McKinley v. Weidner , 73 Or. App. 396 ( 1985 )

698 P.2d 983 (1985) 73 Or.App. 396

John G. McKinley, Appellant,
v.
Roger G. WEIDNER, Respondent.

A8309-06086, CA A34067.

Court of Appeals of Oregon.

Submitted on Record and Briefs February 28, 1985. Decided May 1, 1985.

John D. Ryan, Portland, filed the briefs for appellant. On the briefs was Frank M. Ierulli, Portland.

Gerald R. Pullen, Portland, filed the brief for respondent.

Before RICHARDSON, P.J., and GILLETTE and WARDEN, JJ.

GILLETTE, Presiding Judge.

Plaintiff brought this action to recover damages resulting from the alleged negligence of defendant, an attorney. The complaint alleged that, following defendant's advice, plaintiff tendered and subsequently dishonored a check in a ploy to recover possession of a boat from a third party. Ultimately, the third party was granted summary judgment in a separate proceeding for amounts due, plus costs and interest, and foreclosed on the boat to satisfy the judgment. Plaintiff's action was dismissed by the trial court on a motion alleging that he had "unclean hands" as a result of his having tendered a check with the intent to dishonor it. On appeal, he assigns as error the trial court's use of the "clean hands" doctrine as a bar to his action for money damages. We reverse.

Generally, the "clean hands" doctrine is referred to as an equitable maxim. In Rise v. Steckel, 59 Or. App. 675, 681, 652 P.2d 364 (1982), this court described it as a maxim that

"``"is based on conscience and good faith. It is not strictly or primarily a matter of defense, but is invoked on grounds of public policy and for the protection of the integrity of the court."'" Quoting Taylor et ux v. Grant et al, 204 Or. 10, 24, 279 P.2d 479, 279 P.2d 1037, 281 P.2d 704 (1955). (Emphasis in original.)

Our decision in Rise relied, inter alia, on our earlier decision in Gratreak v. North Pacific Lumber Co., 45 Or. App. 571, 609 P.2d 375, rev. den. 289 Or. 373 (1980). In Gratreak, the plaintiff, a former employe of the defendant, brought an action for malicious interference with the plaintiff's contractual relations with his new employer. In addition to a general denial, the defendant alleged three affirmative defenses. By way of reply, the plaintiff asserted that enforcement of any of the three defenses should be barred "because of defendant's unclean hands." 45 Or. App. at 571, 609 P.2d 375. (Emphasis in original.) We said:

"The plaintiff by his reply seeks to deny the defendants equitable relief because they do not have clean hands. The trouble is that the defendants are not requesting the intervention of a court of equity. The plaintiff chose the forum — the complaint alleges an action at law. The defendants' answer pleads a legal defense * * *.

"The plaintiff acknowledges that the complaint and the answer are on the law side of the court, but contends that the clean hands doctrine is an ``equitable defense' and therefore can be pleaded as a defense to a law action * * *.

"Clean hands in the context of this case is not an equitable defense. Rather, it is a doctrine, maxim or principle of equity which may be invoked to deny the opposing party the right to come into a court of equity. 2 Pomeroy's Equity Jurisprudence § 359 at 5 (5th ed 1941) * *.

"In this case the plaintiff by its reply could not invoke the doctrine of clean hands to prevent the defendants from pleading and claiming under a legal defense * * *." 45 Or. App. at 575, 609 P.2d 375.

All of the foregoing would have been fine, had this court not then decided Kirkland v. Mannis, 55 Or. App. 613, 639 P.2d 671, rev. den. 292 Or. 863, 648 P.2d 850 (1982). In Kirkland, the plaintiff, a prisoner, brought a malpractice action against the defendant, an attorney, alleging, inter alia, that the defendant

"unethically, wantonly and with the intent to defraud the plaintiff and the court * * * manufactured a story for the plaintiff's defense to [criminal charges] * * *."

The trial court had granted the defendant judgment as to the foregoing allegation. We affirmed, stating:

"[W]e agree with the trial judge that no cause of action is stated. The essence of this paragraph is that plaintiff and defendant cooperatively presented a perjurious tale at plaintiff's criminal trial, and the tale did not sell. Because of his acknowledged perjury, plaintiff brings his complaint with unclean hands and may not recover. North Pacific Lumber Co. v. Oliver, 286 Or 639, 596 P2d 931 (1979); Thompson v. Sprint, 247 Or 484, 430 P2d 1014 (1967)." (Emphasis supplied.)

The emphasized statement in Kirkland was wrong. The claim was a legal one; the equitable doctrine did not apply, as we had earlier explained in Gratreak.^[1] The only argument that would conceivably square Gratreak and Kirkland is that the adoption of the Oregon Rules of Civil Procedure abolished many of the distinctions between law and equity and should, therefore, be deemed impliedly to extend the availability of the clean hands doctrine to law actions.

We do not think that view can be sustained. ORCP 2 removed only procedural distinctions between law and equity, not substantive differences. Under code pleading systems that have eliminated distinctions between law and equity, one authority has noted that such an elimination of procedural distinctions has not

"obliterated the essential and inherent distinctions between law and equity as two separate sciences. What was an action at law before the code, is still an action founded on legal principles; and what was a bill in equity before the code, is still a civil action founded on principles of equity." 1 Sutherland Code Pleading, § 87 at 71 (1910).

We conclude that Kirkland's substantive application of the equitable doctrine of clean hands to an action at law was technically incorrect.

While technically incorrect, however, the public policy considerations in Kirkland, are certainly of importance to actions at law as well as proceedings in equity. As defendant puts it in his brief, "[w]hether we give plaintiff's conduct the nomenclature of ``clean hands', contributory negligence as a matter of law, or simply a violation of public policy, the courts should not entertain claims based upon such antisocial conduct."

Kirkland was right in substance. The proper nomenclature, however, is that the parties were in pari delicto, i.e., "[i]n equal fault; in a similar offense or crime; equal in guilt or in legal fault." Black's Law Dictionary 1270 (4th Ed Rev 1968). That the parties are in pari delicto is often asserted in contract disputes and claims for indemnity. See, e.g., Johnson Lbr. Corp. v. Leonard, et al, 192 Or. 639, 236 P.2d 926 (1951); Oregon & Western Col. Co. v. Johnson, 164 Or. 517, 102 P.2d 928 (1940). It has also been applied in negligence actions. See McGhee's Admir. v. Elcomb Coal, 288 Ky. 540, 156 S.W.2d 868 (1941).

In pari delicto has been referred to as a "companion principle" to the equitable maxim of clean hands, to be applied in actions at law where equitable doctrines are irrelevant. Tarasi v. Pittsburg Nat. Bk., 555 F.2d 1152 (3rd Cir), cert. denied 434 U.S. 965, 98 S.Ct. 504, 54 L.Ed.2d 451 (1977); Furman v. Furman, et al, 178 Misc. 582, 34 N.Y.S.2d 699 (1941) ("[T]he doctrine of ``clean hands' is closely akin to the maxim in pari delicto, and the two are sometimes discussed as though involving substantially the same principle") quoting Heflinger v. Heflinger, 136 Va. 289, 291, 118 S.E. 316, 318 (1923)). The Tarasi court held that, when parties are in pari delicto, recovery may be barred if a litigant's "losses are substantially caused by activities the law forbade him to engage in." 555 F.2d at 1156-57.

Similarly, in Goldberg v. Sanglier, 96 Wash.2d 874, 883, 639 P.2d 1347 (1982), after a finding that the parties were in pari delicto, public policy considerations were the basis of the court's decision. Goldberg stressed the importance of deterring future misconduct in its discussion of the policy underlying the doctrine of in pari delicto, but it also held that the defense was inappropriate where the parties were not equally culpable or "[w]here the conduct of the party who seeks to enlist support of the doctrine outrages public sensibilities more than the conduct of the party against whom the doctrine is sought to be applied * * *." 96 Wash.2d at 883, 639 P.2d 1347.

Oregon has also recognized the public policy orientation of the doctrine. In McElwee v. McElwee, 171 Or. 462, 138 P.2d 208 (1943), the court said:

"The maxim being one founded on public policy, public policy may require its relaxation. Even when the parties have been found to be in pari delicto, relief has at times been awarded on the ground tht in the particular case public policy has been found to be best conserved by that course." 171 Or. at 467, 138 P.2d 208, quoting Condit v. Condit, 115 Or. 481, 482-83, 237 P. 360 (1925).

We understand from the foregoing that the rule is this: The doctrine of in pari delicto may — but not need — be applied to prevent recovery in a law action, when the party against whom it is to be applied is as culpable as, or more culpable than, his opponent. The question then becomes whether, on the state of the record the trial court had before it in this case, it could be established that plaintiff was equally culpable with, or more culpable than, defendant.

We think not. As the allegation now stands, plaintiff claims that he undertook a particular course of conduct relying on the expertise of defendant. His allegation shows that he acted wrongfully, but it does not establish a parity of fault. Defendant is an attorney — a presumed expert in the law; plaintiff is not. Evidence could be presented under this complaint to show that defendant was in the superior position to appreciate the wrongfulness of plaintiff's actions and that his culpability is, therefore, greater. See Lane v. Gugsell, 113 Ind. App. 676, 47 N.E.2d 835 (1943). The policy reasons behind the doctrine of in pari delicto do not justify dismissal of plaintiff's complaint.

Reversed and remanded.

NOTES

[1] Both the cases we relied on in our disposition of the Kirkland case were equity proceedings.