Opinion ID: 174766
Heading Depth: 3
Heading Rank: 2

Heading: SAC's Equitable Defenses and the District Court's Finding of Unclean Hands

Text: Appellants argue that SAC's unclean hands should preclude it as a matter of law from benefitting from the equitable defense of acquiescence. The doctrine [of unclean hands] bars relief to a plaintiff who has violated conscience, good faith or other equitable principles in his prior conduct, as well as to a plaintiff who has dirtied his hands in acquiring the right presently asserted. Dollar Sys., Inc. v. Avcar Leasing Sys., Inc., 890 F.2d 165, 173 (9th Cir.1989) (citations omitted). The doctrine of unclean hands also can bar a defendant from asserting an equitable defense. See Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 841-42 (9th Cir.2002) (noting that a defendant with unclean hands is barred from asserting the equitable defense of laches). `It is fundamental to [the] operation of the doctrine that the alleged misconduct by the [party] relate directly to the transaction concerning which the complaint is made.' Dollar Sys., 890 F.2d at 173 (quoting Arthur v. Davis, 126 Cal.App.3d 684, 693-94, 178 Cal.Rptr. 920 (Cal.Ct.App. 1981)). [U]nclean hands does not constitute `misconduct in the abstract, unrelated to the claim to which it is asserted as a defense.' Jarrow, 304 F.3d at 841 (citing Republic Molding Corp. v. B.W. Photo Utils., 319 F.2d 347, 349 (9th Cir.1963)). The district court found that SAC had unclean hands because it diverted substantially all of its ASR program revenue to RealtyU, despite the provisions of the stock purchase agreement, which specified that ASR program revenue was for the benefit of SAC and that SAC was obligated to take the best overall actions for the benefit of the company. It was this diversion of revenue that ultimately precipitated the July 12, 2006 cease-and-desist letter and Appellants' claim for trademark infringement. However, the district court's finding of unclean hands related explicitly to events that occurred before July 12, 2006. SAC's claim of acquiescence was based on events occurring after July 12, 2006, specifically Kennedy's requests that SAC continue to use the ASR marks even after Appellants sent their cease-and-desist letter. The record does not reflect a determination by the district court with respect to whether SAC acted with unclean hands after July 12, 2006. However, we must presume that in sustaining SAC's acquiescence defense, the district court found implicitly that SAC did not have unclean hands with respect to Appellants' claim for trademark infringement, which could have arisen only after July 12, 2006. The district court did not abuse its discretion in concluding that SAC's earlier breach of the stock purchase agreement did not preclude SAC from claiming that Appellants acquiesced to its use of the ASR marks thereafter.