On May 16, 1949, the Supreme Court decided A. Hollander & Son, Inc. v. Imperial Fur Blending Corp., 2 N.J. 235 (1949). A unanimous opinion by Justice Wachenfeld, the decision expressed a number of fundamental principles regarding restrictive employment covenants that the Supreme Court subsequently cited in such cases for many years. The case is perhaps best known for that. But the opinion also contained an important discussion of the doctrine of unclean hands, concluding that the doctrine was inapplicable on the facts of that case and offering guidance for the future.
Defendant Philip Singer had been employed by plaintiff Hollander as a dresser and dyer of furs, and as a manager of one of plaintiff’s plants. In that position, Singer learned Hollander’s trade secrets, including from formulae books that he took for himself. His employment contract, however, forbade him from using those trade secrets to benefit himself or anyone else.
Despite that, Singer secretly organized a competing company, Imperial, that dyed furs. Imperial began doing business while Singer was still employed by Hollander. Singer asked Hollander to release him from his contract but did not reveal that he was connected to Imperial. Nor did Singer return the formulae books.
Hollander ultimately sued Singer, Imperial, and others for injunctive relief, including the dissolution of Imperial, and damages. Before any answering pleading was filed, Hollander placed an ad in a trade publication that warned that Hollander “may find it necessary to make a party to the suit all persons (dealers, manufacturers, department stores and retailers) who have done or are doing business with Imperial, with knowledge of the situation, and ask for an accounting by them of all profits made from the business relations with the Imperial Fur Blending Company.”
The trial judge found for Hollander on the merits of its charges against Singer and the other defendants. But the court denied the relief that Hollander sought because, in its view, the advertisement was “a bald attempt to intimidate the fur trade — the public — and to prejudice the public mind against the defendant Imperial Company before the cause was heard.” The judge found that that constituted unclean hands.
The Supreme Court disagreed. After agreeing with the trial court that “[t]he record establishes beyond doubt Singer’s infidelity to Hollander,” Justice Wachenfeld addressed the unclean hands issue. He noted that “[t]he publication of notice of trade-mark, patent or copyright infringement and the pendency of suit therefor has been held to be lawful even though acompanied [sic] with a threat to sue users who would be legally liable, provided the warnings are issued in good faith,” citing a number of cases. “Here the advertisement did not include any misrepresentation of fact and was used after the institution of suit. The publication was made in reliance on counsel and wholly in good faith in an endeavor to preserve trade secrets which appellant believe it was entitled to protect.”
Justice Wachenfeld thus emphasized that “[t]he circumstances under which the publication was made were not such as to warrant the application of the doctrine of clean hands so as to bar the relief sought. To dismiss the suit for that sole reason would result in a substantial gain to the respondents though they had been clearly guilty of continuous culpable and fraudulent misconduct. Equity will not close its eyes to the full factual situation. Assuming but not deciding the publication to be wrongful, it was not such as to justify the closing of the doors to equitable relief which would otherwise have been granted. Only in the case of intentional serious wrongdoing, which is not here present, should the court dismiss the bill and thus assure the success of the opponent’s fraud.” All that was because the doctrine of unclean hands “is not so rigid nor should it be so construed as to allow or permit an unconscionable gain to the wrongdoer at the complainant’s expense.”
Though this decision dates from 1949, it has been cited as to unclean hands as recently as last year. Its sound reasoning and result will give it continuing vitality.