News
Features
May 1, 2006
Expert Advice
A California court of appeal recently clarified when the unclean hands defense applies in attorney malpractice actions. by Kenneth C. Feldman
By Kenneth C. Feldman
Trial Practice
Unclean Hands Is Now Less Messy
A California court of appeal recently clarified much of the law with regard to the murky doctrine of unclean hands. Specifically, Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton addressed when that defense applies in attorney malpractice actions. (133 Cal. App. 4th 658 (2005).)
The doctrine of unclean hands originated in equity but has evolved to apply in all cases. It aims to protect the integrity of the courts by barring those who have acted unethically or in bad faith with respect to the subject of a complaint from seeking relief for it. At its very core, the defense is designed to neutralize a plaintiff's case by closing the doors to the courthouse.
As is to be expected from a doctrine that has its historical roots in equity, the defense of unclean hands is largely policy driven, and trial court judges are given unusually broad discretion in applying it. Further complicating matters is the dearth of case law on its practical applications.
In practice, most courts use-or at least give lip service to-the Blain test in determining when to allow the unclean hands defense. That test, formulated in Blain v. Doctor's Co. (222 Cal. App. 3d 1048 (1990)), requires an analysis of three factors: prior analogous cases, the nature of the plaintiff's misconduct, and the relationship of the plaintiff's misconduct to his or her injuries.
Analogous cases. Courts have generally been very lenient in finding analogous cases-and the trend is to allow this factor to help a defendant if there are analogous cases, but not to end his or her argument if no cases are found. The doctrine has also been applied in various and sundry matters, allowing defendants easy access to analogous cases.
Nature of misconduct. Analyzing the nature of a plaintiff's misconduct is slightly more complicated. The general rule is that negligent conduct is not enough, but conduct need not reach the level of being criminal or tortuous. Any conduct that violates conscience, good faith, or other equitable standards will suffice.
Injuries related to misconduct. Most of the argument in applying unclean hands, therefore, concerns assessing the relationship of the plaintiff's misconduct to the injury or damages claimed. Before Peregrine, cases came out all over the map. But Peregrine clarifies that the key is "whether the unclean conduct related directly 'to the transaction concerning which the complaint is made,' i.e., to the 'subject matter involved' and not whether it is part of the basis upon which liability is being asserted."
In Peregrine a bankruptcy trustee representing an entity used to perpetrate an investment scheme sued a law firm, claiming that the firm's negligence and affirmative misconduct helped the perpetrators avoid detection and prosecution by securities regulators. The law firm brought a motion to strike the complaint under California's anti-SLAPP statute (Cal. Code Civ. Proc. § 425.16), which requires that plaintiffs show the probability of success. The law firm claimed that because of the unclean hands defense, this would be impossible. The trial court denied the firm's motion, holding that unclean hands could not apply because of the tenuous relationship between the plaintiff's misconduct and the injury.
The appellate court in Peregrine disagreed, holding that the trial court's formulation was too narrow and thus not supported by California case law. It required instead a more liberal application of the third Blain prong. The court stated that for plaintiff Peregrine to now complain of the defendant law firm's role "in enabling it to commit the fraud is unfair, and it is precisely this sort of unfairness the unclean hands doctrine seeks to address."
Finally, Peregrine illustrated the potential for using the unclean hands defense in connection with the anti-SLAPP statute. Because the plaintiff's own pleadings contained admissions that established the basis of the defense, the defense was determined to be properly applied without further evidentiary hearing. This is important because not only can the anti-SLAPP provisions be used at early stages of litigation, but also if a defendant prevails, the defendant is automatically entitled to attorneys fees.
Thus, with Peregrine now at their disposal, lawyers sued for malpractice actions by their former clients who acted in bad faith with respect to the transaction or subject of the complaint can feel more confident that courts will apply the unclean hands defense.
Kenneth C. Feldman (feldman@lbbslaw.com), a partner with Lewis Brisbois Bisgaard & Smith, cochairs the attorney defense department in the firm's Los Angeles office. He thanks Brian Slome, an associate with the firm, for his contribution to this article.
Trial Practice
Unclean Hands Is Now Less Messy
A California court of appeal recently clarified much of the law with regard to the murky doctrine of unclean hands. Specifically, Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton addressed when that defense applies in attorney malpractice actions. (133 Cal. App. 4th 658 (2005).)
The doctrine of unclean hands originated in equity but has evolved to apply in all cases. It aims to protect the integrity of the courts by barring those who have acted unethically or in bad faith with respect to the subject of a complaint from seeking relief for it. At its very core, the defense is designed to neutralize a plaintiff's case by closing the doors to the courthouse.
As is to be expected from a doctrine that has its historical roots in equity, the defense of unclean hands is largely policy driven, and trial court judges are given unusually broad discretion in applying it. Further complicating matters is the dearth of case law on its practical applications.
In practice, most courts use-or at least give lip service to-the Blain test in determining when to allow the unclean hands defense. That test, formulated in Blain v. Doctor's Co. (222 Cal. App. 3d 1048 (1990)), requires an analysis of three factors: prior analogous cases, the nature of the plaintiff's misconduct, and the relationship of the plaintiff's misconduct to his or her injuries.
Analogous cases. Courts have generally been very lenient in finding analogous cases-and the trend is to allow this factor to help a defendant if there are analogous cases, but not to end his or her argument if no cases are found. The doctrine has also been applied in various and sundry matters, allowing defendants easy access to analogous cases.
Nature of misconduct. Analyzing the nature of a plaintiff's misconduct is slightly more complicated. The general rule is that negligent conduct is not enough, but conduct need not reach the level of being criminal or tortuous. Any conduct that violates conscience, good faith, or other equitable standards will suffice.
Injuries related to misconduct. Most of the argument in applying unclean hands, therefore, concerns assessing the relationship of the plaintiff's misconduct to the injury or damages claimed. Before Peregrine, cases came out all over the map. But Peregrine clarifies that the key is "whether the unclean conduct related directly 'to the transaction concerning which the complaint is made,' i.e., to the 'subject matter involved' and not whether it is part of the basis upon which liability is being asserted."
In Peregrine a bankruptcy trustee representing an entity used to perpetrate an investment scheme sued a law firm, claiming that the firm's negligence and affirmative misconduct helped the perpetrators avoid detection and prosecution by securities regulators. The law firm brought a motion to strike the complaint under California's anti-SLAPP statute (Cal. Code Civ. Proc. § 425.16), which requires that plaintiffs show the probability of success. The law firm claimed that because of the unclean hands defense, this would be impossible. The trial court denied the firm's motion, holding that unclean hands could not apply because of the tenuous relationship between the plaintiff's misconduct and the injury.
The appellate court in Peregrine disagreed, holding that the trial court's formulation was too narrow and thus not supported by California case law. It required instead a more liberal application of the third Blain prong. The court stated that for plaintiff Peregrine to now complain of the defendant law firm's role "in enabling it to commit the fraud is unfair, and it is precisely this sort of unfairness the unclean hands doctrine seeks to address."
Finally, Peregrine illustrated the potential for using the unclean hands defense in connection with the anti-SLAPP statute. Because the plaintiff's own pleadings contained admissions that established the basis of the defense, the defense was determined to be properly applied without further evidentiary hearing. This is important because not only can the anti-SLAPP provisions be used at early stages of litigation, but also if a defendant prevails, the defendant is automatically entitled to attorneys fees.
Thus, with Peregrine now at their disposal, lawyers sued for malpractice actions by their former clients who acted in bad faith with respect to the transaction or subject of the complaint can feel more confident that courts will apply the unclean hands defense.
Kenneth C. Feldman (feldman@lbbslaw.com), a partner with Lewis Brisbois Bisgaard & Smith, cochairs the attorney defense department in the firm's Los Angeles office. He thanks Brian Slome, an associate with the firm, for his contribution to this article.
#336064
Annie Gausn
Daily Journal Staff Writer
For reprint rights or to order a copy of your photo:
Email
Jeremy_Ellis@dailyjournal.com
for prices.
Direct dial: 213-229-5424
Send a letter to the editor:
Email: letters@dailyjournal.com