Summary
The Ninth Circuit affirmed the district court’s refusal to enforce non-competition clauses against First Ascent Ventures and First Ascent Ventures Lone Tree because DLC Dermacare had unclean hands. The court held that Dermacare’s coercive conduct, threats of financial ruin, and withdrawal of marketing support related to its attempt to enforce the non-compete provisions and made enforcement inequitable.
Topics
Practice areas
Questions Presented
- Whether the district court abused its discretion by denying enforcement of Dermacare's noncompetition clauses on the ground that Dermacare had unclean hands.
- Whether Dermacare's conduct was sufficiently inequitable and related to its assertion of the noncompetition provisions to support application of the unclean-hands doctrine.
Holdings
- A party seeking equitable enforcement of a contract provision is barred by unclean hands when its conduct was inequitable or unconscionable and related to the activity forming the basis of its claim. Dermacare's coercive conduct, threats, and cutoff of marketing support were sufficiently related to its assertion of the noncompetition provisions, so the district court properly denied enforcement.
Key quotations
“The doctrine of unclean hands “closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief.”” (312 F. App'x at 60)
“In order to apply the doctrine of unclean hands, the equity court must determine, based on its review of the facts, that the plaintiffs conduct was “inequitable” or “unconscionable,” and that the plaintiffs conduct “relate[d] to the very activity that is the basis of his claim.”” (312 F. App'x at 60)
Factual background
Dermacare attempted to coerce the owners of First Ascent into signing highly restrictive amendments to their franchise agreements. Dermacare threatened the owners with financial ruin if they resisted and cut off marketing support in an effort to freeze First Ascent out of the business. The district court found that this conduct gave Dermacare unclean hands in relation to its attempt to enforce the noncompetition provisions.
Procedural history
The district court found that Dermacare had unclean hands and therefore was barred from enforcing the noncompetition provisions against First Ascent. Dermacare appealed, arguing that the district court abused its discretion. The Ninth Circuit affirmed.