Recent Case Summary

Maxwell v. KPMG Update

As reported in the Summer 2008 issue, the Seventh Circuit Court of Appeals in this case suggested that the Trustee's appeal might be frivolous and that the Trustee, not the estate, would be personally liable for any sanctions.

In April 2008, KPMG filed two motions with the Court of Appeals. The first sought leave to pursue over $4 million in Rule 9011 sanctions against the Trustee in both his personal and fiduciary capacity and against his lawyers. These proceedings would ultimately be heard in the trial court. KPMG also filed a motion seeking over $238 million in FRAP 38 sanctions against the Trustee in both his personal and fiduciary capacity and against as his lawyers.

The Trustee retained separate counsel to represent the estate and himself in his personal capacity. These counsel filed oppositions to KPMG's motion.

The estate settled with KPMG with a complete release and procured a release for Maxwell in his personal capacity of any Rule 9011 sanctions, leaving the issue of the FRAP 38 sanctions.

On August 21, 2008, the Court of Appeals released its opinion, holding that the appeal was frivolous. However, it reaffirmed its prior holdings that in the 7th Circuit, the Trustee's conduct must be wanton and wilful before he will be held personally liable. The Court found that the Trustee's reliance on qualified professionals satisfied the Court of Appeals that the Trustee's conduct did not merit sanctions. The Court also ruled that it was not inclined to award any sanctions against the estate either.

However, the Court did award over $238 million in FRAP 38 sanctions against the estate's appellate counsel. Whether the Trustee's counsel will be subject to further sanctions in the trial court remains open.