Edited by Barbara Kate Repa
Practice and Procedure: The Dirt on Unclean Hands
By Laurence H. Schnabel
Whether the unclean hands defense will reach a jury is unfortunately something of a crapshoot, largely because of the difficulties in applying it. But given its potentially devastating effect in neutralizing the plaintiff's case or even crippling it, every defendant needs to raise it in an answer if the plaintiff's hands appear dirty. And plaintiffs counsel should understand the defense and what buttons can be pushed in hopes of cutting off discovery on their clients' misdeeds or convincing the court the defense is an ad hominem attack calculated to unfairly tarnish their client and confuse the jury.
Overview of the Defense
The genesis of the unclean hands defense is the maxim, "He who comes into equity must come in with clean hands." This principle mandates that a plaintiff must have acted fairly in the matter in which he or she seeks relief-or be denied relief, regardless of the merit of the underlying claim. The purpose of the defense is not to protect the defendant's interests but rather the court's integrity. It does so by denying redress to a plaintiff who has unclean hands, thereby instilling trust in the judicial system. The defense also is justified as promoting justice by making a plaintiff answer for his or her misconduct. (Kendall-Jackson Winery, Ltd. v. Superior Court, 76 Cal. App. 4th 970 at 978 (1999).)
Unclean hands is generally a total defense, although it is occasionally only applied to cut off some of a plaintiff's claims or damages. For example, in Murillo v. Ritestuff Foods, Inc., the court held that unclean hands bars wrongful discharge and contract claims but not pre-job termination claims for sexual harassment. (65 Cal. App. 4th 833 at 845, 851-52 (1998).) And Cortez v. Purolator Air Filtration Prod. Co. held that equitable defenses will not wholly defeat an unfair competition claim, but they may be considered in deciding a remedy. (23 Cal. 4th 163 at 179-80 (2000).)
The unclean hands defense may be applied to legal as well as equitable claims and to both tort and contract claims (Camp v. Jeffer, Mangels, Butler & Marmaro, 35 Cal. App. 4th 620 at 628 (1995)), but it does not automatically apply to every claim thrown at a defendant.
As an affirmative defense, it should be raised in the answer or at least at some point in the trial court. But if the plaintiff's hands are particularly filthy, the court on its own may apply unclean hands on public policy grounds and to protect the court's integrity. For example, in Katz v. Karlsson (84 Cal. App. 2d 469 (1948)), a husband misled the trial court into vacating a divorce decree in hopes of claiming as community property a house he'd earlier deeded to his wife, now deceased. When the appeals court got wind of his fraud, it reversed the trial court's decree because of the husband's unclean hands.
Though unclean hands can arise for the first time on appeal, the lack of conclusive evidence in the trial record makes it unlikely an appellate court would consider it if not raised in the trial courts. (5 Witkin, Cal. Proc., Pleading ?1052 (4th ed. 1997).)
The unclean hands defense has frequently been labeled peculiarly factual. This is primarily because of the conflicting evidence regarding the plaintiff's conduct, with one set of facts painting the plaintiff a scoundrel, the other depicting the plaintiff as either innocent or at least not unforgivably tainted. It has thus been viewed as a defense resistant to extirpation by a demurrer or summary judgment motion. (CrossTalk Prod., Inc. v. Jacobson, 65 Cal. App. 4th at 641; Mattco Forge, Inc., 5 Cal. App. 4th 392 at 408).)
Yet defendants have successfully applied the defense at the trial court level both via demurrer to the complaint (Blain v. Doctor's Co., 222 Cal. App. 3d 1048 (1990)) and via summary judgment (DeRosa v. Transamerica Title Ins. Co., 213 Cal. App. 3d 1390 (1989).) In other cases, the appeals court reversed trial courts that granted defendants demurrers or summary judgment based on the unclean hands defense. (Jacobs v. Universal Dev. Corp., 53 Cal. App. 4th 692 (1997).) The lesson here is that the defense has a shot at short-circuiting a case before trial if the plaintiff's dirty hands leave permanent fingerprints on the complaint, or are not clothed in triable-fact issues.
The unclean hands defense has been labeled a generally disfavored one. (Kelley Blue Book v. Car-Smarts, Inc., 802 F. Supp. 278, 292 (C.D. Cal. 1992).) Whether it will apply depends on a host of factors, especially whether the plaintiff's claim implicates favored public policy. (Health Maint. Network v. Blue Cross of S. Cal., 202 Cal. App. 3d 1043, 1061 (1988).)
Who Decides-And How
Who decides if the unclean hands defense gets to the jury-and how this is decided-are key issues because the defense may be the great equalizer in a jury trial in which a faceless corporate defendant or an unsympathetic individual defendant can paint the plaintiff as the greater of two evils.
The trial court in its discretion decides if the unclean hands defense applies and may use the Blain test in doing so. (Dickson, Carlson & Campillo v. Pole, 83 Cal. App. 4th 436 at 447 (2000).) And it also has discretion about whether to decide the merits of the defense or in a legal action submit the defense to the jury. (Unilogic, Inc. v. Burroughs Corp., 10 Cal. App. 4th 612 at 622-23 (1992).) Unilogic suggests the court's discretion would be well exercised by submitting the defense to the jury when the unclean hands defense's facts are so intertwined with legal claims that it makes no sense for the trial court to decide the same factual issues on the defense that the jury must decide on the plaintiff's legal claims.
When Unclean Hands Applies
Case law is larded with generalities giving scant guidance on whether the unclean hands defense will fly. It is said not every wrongful act or even fraud will do. The misconduct "must relate directly to the transaction concerning which the complaint is made, i.e., it must pertain to the very subject matter involved and affect the equitable relations between the litigants." (Fibreboard Prod. Corp. v. East Bay Union of Machinists, 227 Cal. App. 2d 675 at 728.) The plaintiff must have "directly 'infected' the actual cause of action before the court," and be "not merely guilty of unrelated past conduct." (Pond v. Insurance Co. of N. Am., 151 Cal. App. 3d 280 at 290 (1984).)
These generalities provided opaque guidelines at best to courts and litigants trying to decide if the unclean hands defense should apply. The Third District Court of Appeals in Blain recognized the rather amorphous guidelines in respect to the defense's application. (222 Cal. App. 3d at 1058-60.) Blain thus created a three-prong test focusing on analogous case law, the nature of the plaintiff's misconduct, and the relationship of this misconduct to the plaintiff's claimed injuries.
Analogous case law. The court here looks for other cases applying the unclean hands defense to the same or a similar claim. The Blain court found no cases squarely on point, but it still affirmed the trial court's grant of a demurrer based on unclean hands.
The Unilogic court could find no analogous cases applying the unclean hands defense to a plaintiff's claim of conversion. (10 Cal. App. 4th at 620.) But that provided no hurdle to upholding the jury's verdict in the defendant's favor on the defendant's unclean hands defense. The Unilogic court was satisfied the facts passed the analogous case test because unclean hands is an available defense in legal actions, and there was no policy reason prohibiting applying unclean hands to the plaintiff's conversion claim.
Suffice it to say that the analogous case prong is helpful if defense counsel can find other cases applying unclean hands to a claim similar to the one facing the defendant. But the lack of such case precedent is not fatal. A defendant advocating the defense has some hope of finding analogous case law because it has been raised in a wide variety of cases, including claims of malicious prosecution (Kendall-Jackson Winery, Ltd., 76 Cal. App. 4th 970 (1999)); legal malpractice (Blain, 222 Cal. App. 3d 1048 (1990)); job termination in violation of public policy (Camp, 35 Cal. App. 4th 620 (1995)); violation of constitutional right of privacy (Hill v. National Collegiate Athletic Ass'n, 7 Cal. 4th 1 at 40 (1990)); conversion (Unilogic, 10 Cal. App. 4th 612 (1992)); abuse of process (Yu v. Signet Bank/Virginia, 103 Cal. App. 4th 298 at 322 (2002)); shareholders derivative suits (Gaillard v. Natomas Co., 173 Cal. App. 3d 410 at 420 (1985)); Lanham Act violation claims (Japan Telecom, Inc. v. Japan Telecom Am., Inc., 287 F.3d 866 at 870 (9th Cir. 2002)); and civil RICO cases (Roma Constr. Co., Inc. v. aRusso, 906 F. Supp. 78 at 82-83 (D.R.I. 1995)).
Nature of misconduct. This inquiry is guided by some general rules but thereafter is analyzed case by case. A crime or actionable tort is not needed. Rather, any conduct that violates conscience, good faith, or other equitable standards of conduct will suffice. (Kendall-Jackson Winery, Ltd., 76 Cal. App. 4th at 979; Pond, 151 Cal. App. 3d at 291.) Mere negligent conduct will not suffice, however. (Chitkin v. Lincoln Nat'l Ins. Co., 879 F. Supp. 841, 854 (S.D. Cal. 1995).) It has been said that bad intent is the essence of the required misconduct. (Wells Fargo & Co. v. Stagecoach Properties, Inc., 685 F.2d 302 at 308 (9th Cir. 1982).) When the defendant instigated the plaintiff's misconduct and the defendant's misconduct outweighs the plaintiff's misconduct, the courts may find Blain's "misconduct" prong absent. (CrossTalk, 65 Cal. App. 4th at 642. See also, Jacobs, 53 Cal. App. 4th at 702-03.)
As a general proposition, if the plaintiff's misconduct suggests an intent to defraud or otherwise take advantage of the defendant, it's in the running for unclean hands honors.
Relationship of the misconduct to the injuries. If the unclean hands defense is derailed, this is the likely place the derailment will occur. It is also the most difficult factor to apply. Generalities such as "the misconduct must relate directly to the transaction concerning which the complaint is made and affect the equitable relations between the litigants" give scant guidance. It seems clear if a plaintiff's misconduct has only hurt some third party rather than the defendant asserting the defense, the defense won't apply. (Mattco Forge, Inc., 52 Cal. App. 4th at 846-47.)
A common thread in cases finding the requisite relationship is a causal connection between a plaintiff's claimed harm and his or her own misconduct or dirty hands. Thus, in Blain the plaintiff's claimed damages in his malpractice suit was caused by his own perjury. In Kendall-Jackson Winery, the plaintiff's harm stemmed from the defendant allegedly prosecuting an earlier action with malice. But the underlying lawsuit was causally connected with the plaintiff's own unfair trade practices aimed toward the defendant, inspiring the defendant to file the allegedly improper prior lawsuit. (76 Cal. App. 4th at 987.) In DeRosa and Pond, the plaintiffs' misconduct inspired the defendants to sue them, those underlying suits in turn generating DeRosa's and Pond's malicious prosecution actions. (76 Cal. App. 4th at 985.) And in Camp, the plaintiffs' defrauding of their employer in hiding their prior felony convictions related directly to their claim of wrongful termination in violation of public policy; they would not have been hired in the first place had they revealed those convictions. (35 Cal. App. 4th at 639.)
Though some cases encourage an expansive application of the relationship test to uphold the unclean hands defense's application (see, Kendall-Jackson Winery, Ltd., 76 Cal. App. 4th at 985 (courts should look "at the larger picture"); Unilogic, 10 Cal. App. 4th at 621 (courts should not take "an unreasonably narrow view" of the required connection)), cases finding no direct relationship do so either based on a factual analysis or some other extraneous factor, such as public policy. Cases illustrating a pure "no direct relationship" based on an analysis of the facts include Fibreboard (227 Cal. App. 2d at 729) (plaintiff's misconduct in allegedly defrauding defendants in negotiating a collective bargaining agreement found unrelated to defendants' picketing activities causing business interference) and Vacco Indus., Inc. v. Van Den Berg (5 Cal. App. 4th at 53 (1992) (plaintiff's misconduct in wrongfully firing its defendant employee did not directly relate to plaintiff's tort claims against defendant for stealing trade secrets, engaging in unfair compensation, and breaching his fiduciary duties).
Other cases, while giving lip service to the direct-relationship rule in rejecting the unclean hands defense, appear inspired by extraneous but compelling factors. Public policy in favor of protecting a plaintiff's claims from the clutches of unclean hands is such a factor.
Thus, in Murrillo v. Rite Stuff Foods, Inc. (65 Cal. App. 4th 833 (1998)), the plaintiff sued her ex-employer for sexual harassment and wrongful discharge. In her deposition, the plaintiff admitted she was an undocumented worker who had used false resident alien and Social Security cards to secure her job with the defendant. The trial court then granted the defendant summary judgment based on its after-acquired evidence defense.
The appeals court decided to discuss the unclean hands doctrine even though the summary judgment was based on the after-acquired evidence doctrine. The court proclaimed that no direct relationship existed between the plaintiff's injuries in being harassed and her own unclean hands in defrauding her employer to get the job. Rather, it found that her injuries were due to a co-employee's sexual harassment abetted by the employer's alleged toleration of this harassment. The court then mentioned the overriding public policy of protecting workers-including undocumented workers-from sexual harassment. It is not hard to see a direct relationship between the plaintiff's harm and her misconduct because she probably would not have been hired if the employer knew her undocumented status. It appears that in this case public policy trumped what otherwise was a fairly straightforward direct relationship.
Vacco Indus., Inc. (5 Cal. App. 4th 34 ) is another illustration of public policy's primacy. In Vacco the court was concerned that if it allowed the discharged employee an unclean hands defense, every fired employee would be emboldened to steal an employer's property and then justify the theft by claiming wrongful termination.
Likewise, in Yu v. Signet Bank/Virginia (103 Cal. App. 4th 298), the court wanted to discourage lenders from engaging in distant-forum abuse (suing a defendant in a court so distant that the defendant couldn't afford to defend himself) even though the defendants apparently owed the money and took a rather cavalier attitude toward repaying it. Though the court asserted that the defendants' misconduct was unrelated to the plaintiff's misconduct in suing them in a distant forum, it is not hard to argue for quite a direct relationship: The defendants would face no lawsuit anywhere if they paid their debts.
Laurence H. Schnabel, a partner in the Los Angeles law firm of Lindahl, Schnabel, Kardassakis & Beck, specializes in defending products liability, employment, professional liability, and commercial matters.