11.05.2008

E.D. Va. Notes Split Re Whether Doctrine of Unclean Hands Applies in Civil RICO Claims

Per Smithfield Foods, Inc. v. United Food and Commercial Workers Intern. Union, --- F.Supp.2d ----, 2008 WL 4610312 (E.D.Va. Oct. 14, 2008):

The Defendants have asserted the affirmative defense of “unclean hands.” The well-recognized doctrine of unclean hands prevents a plaintiff from obtaining equitable relief, if the plaintiff has been “guilty of any inequitable or wrongful conduct with respect to the transaction or subject matter sued on.” WorldCom, Inc. v. Boyne, 68 Fed. Appx. 447, 451 (4th Cir.2003). It is unclear, however, both nationally and in the Fourth Circuit, whether the doctrine of unclean hands applies in civil RICO claims.

The circuit courts are currently divided on this issue. The First Circuit, in Roma Construction Co. v. Russo, 96 F.3d 566, 571-75 (1st Cir.1996), suggested that the doctrine does not apply, but ultimately concluded that the plaintiffs did not have “unclean hands.” The Eleventh and Seventh Circuits have opined that the doctrine may apply in civil RICO actions. See Sikes v. Teleline, Inc., 281 P.3d 1350, 1366 n. 41 (11th Cir.2002); Laborers' International Union of North America v. Caruso, 197 F.3d 1195, 1197-98 (7th Cir.1999). The Third Circuit also has applied the doctrine of unclean hands in the context of determining whether an injunction, after trial, can be denied. Northeast Women's Center, Inc. v. McMonagle, 868 F.2d 1342, 1354-55 (3d Cir.1989).

Notwithstanding, the uncertainty at the circuit court level, it is persuasive that “an overwhelming majority” of district courts to consider the issue have concluded that “the defense of unclean hands is not available in civil RICO actions.” Florida Software Sys. v. Columbia/HCA Healthcare Corp., 1999 U.S. Dist. LEXIS 15294, at *6 (M.D.Fla. Sept. 16, 1999); see, e.g., Local 851 of the Int'l Bhd. of Teamsters, 1998 U.S. Dist. LEXIS 3779, at *5, 1998 WL 178873, at *2 (E.D.N.Y.1998); Bieter Co. v. Blomquist, 848 F.Supp. 1446 (D.Minn.1994); In re National Mortgage Equity Corp. Mortgage Pool Certificates Sec. Litig., 636 F.Supp. 1138 (C.D.Cal.1986).
Moreover, it is significant that courts have historically looked to antitrust law in interpreting RICO, see In re National Mortgage Equity Corp., 636 F.Supp. at 1155, and it is clear that the doctrine of unclean hands is not a defense to a civil antitrust suit. See Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 139, 88 S.Ct. 1981, 20 L.Ed.2d 982 (1968). On this basis, a number of courts have declared that the defense of unclean hands does not apply in the civil RICO context. See Bieter Co. v. Blomquist, 848 F.Supp. At 1449.
Finally, the Supreme Court has held that the affirmative defense of unclean hands has “been rejected” in the context of statutes “where Congress [has] authorize[d] broad equitable relief to serve important national purposes.” McKennon v. Nashville Banner Publ. Co., 513 U.S. 352, 357, 115 S.Ct. 879, 130 L.Ed.2d 852 (1995) (addressing unclean hands in the context of an AEDA claim). RICO is such a statute. See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) (RICO was “designed to advance important public policies”).
The persuasive weight of authority is that the affirmative defense of unclean hands is not available in a civil RICO action and cannot be asserted by the Defendants as an affirmative defense.

1 Comments:

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