MIAMI BUSINESS LITIGATION: UNUSUAL BUSINESS DISPUTE DEFENSES

The defenses of unclean hands and in pari delicto are useful in commercial and business disputes.  These are similar defenses that arise when the party bringing the lawsuit possesses a level of fault or guilt. Unclean hands and in pari delicto can be applied in business disputes under certain circumstances to prevent an actor from taking advantage of his bad conduct. The Miami business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

Unclean hands is a defense that bars a plaintiff from recovery in equity if the plaintiff committed some misconduct relevant to the plaintiff’s claim. “One who comes into equity must come with clean hands else all relief will be denied him regardless of the merit of the claim.” PNC Bank, National Association v. Smith, 225 So. 3d 294 (Fla. 5th DCA 2017). This is a fundamental principle of equity jurisprudence. Leila Corp. of St. Pete v. Ossi, 138 So.3d 470 (Fla. 2d DCA 2014). However, the doctrine is not “a judicial straight jacket and it is not essential that those who invoke equity lead blameless lives.” Pennington v. Pennington, 390 So. 2d 809 (Fla. 5^th DCA 1980). Therefore, the improper conduct “must [ ] be connected with the matter in litigation and must affect the adverse party” and must exist at the time the plaintiff files suit. Pilafian v. Cherry, 355 So. 2d 847 (Fla. 3d DCA 1978).

The court has discretion in applying the unclean hands doctrine. Roberts v. Roberts, 84 So. 2d 717 (Fla. 1956). The doctrine is “an extreme sanction which ought to be invoked under only the most provocative or contumacious circumstances.” Hitt v. Hitt, 535 So. 2d 631 (Fla. 4th DCA 1988). Therefore, unclean hands will only be applied in extreme circumstances.

In the business context, unclean hands can be applied in a number of ways. Unclean hands can prevent a former employer from obtaining an injunction against its former employee who unlawfully competed in violation of his or her restrictive covenant. See Bradley v. Health Coal., Inc., 687 So. 2d 329 (Fla. 3d DCA 1997) (stating that the employer would have unclean hands when the employer ordered the former employee to commit fraud on the job and, therefore, could not obtain injunction to enforce restrictive covenant against the former employee). The doctrine of unclean hands can also be applied in a business dispute between partners to determine the percentage ownership of a business. In Malkus v. Gaines, 434 So. 2d 957 (Fla. 3d DCA 1983), the trial court found that a business partner acquired an ownership interest in a partnership through fraud. As a result, the court permitted the non-defrauding partner to force the defrauding partner to sell his ownership interest in the company. See Malkus v. Gaines, 476 So. 2d 220 (Fla. 3d DCA 1985).

In pari delicto is an affirmative and equitable defense that is similar to unclean hands. This defense bars a party from obtaining relief for actions in which the party had equal or greater fault. O’Halloran v. PricewaterhouseCoopers LLP, 969 So. 2d 1039 (Fla. 2d DCA 2007). This is premised on the principles that “courts should not lend their good offices to mediating disputes among wrongdoers” and “denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality.” An example of a court applying in pari delicto to a commercial transaction occurred in Dorestin v. Hollywood Imports, Inc., 45 So. 3d 819 (Fla. 4th DCA 2010). In Dorestin, the plaintiffs brought a claim of fraudulent inducement against a car dealership, alleging the dealership misrepresented the number of miles on a used car that the plaintiffs purchased. The dealership raised in pari delicto as a defense because the plaintiffs submitted false information on a credit application to purchase the vehicle. The trial court granted judgment in favor of the dealership on the in pari delicto defense due to the plaintiff’s falsifications.

If a business is ever in a legal dispute against another party who committed misconduct or is itself guilty, the defenses of unclean hands or in pari delicto could be applicable.

The Miami business litigation lawyers of the Mavrick Law Firm also represent clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.