McCune v. Brown
648 S.W.2d 811, 8 Ark. App. 51, 1983 Ark. App. LEXIS 802 (1983)
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Rule of Law:
The equitable doctrine of 'unclean hands' does not bar a plaintiff's claim if the defendant was not injured by the plaintiff's wrongful conduct, and applying the doctrine would result in the defendant's unjust enrichment.
Facts:
- W. G. Brown, Sr. was involved in a divorce proceeding with his wife.
- On December 12, 1978, to defeat his wife's potential property claims in the divorce, Brown transferred approximately $250,000 worth of gold coins into a safety deposit box.
- The safety deposit box was leased in the name of his daughter, Billie Jean McCune.
- Brown admitted at trial that his purpose for the transfer was to hide the assets from his ex-wife.
- The trial court found that McCune understood the gold was to be transferred back to Brown after the divorce.
- Brown retained keys to the safety deposit box.
- Brown did not pay a gift tax on the gold, although he had paid gift taxes on all previous gifts to McCune.
- The safety deposit box also contained other items belonging to Brown, including his will.
Procedural Posture:
- W. G. Brown, Sr. filed a complaint in equity in the chancery court against his daughter, Billie Jean McCune.
- Brown sought a temporary restraining order to prevent McCune from removing gold from a safety deposit box.
- McCune filed an answer and counterclaim.
- Five months later, McCune moved to transfer the case to circuit court, arguing Brown had an adequate remedy at law.
- The chancellor (the trial judge in equity court) denied the motion to transfer as untimely.
- After a trial, the chancellor found in favor of Brown, holding that no gift was made and that Brown was not estopped from asserting his claim to the gold.
- McCune, as appellant, appealed the chancellor's decision to the Arkansas Court of Appeals.
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Issue:
Is a person who transfers property to another to defraud a third party barred by the 'clean hands' doctrine from recovering that property from the transferee, when the transferee was aware of the fraudulent purpose and was not injured by it?
Opinions:
Majority - Judge Lawson Cloninger
No. A person who transfers property to defraud a third party is not barred by the 'clean hands' doctrine from recovering it from the transferee if the transferee was not injured by the fraud and if barring recovery would unjustly enrich the transferee. The court held that to justify the application of the 'clean hands' maxim, the party complaining of the wrong must have been injured by it. Here, McCune was not the victim of Brown's fraudulent scheme to hide assets from his ex-wife; rather, she was a participant. The court reasoned that the purpose of equity is to secure justice, not to aid a party in acquiring property to which they have no right. To allow McCune to keep the gold would result in her unjust enrichment, which would defeat the purpose of the maxim. The court explicitly overruled a prior case, Melvin v. Melvin, to the extent it conflicted with this reasoning, and adopted a balancing approach. This approach weighs the policy against permitting the unjust enrichment of the transferee against the policy of denying relief to a person who has entered into an illegal transaction. The court also found there was no completed gift, as Brown did not have the requisite donative intent to unconditionally pass title, evidenced by his retention of the keys and failure to pay a gift tax.
Analysis:
This decision significantly clarifies and narrows the application of the 'clean hands' doctrine in Arkansas. It moves away from a rigid, formulaic application that would automatically bar any plaintiff with tainted motives and instead adopts a flexible balancing test. The case establishes the important precedent that the doctrine is not a tool for a complicit defendant to gain a windfall. Future courts dealing with fraudulent transfers must now consider not only the plaintiff's conduct, but also whether the defendant was actually harmed and whether applying the doctrine would lead to an inequitable result like unjust enrichment.
