What is the Doctrine of Unclean Hands?
Full Question:
Answer:
Please see the Nevada case law below:
EVANS v. DEAN WITTER REYNOLDS, INC., 116 Nev. 598 (2000)
5 P.3d 1043
MICHAEL EVANS, AS SPECIAL ADMINISTRATOR OF THE ESTATE OF ELFREDA
A. GARDNER, Appellant/Cross-Respondent, vs.
DEAN WITTER REYNOLDS, INC., A FOREIGN CORPORATION; AND WARREN
HOUSE, Respondents/Cross-Appellants.
No. 30843.
Supreme Court of Nevada.
August 18, 2000.
Rehearing dismissed November 30, 2000.
Appeal and cross-appeal from a judgment of the district court,
pursuant to a jury verdict, in an action for conspiracy to convert
personal and real property. Ninth Judicial District Court, Douglas
County; Michael R. Griffin, Judge.
Goedert & Michaels, Reno; Terzich & Jackson, Gardnerville, for
Appellant/Cross-Respondent.
Page 599
Schreck Morris and Kristina Pickering, Las Vegas; Mortimer,
Sourwine & Sloane, Ltd., Reno; Sullwold & Hughes, San Francisco,
California, for Respondents/Cross-Appellants.
Page 600
BEFORE THE COURT EN BANC.
Page 601
OPINION
By the Court, MAUPIN, J:
SUMMARY
The estate of Elfreda Gardner ("the Estate") obtained a
favorable jury verdict against Dean Witter Reynolds, Inc. and
Warren House, a stockbroker and senior vice president of Dean
Witter, based upon a theory of conspiracy to commit conversion of
securities.
The jury awarded compensatory damages in the amount of
$2,600,000.00, jointly and severally, against Dean Witter and
House, and rendered separate punitive damage awards against Dean
Witter and House in the respective amounts of $6,000,000.00 and
$50,000.00. The district court, however, reduced the compensatory
damage award to zero by applying equitable offsets for settlement
payments received by the Estate from third parties.
Notwithstanding the elimination of the compensatory damage verdict
through the offsets, the trial court let the punitive damage
awards stand.
On appeal, the Estate makes several claims of error by the
district court including: (1) improper limitation of the scope of
the conversion claim; (2) improper admission into evidence of
restitution made by third parties in connection with pretrial
settlements that resulted in a reduced jury award; (3) improper
imposition of equitable offsets against the jury award ultimately
rendered; and (4) failure to award post judgment interest on the
punitive damage awards.
On cross-appeal, Dean Witter and House contend that the portion
of the judgment awarding punitive damages should be reversed in
its entirety because: (1) there was no evidence of malice; (2) the
punitive damage awards were excessive; and (3) the reduction of
the compensatory damages to zero mandates that the punitive damage
awards should be set aside as a matter of law. Dean Witter
separately argues that proof elicited at trial was insufficient to
sustain vicarious imposition of punitive damages against it.
We conclude the district court erred in admitting evidence
relating to restitution by third parties and in applying
post-verdict equitable offsets. Thus, we reverse that portion of
the district court's judgment pertaining to compensatory damages
and remand this matter for reinstatement of the compensatory
damage award and the issuance of an additur. Finally, we affirm
the judgment with respect to the awards of punitive damages.
Page 602
FACTS
Jack Gardner, an attorney licensed in California, managed the
legal, business, and personal affairs of his elderly aunt and
uncle, Elfreda and Allen Gardner. These duties were performed
pursuant to a personal employment agreement. Allen and Elfreda
ultimately died testate leaving no children.[fn1]
Prior to Allen's death, he established the Allen F. Gardner
Trust to provide interest income to Elfreda during her lifetime
and, upon her death, the trust estate was to be gifted to the
Gardner heirs (Jack, his two sisters, and their heirs). Jack
Gardner and Pioneer Citizens Bank were co-trustees of the trust.
Allen predeceased Elfreda and, at the time of his death, the Allen
F. Gardner Trust assets exceeded $8,000,000.00. Elfreda's Last
Will and Testament left all of her real and personal property to
Jack and his wife, Sue Gardner, except for money and securities
which were bequeathed to Elfreda's nieces and nephews (the
"Stiegler heirs").
After Allen's death, Elfreda lived alone. Ultimately, she
became dependent upon nursing assistance for all of the activities
of daily living. Although House testified that Elfreda was able to
express concerns about the management of her financial affairs,
one of her medical providers testified that her mental and
physical condition was in a state of continued deterioration and
that she ultimately became mentally incompetent and physically
disabled.
On October 11, 1989, Jack Gardner removed stock certificates
held in Elfreda's name from a First Interstate Bank safe deposit
box, which was held jointly by Elfreda and Jack Gardner.
Thereafter, Jack deposited the certificates with Dean Witter into
an active asset account[fn2] for registration in Dean Witter's
street name.[fn3] Appellants allege that the value of the stock
certificates at the time of the deposit exceeded $8,000,000.00.
The valuation at that time was largely uncontested at trial.
Donald Brooks, manager of Dean Witter's Stateline office,
testified that on October 13, 1989, he and Jack Gardner witnessed
Elfreda affix her signature to all of the opening account
documents. Brooks also testified that he notarized Elfreda's
signatures. However, two handwriting experts testified at trial
that the signatures were not those of Elfreda, and that three
different inks were used to execute the documents.
Page 603
One of the documents allegedly signed by Elfreda was a full
trading authorization, which gave Jack Gardner authority over the
account, including the power to sell corporate securities. Jack
wrote approximately $1,600,000.00 in checks from the active asset
account to purchase real and personal property, including "Hummel"
figurines, model trains, furniture, gold coins, and real property
in Douglas County, Nevada. Because Elfreda's will left her real
and personal property to Jack and Sue Gardner, and because all
monies and securities were bequeathed to the Stiegler heirs, these
transactions substantially depleted the portion of the estate
gifted in Elfreda's will to the Stiegler heirs. Most of the assets
purchased with these proceeds were then held jointly in the name
of Mr. and Mrs. Jack Gardner.
Jack also used the original full trading authorization to
transfer United Airlines stock, the primary asset in the account,
to his own accounts at Dean Witter and to those of his friends,
with a total of 8,488 shares being distributed. He also
distributed 3,365 of the shares to the Stiegler heirs. After
Elfreda's death, Jack continued to transfer assets from Elfreda's
account into his personal account. Dean Witter allowed these
transfers, despite its policy of freezing accounts upon the death
of a client. Further, after Elfreda's death, Dean Witter sold
stock certificates from the account to pay off $903,508.52 in
margin obligations incurred by Jack in connection with the active
asset account in Elfreda's name. House was the account executive
who serviced this account.
In addition to the active asset account, Jack opened a separate
precious metal account with Dean Witter in Elfreda's name. It is
uncontested that Jack forged the signatures required to open this
account. House admitted notarizing the false signatures. The
account was used to transfer gold coins to Jack Gardner at his
California address.
After Jack Gardner's defalcations were identified, the Estate
filed an action seeking damages against the Estate of Jack
Gardner,[fn4] Sue Gardner, Pioneer Citizens Bank, trust counsel,
Dean Witter, and House. The lawsuit alleged three separate loss
categories, to wit: (1) losses incurred as a result of the
handling of the Allen F. Gardner Trust, of which Elfreda was the
income beneficiary during her lifetime; (2) losses stemming from
the conversion of assets from Elfreda's personal bank account at
First Interstate Bank ("FIB"); and (3) losses sustained in
connection with diversions from the Dean Witter accounts. The
complaint alleged breaches of fiduciary duty, conversion before
letters, conversion, embezzlement, civil conspiracy, and
racketeering with
Page 604
regard to each separate loss category. Although
the Estate's pleadings alleged that all of the defendants named in
connection with all three categories of loss were jointly and
severally liable, the first two loss categories did not involve
Dean Witter. Claims in connection with the third category were
brought against the Estate of Jack Gardner, Sue Gardner, Dean
Witter, and House.
Prior to trial, Pioneer Citizens Bank and trust counsel each
paid approximately $100,000.00 to settle, in part, the separate
claims against the Allen F. Gardner Trust (the "Allen F. Gardner
Trust Settlement").
Sue Gardner, individually and as executrix of the Estate of
Jack Gardner, entered into a separate settlement agreement with
the Estate of Elfreda Gardner in exchange for cash, real estate,
and personal property valued by the parties in excess of
$4,000,000.00 (the "Jack Gardner Settlement"). The Jack Gardner
Settlement allocated net proceeds, after deductions of $400,000.00
for attorney's fees, as follows: seventy-five percent for the
depletion of Elfreda's personal accounts (assets on deposit with
FIB and Dean Witter); and twenty-five percent for monies Elfreda
should have received from the Allen F. Gardner Trust. There was no
specific breakdown in the settlement agreement allocating credit
between the FIB and Dean Witter losses. Thereafter, the Estate
proceeded to trial against Dean Witter and House.
Prior to trial, the district court ruled on motions in limine
brought to exclude evidence of the prior settlements. The district
court granted the motion in part, prohibiting admission of
evidence that real and personal property was returned by virtue of
a legal settlement. The district court, however, allowed Dean
Witter and House to introduce evidence that personal and real
property, valued at approximately $1,570,858.00, was returned,
including evidence that the Hummel figurines, model trains, and
furniture were returned to the estate, along with several parcels
of real property. The district court also allowed Sue Gardner to
testify that the value of the real property deeded back to the
estate exceeded the original purchase price of the parcels.
At trial, the district court limited the scope of the
conversion claim by determining, as a matter of law, the time
period within which the alleged conversion could have taken place.
Specifically, the district court ruled that Dean Witter could not
have converted the stock at the time that Jack Gardner removed the
stock certificates from the FIB safe-deposit box and deposited
them into the Dean Witter active asset account. Thus, the district
court ruled that Dean Witter and House could only have been
parties to the conversion at the time the stock was transferred
from the active asset account. Because the corporate stock
substantially decreased in value between the time of the deposit
into the active asset
Page 605
account and the time of Jack Gardner's
transfer transactions, the district court restricted the
compensatory damage claim to $4,173,079.00, including
interest.[fn5] (Dean Witter and House conceded that certain
irregularities perpetrated by Jack Gardner occurred, and that the
value of the securities lost by virtue of the Jack Gardner
transactions amounted to $4,173,079.00, including interest.
However, Dean Witter and House vehemently denied participation in
the conversion of securities or a conspiracy to convert securities
from Elfreda's accounts.)
At the conclusion of the Estate's case-in-chief, the district
court dismissed all of the claims, pursuant to NRCP 41(b), except
the causes of action alleging conversion and conspiracy to
convert. The court further ruled that there was insufficient
evidence as a matter of law to support an award of punitive
damages based upon fraud or oppression, but left the question of
malice for decision by the jury.
The jury returned a verdict for the defense on the conversion
claims but, as previously noted, returned a verdict of
$2,600,000.00 in compensatory damages against Dean Witter and
House jointly and severally for conspiracy to commit conversion.
As also noted, the jury, in bifurcated proceedings, ultimately
awarded the Estate punitive damages against Dean Witter in the
amount of $6,000,000.00 and against House in the amount
$50,000.00.
Thereafter, following post-trial motions by both parties, the
district court reduced the compensatory damage award to zero,
applying offsets for the entirety of the Jack Gardner and Allen F.
Gardner Trust Settlements. The offsets were ordered
notwithstanding the Estate's argument that offsets in any amount
were barred under NRS 17.225, et seq., and affidavit evidence
presented by the Estate that: (1) the settlement offsets that
could be legally applied in connection with the Jack Gardner
Settlement, assuming the offsets were legally appropriate,[fn6]
could not exceed $480,659.50; and (2) the payors under the Allen
F. Gardner Trust Settlement were not joint tortfeasors with Dean
Witter, but were subject to liability for an alleged separate tort
of conversion from the separate Allen F. Gardner Trust.
Page 606
The punitive damage awards were reduced to judgment, even
though the equitable offsets reduced the compensatory award to
zero dollars. The district court refused the Estate's request for
post judgment interest on the punitive damages award pursuant to
Ainsworth v. Combined Insurance Company, 105 Nev. 237,
774 P.2d 1003 (1989).
DISCUSSION
Standard of review
"Questions of law are reviewed de novo." SIIS v. United
Exposition Services Co., 109 Nev. 28, 30, 846 P.2d 294, 295
(1993). Here, the district court was required to resolve numerous
issues in the context of long-existing ambiguities in our
decisional and statutory law. These issues include when and how an
act of conversion can be committed, the rights governing
litigation between and among multiple parties in the context of
claims alleging intentional misconduct, and the relationships
between recoveries of compensatory and punitive damages. In
reversing the trial court, we take this opportunity to clarify
these ambiguities, with which the district court understandably
encountered considerable difficulty.
The Estate primarily seeks reinstatement of the $2,600,000.00
compensatory damage award, which was reduced to zero via the
settlement offsets. The Estate also requests an additur to account
for the reduction of the verdict by the jury caused by the
admission of the restitution evidence. We will therefore address
the Estate's contentions as they relate to the primary relief
sought in this appeal.
Because the Estate seeks the clarification and application of
doctrine in the context of claims of conversion and conspiracy to
convert, a brief review of the tort of conversion under Nevada law
is necessary.
Conversion is "a distinct act of dominion wrongfully exerted
over another's personal property in denial of, or inconsistent
with his title or rights therein or in derogation, exclusion, or
defiance of such title or rights." Wantz v. Redfield, 74 Nev. 196,
198, 326 P.2d 413, 414 (1958). Further, conversion is an act of
general intent, which does not require wrongful intent and is not
excused by care, good faith, or lack of knowledge. See id.; Bader
v. Cerri, 96 Nev. 352, 357 n. 1, 609 P.2d 314, 317 n. 1 (1980).
Whether a conversion has occurred is generally a question of fact
for the jury. See Bader, 96 Nev. at 356, 609 P.2d at 317.[fn7]
Page 607
Prior settlements
The district court allowed Dean Witter to present evidence
demonstrating the reconveyance of three parcels of real property
to Elfreda's estate pursuant to the Jack Gardner Settlement. Dean
Witter was also allowed, through the testimony of Sue Gardner, to
inform the jury that the property returned to the Estate was worth
more at the time it was deeded back than when it was purchased. In
sum, the district court permitted evidence of the return of
certain real and personal property totaling $1,570,858.00, which
included the Hummel figurines, model trains, furniture, gold
coins, and money spent by Jack on the acquisition of various
pieces of real property.
Dean Witter contends that the restitution evidence was relevant
to mitigate the damages sustained by the Estate. In making this
contention, Dean Witter refers us to our statement in Bader that
"[t]he return of the property converted does not nullify the
conversion[, but can] serve to mitigate damages." Bader,
96 Nev. at 356, 609 P.2d at 317. Alternatively, Dean Witter asserts that
if the district court erred in admitting this evidence, any error
was harmless.[fn8] We disagree.
Although the fact that the Estate had settled its liability
claims against Jack and Sue Gardner was not disclosed to the jury,
the district court admitted evidence that real and personal
property had been returned to the Estate. It did so under Bader's
statement that, in a conversion case, damages may be reduced or
"mitigated" by payments or return of the converted property by the
tortfeasor. The district court's ruling on the admissibility of
the restitution by Jack and Sue Gardner is problematic because of
the context within which such evidence is admissible under Bader,
and because of our subsequent ruling in Moore v. Bannen, 106 Nev. 679,
680-81, 799 P.2d 564, 565 (1990).
Page 608
Our statement in Bader that evidence of restitution is
admissible for the purpose of showing mitigation of damages was
made in reference to a matter where a single defendant charged
with civil conversion had restored the property to the alleged
victim of the conversion. The restitution in Bader was not, as
here, made by a third party. Also, the evidence of "mitigation" in
Bader, the restoration or release of a cattle brand back to the
original owner, was relevant to show that consequential damages,
i.e., loss of use stemming from the original conversion, were not
as great as alleged. Therefore, return of converted property would
only "mitigate" consequential damages attendant to the loss of use
of the converted property.
Here, the sole measure of damages sought by the Estate was the
value of the securities at the time of conversion plus interest.
The Estate made no claim for consequential damages other than loss
of interest. Here, the district court, rather than the jury,
assessed the interest to which the Estate was entitled. We
therefore conclude that the district court erred in admitting
evidence of the conveyance and return of personal and real
property because this restitution did nothing to mitigate
consequential damages; rather, it allowed the jury to consider
evidence of the value of property that was returned as an offset
to the value of the property taken, i.e., non-consequential
damages. This, we also conclude, runs afoul of our ruling in Moore
v. Bannen.
In Moore, we held that, "where there has been a settlement
between a plaintiff and one of several defendants, the jury may
not be informed as to either the fact of the settlement or the sum
paid." Moore, 106 Nev. at 680-81, 799 P.2d at 566 (emphasis
added). Consistent with our decision in Moore, we now conclude
that evidence of a portion of the consideration paid in settlement
by third parties creates the same potential for confusion and
speculation in the minds of the jurors as does evidence of the
total consideration paid. We therefore hold that the restitution
evidence was admitted below in error. Thus, to the extent that
Bader would allow admission of such evidence in "mitigation" of
non-consequential damages, it is hereby expressly overruled.[fn9]
An examination of the record clearly shows that the mitigation
evidence unduly influenced the outcome. Again, the court's ruling
limited the extent of damages to $4,173,079.00. The jury then
awarded compensatory damages in the sum of $2,600,000.00. The net
result was a compensatory damage verdict in an amount
substantially less than the minimum damages actually sustained by
the Estate.
Page 609
Accordingly, we conclude the district court erred in admitting
the restitution evidence.
Viability of the equitable offsets
On appeal, the Estate argues that equitable offsets based upon
the restitution payments should have been limited to payments made
in connection with the Dean Witter losses, not losses in
connection with the Allen F. Gardner Trust and the FIB
accounts.[fn10] In addition to its claim of error that the
equitable offsets should have been limited, the Estate contends in
the alternative that any offset based upon restitution settlements
made in response to the claims of intentional misconduct was
improper under NRS 17.225 et seq., the Nevada "Contribution Among
Tortfeasors" statute.
Whether offsets should be permitted in any amount in the
context of joint liability for intentional misconduct is the
subject of a nationwide split of authority. Some courts have
prohibited offsets under contribution statutes similar to those
enacted by the Nevada legislature. See Klosterman v. Fussner,
651 N.E.2d 64, 68 (Ohio Ct. App. 1994) (likening the imposition of
equitable credit to the collateral source rule). But see Hampton
v. Safeway Sanitation Services, Inc., 725 S.W.2d 605 (Mo.Ct.App.
1987) (offsets applied in context of conversion claim under
"contribution" statute). Other courts have split, as a matter of
public policy, over whether general principles of equity prevent
parties with "unclean hands" from obtaining equitable relief by
way of offset. See generally Income Investors v. Shelton,
101 P.2d 973, 974 (Wa. 1940) (discussing the doctrine of unclean hands). In
response, courts applying offsets have concluded that the
potential for double recovery by the claimant mandates that such
offsets be imposed, even in the context of intentional misconduct
of the party seeking relief. See Krusi v. Bear, Stearns & Co.,
192 Cal.Rptr. 793, 798 (Ct.App. 1983) (conversion of securities by
two stockbrokers).
We conclude that, as a matter of law, intentional tortfeasors,
Page 610
including persons found liable in conversion and persons in
conspiracy with them, may not apply credit from settlements by
their joint tortfeasors (here, Jack Gardner) in reduction of
judgments against them arising from the intentional misconduct.
See Harriss v. Elliott, 565 N.E.2d 1041, 1044 (Ill.App.Ct.
1991).
First, and fundamentally, payments made in settlement of an
intentional tort claim and applied to reduce another tortfeasor's
payment of the claim by one of the joint tortfeasors would
constitute equitable relief by way of an equitable setoff. Under
the maxim that one seeking equity may not do so with "unclean
hands," an intentional tortfeasor by definition seeks such relief
from a position of ineligibility for it. See Shelton,
101 P.2d at 974.
Secondly, we conclude that NRS 17.225 prohibits the application
of such credit.[fn11] The act provides that "where two or more
persons become jointly or severally liable in tort for the same
injury to person or property . . ., there is a right of
contribution among them." NRS 17.225(1). Section (a) of NRS
17.245(1) provides that payments in settlement by one of two or
more persons liable for the "same injury" does not discharge the
liability of non-settling parties unless the terms of the
settlement so provide. However, the payments reduce "the claim
against the others to the extent . . . of the consideration paid
for it." Id. While NRS 17.245(1) seems to mandate some of the
credit sought by Dean Witter and applied by the district court,
NRS 17.255 specifically provides that no right of contribution
exists in favor of any tortfeasor who has intentionally caused or
contributed to the injury sustained.[fn12]
Reading NRS 17.225, NRS 17.245, NRS 17.255, and NRS 17.305
together, the prohibition against contribution in favor of persons
liable in tort for intentional misconduct would make no sense if
intentional tortfeasors were entitled to an equitable offset for
settlements made by joint offenders. This is because the credit
under NRS 17.245(1) would indirectly provide the non-settling
Page 611
intentional tortfeasor the same protection against overpayment
that a direct right of contribution would provide. Thus, the
contribution statute renders any reduction in the verdict,
regardless of its source, invalid. Accordingly, the district court
erred in its admission of "mitigation" evidence and in the
imposition of post-verdict equitable setoffs.
Our ruling on this issue has further significance to the dictum
in Bader regarding restitution as evidence in mitigation of
conversion damages. Not only is such evidence inadmissible under
Moore, restitution payments by third parties cannot be utilized
as an equitable offset to the verdict. Thus, insofar as Bader
implies that a non-settling defendant in a conversion case may
seek credit for third-party settlements post-verdict, it is
expressly overruled.[fn13]
We conclude that the legislative statement of policy in the
Nevada "contribution" statutes prohibits one intentional
tortfeasor from taking advantage of restitution made by another.
To the extent that this long-standing public policy should to be
overturned, we defer to the Nevada State Legislature.
Based upon our conclusions that the restitution evidence was
inadmissible and that the verdict rendered should not have been
reduced via the equitable offsets, we remand this matter for
reinstatement of the verdict rendered in the amount of
$2,600,000.00, and for additur to increase the recovery of
compensatory damages to a total of $4,173,079.00, plus
interest.[fn14]
Punitive damages
Punitive damages are not designed to compensate a party but are
awarded "for the sake of example and by way of punishing the
defendant." NRS 42.005(1). With respect to punitive damages, the
district court instructed the jury that it could make such an
award only upon a finding of malice. On cross-appeal, Dean Witter
and House contend that: (1) malice was never proven; (2)
Page 612
the punitive damage award was excessive; and (3) the reduction of the
compensatory damages to zero mandates that the punitive damage
awards should be set aside as a matter of law. We will address
each contention in turn.
A. Proof of malice
Nevada law requires clear and convincing evidence of malice
before punitive damages may be recovered. NRS 42.005(1). "`A
plaintiff is never entitled to punitive damages as a matter of
right.'" Dillard Department Stores v. Beckwith, 115 Nev. 372, 380,
989 P.2d 882, 887 (1999) (quoting Ramada Inns v. Sharp, 101 Nev. 824,
826, 711 P.2d 1, 2 (1985)). Rather, where the district court
has determined that the conduct at issue is, as a threshold
matter, subject to civil punishment, the allowance or denial of
exemplary or punitive damages rests entirely in the discretion of
the trier of fact. See Smith's Food & Drug Cntrs. v. Bellegarde,
114 Nev. 602, 606, 958 P.2d 1208, 1211 (1998); Ramada Inns v.
Sharp, 101 Nev. 824, 826, 711 P.2d 1, 2 (1985). Accordingly, this
court will not overturn an award of punitive damages supported by
substantial clear and convincing evidence of malice.
NRS 42.001(3) defines express or implied malice as "conduct
which is intended to injure a person or despicable conduct which
is engaged in with a conscious disregard of the rights or safety
of others." There is substantial evidence in the record to support
the jury's finding that Dean Witter and House acted maliciously or
with a conscious disregard of Elfreda's rights.
House testified that he falsely notarized a full trading
authorization on the precious metals account and that he allowed
Jack to transfer stock out of Elfreda's account after her death,
despite a Dean Witter policy requiring House to freeze her
account. Additionally, there was evidence presented that would
have supported an inference that House or Brooks either forged
Elfreda's active asset account documents or knew that they were
forged. Indeed, although House and Brooks testified that Elfreda
signed these opening documents granting Jack control over her
account, two handwriting experts concluded that three different
pens were used to sign these documents and that the signatures
were not Elfreda's.
With respect to the jury instruction given on Dean Witter's
punitive liability, we first address the threshold matter of
whether Dean Witter preserved this issue on appeal. The Estate
contends that Dean Witter waived its right to appeal its liability
for punitive
Page 613
damages by failing to object to the vicarious
liability instruction that was given to the jury. We agree, in
part, with the Estate's contention.
A review of the record reveals that Dean Witter did not
specifically object to the language of the vicarious liability
instruction and failed to proffer the alternate theory of punitive
liability based on a complicity theory. See, e.g., Etcheverry v.
State, 107 Nev. 782, 784-85, 821 P.2d 350, 351 (1991) (holding
that the failure to object or request a special instruction
precludes appellate review).
However, at trial, Dean Witter did generally object to the
giving of any punitive damage instruction on the grounds that it
was unconstitutional and not supported by the evidence. In so
doing, Dean Witter preserved the right to argue on appeal that
there was not substantial evidence in support of the punitive
damage claim based on the theory given at trial, namely malice and
vicarious liability. The jury was instructed on a vicarious
liability theory via jury instruction 15:
Witter Reynolds, Inc., is a corporation and as such
act only through its officers and employees. Any act or
ommission of an officer or employee within the scope of
authority or employment is in the law the act or omission of
such corporation.
This instruction properly set forth a theory of punitive
liability under Nevada law as it existed at the time of
trial.[fn15] See Ramada, 101 Nev. at 826, 711 P.2d at 2 (implying
that either a vicarious or complicity theory of principal
liability was appropriate). We therefore will review this matter
to determine whether there was substantial evidence of vicarious
liability.
In the instant case, we conclude that there was substantial
evidence to support a finding that Dean Witter was vicariously
liable for the malicious acts of Brooks and House. First, Brooks
was in charge of the daily affairs of the Stateline branch, held
both the branch office manager license and a registered principal
license, and was acting within the scope of his authority when he
participated in the notarization of the full trading
authorization. Second,
Page 614
House was senior vice president of Dean
Witter and acted in the scope of authority as a manager of
Elfreda's account.
Accordingly, in interpreting the evidence in a light most
favorable to the Estate, we conclude that there was clear and
convincing evidence in the record to support the jury's finding
that Dean Witter and House were liable for maliciously conspiring
with Jack Gardner to convert Elfreda's securities. Dean Witter and
House contend that their acts were negligent at best, and that
they were only complying with the requests by a person with
authority to act on behalf of Elfreda Gardner. However, the record
supports a finding that House and/or Brooks either forged or knew
that Jack Gardner forged Elfreda's signature on the active asset
account documents, thus giving him the power to transfer several
million dollars worth of Elfreda's assets from the active asset
account.
B. Excessiveness as a matter of law
NRS 42.005(1)(a) limits the amount of punitive damages to three
times the compensatory damages in instances where such damages are
equal to or exceed $100,000.00.
Further, in determining whether a punitive damages award is
excessive, we consider numerous factors including the defendant's
financial position, culpability, and the extent to which this
culpability offends one's sense of justice. See Wohlers v.
Bartgis, 114 Nev. 1249, 1267, 969 P.2d 949, 962 (1998) (citing Ace
Truck v. Kahn, 103 Nev. 503, 509-10, 746 P.2d 132, 136-37 (1987)).
Finally, this court considers the gravity of the injury suffered
by the plaintiff and the means necessary to deter future similar
conduct. See id.
In the case at bar, we see nothing excessive about the
$6,000,000.00 punitive award against Dean Witter. These awards are
well within the statutory parameters of NRS 42.005, which would
have permitted an award not to exceed $7,800,000.00, three times
the compensatory damages award of $2,600,000.00. Further, these
awards did not annihilate either Dean Witter or House; both awards
constituted a relatively small portion of the net worths of these
parties. Finally, there was substantial evidence, as discussed
above, that proved misconduct resulting in the substantial
depletion of the multi-million-dollar estate of their mentally and
physically incompetent client.[fn16]
Page 615
C. Application of equitable offsets
The district court applied equitable offsets to the
compensatory damage award ultimately reducing the award to zero.
Because punitive damages cannot be awarded unless compensatory
damages are also awarded,[fn17] Dean Witter contends that the
offsets removed the condition precedent to an award of punitive
damages, to wit: an "award" of compensatory damages. We disagree.
First, our ruling with regard to the equitable offsets restores
the compensatory damage "award." Second, we conclude that the term
"award" in NRS 42.005 refers to an award of actual damages by the
jury, not the net award calculated after equitable offsets. See
Exxon Corp. v. Yarema, 516 A.2d 990 (Md. Ct. Spec. App. 1986).
This is based upon the public policy consideration that a
tortfeasor legally subject to civil punishment via punitive
damages should not escape sanction, or have that sanction reduced,
because of the actions of a third party. Thus, restitution made by
a third party is irrelevant to whether a defendant's conduct
merits punishment.
In the instant case, the jury awarded compensatory damages.
Thus, appellants satisfied the rule requiring proof of actual loss
before punitive damages may be recovered.
Post-judgment interest
Elfreda's estate is entitled to post-judgment interest on the
punitive damage award. We recently modified our previous ruling in
Ainsworth v. Combined Insurance Company, 104 Nev. 587,
763 P.2d 673 (1988), and determined that post-judgment interest should
accrue on an award for punitive damages, to compensate the
plaintiff for the loss of the use of the money awarded in the
judgment until paid. See Wohlers v. Bartgis, 114 Nev. 1249,
969 P.2d 949 (1998); Powers v. United Servs. Auto. Ass'n, 114 Nev. 690,
962 P.2d 596 (1998), modified on other grounds, 115 Nev. 38,
979 P.2d 1286 (1999).
CONCLUSION
We conclude that the minimum compensatory damages sustained by
the estate was $4,173,079.00 plus interest, that the evidence of
restitution payments was improperly admitted, and that the
imposition of equitable offsets was improper as a matter of law.
We therefore reverse that portion of the judgment below
Page 616
pertaining to compensatory damages and remand this matter to the district
court for further proceedings consistent with this opinion. More
particularly, we instruct the district court to amend the judgment
via additur to reflect total compensatory damages sustained in the
amount of $4,173,079.00 plus interest. See Drummond v. Mid-West
Growers, 91 Nev. 698, 705, 542 P.2d 198, 203 (1975) (this court
has set forth a two-prong test for additur: (1) whether the
damages are clearly inadequate, and (2) whether the case would be
a proper one for granting a motion for a new trial limited to
damages). Finally, we affirm that portion of the district court's
judgment awarding punitive damages, and we further instruct the
district court to calculate the post judgment interest on the
award.
ROSE, C.J., YOUNG, SHEARING, AGOSTI, LEAVITT AND BECKER, JJ.,
concur.
[fn1] Allen F. Gardner died in 1985. Elfreda Gardner died in
1993.
[fn2] An active asset account is a checking account into which
stock dividends and other proceeds can be deposited; it authorizes
the signatories to write checks on the margin, using the client's
stock as security.
[fn3] The "street name" designation involves registration of
client securities in Dean Witter's name, thus allowing the firm to
sell or transfer stock held for the client. Transactions are then
memorialized via monthly statements.
[fn4] Jack Gardner died prior to the trial of this matter.
[fn5] As noted, the value of the securities at the time of the
creation of the accounts approximated $8,000,000.00. The
$4,173,079.00 figure was based upon the value of the securities at
the time of ultimate transfer. Thus, the district court's rulings
had the effect of substantially reducing the Estate's claim of
damages.
[fn6] The Estate's primary argument in district court was that
NRS 17.225 barred the imposition of any offsets. It argued in the
alternative that the offsets should have been limited. On appeal,
the Estate takes a reverse approach, to wit: the argument of total
illegality of the offsets is made in the alternative to the
argument that the offsets should have been limited.
[fn7] As noted, the district court limited the scope of the
Estate's conversion claim by informing the jury that Dean Witter's
acceptance of Jack Gardner's full trading authorization was not a
conversion as a matter of law. This ruling had the net effect of
reducing the damage claim based upon the value of the securities
at the time of their transfers from the Dean Witter account,
rather than their value at the time the account was created. As
also noted, the value of the securities diminished almost by half
during the period between the creation of the account and the
ultimate transfers effected at the instance of Jack Gardner. We do
not reach the issue of the timing of the conversion because the
Estate primarily seeks reinstatement of the compensatory damage
award plus additur.
[fn8] The jury was not informed that Sue Gardner, Jack
Gardner's widow, was later given ownership of the Hummels, model
trains, furniture and other personal property after they had been
recovered and inventoried. Thus, the mitigation evidence was
placed before the jury on a "fictive" basis as a precaution to
prevent the jury from inferring that the "mitigation" evidence was
actually a settlement payment.
[fn9] Under Bader, restitution evidence offered in mitigation
of consequential damages attendant to an act of conversion remains
admissible.
[fn10] In post-trial motions concerning the extent of the
offsets, and thus, the net award from the verdict, the Estate
provided affidavits memorializing allocations to the Allen F.
Gardner Trust losses and explaining the allocations between the
Dean Witter and FIB losses. The district court, without holding an
evidentiary hearing, assessed the restitution payments in total,
thus reducing the net verdict to zero. We harbor some concerns
with regard to the application of offsets in connection with
settlements of claims not involving Dean Witter. See NRS
17.225(1); cf. Levi v. Montgomery, 120 N.W.2d 383 (N.D. 1963).
However, we choose not to reach the issue in the context of this
case because of our decision that the contribution statute, NRS
17.225 et seq., bars any right of equitable offset in favor of
Dean Witter or House.
[fn11] At common law, there was no contribution among joint
tortfeasors. W. Page Keeton et al., Prosser and Keeton on the Law
of Torts § 50 (5th ed. 1984). This rule is deeply rooted in
our national jurisprudential history and developed because the
word "tort" was, in the non-modern context, a descriptive term for
intentional misconduct amounting to a "civil wrong," not negligent
misconduct. Over time, numerous states have adopted either by
court rule or by statute variant forms of contribution recovery.
These contribution constructs, which apply to non-intentional
wrongs, come from the recognition that non-negligent torts
committed by multiple offenders do not evoke the same policy that
justifies the prohibition of credit for complete or partial
reimbursement by third parties in the intentional tort context.
See 2 Speiser, Krause and Gans, American Law of Torts, § 3:15
(1983).
[fn12] The traditional restrictions against contribution by
intentional wrongdoers that existed at common law are therefore
retained. See supra, n. 12.
[fn13] In Bader, the "mitigation" evidence involved restitution
by the defendant accused, not another separately accused
defendant. Clearly, a defendant in any intentional tort case is
entitled to credit for payments made on his own behalf. To this
extent, Bader retains some limited vitality on the issue of
restitution payments made by a tortfeasor.
We note that some acts of conversion do not involve wrongful
intent. In such a case, there is no reason not to impose equitable
relief by way of offsets for third-party settlements. In this
case, however, the jury found malice. Thus, equitable relief based
upon third-party payments to the claimant is unavailable.
[fn14] This total figure is based upon the value of the
securities at the time of the transfers effected at the request of
Jack Gardner. As noted, Dean Witter and House concede that the
value of the securities at that time was $4,173,079.00.
[fn15] We note that in 1998, after the trial of this matter, we
rejected the application of "vicarious," punitive liability and
instead adopted the Restatement (Second) of Torts "complicity"
theory of punitive liability. See Bellegarde, 114 Nev. at 610-11,
958 P.2d at 1214. We also note that, given the state of our
punitive damage law as of the trial of this case, there was no
ground upon which the district court could reject instructions
based upon either theory. We conclude, however, based upon the
analysis below, that a review of this case under a complicity
theory of liability would not change the result.
[fn16] We disagree with Dean Witter and House that their
conduct was analogous to that of the corporate defendant in BMW v.
Gore, 517 U.S. 559 (1996).
[fn17] See Sprouse v. Wentz, 105 Nev. 597, 781 P.2d 1136
(1989); City of Reno v. Silver State Flying Serv., 84 Nev. 170,
438 P.2d 257 (1968); and Novack v. Hoppin, 77 Nev. 33,
359 P.2d 390 (1961).
LAS VEGAS FETISH v. AHERN RENTALS, 124 Nev. Adv. Op. No. 26, 47493 (2008)
182 P.3d 764
LAS VEGAS FETISH & FANTASY HALLOWEEN BALL, INC., D/B/A FETISH & FANTASY
HALLOWEEN BALL, Appellant, v. AHERN RENTALS, INC., Respondent.
No. 47493.
Supreme Court of Nevada.
May 8, 2008.
Page 1
Appeal from a district court judgment, including an award of costs and
attorney fees, in a contract action. Eighth Judicial District Court,
Clark County; Elizabeth Goff Gonzalez, Judge.
Affirmed.
Nersesian & Sankiewicz and Robert A. Nersesian and Thea Marie
Sankiewicz, Las Vegas, for Appellant.
Watt, Tieder, Hoffar & Fitzgerald, LLP, and Lisa A. Rasmussen, Las
Vegas, for Respondent.
BEFORE HARDESTY, PARRAGUIRRE and DOUGLAS, JJ.
OPINION
By the Court, PARRAGUIRRE, J.:
This appeal presents us with the opportunity to clarify the
circumstances under which the unclean hands doctrine will bar a party
from obtaining an equitable remedy. We now conclude that the unclean
hands doctrine should only apply when the egregiousness of the party's
Page 2
misconduct constituting the party's unclean hands and the seriousness
of the harm caused by the misconduct collectively weigh against allowing
the party to obtain such a remedy. Applying our conclusion to this case,
we reject appellant's contention that its abuse of process judgment
against respondent automatically barred respondent from obtaining a
judgment against appellant based on unjust enrichment.
FACTUAL AND PROCEDURAL BACKGROUND
Appellant Las Vegas Fetish & Fantasy Halloween Ball, Inc. (LVFF),
hosts an annual Halloween party, commonly known as the Fetish & Fantasy
Halloween Ball. For its 1998 Halloween Ball, LVFF hired Signature
Events, an event coordinating company, to manage the party. Signature's
duties included negotiating contracts with host venues, negotiating
goods and services contracts, coordinating the provision of goods and
services, and supervising event staff and personnel. The parties agreed
that LVFF would compensate Signature for its services based in part on
the number of tickets sold.
After LVFF and Signature memorialized their agreement in a written
contract, Signature proceeded to act on LVFF's behalf. In particular,
Signature arranged for respondent Ahern Rentals, Inc., to provide tents,
tables, canopies, and other materials for LVFF's 1998 Halloween Ball.
Signature and Ahern memorialized this agreement in a rental
invoice.[fn1]
Page 3
Despite its agreement with Signature, Ahern never received payment for
the rental equipment that it provided to LVFF. Ultimately, Signature
went out of business, and Ahern sought payment directly from LVFF's
president, Jeffrey Davis. Based on Ahern's initial requests for payment,
Davis signed an individual confession of judgment for the unpaid balance
in Ahern's favor. After making several payments on this confession,
however, Davis notified Ahern that he would be unable to make additional
payments and that he intended to declare bankruptcy.
Ahern then filed suit against LVFF to collect the unpaid balance,
initially alleging causes of action for breach of contract, unjust
enrichment, and monies due and owing. LVFF filed an answer and
counterclaim for abuse of process, alleging that Ahern improperly
pursued its breach of contract claim and willfully misrepresented the
nature of the relationship between Ahern and LVFF. LVFF thereafter moved
for summary judgment with respect to Ahern's claims, arguing in
part that no contract between LVFF and Ahern existed and that Ahern had
fabricated evidence.
In opposing LVFF's motion, Ahern argued that it had not misled the
court about the nature of its relationship with LVFF. Although Ahern
conceded that it could not prove privity of contract, Ahern asserted
that it still had a colorable claim for unjust enrichment.
The district court ultimately granted LVFF's motion for summary
judgment in part and denied it in part. Specifically, the court found
that while Ahern had abandoned its breach of contract claim, Ahern's
claim for unjust enrichment presented a genuine issue for trial.
Following the resolution of LVFF's summary judgment motion, three
claims remained before the district court: Ahern's claim for
Page 4
unjust enrichment, Ahern's claim for monies due and owing, and LVFF's
claim for abuse of process. All three claims proceeded to a single,
unified trial with a jury addressing LVFF's legal claim and the court
addressing Ahern's equitable claims.
At trial, the jury returned a verdict in LVFF's favor on its abuse of
process claim, awarding LVFF $1 in compensatory damages. Nevertheless,
the district court found for Ahern on its unjust enrichment claim,
awarding Ahern $11,100.[fn2] In making its equitable award to Ahern, the
district court rejected LVFF's post-trial contention that the jury's
verdict conclusively established Ahern's unclean hands and consequently
should have barred any equitable recovery. The district court also
granted Ahern's motions for attorney fees and costs. This appeal
followed.
DISCUSSION
LVFF raises three arguments on appeal. First, LVFF contends that the
unclean hands doctrine should have foreclosed Ahern from recovering for
unjust enrichment as a matter of equity. Second, LVFF argues that the
district court abused its discretion in awarding attorney fees to Ahern.
Third, LVFF asserts that the district court improperly awarded Ahern's
costs. We disagree with each of LVFF's arguments and therefore affirm
the judgment of the district court.
Page 5
The unclean hands doctrine did not serve as a bar to Ahern's recovery
for unjust enrichment
LVFF argues that the jury's abuse of process verdict and $1
compensatory damages award conclusively established Ahern's "unclean
hands" and should have served as a bar to Ahern's equitable claim for
unjust enrichment. We disagree.
The unclean hands doctrine generally "bars a party from receiving
equitable relief because of that party's own inequitable conduct."[fn3]
Thus, as the Washington Supreme Court has recognized, the unclean hands
doctrine precludes a party from attaining an equitable remedy when that
party's "connection with the subject-matter or transaction in litigation
has been unconscientious, unjust, or marked by the want of good
faith."[fn4] For example, in Evans v. Dean Witter Reynolds, Inc., we
rejected an intentional tortfeasor's request for an equitable setoff
because, "[u]nder the maxim that one seeking equity may not do so with
`unclean hands,' an intentional tortfeasor by definition seeks such
relief from a position of ineligibility for it."[fn5] We later clarified
Evans in Banks v.
Page 6
Sunrise Hospital, in which we indicated that a tortfeasor's unclean
hands do not necessarily bar the torfeasor from obtaining an equitable
remedy when the tortfeasor did not act intentionally.[fn6]
LVFF now relies on Evans and our discussion of it in Banks to argue
that we have established a per se rule, making equitable recovery
unavailable to every "intentional tortfeasor," whether or not that tort
is connected to the subject matter or transaction in litigation.
However, LVFF's reliance on those cases is misplaced; specifically, LVFF
overreaches in its interpretation of Evans and Banks, and we take this
opportunity to clarify the circumstances under which a party's unclean
hands may bar that party from obtaining an equitable remedy.
Two-factor unclean hands analysis
In determining whether a party's connection with an action is
sufficiently offensive to bar equitable relief, two factors must be
considered: (1) the egregiousness of the misconduct at issue, and (2)
the seriousness of the harm caused by the misconduct.[fn7] Only when
these factors weigh against granting the requested equitable relief will
the unclean hands doctrine bar that remedy.[fn8] The district court has
broad
Page 7
discretion in applying these factors, and we will not overturn the
district court's determination unless it is unsupported by substantial
evidence.[fn9]
The misconduct at issue here did not bar Ahern's equitable
recovery
In this case, the jury found Ahern liable for abuse of process, an
intentional tort that requires proof of two elements: (1) an ulterior
purpose for bringing a legal action other than resolving a dispute, and
(2) a willful act in the use of the legal process not proper in the
regular conduct of the proceeding.[fn10] However, LVFF suffered no real
damage as a result of Ahern's abuse of process. Indeed, the jury awarded
LVFF only $1 in compensatory damages, demonstrating the relative
harmlessness of Ahern's misconduct in bringing its unsupported breach of
contract claim.[fn11]
In light of the above, we conclude that Ahern's misconduct (1) was not
egregious, and (2) did not cause LVFF any serious harm. Although both
Ahern's breach of contract and unjust enrichment claims were part of the
same litigation, the district court found that Ahern abandoned its
breach of contract claim well before trial. Thus, while Ahern's breach
of contract claim may have been improper, Ahern remedied that problem by
abandoning the action early on, instead focusing on its colorable unjust
enrichment claim. This course of conduct does not
Page 8
represent the type of inequitable, unjust, or unconscientious behavior
that should bar equitable recovery.[fn12] Instead, it shows an
affirmative attempt to minimize any harm caused by that
misconduct.[fn13] Accordingly, we conclude that the district court
properly determined that the unclean hands doctrine did not preclude
Ahern's unjust enrichment claim.[fn14]
Page 9
The district court did not abuse its discretion in awarding attorney
fees
Separately, LVFF contends that the district court abused its
discretion in granting Ahern's motion for attorney fees after LVFF
failed to file a timely opposition pursuant to EDCR 2.20(b), which
provides that a party must serve and file a written opposition to an
opposing party's motion within ten days after service of the motion, and
that the failure to serve and file a written opposition may be construed
as an admission that the motion is meritorious and a consent to granting
it. However, since nothing in the record suggests that the district
court abused its discretion in treating LVFF's failure to file a timely
opposition as an admission that Ahern's motion was meritorious, we
affirm the district court's attorney fees award.[fn15]
The district court did not err in awarding costs
Finally, LVFF contends that the district court abused its discretion
in awarding Ahern costs because Ahern failed to file an effective
memorandum of costs. Under NRS 18.110, a party who claims costs must
file a memorandum with the district court "within 5 days after the entry
of judgment." According to LVFF, NRS 18.110 requires that all memoranda
of costs be filed after the entry of judgment, and because Ahern filed
its cost motion before the district court entered its judgment, Ahern's
motion was improper.
LVFF's interpretation of NRS 18.110 is too narrow. That statute
plainly sets a deadline for an application of costs — i.e., five days
Page 10
after the entry of judgment. The statute does not, as LVFF contends,
establish a short, five-day window during which a prevailing party may
file its memorandum. Although some parties may wait to file a memorandum
of costs until after the district court enters judgment, waiting is not
a requirement. Here, Ahern filed its memorandum of costs even before the
district court had entered its judgment — well within NRS 18.110's
deadline. Thus, we affirm the district court's award of costs in Ahern's
favor.
CONCLUSION
Because Ahern's misconduct underlying LVFF's abuse of process judgment
against it was neither egregious nor seriously harmful to LVFF, we
conclude that the unclean hands doctrine does not bar Ahern's equitable
recovery from LVFF in this case. We further conclude that the district
court did not abuse its discretion in awarding Ahern attorney fees and
costs. Accordingly, we affirm the district court's judgment in its
entirety.
We concur:
Hardesty, J.
Douglas, J.
[fn1] LVFF and Ahern continue to dispute whether this rental invoice,
which lists Signature as the lessee of the rented equipment, represented
a contractual agreement solely between Ahern and Signature or whether
LVFF was also a contracting party.
[fn2] Although the district court's final judgment does not make clear
that its award is based on unjust enrichment (as opposed to Ahern's
"monies due and owing" claim), during a post-trial hearing, the court
did specify the basis of its award as unjust enrichment.
[fn3] Food Lion, Inc. v. S.L. Nusbaum Ins. Agency, Inc., 202 F.3d 223,
228 (4th Cir. 2000).
[fn4] Income Investors v. Shelton, 101 P.2d 973, 974 (Wash. 1940).
See also Gravelle v. Burchett, 73 Nev. 333, 341-42, 319 P.2d 140, 144-45
(1957) (noting that the unclean hands doctrine does not apply unless the
misconduct at issue is "connected with the matter in litigation so that
it has in some manner affected the equitable relations subsisting
between the parties and arising out of the transaction"). Since Ahern
has not contended that its "abuse of process" was unconnected with the
subject matter or transaction in litigation, we will not address that
issue further.
[fn5] 116 Nev. 598, 610, 5 P.3d 1043, 1050-51 (2000).
[fn6] 120 Nev. 822, 843, 102 P.3d 52, 66 (2004).
[fn7] See Income Investors, 101 P.2d at 974; cf. Evans, 116 Nev. at 610,
5 P.3d at 1050-51; Banks, 120 Nev. at 843, 102 P.3d at 66.
[fn8] See Evans, 116 Nev. at 610, 5 P.3d at 1050-51; Banks,
120 Nev. at 843, 102 P.3d at 66; Income Investors, 101 P.2d at 974; see also Smith
v. Smith, 68 Nev. 10, 24, 226 P.2d 279, 286 (1951) (recognizing that
because "the unclean hands maxim is one founded on public policy, public
policy may require its relaxation").
[fn9] See University Sys. v. Nevadans for Sound Gov't, 120 Nev. 712,
721, 100 P.3d 179, 187 (2004) (recognizing the district court's
discretion in granting equitable injunctive relief).
[fn10] Posadas v. City of Reno, 109 Nev. 448, 457, 851 P.2d 438, 444-45
(1993).
[fn11] Neither party has challenged the jury's verdict or its award of
damages on appeal.
[fn12] Income Investors, 101 P.2d at 974.
[fn13] By comparison, the misconduct at issue in Evans — where the
defendants converted millions of dollars from the estate of an elderly,
mentally incompetent and physically disabled client — was highly
egregious and directly connected to the defendants' request for
"equitable setoffs" based on payments