North Pacific Lumber Co. v. Oliver

596 P.2d 931 (1979)

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Nature of the Case

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Facts

P is a wholesaler of lumber products. P's employees conduct almost all of its trading activities over the telephone from its principal office in Portland, Oregon. In February 1967, P hired D as a lumber trader in its hardwood division. As part of his employment contract, D agreed to refrain from competing with P for two years following termination of his employment. The contract authorized P to sue for an injunction and damages if D violated the agreement; it also contained a clause authorizing recovery of attorney fees if P successfully maintained a suit or action to enforce the covenant. In April 1976 D voluntarily terminated his employment. Soon thereafter, he went to work for Tree Products Company. Tree Products competes with P, under the terms of the contract. In May 1976, P filed suit in circuit court, naming D and Tree Products as defendants. P failed to serve Tree Products, so it never became an actual party to the litigation. P sought a decree enjoining Ds from engaging in employment in violation of D's employment contract. Once D learned of P's suit, he stopped actively soliciting sales for Tree Products. D contends the covenant is unreasonable. As a defense to its enforcement, D asserted that P had 'unclean hands.' The court found the contract was valid but refused to enforce it because of P's unclean hands. The court dismissed P's complaint with prejudice. The court held that when a person who seeks the aid of a court of equity has himself been guilty of wrong in his prior conduct related to the matters upon which he seeks the aid of the court, he is denied the remedy he seeks, for he comes before the court with unclean hands. The iniquitous conduct which bars a right to an equitable remedy must relate to the subject matter of the suit and must involve the conscious act of the party against whom it is invoked. The trial court rejected P's contention that D's failure to protest the practices foreclosed him from asserting the unclean hands defense. The court found that D's participation in the wrongdoing did not preclude application of the clean hands doctrine. The trial court also held that public policy should preclude enforcement of a covenant not to compete where its effect is to encourage submission to and make difficult departure from an employment where illegal and unethical practices are prevalent. Public policy should encourage all citizens to conform to basic standards of behavior. The court awarded D attorney fees pursuant to ORS 20.096 n5 in the amount of $105,000. P appeals the dismissal of its complaint and the award of attorney fees to D, while D cross-appeals the size of the attorney fees award. The trial record has an extensive laundry list of practices by P and the trial court’s findings related to them.