In a Nutshell: California’s Unclean Hands Doctrine
As a general principle, the doctrine of “unclean hands” is in play when a plaintiff has committed an act that, if taken alone, would constitute the basis for liability of the plaintiff as to the defendant. As an example, let’s assume that Paul and Denise are joint venturers. Their California-based company, J.E.T. Instruments, produces flight recorders for airplanes. Paul is in charge of dealing with suppliers of materials to J.E.T. Instruments used to manufacture the flight recorders, and Denise’s primary responsibility is to sell the flight recorders to its airline customers.
Business has declined, and Paul thinks he knows why. He suspects that Denise has been, without Paul’s knowledge and in violation of J.E.T.’s policies and procedures regarding pricing of its flight recorders, over-charging the airlines and pocketing the difference between J.E.T.’s internally-mandated price of flight recorders and the actual amount that she is charging J.E.T.’s airline clients. Paul sues Denise for breach of contract, fraud, breach of duty of loyalty, and a variety of other claims. In the course of discovery, it is found that Paul has been engaging in malfeasance as well, and that such conduct is also contributing to J.E.T.’s financial difficulties. Specifically, Paul has been cutting side deals with J.E.T.’s suppliers, the proceeds of which he converts to his own use, in violation of the express terms governing the joint venture. As part of her defense to Paul’s suit, Denise claims the defense of “unclean hands” as it relates to Paul. The court is left to decide the matter. In all likelihood, the court would consider the following:
California has long recognized the maxim that “No one can take advantage of his own wrong.” Civ. Code § 3517. In other words, “[h]e who comes into equity [into court] 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 (emphasis added). The rationale of the doctrine was explained in Kendall-Jackson Winery, Ltd. v. Superior Court, supra, at 978-79:
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. . . . 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 . . . ” (emphasis added).
Thus, 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 978 [citations omitted].
The defense of unclean hands applies to legal as well as equitable actions. Kendall-Jackson Winery, Ltd., supra, at 978. That is to say, the unclean hands doctrine “is not a legal or technical defense to be used as a shield against a particular element of a cause of action. Rather, it is an equitable rationale 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. [Citations omitted.]” Id. at 985. 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.
So what kind of conduct invokes the application of the “unclean hands” doctrine? Conduct is sufficient to constitute unclean hands if it “violates conscience, or good faith, or other equitable standards of conduct.” Kendall-Jackson Winery, Ltd., supra, at 979. The doctrine 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 (emphasis added). 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. California courts have also long recognized that fraud in the underlying transaction or other inequitable conduct bars relief. Powell v. Bank of Lemoore (1899) 125 Cal. 468.
In short, “unclean hands” prevents a plaintiff from taking advantage of the judicial system to his or her advantage if they have “unclean hands” in the same matter or transaction(s). Using our example above, Paul accuses Denise of violating their joint venture agreement by means of fraud or deception while at the same time engaging in precisely the same type of conduct in connection with their joint venture. Readers must note that one cannot allege that a party has “unclean hands” in connection with past acts unrelated to the present action. The bad acts must occur in connection with the matter of the lawsuit.
Uploaded by Adam Nicolai, esq. and Ryan Gustafson, esq., March 4, 2015