 Tr. for Yellow Cab Coop., Inc. v. Taylor (In re Yellow Cab Coop., Inc.)

On March 8, 2019, this court held a hearing on the motion of defendant Douglas A. Taylor ("Taylor"), the former accountant for debtor Yellow Cab Cooperative, Inc. ("Debtor" or "YCC"), for dismissal of this action filed by Randy Sugarman, the chapter 11 trustee of YCC ("Trustee"). The court took the matter under submission. For the reasons set forth below, the court finds that the doctrine of in pari delicto (also known as "unclean hands") bars the Trustee's action. Accordingly, the court will dismiss the adversary proceeding, with leave to amend.

I. The Complaint

On October 31, 2018, Trustee filed an action in state court against Taylor asserting three causes of action: (1) Professional Negligence, (2) Accounting Malpractice, and (3) Conspiracy. 1 On December 5, 2018, Taylor removed the action to this court [Dkt. 1]. On December 12, 2018, Taylor moved for dismissal of the action [Dkt. 4]. Thereafter, Trustee filed his opposition [Dkt. 10] and Taylor filed his reply [Dkt. 11].

Trustee alleges in paragraphs 17-22 of the complaint that YCC made improper patronage distributions from 2012-2015, and that Taylor calculated the amounts to be distributed. Moreover, the complaint alleges…