A former officer of a corporation sued the corporation for its allegedly wrongful refusal to advance the officer's defense expenses under the bylaws of the corporation in Download Tafeen v. Homestore, Inc. (Del. Ch. April 27, 2004).. (Director's and Officer's Insurance Policies also usually provide for advancing the officers' defense expenses, although under the typically worded "fraud" Exclusion in such Policies the Insurance Company raising that Exclusion may have to await the outcome of the underlying litigation.) The corporation defended these allegations with the defense of unclean hands among other defenses.
The officer's complaint contained allegations that the underlying litigation in which the officer incurred defense expenses including attorney's fees included 6 listed lawsuits in California in which he and the corporation were sued by insurance companies. Testimony in the Court File "revealed that [the corporation] had overstated its revenues" during the period that the officer was employed there, and that while other officers were "being prosecuted in connection with similar overstatements," the officer (who was then no longer only an employee but had apparently assumed a corporate office) "purchased a home in Florida" with a purchase price of $1.45 Million. Id. The Court of Chancery Judge in this case held that the facts in the record presented a triable issue of fact on the officer's "intent in buying the house" which was central to the corporation's defense of unclean hands. Id.
Unclean hands has even more recently been held a good defense to a Count for alleged breaches of a Settlement Stipulation and Order entered as part of a divorce decree. The defendants included an ex-husband and a corporation. The Settlement Stipulation and Order included personal guarantees from the ex-husband who thereby also agreed to obtain corporate guarantees (apparently later given to the plaintiff) and also a consulting agreement between the corporation and the plaintiff in Download Medek v. Medek (Del. Ch. Sept. 10, 2008)..
The defendants alleged "an undisclosed agreement" between the plaintiff and her ex-husband defendant, whereby the plaintiff allegedly was paid $150,000.00 "to focus her efforts to recover her claimed damages on" the other defendants. Id. In this case, the Vice Chancellor of the Court of Chancery of Delaware ruled that the resulting defense of unclean hands was "closely interrelated" to these allegations and presented a triable issue of fact there, too. See id.
In addition to equitable remedies previously outlined here against persons allegedly receiving Federal Taxpayer Funds in inequitable ways, equity provides defenses to not paying such persons in the first place. Equity has always provided those defenses. One of them is the equitable defense of unclean hands. Clearly, that equitable defense is alive and well.
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