Opinion ID: 755760
Heading Depth: 2
Heading Rank: 1

Heading: Unclean Hands and Section 501(b) of the LMRDA

Text: 12 We review de novo the district court's denial of leave to file a complaint under section 501(b) as a matter of law. See Lopresti v. Terwilliger, 126 F.3d 34, 39 (2d Cir.1997) (finding, generally, that questions of law are reviewed de novo ). Section 501(b) provides in relevant part: 13 When any officer, agent, shop steward, or representative of any labor organization is alleged to have violated the duties declared in subsection (a) of this section and the labor organization or its governing board or officers refuse or fail to sue or recover damages or secure an accounting or other appropriate relief within a reasonable time after being requested to do so by any member of the labor organization, such member may sue such officer, agent, shop steward, or representative in any district court of the United States or in any State court of competent jurisdiction to recover damages or secure an accounting or other appropriate relief for the benefit of the labor organization. No such proceeding shall be brought except upon leave of the court obtained upon verified application and for good cause shown, which application may be made ex parte. 14 29 U.S.C. 501(b). Subsection (a) provides that union officials have a general fiduciary duty to the union. 1 15 This Court has found that the good cause required for leave to sue under § 501(b) serves two policies:  supervision of union officials in the exercise of their fiduciary obligations and protection, through a preliminary screening mechanism, of the internal operation of unions against unjustified interference or harassment. Dinko v. Wall, 531 F.2d 68, 75 (2d Cir.1976). Accordingly, we have construed good cause in § 501(b) to mean that plaintiff must show a reasonable likelihood of success and, with regard to any material facts he alleges, must have a reasonable ground for belief in their existence. Id. 2 16 In this case, we must determine whether the district court, in determining plaintiff's reasonable likelihood of success, properly anticipated the equitable defense of unclean hands based on costs that defendants incurred in defending a prior lawsuit brought by the same plaintiff. As a preliminary matter, we agree with the district court that unclean hands may be a basis for determining a plaintiff's reasonable likelihood of success under section 501(b). The district court, however, cited no case in which the unclean hands doctrine has barred a filing under section 501(b). Instead, the Report analogized Dunlop-McCullen to a plaintiff in a derivative action against a corporation, whose case was dismissed because of plaintiff's unclean hands. Report at 3. 3 The comparison of a § 501(b) action to a shareholder derivative action is apt. See Phillips v. Osborne, 403 F.2d 826, 831 (9th Cir.1968); Nelson v. Johnson, 212 F.Supp. 233 (D.Minn.), aff'd, 325 F.2d 646 (8th Cir.1963) (finding support for the analogy between shareholder derivative actions and union member actions under section 501(b) in the legislative history of the LMRDA). In our view, if a district court determines that a plaintiff seeking leave to file a complaint under § 501(b) will likely be faced with the equitable defense of unclean hands, then the district court may factor this determination into its decision upon the plaintiff's reasonable likelihood of success. Therefore, we think that a determination of a plaintiff's unclean hands is an appropriate factor--though not necessarily a dispositive one--to be used when deciding whether to grant a plaintiff leave to file a complaint under section 501(b). 17 Thus, we must determine whether Dunlop-McCullen's failure to pay costs taxed against him in his prior action against the Union constitutes unclean hands. The doctrine of unclean hands is based on the principle that since equity tries to enforce good faith in defendants, it no less stringently demands the same good faith from the plaintiff. 11A Charles Alan Wright, Arthur R. Miller, Mary Kay Kane, Federal Practice and Procedure: Civil 2d § 2946, at 108 (1995) (quotation marks and citation omitted). We have held, however, that [m]isconduct ... unrelated to the claim to which it is asserted as a defense, does not constitute unclean hands. A.H. Emery Co. v. Marcan Prods. Corp., 389 F.2d 11, 18 (2d Cir.1968) (quotations and citations omitted). Moreover, while equity does not demand that its suitors shall have led blameless lives, as to other matters, it does require that they shall have acted fairly and without fraud or deceit as to the controversy in issue. Precision Instrument Mfg. Co. v. Automotive Maint. Mach. Co., 324 U.S. 806, 814-15, 65 S.Ct. 993, 89 L.Ed. 1381 (1945) (quotation marks and citation omitted); see also Warner Bros. Inc. v. Gay Toys, Inc., 724 F.2d 327, 334 (2d Cir.1983) ([T]he defense of unclean hands applies only with respect to the right in suit.). Further, [t]he unclean hands defense is not an automatic or absolute bar to relief; it is only one of the factors the court must consider when deciding whether to exercise its discretion and grant an injunction. 11A Wright, Miller, Kane, Federal Practice and Procedure: Civil 2d § 2946, at 111. The doctrine of unclean hands also may be relaxed if defendant has been guilty of misconduct that is more unconscionable than that committed by plaintiff. Id. § 2946, at 112. 18 One district court has held that a § 501(b) plaintiff's involvement in prior litigation is an insufficient ground for finding absence of good cause. See Woods v. Local No. 12 Sheet Metal Workers Int'l Ass'n, 438 F.Supp. 578, 581 (W.D.Pa.1977). Without invoking the doctrine of unclean hands explicitly, the defendants in Woods asserted that a plaintiff's prior LMRDA litigation, which was found meritless, precluded a finding of good cause under section 501(b). Because the plaintiffs had alleged colorable claims that dealt with issues different from those in the prior litigation, however, the court deem[ed] it appropriate to grant plaintiffs access to [the] court. Id. The outcome in Woods, however, while instructive, does not ultimately resolve the issues in this case because the court's conclusion in Woods did not employ this Court's heightened good cause requirements for § 501(b) cases. We agree with the court in Woods, however, that a plaintiff may not be denied leave to file a complaint under § 501(b) where plaintiff alleges issues different from those raised in a prior similar action dismissed on the merits. Therefore, Dunlop-McCullen's previous case against the Union that, as we discuss below, involved substantially different allegations, should not act as a bar to proceeding here under § 501(b). 19