United States Court of Appeals
                            For the Eighth Circuit
                        ___________________________

                                No. 23-2551
                        ___________________________

  Douglas A. Kelley, in his capacity as the Trustee of the BMO Litigation Trust,

                              lllllllllllllllllllllAppellee,

                                           v.

BMO Harris Bank National Association, as successor to M&I Marshall and Ilsley Bank,

                             lllllllllllllllllllllAppellant.

                             ------------------------------

The Bank Policy Institute; Securities Industry and Financial Markets Association;
           Chamber of Commerce of the United States of America,

                 lllllllllllllllllllllAmici on Behalf of Appellant(s),

                National Association of Federal Equity Receivers,

                 lllllllllllllllllllllAmicus on Behalf of Appellee(s).
                           ___________________________

                                No. 23-2632
                        ___________________________

  Douglas A. Kelley, in his capacity as the Trustee of the BMO Litigation Trust,

                             lllllllllllllllllllllAppellant,

                                           v.
BMO Harris Bank National Association, as successor to M&I Marshall and Ilsley Bank,

                              lllllllllllllllllllllAppellee.
                                     ____________

                     Appeals from United States District Court
                           for the District of Minnesota
                                   ____________

                              Submitted: May 9, 2024
                             Filed: September 12, 2024
                                   ____________

Before COLLOTON, Chief Judge, BENTON and SHEPHERD, Circuit Judges.
                            ____________

COLLOTON, Chief Judge.

      This appeal is the latest in a series of disputes arising from Thomas Petters’s
multibillion-dollar Ponzi scheme. When the scheme collapsed, a federal district court
placed one of his companies, Petters Company, Inc. (PCI), in a receivership and
appointed Douglas Kelley as a receiver. PCI then filed for bankruptcy, and Kelley
was appointed trustee of the bankruptcy estate.

       As trustee, Kelley filed an adversary proceeding in the bankruptcy court against
BMO Harris as successor-in-interest to M&I Bank, alleging that M&I aided and
abetted the Ponzi scheme. BMO raised the equitable defense of in pari delicto on the
ground that the debtor, PCI, bore equal or greater responsibility for its injury. The
bankruptcy court and the district court concluded that the defense was unavailable in
light of the receivership. The case proceeded to trial, and a jury found that M&I
aided and abetted PCI officers’ breach of fiduciary duty and awarded Kelley more
than $500 million in damages.



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       BMO appeals and raises numerous contentions regarding available defenses,
sufficiency of the evidence, jury instructions, and damages. Because we conclude
that the doctrine of in pari delicto barred Kelley’s action against BMO, we reverse.

                                          I.

       Petters created PCI to facilitate his Ponzi scheme. He represented to investors
that PCI purchased consumer electronics from wholesalers and resold the products
to retailers. In reality, Petters rerouted much of the money to himself and his fellow
fraudsters using PCI’s accounts at M&I Bank.

       The scheme collapsed in 2008 when Petters was arrested. A jury found him
guilty of various fraud offenses, and the district court sentenced him to 50 years’
imprisonment. See United States v. Petters, 

 (8th Cir. 2011). PCI
pleaded guilty to wire fraud, conspiracy to commit mail and wire fraud, and
conspiracy to commit money laundering.

       At the federal government’s request, a federal district court placed PCI into a
receivership and appointed Douglas Kelley as the receiver under 

(a)(2)(B)(ii). The district court authorized him to “fil[e] any bankruptcy
petitions for [PCI] to protect and preserve [its] assets,” provided that “bankruptcy
cases so commenced by the Receiver shall during their pendency be governed by and
administered pursuant to the requirements of the U.S. Bankruptcy Code” and “the
applicable Federal Rules of Bankruptcy Procedure.” Five days after his appointment,
Kelley filed for bankruptcy on PCI’s behalf. The bankruptcy court appointed Kelley
to be the bankruptcy trustee.

       As the trustee, Kelley filed an adversary proceeding against BMO in the
bankruptcy court. He brought various claims under Minnesota law, including a claim
for aiding and abetting breach of fiduciary duty. Kelley alleged that M&I employees

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knew about the Ponzi scheme and gave PCI special treatment that helped the scheme
avoid detection. For example, Kelley alleged that bank employees ignored money-
laundering alerts from the bank’s account-monitoring software and allowed PCI to
overdraft millions of dollars, contrary to the bank’s policies.

       BMO moved for summary judgment. The bank argued that under the doctrine
of in pari delicto, PCI could not recover based on M&I’s alleged wrongdoing because
PCI was itself a wrongdoer of equal or greater fault. The bankruptcy court ruled that
the defense was unavailable. The court reasoned that under Minnesota law, “PCI had
become a receivership entity” and thus was no longer bound by its officers’ previous
fraudulent acts. In the alternative, the court concluded that genuine issues of fact
existed as to the parties’ respective fault. The district court denied BMO’s request
for interlocutory review of the decision. The court conducted its own review of
Minnesota law and determined that there were no substantial grounds for a difference
of opinion on whether the defense was inapplicable in light of PCI’s status as a
receivership.

      At trial, Kelley and BMO cross-moved for judgment as a matter of law on
BMO’s in pari delicto defense. The district court granted Kelley’s motion and denied
BMO’s motion because it concluded that BMO had “no valid factual or legal basis”
to advance the defense.

      The jury found BMO liable for aiding and abetting breach of fiduciary duty.
The jury awarded Kelley $484,209,716 in compensatory damages and $79,533,392
in punitive damages. After trial, BMO renewed its motion for judgment as a matter
of law, arguing again that in pari delicto barred Kelley’s suit. The court denied the
motion, and BMO appeals. We review the district court’s denial of an equitable
defense for abuse of discretion; an error of law is an abuse of discretion. See Sturgis
Motorcycle Rally, Inc. v. Rushmore Photo & Gifts, Inc., 

 (8th Cir.
2018); Zayed v. Associated Bank, N.A., 

 (8th Cir. 2015).

                                         -4-
                                           II.

      The equitable defense of in pari delicto embodies the principle that a plaintiff
who has participated in wrongdoing from recovering damages resulting from the
wrongdoing. Grassmueck v. Am. Shorthorn Ass’n, 

, 837 (8th Cir. 2005).
In Minnesota, the defense of in pari delicto is “appropriately applied to bar recovery”
when the plaintiff’s “fraud was no less than that of” the defendant. State ex rel. Head
v. AAMCO Automatic Transmissions, Inc., 

 (Minn. 1972).
BMO argues that even assuming Kelley’s allegations are true, PCI orchestrated the
scheme and is necessarily more culpable—or at least, no less culpable—than the
bank. On that view, if PCI had sued the bank in a Minnesota court, then BMO would
have been entitled to prevail on the defense of in pari delicto.

       But Kelley, as receiver-turned-trustee, brought this claim in an adversary
proceeding in bankruptcy court. A trustee in bankruptcy stands in the shoes of the
debtor. Stumpf v. Albracht, 

 (8th Cir. 1992). The defense of in pari
delicto is thus available in an action by a bankruptcy trustee against another party if
the defense could have been raised against the debtor. Grassmueck, 402 F.3d at 836.
State law governs whether the defense could have been raised against the debtor. See
id. at 837. The parties debate how Minnesota law on receiverships affects this
proceeding.

       A receiver is a “disinterested person appointed by a court . . . for the protection
or collection of property that is the subject of diverse claims.” Receiver, Black’s Law
Dictionary (12th ed. 2024). A federal district court may in the exercise of its
equitable powers appoint a receiver to “take control, custody, or management of
property that is involved in or is likely to become involved in litigation for the
purpose of preserving the property . . . and undertaking any other appropriate action
with regard to the property pending its final disposition by the suit.” 12 Charles Alan
Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice and Procedure

                                           -5-
§ 2981 (3d ed. 2024); see Gordon v. Washington, 

 (1935). Although
Kelley was appointed by a federal court, state law governs a federal receiver’s rights
in a state-law cause of action. See O’Melveny & Myers v. FDIC, 

(1994); Jones v. Wells Fargo Bank, N.A., 

, 966 n.11 (5th Cir. 2012) (per
curiam).

       A common-law tradition recognizes a receiver’s dual role as one who
“represents the creditors as well as the shareholders, and holds the property for the
benefit of both.” Franklin Nat’l Bank v. Whitehead, 

 (Ind. 1898);
see also Divide County v. Baird, 

 (N.D. 1926); Lyons v.
Benney, 

 (Pa. 1911). Relying on that body of law, Minnesota decisions
have concluded that a receiver represents the rights of creditors of the receivership
entity. See German-Am. Fin. Corp. v. Merchs.’ & Mfrs.’ State Bank of Minneapolis,

 (Minn. 1929); Farmers’ & Merchs.’ State Bank of Ogilvie v.
Consol. Sch. Dist. No. 3, 

 (Minn. 1928). Because a “receiver
represents the rights of creditors,” the Minnesota Supreme Court has ruled, he “is not
bound by the fraudulent acts of a former officer of the corporation.” Magnusson v.
Am. Allied Ins., 

 (Minn. 1971); see Bonhiver v. Graff, 

 (Minn. 1976). So “when an act has been done in fraud of the rights of
the creditors of the insolvent corporation[,] the receiver may sue for their benefit,
even though the defense set up might be valid as against the corporation itself.”
German-Am. Fin., 

.

       The parties dispute whether these decisions mean that a receiver, acting on
behalf of creditors, may avoid the defense of in pari delicto even when he brings a
claim that belongs to the corporate entity. Even assuming that Kelley has the better
reading of Minnesota law on this point, Kelley is acting in this case as a bankruptcy
trustee, not as a receiver. A bankruptcy trustee steps into the shoes of the debtor and
is subject to any defenses that could be raised against the debtor, including the
defense of in pari delicto. Grassmueck, 402 F.3d at 836.

                                         -6-
       Kelley maintains that he stepped into the shoes of a “cleansed” receivership
entity that is no longer bound by its prior wrongdoing. We are not convinced that
Minnesota law “cleanses” an entity that is placed in receivership. The Minnesota
decisions in German-American Finance, Magnusson, and Bonhiver speak only in
terms of the receiver and what defenses are available against a receiver. That a
receiver is not bound by a receivership entity’s fraudulent acts, however, does not
establish that the entity is “cleansed” of any prior wrongdoing.

       Under Minnesota law, the appointment of a receiver does not change the
receivership entity. A receivership changes only the corporation’s management. Nw.
Tr. Co. v. St. Paul S. Elec. Ry., 

 (Minn. 1929); see 

(p)-(q). Kelley-as-receiver thus had custody and control over all of PCI’s
assets, including its causes of action. Under the Minnesota decisions, he could have
pursued claims in Minnesota court, on behalf of creditors, as a receiver who was
unconstrained by the fraudulent acts of PCI’s officers. His appointment as receiver,
however, did not change PCI, which remained a wrongdoer.

       PCI’s management changed again when Kelley-as-receiver filed for bankruptcy
on behalf of the entity. At that point, the bankruptcy estate was created. See 

(a). The estate included all legal or equitable interests of the debtor in
property as of the commencement of the case. 

 § 541(a)(1). Kelley-as-receiver
transferred custody of all of PCI’s assets—including its causes of action—to “the
duly-appointed Chapter 11 Trustee.” Once he did so, Kelley-as-receiver no longer
controlled PCI’s assets and thus had no claims to bring. PCI’s claims became part of
the bankruptcy estate and belonged to the bankruptcy trustee. See Ritchie Special
Credit Invs., Ltd. v. JPMorgan Chase & Co., 

 (8th Cir. 2022).

      In this proceeding, bankruptcy law governs the powers of the trustee and
defines the property of the bankruptcy estate. 

, 541, 1106. So once
Kelley transferred PCI’s claims to the estate, bankruptcy law governed his ability to

                                         -7-
bring PCI’s claims as the trustee. And in bankruptcy, the trustee is “subject to any
equitable or legal defenses that could have been raised against the debtor.”
Grassmueck, 402 F.3d at 836. PCI is the debtor; the receiver is not involved in the
bankruptcy proceeding. If PCI had sued BMO in a Minnesota court, the defense of
in pari delicto would have been available. BMO thus should have been able to raise
the defense against Kelley as the bankruptcy trustee.

       Kelley argues that allowing BMO to raise the defense of in pari delicto in the
adversary proceeding would revive a defense that Minnesota law had already
“extinguished,” and would conflict with the rule that “[a] debtor’s property does not
shrink by happenstance of bankruptcy.” Mission Prod. Holdings, Inc. v. Tempnology,
LLC, 

 (2019) (internal quotation omitted). We think this argument
misstates the nature of the property held by the debtor, PCI. When PCI filed for
bankruptcy, it possessed claims against BMO. Those claims were subject to a
defense based on PCI’s own wrongdoing. While the receiver controlled PCI,
Minnesota law allowed him to pursue the claims on behalf of creditors, unbound by
the corporation’s fraudulent acts. But PCI itself was never “cleansed,” so the in-pari-
delicto defense was never “extinguished.”

       When Kelley transferred the claims to the bankruptcy estate, the custodian of
the claims changed, but the claims did not. The claims entered the bankruptcy estate
subject to a defense based on PCI’s previous fraudulent acts. Bankruptcy law does
not provide a vehicle for PCI or its trustee to proceed unbound by PCI’s own
wrongdoing. See Grassmueck, 402 F.3d at 836. No Minnesota decision purports to
eliminate the defense of in pari delicto in a bankruptcy case. The defense was thus
available to BMO in this adversary proceeding.

     Our conclusion is consistent with the decision of the Second Circuit in a
comparable proceeding arising from another massive Ponzi scheme. Picard v.
JPMorgan Chase & Co. (In re Bernard L. Madoff Inv. Sec. LLC), 

 (2d

                                         -8-
Cir. 2013). The court there held that the doctrine of in pari delicto barred a trustee
under the Securities Investor Protection Act—vested with the same powers as a
bankruptcy trustee—from asserting claims on behalf of the estate of Bernard
Madoff’s failed brokerage firm for wrongdoing in which Madoff participated. The
court ruled that “[t]he debtor’s misconduct is imputed to the trustee because, innocent
as he may be, he acts as the debtor’s representative.” 

.

       Kelley suggests that Madoff is inapposite because the rule in New York is
different from Minnesota law. Decisions applying New York law, however, align
with the decisions from Minnesota: the in-pari-delicto defense does not apply against
an innocent non-bankruptcy trustee or receiver who seeks recovery for investors or
creditors, although a bankruptcy trustee is subject to the defense as in Madoff. See
Taylor v. U.S. Bank Nat’l Ass’n, No. H-12-3550, 

, at *9 (S.D. Tex.
Feb. 6, 2015) (applying New York law and concluding that in-pari-delicto defense
did not apply against a receiver: “[W]hile bankruptcy trustees are regularly precluded
by bankruptcy laws from bringing any suit that the corporation could not have
brought pre-petition, a receiver appointed by the court outside of a bankruptcy setting
is treated differently.”); Walker, Truesdell, Roth & Assocs., Inc. v. Globeop Fin.
Servs. LLC, No. 600469/09, 

, at *10 (N.Y. Sup. Ct. May 27, 2013)
(“Unlike receivers, bankruptcy trustees are subject to Bankruptcy Code section 541,
which prevents such trustees from bringing any suit that the corporation could not
have brought pre-petition.”); Williamson v. Stallone, 

, 751-52 (N.Y.
Sup. Ct. 2010) (ruling that in-pari-delicto defense did not apply against non-
bankruptcy trustee because “[u]nlike a bankruptcy trustee, who is precluded by
Section 541 of the Bankruptcy Code from bringing any suit that the corporation could
not have brought pre-petition, the Trustee here is an impartial individual appointed
by the court who derives his powers from the partnership agreement and state law”);
Williamson v. Pricewaterhousecoopers, LLP, No. 602106/2004, 

(N.Y. Sup. Ct. Nov. 7, 2007) (ruling that “in pari delicto does not apply to an



                                         -9-
innocent, non-bankruptcy trustee where any recovery is for the sole benefit of those
investors who lost money”) (capitalization altered).

       Because the district court committed legal error by determining that the defense
was unavailable against Kelley-as-trustee, the court abused its discretion. The
question remains whether this court should remand for the district court to reconsider
the availability of the defense in light of our decision. On this record, we conclude
that remand is unnecessary. PCI was created solely to operate the Ponzi scheme.
Even assuming that the bank aided the scheme to the degree that Kelley alleges, BMO
cannot be more culpable than the entity that orchestrated the scheme. See Madoff,

; Off. Comm. of Unsecured Creditors of PSA, Inc. v. Edwards, 

 (11th Cir. 2006). The defense of in pari delicto thus bars Kelley’s claims
on behalf of PCI. Any other result on remand would be an abuse of discretion, so no
further proceedings are warranted. See Robert Bosch LLC v. Pylon Mfg. Corp., 

 (Fed. Cir. 2011).

                                   *      *       *

       The judgment of the district court is reversed, and the case is remanded with
directions to enter judgment in favor of BMO. The cross-appeal is dismissed as moot.
                        ______________________________




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