Manown v. Adams

HARRELL, Judge. This appeal arises out of an action brought by appellee and cross-appellant, J. Stephen Adams, against appellant and cross-appellee, Patricia J. Manown, individually, and trading as North Star Design & Publishing (North Star), 1 to recover funds that he allegedly transferred to her and to the business. In defense, Manown claimed that Adams was coming into court with “unclean hands” and that his action should therefore be barred. The Circuit Court for Washington County refused to do so and after a jury trial judgment was entered against Manown in the amount of $43,000.

The parties raise a number of issues on appeal. Manown’s first argument is that the circuit court erred in refusing to invoke the unclean hands doctrine to bar Adams’ action against her. We agree. Accordingly, we reverse the judgment and do not consider the other issues presented.

Facts The ill-starred association between Manown and Adams began in April 1986. Adams had recently separated from his wife and was in difficult financial straits, due at least in part to the failure of a film processing laboratory he owned ⁵⁰⁷ in Garrett County. 2 Manown was doing sales promotion work for the Ramada Inn in Hagerstown. That summer Manown and Adams vacationed together in Florida, where they devised the idea of starting a business together. It would produce for sale items such as post cards and calendars, and the partners would contribute to the enterprise their respective skills in sales promotion and photography.

The idea eventually came to fruition; the business was licensed in Maryland in June 1987 under the name North Star. Manown alone, however, was licensed as its owner. A month later a bank account was opened for the new business. Only Manown’s name appeared on the signature card.

Meanwhile, the relationship between the two grew more involved. They had been living together in Manown’s townhouse in Hagerstown since September 1986. Manown had also left her job at the Ramada Inn and begun working for Steve Adams Photography, a commercial photography business that Adams had been operating as a sole proprietership for a number of years. In February 1988, the two purchased a house together in Frederick County.

The house, like the business, was titled in Manown’s name alone, though Adams was in large part responsible for financing the purchase. While his involvement with Manown was growing, Adams was attempting to extract himself from the personal and financial problems that beset him. After a lengthy series of negotiations, he and his wife agreed to a separation and property settlement on 10 July 1987. They were finally divorced in September of the same year.

He filed a petition for personal bankruptcy on 4 November 1988. He received his discharge in bankruptcy on 21 February 1989. The transfers of funds that formed the basis of Adams’ action in the case sub judice began in June 1987 and continued until May or July 1989. Some of the transfers ⁵⁰⁸ were made by Adams directly into North Star’s account, ostensibly to finance the business.

Others were made to Manown for purposes of financing the purchase of the Frederick County house and paying other expenses related to the house. On 19 February 1988, for instance, Adams turned $43,000 over to Manown for the down payment on the house. The transferred funds did not go solely into North Star and the house, however. Adams also made a number of personal loans to Manown.

According to Adams’ amended complaint, in total he transferred to Manown and North Star no less than $97,307.29. The association between Manown and Adams ended in the spring of 1989. Manown moved out of the house in April 1989 and went back to work as a sales promoter, this time for the Sheraton Inn in Hagerstown. Adams vacated the house in July 1989.

On 13 October 1989 Manown sold the house. She kept the proceeds. North Star’s assets also remained in the possession of Manown. On 26 June 1989, Adams filed an action against Manown to recover the transferred funds and interest thereon, or, in the alternative, seeking an accounting, liquidation, and distribution of all assets and liabilities (including the Frederick County house) of the “partnership” between Manown and Adams.

In defense, Manown claimed that Adams was coming into court with “unclean hands” and that his action should therefore be barred. Manown contended that the transfers had all been made in an effort to hide Adams’ assets from his wife, his creditors, and the bankruptcy court. In support of this contention, she pointed to the fact that both the business and the house had been titled in her name alone, despite the fact that the two ran the business and purchased the house together. In addition, she asserted that none of the assets Adams claimed to have transferred to her and to North Star were declared by Adams in either the divorce proceeding or the bankruptcy proceeding, though each had occurred within roughly the same period and though in each proceeding it had been specifically inquired of him whether he had made any such transfers. ⁵⁰⁹ On 9 May 1990, after completion of discovery, Manown moved for summary judgment on the basis of her allegations.

In support of her motion, Manown proffered materials which included, inter alia: (1) Adams’ bankruptcy petition file, in which he had declared, under the penalty of perjury, that he had no interest in any property held by another person and that he had made no transfers of any property to another person within the last year, and in which he had failed to list North Star under the heading “Partnerships or businesses engaged in during the 6 years immediately preceding the filing of this petition” or to list, in his Schedule B form (“Statement of All Property of Debtor”), any of the assets he claimed to have transferred to Manown and to North Star; (2) Adams’ pleadings in his divorce action, in which he had specifically denied, again under oath, having transferred to any person other than his wife any asset with a value in excess of $100 during their marriage; (3) two letters from Adams to Manown, dated 29 April 1989 and 19 May 1989, in which he had expressed his willingness to go to jail if necessary in order to obtain his money from Manown (the implication being that he was aware that his above described failure to disclose could expose him to criminal liability) 3 ; and (4) copies of Adams’ deposition testimony, during which he had invoked his constitutional privilege against self-incrimination in response to questions regarding Manown’s allegations. 4 ⁵¹⁰ Adams did not contest any of Manown’s allegations in his response to her motion for summary judgment. Instead, he asserted that the unclean hands doctrine did not apply in actions at law and that Manown’s allegations were immaterial to the action. The circuit court denied Manown’s motion for summary judgment on the ground that the unclean hands doctrine did not apply in actions at law. Upon Manown’s motion for reconsideration the circuit court altered its reasoning based on Manown’s citation of Maryland case law specifically stating that the doctrine did apply in actions at law.

Again, however, the circuit court denied the motion for summary judgment, this time on the ground that the doctrine’s application was a matter for the determination of the factfinder. In the course of the trial, Adams continued to maintain that Manown’s allegations were immaterial to the action. He did not present any evidence contesting the allegations during his testimony upon direct examination. Upon Manown’s cross-examination of Adams, however, when Manown’s counsel again began questioning him on the subject, he abandoned his former reticence and contended that he had in fact done everything on advice of counsel.

The trial judge ultimately submitted the entire matter to the jury, with instructions that they could, if they so chose, apply the unclean hands doctrine to bar Adams’ action if they found that either he alone, or the two of them together, had “participated in fraudulent or illegal conduct contrary to law or public policy or in fraud of the law itself.” The jury returned with a general verdict in favor of Adams in the amount of $43,000. 5 This appeal followed. ⁵¹¹ Discussion The unclean hands doctrine refuses recognition and relief from the courts to those guilty of unlawful or inequitable conduct pertaining to the matter in which relief is sought. Hlista v. Altevogt, 239 Md. 43, 48 , 210 A.2d 153 (1965). The doctrine is not for the protection of the parties to a lawsuit, but rather, for the protection of the courts— the idea being that judicial integrity is endangered when judicial powers are interposed to aid persons whose very presence before a court is the result of some fraud or inequity. Niner v. Hanson, 217 Md. 298, 309 , 142 A.2d 798 (1957).

The doctrine also serves another purpose which was stated long ago by the Court of Appeals in a case with facts parallel to this one: The suppression of such illegal and fraudulent transactions is far more likely, in general, to be accomplished by leaving the parties without remedy against each other, and thus introducing a preventative check, than by enforcing them at the instance of one of the parties to the fraud[.] Roman v. Mali, 42 Md. 513, 533-34 (1875). Thus, where there is evidence of willful wrongdoing in relation to the controversy before it, the doctrine allows a court to literally wash its hands of the affair, leaving the guilty party or parties to the consequences of their actions. Of course, the doctrine is not one of absolutes. “[I]ts limits are ill-defined, and the circumstances under which it may be invoked are necessarily of infinite variety; nor is it possible to lay down an exact rule by which to determine in all cases when the principle is to be acted on.” 30 C.J.S. Equity § 99 (1965). Accordingly, the question of whether the principle is to be invoked in a particular case rests in the sound discretion of the trial court.

Space Aero ⁵¹² Products Co. v. Darling, 238 Md. 93, 120 , 208 A.2d 74 (1965). Manown alleged that Adams had defrauded both his wife and his creditors by hiding his assets in North Star and in her name, that he had perjured himself in the process, and that the money which he was seeking to recover was the fruit of this conduct. Her motion for summary judgment clearly set forth facts sufficient to warrant the circuit court’s barring of the action on the basis of the unclean hands doctrine. See Castiglione v. Johns Hopkins Hospital, 69 Md.App. 325, 333 , 517 A.2d 786 (1986), quoting Vanhook v. Merchants Mutual Ins.

Co., 22 Md.App. 22, 26-7 , 321 A.2d 540 (1974) (“The party moving for summary judgment may place before the trial court the facts necessary to a determination for summary judgment (1) by affidavit, (2) by deposition, (3) by answers to interrogatories, (4) by admissions of facts, (5) by