A. The Equitable Origin of the Doctrine/Defense of Unclean Hands.

California has long recognized the maxim that “No one can take advantage of his own wrong.” (Civ. Code. § 3517.) Put another way, “[h]e who comes into equity must come with clean hands.” (See Wilson v. S.L. Rey, Inc. (1993) 17 Cal. App.4th 234, 244; Kendall-Jackson Winery, Ltd v. Superior Court (1999) 76 Cal. App.4th 970, 978.)

The underpinnings of the doctrine/defense of unclean hands was explained in Kendall-Jackson Winery, Ltd v. Superior Court, supra, at p9. 978-79:

           The unclean hands doctrine protests judicial integrity and promotes justice. It protects  judicial integrity because allowing a plaintiff with unclean hands to recover in an action   creates doubts as to the justice provided by the judicial system. Thus, precluding  recovery to the unclean plaintiff protects the courts, rather than the opposing parties’ interest. [Citation omitted.] The doctrine promotes justice by making a plaintiff answer for its own misconduct in the action. It prevents “a wrongdoer from enjoying the fruits of his transgression.” [Citation omitted.] [At p.p. 978-970.]

B. The Basics.

Under the doctrine of unclean hands, “a plaintiff [must] act fairly in the matter for which he seeks a remedy. He must come into court with clean hands, and keep them clean, or he will be denied relief, regardless of the merits of his claim.” (Kendall-Jackson Winery, Ltd, supra, 76 Cal. App.4th at 979 [citations omitted].) The defense of unclean hands applies to legal as well as equitable actions. (Kendall-Jackson Winery, Ltd v. Superior Court, supra, at p. 978.) At least one recent case suggests the defense of unclean hands may be submitted to the jury. (Fuller-Austin Insulation Company v. Highlands Insurance Company (2006) 135 Cal.App.4th 958, 974.)

C. What Conduct Constitutes Unclean Hands.

A plaintiff’s inequitable conduct in connection with the matter in controversy provides a complete defense to the plaintiff’s action. (Dickson, Carlson & Campillo v. Pole (2000) 83 Cal. App. 4th 436, 446.) Conduct is sufficient to constitute unclean hands if it “violates conscience, or good faith, or other equitable standards of conduct.” (Id.) The doctrine of unclean hands also applies to bad faith conduct by the plaintiff in connection with the matter in controversy. (Fladeboe v. American Isuzu Motors, Inc. (2007) 150 Cal.App.4th 42, 56.) The defense is based upon misconduct in the particular transaction or connected with the subject matter of the litigation. (Wilson v. S.L. Rey, Inc., supra, 17 Cal. App.4th at 244.)

In determining whether the particular misconduct is a bar to a claim, a court should consider (1) analogous case law, (2) the nature of the misconduct, and (3) the relationship of the misconduct to the claimed injuries. (Kendall-Jackson Winery, Ltd v. Superior Court, supra, at 979; Dickson, Carlson & Campillo v. Pole, supra, at 447.)

D. Fraud is a Basis of Unclean Hands.

California Courts have long recognized that fraud in the underlying transaction or other inequitable conduct bars relief. For example, in Powell v. Bank of Lemoore (1899) 125 Cal. 468, the plaintiff obtained an injunction against a trustee’s sale under a deed of trust and after the sale occurred, the plaintiff sought to set aside the sale arguing that the sale violated the injunction. The court found that the plaintiff had obtained the injunction by falsely alleging an agreement extending the time for payment and by falsely alleging that the payments had been made, and denied the request to set aside the sale based on the defense of unclean hands. (At p. 470.)

In Jose v. Utley (1921) 185 Cal. 656, the plaintiff who held stock in an oil company sought an injunction against enforcement of the California’s Corporate Securities Act, arguing the law was unconstitutional. The court found that since the plaintiff had committed fraud in selling the stock, he had unclean hands and denied the requested injunction. (At p. 665.) Similarly, in Brandt v. Krogh (1910) 14 Cal. App. 39, the court denied enforcement of a promissory note the plaintiff had procured through fraud.

The plaintiffs in London v. Marco (1951) 103 Cal. App. 2nd 450, sought an injunction against the foreclosure of their home and represented to the court that all property taxes had been paid. Several weeks after the preliminary injunction was issued, the defendants determined the taxes had not been paid and there was an income tax lien filed against the property. Defendants then successfully moved to dissolve the preliminary injunction because the plaintiffs had perpetrated a fraud on the court. The plaintiffs then filed a similar suit in the Santa Monica branch of the Los Angeles Superior Court without disclosing the facts of the former action to the court. Plaintiffs’ request for preliminary injunction was denied based on the grounds of unclean hands and the plaintiffs appealed. The Court of Appeal affirmed the order denying the preliminary injunction, holding: 

        Plaintiffs’ hands were more than slightly soiled (1) by the false statements made in the first action that taxes had been paid when in fact more than $3,000 remained unpaid at the time the statement was made, and (2) by the dismissal of the first action and the filing of the second in a branch court in the same jurisdiction without disclosing that the former action had been dismissed and that in such action, the court had dissolved the preliminary injunction by reason of the false statement with reference to taxes. [p. 453.]

E. Unclean Hands Applies to Successors-In-Interest.

In Richman v. Bank of Perris (1929) 102 Cal. App. 71, a bank president had embezzled $40,000 from the bank and then the plaintiff subsequently acquired the bank president’s stock in the bank in satisfaction of a judgment the plaintiff had against the bank president. The plaintiff then filed a suit to set aside an assessment against the bank stock to replenish the capital of the bank, arguing that the assessment was void because notice had not been given to some of the directors of the meeting where the assessment was made. While the court found that the assessment was void because of the failure to give notice (at p. 80), the court nonetheless refused the plaintiff relief because of the conduct of the plaintiff’s predecessor – the bank president. As the court explained: 

            Equity will not aid the plaintiff when he has been guilty of merely fraudulent acts in the original transaction, which constitutes the foundation out of which the action for relief grows. 

                                                                    * * *

            If it be true that the attachment debtor, the absconder in this case, could not himself maintain this suit, without bringing himself within the rules of equity, we think the plaintiff here is in the same position. [p.p. 86, 88.]

F. Other Inequitable Conduct.

In Wilson v. S.L. Rey, Inc. (1993) 17 Cal. App. 4th 234, the defendants had made a loan to one of three co-tenants secured by that co-tenant’s 28% interest in the underlying real property. After the defendants foreclosed on that 28% interest, the defendants purchased a note secured by a deed of trust on the entirety of the property, and then foreclosed on the property. The plaintiff, who was one of the other co-tenants, sought to set aside the foreclosure sale on the purchased note and deed of trust. The trial court denied relief based on the defense of unclean hands. The court of appeal affirmed, concluding: 

            Substantial evidence supports the trial court’s finding that Wilson came before it with  unclean hands. The record reflects a continuing course of refusal to make note payments, to pay taxes, to account for royalties, rents and profits, and misuse of the bankruptcy court to delay and defeat the legitimate claims of lien holders, including Orendian. [At p.p. 244-245.]

G.  Leading Unclean Hands Defense Case from the Fifth District Court of Appeal Gives Broad Application to the Defense.

In Kendall-Jackson Winery Ltd. v. Superior Court (1999) 76 Cal. App. 4th 790, a panel of the Fifth District Court of Appeals discussed the scope of misconduct that may be used to support a defense of unclean hands. The plaintiff in the action – E. & J. Gallo Winery (“Gallo”) – had been a defendant in the earlier action brought by the defendant – Kendall-Jackson Winery Ltd. (“Kendall-Jackson”). In the earlier action, Kendall-Jackson had sued Gallo for trademark infringement, trade dress violations, and unfair business practices, and lost the case. Gallo then filed a malicious prosecution action against Kendall-Jackson and Kendall-Jackson in turn asserted the defense of unclean hands based on Gallo’s alleged marketing misconduct. The trial court granted summary judgment on the unclean hands defense because the alleged misconduct did not relate to Kendall-Jackson’s decision to file and pursue the earlier lawsuit. On appeal, the court first found that the defense of unclean hands is available in legal as well as equitable actions and that the determination of whether the doctrine of unclean hands applies is a question of fact. (At p. 978.)

The court in Kendall-Jackson reversed the earlier grant of summary judgment on the unclean hands defense, finding that the relationship between the alleged misconduct and the malicious prosecution action was sufficient to permit the defense to go forward. The court found that in earlier analogous cases, courts have allowed misconduct in the underlying action to serve as a defense for unclean hands in the subsequent malicious prosecution action. (At p. 981.) The court next found that since the nature of the alleged misconduct violated the letter and the spirit of the Alcoholic Beverage Control Act, that the evidence supports a defense of unclean hands. And finally, the court found the relationship between the alleged misconduct in the malicious prosecution action was sufficient because the alleged unfair marketing strategies may have contributed to Kendall-Jackson’s pursuit of the infringement action which Gallo was required to defend. (At p. 987.) As the court explained: 

            The unclean hands doctrine is not a legal or technical defense to be used as a shield gainst a particular element of a cause of action. Rather, it is an equitable rational for refusing a plaintiff relief where principles of fairness dictate that the plaintiff should   not recover, regardless of the merits of his claim. It is available to protect the court from having its powers used to bring about an inequitable result in the litigation before it. [At p. 985.]

H. Request Factual Finding in Court Trials.

The question of whether to deny relief based on unclean hands rests within the trial court’s discretion. (Dickson, Carlson & Campillo v. Pole, supra, at p. 447.) Courts should consider the material facts affecting the equities between the parties, the degree of harm caused by the plaintiff’s misconduct and the extent of plaintiff’s alleged damages. (Dickson, Carlson & Campillo v. Pole, supra.) Thus, factual findings in support of the defense of unclean hands are appropriate and include the

 nature of the misconduct and the extent of prejudice or damage to the defendant relative to the plaintiff’s damages or other requested relief. (Id.)

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