Nishman v. De Marco

O’Connor, J. (dissenting).

As of July 1, 1974, the law firm of Nishman & De Marco, which had survived for some 12 rather turbulent years, was terminated by mutual consent of both defendant-appellant and plaintiff-respondent. As of that date, the partnership ceased and no new business was accepted but, because of an outstanding lease on the firm’s *372offices, the parties did not physically part nor go their separate ways until September of 1975.

At that time the offices were vacated, the physical assets, including all furniture and furnishings, were sold or otherwise disposed of and the remaining open partnership files were divided, each partner taking those files which had come to the firm through his efforts.

It should be here noted that although there was from the beginning no written partnership agreement, the parties had expressly agreed that the firm’s earnings would be shared equally on a 50-50 basis.

It is the sharply divergent claims advanced by the erstwhile partners as to the division of fees collected subsequent to September, 1975 that give rise to this rather bitterly contested accounting action.

On the one hand, it is respondent’s contention, sustained at Special Term, that the parties agreed that "we would continue on the same basis that we had for the past twelve years, and that would be to divide equally after expenses.” In other words, it is respondent’s position that the 50-50 division of income, as maintained throughout the life of the partnership, would continue. He therefore demands a formal accounting and a division of the collected fees in accordance with that agreement.

On the other hand, it is appellant’s contention that the physical separation in September, the disposal of the physical assets and the division of the files of the partnership at that time constituted an informal accounting. Hence, there is nothing left to divide or to account for and the complaint should therefore be dismissed. Despite some obvious confusion and conflicts in his testimony, appellant claims, in substance, that "he took his files and I took my files” and that it was agreed that each would keep the fees generated by the files in his individual possession subject only to some completely voluntary and discretionary payments that are not relevant to this disposition.

At the commencement of this nonjury trial for an accounting, the parties placed on the record a stipulation that the court was to determine only "what the parties’ agreement was.” Despite this limiting stipulation, substantial evidence was adduced during the trial concerning unethical and immoral acts of client stealing, improper file retention and theft of partnership fees. Most of this conduct was charged to *373respondent and it is noted that appellant continually offered this evidence as bearing on respondent’s credibility upon the accepted theory that proof of immoral acts is relevant for impeachment purposes.

Appellant introduced testimony that respondent wrongfully sought to take clients from him on at least three occasions. The first incident occurred during the interim period of separation between July, 1974 and September, 1975, when a Mrs. Lopez came to their still shared offices and asked to see appellant about a serious accident involving her husband. Ida Agnese affirmed that she had referred Mrs. Lopez to appellant. Ursula Mollison, a secretary, testified that Mrs. Lopez asked for Mr. De Marco and that when Ms. Mollison suggested that the appointment was with Mr. Nishman, Mrs. Lopez stated that this was not so and that her appointment was with Mr. De Marco. She testified further that when respondent was told of the situation, he took Mrs. Lopez into his office, closed the door and had Mrs. Lopez sign a retainer naming him rather than appellant as her attorney. Respondent testified that Mrs. Lopez’ daughter had asked him to represent them, that when Mrs. Lopez asked for appellant, he (respondent) informed her that they were no longer associated and that she thereupon chose to retain respondent because she really knew neither attorney. It was respondent’s testimony that Mrs. Lopez retained him with full knowledge that he was no longer associated with appellant and that subsequently Mrs. Lopez insisted on staying with respondent. It is significant that the trier of facts concluded as to this matter: "I am persuaded that plaintiff attempted to steer a client who desired to engage defendant away from defendant and to himself.”

The second incident involved another matter which arose prior to the physical separation of the parties but after the partnership had ended. Ellen Forte, a secretary, testified that she had referred a party by the name of Jardeli to appellant and that she told respondent that the injured party wanted De Marco to handle the case. Respondent, however, went to visit the injured party in the hospital that night and obtained a signed retainer for himself. When subsequently confronted by these facts, respondent returned the signed retainer to Miss Forte. For reasons unexplained on the record, no reference was made to this matter in Special Term’s memorandum decision.

The trial testimony indicates a third incident involving the *374disappearance of the Gilliard file—apparently a De Marco matter. In order to prepare for trial, appellant had to reconstruct the entire file and when the time of trial came, long after the partners separated, respondent showed up at the courtroom and, without authority, sought to interject himself as plaintiffs trial counsel despite the plaintiffs statement that he did not know and had never seen respondent before. These facts become all the more significant when the record discloses that all the trial work of the partnership was done by appellant, De Marco, and that respondent, Nishman, was the office partner. In regard to this matter, Justice Young characterized respondent’s conduct as "peculiar” and stated that it cast doubt on his credibility "since he is not a trial lawyer.”

Further allegations of disappearing files and of wrongful fee retentions were made against respondent but the trial court repeatedly sustained objections upon the ground that such testimony was hearsay or violative of the collateral evidence rule. Hence, any in-depth probe of these other most serious charges of misconduct was completely thwarted.

Nor did appellant escape serious charges of misconduct. When asked whether he had arranged to have a partnership fee deposited in his personal account at a time when the partnership still existed, appellant responded: "I doubt that it happened. I don’t believe it happened.” Justice Young was disturbed by appellant’s "equivocation” and characterized his testimony as "evasive”.

The "clean hands” doctrine, long a recognized, significant principle in equity jurisprudence, has been characterized as follows:

"A court of equity in its endeavors to maintain, promote, and enforce the interests of justice, stringently demands good faith, fairness, and uprightness from the litigant parties who come before it either as plaintiffs or defendants. * * *

"The maxim is based on the principle that to grant a wrongdoing plaintiff relief contravenes public morals * * * The courts, moreover, apply the maximum [sic] in the interest of the public and not to favor a defendant * * * [This is done] as a matter of public policy involving the standing and integrity of the court” (20 NY Jur, Equity, §§ 102-103; see, also, Pattison v Pattison, 301 NY 65).

Indeed, Justice Young considered dismissing the action by applying the clean hands doctrine, but concluded that it was not the proper course to pursue. He reasoned: "In his memo*375randum of law defendant expends considerable effort in urging that the Court should deny relief to the plaintiff because the plaintiff does not come into court with clean hands. As indicated in the paragraphs immediately preceding each of the parties is subject to some criticism for having performed at times with less than complete fairness or candor. The opportunity for disposing of the case by declaring that the Court would deny relief and leave the parties where it found them was momentarily tempting. However, the Court feels that in fairness such a short shrift disposition should not be made. The parties had agreed that the trial would be concerned only with the issue of what the parties’ partnership agreement was. The Court accepted the submission on that basis.” The trial court then went to the merits of the.matter and concluded that appellant and respondent had agreed to an equal division of all remaining partnership case fees, including those which generated fees after the physical separation in September, 1975.

In light of the serious misconduct established at trial, it was, in my opinion, an abuse of discretion to entertain this action. Justice Young specifically found respondent guilty of improper client steering, and he questioned the propriety of his actions in another case. Many other charges of disturbing proportions were leveled. Under these circumstances a court of equity should not have addressed the merits of the action until specific findings of fact were made which established one way or the other whether the court should aid one guilty of contravening public morality.

To some degree Justice Young’s determination is ambiguous. He may have believed that the stipulation of the parties prevented him from dismissing the action on the clean hands doctrine. If this be so, he erred as a matter of law. Indeed, the doctrine need not be pleaded at all and in an appropriate case may be raised by the court sua sponte. It is brought into play in the interests of the public, as a matter of public policy, and is not invoked to favor a defendant. The parties could thus not remove this matter from the court’s jurisdiction (see Richards v Levy, 40 AD2d 1055; see, also, Levy v Braverman, 24 AD2d 430).

It is conceivable that Justice Young weighed the relative immorality of the opposing sides and determined that he would entertain the action as a matter of discretion to prevent an injustice. The clean hands doctrine should never be in*376voked where it works an injustice and Justice Young, perhaps believing that defendant was also guilty of misconduct and that were respondent denied access to an accounting appellant would unfairly retain fees properly belonging to respondent, decided that the discretionary doctrine of clean hands should remain dormant. If this be so, a serious abuse of discretion occurred. "It is an established rule that no relief will be given to a guilty plaintiff in equity even though the defendant is equally guilty. Equity does not make adjustments between wrongdoers” (20 NY Jur, Equity, § 114). Thus, appellant’s equivocal denial of the charge against him could not serve to negate the misconduct of respondent. Furthermore, I note that the substantive question of what the agreement of the parties was is not at all free from doubt. Despite my hesitancy to reverse the trier of facts on this question, and without entering into an extended discussion of the merits of the dispute, I simply suggest that a refusal to entertain the action would not in any way result in an injustice under the facts here involved.

As the record now stands, it contains a finding of serious misconduct on Nishman’s part and leaves several other charges of misconduct unresolved. Thus, it is pregnant with implications that may well adversely affect his future career. Simple justice demands that these charges be fully explored and finally disposed of. Although the doctrine of clean hands may be raised by the court sua sponte (see Richards v Levy, supra, p 1056), here it was not pleaded as a defense and respondent may well have been totally unprepared to meet the charges leveled at him during the trial. Appellant continually insisted that much of the evidence of misconduct introduced went only to the question of credibility, thus lending substance to respondent’s assertion that much which could have been offered to refute the damaging evidence against him would have been inadmissible as being collateral (see Richardson, Evidence [10th ed—Prince], § 491). Under these circumstances, and in light of the profound consequences which will flow from the findings that public policy and simple fairness dictate must be made, the appeal should be held in abeyance and this matter should be remanded for a full hearing with specific findings of fact as to what misconduct, if any, transpired. Until such time as these essential factual determinations are made, the substantive merits of the dispute should not be addressed. To do so perpetrates an injustice not only on the public but on the parties themselves.

*377Rabin and Margett, JJ., concur with Lazer, J. P.; O’Con-nor, J., dissents and votes to hold the appeal in abeyance and remit the case for a hearing, with an opinion.

Interlocutory judgment of the Supreme Court, Nassau County, entered March 26, 1979, affirmed, with costs.