American University v. Wood
Not provided (1920)
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Rule of Law:
A court of equity will not grant relief to a complainant whose business is conducted in a fraudulent manner that deceives the public, even against a defendant engaged in wrongful interference, based on the public policy principle of 'unclean hands.'
Facts:
- American University, a corporation, was primarily engaged in teaching chiropractic by correspondence.
- Defendant D. E. Wood served as an instructor and president for American University.
- American University's advertising materials and catalogues contained significant misrepresentations, including claims of a large, distinguished faculty, a consulting staff, and high graduate incomes, when it primarily consisted of a small office run by two non-professional owners and a single instructor.
- It also falsely implied it was a large educational institution with in-person instruction, when it only offered correspondence courses.
- After Wood was discharged from his position, he retained the university's list of students and prospective students.
- Wood began a campaign of sending letters and circulars to American University's students, disparaging the university and soliciting them to join his new, competing school, the Chicago University of American Sciences.
- The parties entered a settlement agreement wherein Wood agreed to stop contacting students and return the lists, but he subsequently breached this agreement.
- Wood continued to solicit the university's students, advising them to stop paying tuition to American University and enroll with him instead.
Procedural Posture:
- American University filed a bill in equity in the circuit court of Cook county against D. E. Wood and the Chicago University of American Sciences, seeking an injunction.
- The cause was referred to a master in chancery, who recommended a decree in favor of the complainant.
- The chancellor of the circuit court overruled the defendants' exceptions and entered a decree enjoining them.
- The defendants (appellants) appealed to the Appellate Court for the First District.
- The Appellate Court reversed the trial court's decree and remanded the cause with directions to dismiss the bill.
- The Appellate Court granted a certificate of importance, and the complainant, American University (appellant), appealed to the Supreme Court of Illinois.
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Issue:
Does a corporation engaged in fraudulent business practices against the public come into a court of equity with 'unclean hands,' thereby barring it from receiving an injunction against a competitor who is wrongfully interfering with its business?
Opinions:
Majority - Mr. Justice Farmer
Yes. A corporation engaged in fraudulent business practices against the public comes into court with 'unclean hands' and is barred from equitable relief. The court found that although the defendants' conduct in attempting to destroy the complainant's business was malicious and wrongful, the complainant's own business model was predicated on fraud and deception against the public. The court reasoned that the 'unclean hands' doctrine is not strictly limited to wrongdoing between the litigating parties. When a complainant's business operations constitute a fraud upon the public, public interest and policy dictate that a court of equity, as a 'court of conscience,' should not lend its aid to protect such an enterprise. Therefore, even though the defendants' actions were without justification, the complainant is not entitled to an injunction because its own conduct offends the public interest.
Analysis:
This case significantly expands the application of the 'unclean hands' doctrine beyond its traditional scope. The ruling establishes that fraudulent conduct directed at the public, rather than just the opposing party, can bar a plaintiff from equitable relief. It prioritizes public policy and the integrity of the court over settling a dispute between two parties who both acted wrongfully. This precedent means that a business seeking an injunction or other equitable remedy must be prepared for the court to scrutinize its entire business model for fraudulent practices, as this can now be a complete defense, regardless of the defendant's misconduct.
