# Petition for A Writ of Certiorari — Farina v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386416_2373%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for A Writ of Certiorari - **Published:** January 1, 1950 - **Citation:** 340 U.S. 875 ## Text a = — SEP 1 = 1949 CHARLES ELMOR" CRopuRy — j OL i Supreme Court of the United States OCTOBER TERM, 1949 ~ No. 24 : Tomas W. Smits, JR., Petitioner, against Joun T. McLane, JosepH L. McLaneg, Jostre E. McLane, Nett McLane Armstrone, Cyntoi1a McLane, Louisa A. McLang, Mary E. McLanzg, individually; Josrr E. McLane and Josep L. McLane, Trustees; Propies Crry Bank, NationaL Bank oF McKeesport and Union NationaL Bank, Respondents. PETITION FOR A WRIT OF CERTIORARI TO UNITED STATES COURT OF APPEALS, THIRD CIRCUIT, AND BRIEF IN SUPPORT THEREOF Martin A. ScHENCKE, | Kenyneta W. GREENAWALT, Attorneys for Petitioner, One Wall Street, } New York 5, N. Y. Dated, August 31, 1949. APPEAL PRINTING CO., INC., 130 CEDAR STREET, ".EW YORE, wo 4-3033 INDEX Petition FoR Writ oF CERTIORARI: I—Summary Statement of the Matter Involved Il—The Basis Upon Which it is Contended that this Court has Jurisdiction .. I11—The Questions Presented IV—Reasons Relied Upon for the Allowance of the Writ Brier IN Support oF PETITION: STATEMENT Point I—The decision of the Third Cireuit Court of Appeals in applying, sponte sua, against peti- tioner the doctrine of unclean hands is in con- flict with decisions of this Court upon a federal question, in conflict with decisions of other Cir- cuit Courts of Appeal and this Court upon the same matter and in conflict with fundamental prin- ciples of equity and procedure followed in Federal Courts Port 11—The decision of the Third Circuit Court of Appeals that it could not and would not rede- termine the credibility of the witnesses is in con- flict with decisions of other Circuit Courts of mel peal on the same matter .... Pornt JI1I—The Circuit Court has not properly applied the rules as to the scope of appellate review in federal courts in equity cases and its decision in this respect is in conflict with the Federal Rules of Civil Procedure, applicable decisions of this Court and decisions of other Circuit Courts on the same matter CoNncLusION 10 13 24 28 31 Table of Cases Cited 103 (C.C.A. 3rd, 1943) Ist, 1945) Carter v. Powell, 104 F. (2d) 428, 430 (C.C.A. Sth, 1939), cert. den. 308 U. S. 611 Carter Oil Co. v. McQuigg, 112 F. (2d) 275, 279 (C.C.A. 7th, 1940) Comstock v. Thompson, 286 Pa. 457, 461, 462; 133 Atl. 638 (1926) Container Patents Corporation v. Stant, 143 F. (2d) 170, 172 (C.C.A. 7th, 1944), cert. den. 323 U. S. 734 Demster v. Baxmyer, 231 Pa. 28; 79 Atl. 805, 808 (1911) Fleming v. Palmer, 123 F. (2d) 749, 751 (C.C.A. Ist, 1941) Fountain v. Filson, 336 U. S. 681, 683; rehearing denied 336 U.S. 921 (1949) .. - ie Frazier v. Mansfield, 305 Pa. 359, 363; 157 Atl. 798 (1931) Goldie v. Cox, 130 F. (2d) 695, 715 (C.C.A. 8th, 1942) Guaranty Trust Co. v. York, 326 U. 8. 99 (1945) _.... Halladay v. Faurot, 8 Ohio Decisions Reprint 683 (1883) Adam Hat Stores, Ine. v. Lefeo, 134 F. (2d) 101, Bergeron v. Mansour, 152 F. (2d) 27, 32 (C.C.A. ~-— 18 20 23 PAGE Hays’ Estate Nat’l. Bank’s Appeal, 159 Pa. 381, 383; ae AN BIR CD nsecitieaceenssepnectntensnireninciiobiennenictnings 21 Hercules Powder Company v. Rich, 3 F. (2d) 12, 19 (C.C.A. 8th, 1925), cert. den. 268 U. S. 692........ 18 Jones v. Tower Production Company, 120 F. (2d) 779, 782 (C.C.A. 10th, 1941) 18 King v. Order of Travelers, 333 U. 8. 153 (1947)...... 19 Klaxon Co. v. Stentor Co., 313 U. 8. “487, 496 (1941); reversing 115 F. (2d) 268 (C.C.A. 3rd, 1940)........ 22 Lewis & Nelson’s Appeal, 67 Pa. 153, 166 (1870)...... 21 Luckenbach S. S. Co. v. United States, 157 F. (2d) 250, 251 (C.C.A. 2d, 1946) 26 McClanahan v. McClanahan, 79 Ohio App. 231, 235, 236 (1946) 23 National Labor Relations Board v. Fickett-Brown Mfg. Co., Inc., 140 F. (2d) 883, 884 (C.C.A. 5th, ID insect acsiincsssntpairtcteinsipianinisnoniinbaialaabinianipaneignin 23 New York Life Ins. Co. v. Calhoun, 114 F. (2d) 526, 543 (C.C.A. 8th, 1940), cert. den. 311 U.S. 701 17 Perey A. Brown & Co. v. Raub, 357 Pa. 271, 291; 54 Atl. (2d) 35 (1947) 21 Plack v. Baumer, 121 F. (2d) 676, 678 (C.C.A. 3rd, 1941) Ruhlin v. New York Life Ins. Co., 304 U. S. 202 (1938) Seottwood Realty Co. v. Bowman, 21 Ohio App. 244, 249 (1926) 23 State Farm Mut. Automobile Ins. Co. w. Bonacci, 111 F. (2d) 412, 415 (C.C.A. 8th, 1940) 26, 29 Stokes v. United States, 144 F. (2d) 82, 85 (C.C.A. 2nd, 1944) 25 United States v. LeBaron, 60 U. S. 73, 77 (1856)........ 18 United States v. U. S. Gypsum Co., et al., 333 U. S. 364 (1948) 28, 30 iv Statutes Cited PAGE Federal Rules of Civil Procedure, Rule 52(a) ...... 10, 11, 27 Judiciary Act of 1789, §34, R.S. §721, 28 U.S.C. §25, i 19 Title 28 U. S. Code, entitled ‘‘Judiciary & Judicial Procedure,’’ See. 1254 (Public Law 773, Chap. 646, 80th Cong., 2nd Sess.) 8 Revised Rules of the Supreme Court of the United States, Rule 38, para. 5(b) 8,9 Authorities and Miscellaneous Cited 4 A.L.R. 32, 44, 58-9 21 Pomeroy’s Equity Jurisprudence, 5th Ed. Vol. 2, $399 17, 20, 21, 23 Hearings before Subcommittee No. 3 of the Com- mittee on the Judiciary, House of Representatives; Hearings of March 7, 9 and 11, 1949 6 Review of Findings of Administrators, Judges and Juries: A Comparative Analysis, 58 Harv. L. Rev. 70, 88 IN THE Supreme Court of the United States OCTOBER TERM, 1949 pen eres A ee Tuomas W. Situ, JR., Petitioner, against Joun T. McLane, JosepH L. McLane, Joste E. McLane, Nett McLane Armstronc, Cyntota McLaneg, Louisa A. McLang, Mary E. McLane, individually; Josm E. McLanr and JosepH L. McLans, Trustees; Prortes City Bank, NationaL Bank or McKergsporr and Union Nationa Bank, Respondents. PETITION FOR A WRIT OF CERTIORARI TO UNITED STATES COURT OF APPEAIS, THIRD CIRCUIT To the Honorable the Chief Justice of the United States and the Associate Justices of the Supreme Court of the United States: Your petitioner, Thomas W. Smith, Jr., respectfully represents to this Court: I Summary Statement of the Matter Involved. This is an action in equity brought, on the ground of diversity, in United States District Court for the Western District of Pennsylvania, by petitioner Thomas W. Smith, Jr., beneficiary of a trust, against respondent John T. McLane, a trustee, who had violated his trust (36a-38a).* The corpus of the violated trust constituted the controlling shares of stock of The Sun Rubber Company, an Ohio corporation, of which both said beneficiary and said trus- tee were and are directors, officers and stockholders (52a, d3a, 54a; Pl. Ex. 1, 551a). The trustee violated his trust by misapplying trusteed stock and by pledging said trus- teed stock to secure his individual indebtedness. He desig- nated himself as ‘‘donor’’ and members of his family as ‘trustees’? in documents set up for the latter purpose (21a; 38a; 54a-55a, 63a; 59a-G4a; Pl. Exs. 19 and 20, 594a- 600a; 349a-358a). The complaint alleged that on discovery of MeLane’s breach of trust and hypothecation of trusteed stock, peti- tioner objected because of the trust breach and the re- sulting harm to his beneficial interest therein and _ the welfare of The Sun Rubber Company and, being un- heeded, he left The Sun Rubber Company and accepted employment elsewhere; that petitioner was thereafter in- duced by McLane to return to Sun Rubber by an oral settlement agreement made between them at Akron, Ohio on June 24, 1937 (38a-39a) whereby there would be es- tablished forthwith, and maintained thereafter during the life of the trust, a parity of their stock holdings and bene- * References are to pages of the record unless otherwise noted. aa 3 feial interests in trusteed stock in The Sun Rubber Com- pany as between MeLane and his immediate family and petitioner and his immediate family and by McLane’s partial performance of that agreement on that day by establishing a then present parity.* The complaint fur- ther alleged that thereafter this parol settlement, parity agreement was breached by the trustee by his secret acquisitions of such stock and beneficial interests from others (39a-40a). Petitioner sought, in equity, an accounting of the trust administration and of the shares of trusteed stock wrong- fully pledged by the trustee and specific performance of the parity agreement (42a-43a). The case was tried before District Judge Nelson Me- Vicar, without a jury. During the course of trial, when the subject of the trustee’s maladministration of the trust was about to be developed, counsel for respondents con- ceded that the Court should order an accounting and consented to an accounting as prayed for in the complaint (365a-366a). Judgment entered after trial directed a full trust accounting (637a). The accounting phase of this case is pending in the District Court awaiting the appoint- | ment of a Master to take evidence thereon. On the trial petitioner testified to the making of the parity agreement between McLane and himself on June 14, 1937 at Akron, Ohio (108a-109a; 138a-140a) and to the reiteration and confirmation of that agreement by both of them later that same day before Rev. Dr. LeRoy Lawther, their mutual friend since 1921, former pastor and spiritual adviser, in his study in Lakewood Presby- _ * It was also agreed between them that the trustee would forth- with spell out and make a declaration of the interests of the ultimate beneficiaries of the trusteed stock. 4 terian Chureh, Lakewood, Ohio (136a-141a). Respondent McLane testified that the alleged parity agreement had never been made (383a-384a). Rev. Dr. Lawther testified, on deposition, that the parity agreement had been reiter- ated and confirmed in his presence by both petitioner and McLane, fully corroborating petitioner’s testimony (271a- 279a). He was the one real key witness in the case. Re- spondent did not question his integrity or veracity (538a). Also testifying on deposition, other substantial, disinter- ested key witnesses for petitioner corroborated the ex- istence of the parity agreement and the partial perform. ance thereof by McLane (242a; 267a-270a; 232a; 262a; 204a; 295a). The veracity and integrity of these witnesses, likewise, was not questioned by respondents (538a). Concededly, late on that same day, a declaration of the ultimate distribution of the trusteed shares to the trust beneficiaries was set up and agreed to by McLane; also ‘‘present’’ parity, as of that date, was established between petitioner and his family on the one hand and McLane and his family on the other by a realignment, in petitioner’s favor, of the beneficial interests of McLane and petitioner in the trusteed stock so that each (and his immediate family) had an equal amount (603 shares) of Sun Rubber Company stock, counting their shares held in the trust with those held outside of the trust (Pl. Ex. 6, 558a; 142a). After parity was thus established **presently’’ on and as of June 24, 1937, McLane breached the parity agree- ment by acquiring, without petitioner’s knowledge, the beneficial interests in said trusteed stock of the benefi- ciaries other than petitioner, and other blocks of stock of Sun Rubber Company (Pl. Ex. 16, 588a; 347a; Pl. Exs. 21-29, 601a-612a; 358a; 437a; 465a-466a). 5 After trial, petitioner’s complaint was dismissed with prejudice, except for the trust accounting. The District Court (73 Fed. Supp. 849; 634a, 636a) held that the alleged parity agreement never did exist, which holding was hinged on the question of the credibility of witnesses. The Court said: ‘“*Whether this alleged oral agreement was made depends on the credibility of the witnesses who tes- tified that there was such an agreement and the wit- nesses who testified that there was no such an agreement, the surrounding circumstances and in- ferences to be drawn from facts proven.’’ (636a) This finding was in complete disregard of the testimony of Rev. Dr. Lawther, the one outstanding key witness in the case, and the testimony of petitioner’s other substan- tial, disinterested, key witnesses (all of whom testified on deposition), although respondents, expressly, did not ques- tion their veracity or integrity (538a). It also ignored petitioner’s corroborative documentary evidence and the several acts of McLane in partial performance of the parity agreement, including his establishment of a ‘‘pres- ent’’ parity (for which, otherwise, there was no reason or basis). The trial court erroneously determined, merely as an isolated issue of fact, the parity agreement between the wrong beneficiary and his violating trustee. It refused, over objection, to take or consider evidence of the terms of the trust or its breach and determined the issue of fact as to the parity agreement as in vacuo. It ignored the rule of law that the credibility and integrity of a trustee who has violated his trust is impaired. [t ignored that in the making of the parity agreement a beneficiary was dealing with a trustee in respect of a violation of trust and that 6 such a trustee is duly bound to make a fair agreement in respect of his trust violations and had the burden of show- ing fairness in his treatment of the beneficiary. His motion for retrial having been denied (638a-639a, 644a; 75 Fed. Supp. 219), petitioner appealed from that part of the judgment to the Circuit Court of Appeals. That the decision of the District Court was clearly erro- neous and against the great weight of evidence is appa- rent from a review of the entire record. It is equally apparent that in reaching its conclusion, the trial court had engaged in and followed a judicial process which was entirely unreasonable and destructive of equity and jus- tice. The situation prevailing in that Court has been the subject of recent inquiry,* and may well explain the treat- ment and disposition of this case there. The Circuit Court of Appeals affirmed the judgment of the District Court (174 Fed. (2nd) 819 (C.C.A. 3rd, 1949)) ; (681-684) on the following grounds: (1) Petitioner was guilty of “unclean hands,”’ in respect of other beneficiaries of the trusteed stock, and was, therefore, in no position to come into equity to seek specific performance of the parity agreement or aid as a defrauded beneficiary as against the trustee. This was a new issue, never before raised in the case, and was applied by the Court, sponte sua, 7 (2) Because of his ‘‘unclean hands’’ petitioner was not entitled to have reviewed on appeal the District Court’s failure to take evidence on, to con- sider and to apply to the factual issue of the parity agreement the trust relationship of beneficiary and trustee and trust principles of law. (3) The Cireuit Court of Appeals will not re- determine the credibility of witnesses, because it is **hornbook law’’ that an appellate tribunal in a civil suit will not redetermine the credibility of witnesses when the trial judge has had the oppor- tunity to observe the demeanor of the key witnesses upon the stand. (Here, actually he did not have that opportunity.) (4) The finding of the trial judge is not ‘‘clearly erroneous’’ since it is supported by ‘‘ample’’ evi- dence and his personal observance on the stand of the witnesses. Petitioner sought an opportunity to be heard by the Cireuit Court of Appeals on the questions raised in its opinion, but his application for a rehearing was denied (686a-694a). The question of unclean hands had never before been raised in the case and was injected therein by the Court of Appeals on its own initiative without giving petitioner any opportunity of a hearing on the facts or the law. Had he been given the opportunity, he could have shown that this doctrine had no basis in the facts of this case.* The * Given the opportunity, petitioner readily could have shown that he was completely free of any “unclean hands” as to anyone; that he did not participate in any fraud or breach against other trust benefi- ciaries but, on the contrary, fought for, protected and supported their 8 glaring error of the Court of Appeals in **discovering”’ and applying this principle was undoubtedly caused by its entire misapprehension of the facts bearing thereon and of the true equitable rule applicable to the facts because that issue had never before been raised or litigated on the facts or law. The Basis Upon Which it is Contended that this Court has Jurisdiction. The jurisdiction of this Court is invoked under Title 28, United States Code, entitled ‘‘ Judiciary & Judicial Pro- cedure’’, Section 1254 (Chapter 646, Public Law 773, 80th Congress, 2nd Session); and Rule 38, paragraph 5(b) interests against the trustee’s contention that the only beneficiary of the trusteed stock was a McLane Co., Inc. rather than said benefi- ciaries; that the agreement between them to maintain and establish parity of their own stock interests in Sun Rubber Company was a matter which concerned them alone ; that the realignment of their own beneficial interests in the trusteed stock to establish “present” parity was a matter which concerned them alone ; that petitioner did no wrong or injury to McLane the trustee and defendant: that if there really was any inequity in the declaration of the ultimate distribution of the beneficial interests of trusteed stock by the trustee, such declaration and distribution was the trustee's duty and was, on his testimony, at his own suggestion; that following the set-up of the distribution declaration, the beneficiaries, other than petitioner, with full knowl- edge thereof, not only acquiesced in their respective distributive shares but sold their beneficial interests to the trustee and released him from any claims; that no distribution has yet been made inasmuch as the wrongful pledge by the trustee to the banks of the corpus of the trust is still outstanding; that no such beneficiary was actually defrauded or ever claimed to be; that the ultimate distribution, when made, will be fair and just and will injure no one and that at the time of the trial all possible claims of other beneficiaries in respect to the ultimate distribution had been bce ught by McLane in violation of his parity agreement with petitioner. of the Revised Rules of the Supreme Court of the United States. Petitioner’s time to file this petition has been extended, by order, to September 1, 1949. Ill The Questions Presented. 1. Was it not error for the Circuit Court of Appeals to inject into this case on its own initiative and for the first time, in its decision, the issue and doctrine of “unclean hands’’ and to apply it against petitioner as a bar to a full and fair review on appeal and to all equitable relief, without petitioner’s ever having any opportunity to be heard or to present evidence on that unlitigated issue? 2. Was it not error for the Circuit Court of Appeals to fail to ascertain and to follow the rule of law of the States of Pennsylvania or Ohio (whichever is appro- priate under the conflicts of law rule in Pennsylvania) as well as the general rule of law as stated in decisions of other U. S. Circuit Courts of Appeal, that said doctrine of unclean hands has no application whatever to the situa- tion involved in this case? 3. Was it not error for the Circuit Court of Appeals to fail to ascertain the conflict of laws rule prevailing in Pennsylvania in relation to an equity action brought in a federal court in Pennsylvania on the ground of diversity for specific performance of an agreement made between a trustee and a trust beneficiary in Ohio, particularly in the application of the equitable doctrine of unclean hands on the issue of whether petitioner had a right to seek 10 equity in that federal court for specific performance of that agreement? 4. Did not the Circuit Court of Appeals commit error in refusing to redetermine the question of the credibility of witnesses where, as here, the testimony of the master key witness and of all of the other of petitioner’s substan- tial, disinterested, key witnesses was taken on deposition so that the trial court did not have an opportunity to observe their demeanor on the stand, particularly when, as here, the veracity and integrity of said witnesses was not attacked? 5. Did the Circuit Court of Appeals not commit error in the interpretation and application of Rule 52(a) of the Federal Rules of Civil Procedure by holding that the findings of a trial court cannot be clearly erroneous if they are supported by ample evidence and by refusing to review the question of credibility and the entire record. IV Reasons Relied Upon for the Allowance of the Writ. (1) The decision of the Circuit Court of Appeals in discovering and applying sponte sua the equitable doe- trine of unclean hands against petitioner upon the appeal in this case is: (a) In conflict with the decisions of this Court upon a federal question. (b) In conflict with the decisions of other Circuit Courts of Appeal and of this Court on the same matter. (c) In conflict with fundamental principles of equity and procedure followed in federal courts. 11 (2) The Circuit Court of Appeals decision that it, as an appellate court in a civil action, cannot redetermine the credibility of ‘witnesses when, as here, all of peti- tioner’s witnesses (except himself), all of whom were key witnesses, testified on deposition, is in conflict with deci- sions of other Circuit Courts of Appeal as well as Rule §2(a) of the Federal Rules of Civil Procedure. (3) The decision of the Cireuit Court of Appeals that a finding of the trial court is not clearly erroneous within Rule 52(a) if it is supported by ample evidence, is in conflict with decisions of this Court and with decisions of other Circuit Courts of Appeal on the same matter. (4) The questions presented here are of substance and importance in relation to the administration of equity and to the legal principles and procedures applicable in equitable suits in the federal courts and to the scope of appellate review and the powers and duties of a federal appellate court on an appeal in an equity suit. Wuererore, your petitioner respectfully prays that a writ of certiorari be issued, directed to the United States Court of Appeals for the Third Circuit, in respect of its judgment affirming the judgment of the District Court, to be reviewed by this Court, and for such other relief as to this Court may seem proper. Dated: August 31, 1949, New York, N. Y. Tuomas W. Smita, Jr., Petitioner. By: Martin A. ScHenck, KenNETH W. GREENAWALT, Attorneys for Petitioner. 12 Certificate of Counsel We hereby certify that we have examined the foregoing petition for a writ of certiorari and that in our opinion it is well founded and the cause is one in which the peti- tion should be granted. Dated: August 31, 1949. Martin A. Scuencr, Kenneta W. GREENAWALT, Attorneys for Petitioner. — 13 IN THE Supreme Court of the United States OCTOBER TERM, 1949 TDG wines —_—_—E TxHomas W. Situ, Jr., Petitioner, against Joun T. McLane, JoserpH L. McLane, Jostzr E. McLane, Nett McLane Armstrone, Cyntuia McLane, Louisa A. McLane, Mary E. McLang, individually; Josrz E. McLane and JosepaH L. McLansg, Trustees; Proptes City Bank, NationaL Bank or McKeesport and Union Nationan Bank, Respondents. PETITIONER’S BRIEF IN SUPPORT OF PETITION FOR WRIT OF CERTIORARI Statement This petitioner seeks review on certiorari to United States Circuit Court of Appeals, Third Circuit, of its affirmance of that portion of the judgment of the Dis- trict Court, Western District of Pennsylvania, which dis- missed petitioner’s complaint with prejudice in so far as it sought specific performance of a settlement parity 14 agreement entered into between petitioner and respondent John T. McLane. Petitioner was beneficiary and respondent McLane was trustee of a trust which was peculiar in that the shares of stock constituting the corpus thereof involved the control of The Sun Rubber Company, of which petitioner and McLane were officers and directors. When petitioner discovered that McLane had pledged the corpus of the trust to secure his personal loans, he protested and then left the employ of the corporation. McLane, petitioner’s uncle, thereupon induced him to return to the corpora- tion upon the making (and partial performance later on that very day) of a settlement agreement with him which involved (1) the establishment forthwith, and the mainte- nance thereafter during the life of the trust, of equality or parity of their (and their families’) respective holdings of stock and beneficial interests of stock of The Sun Rub- ber Company (so that neither group would gain stock control of the corporation) and (2) a spelling out and commitment forthwith by the trustee of the interests of the ultimate, individual beneficiaries of the trusteed stock. Petitioner, in the District Court, alleged a breach of the settlement, parity agreement and a violation of the trust and sought specifie performance of that agreement and a trust accounting. Upon the trial, the trial judge ignored the original breaches of trust and excluded the main evidence in re- gard thereto and refused to consider the relationship of the parties (petitioner as beneficiary and McLane as trus- tee) in regard to the breach of trust and the settlement agreement. The settlement agreement was treated as an iso- lated question divorced from its Surroundings. The trial court ignored the fact that this settlement parity agree- 15 ment was reiterated and confirmed by them personally before a clergyman, Rev. Dr. Lawther, whose integrity and veracity was not attacked and who testified on deposition. It also ignored the testimony of petitioner’s other cor- roborative witnesses who also testified on deposition and whose veracity also was not attacked. It limited the question of fact as one solely between petitioner and re- spondent and did not mention or deal with the factor that said agreement was reiterated and confirmed by them before their ‘‘ecclesiastical referee’’. The Court of Appeals, in affirming, again ignored the testimony of Rev. Dr. Lawther and petitioner’s other witnesses, as though testimony taken on deposition was beyond that Court’s power to review or to reappraise; and held that petitioner was barred from equity and from a full and free review on appeal and from the applica- tion of trust principles to the factual issue because of his alleged ‘‘unclean hands’’ not as to the trustee but as to other beneficiaries (which question theretofore had never been mentioned or even suggested in the case). 16 POINT I The decision of the Third Circuit Court of Appeals in applying, sponte sua, against petitioner the doctrine of unclean hands is in conflict with decisions of this Court upon a Federal question, in conflict with deci. sions of other Circuit Courts of Appeal and this Court upon the same matter and in conflict with fundamental principles of equity and procedure followed in Fed. eral Courts. *Unclean hands”’ in this case were first ‘‘discovered” by the Court of Appeals and announced in its decision. That Court, on its own initiative and of its own aceord, invoked the doctrine of unclean hands against petitioner and held, because of it, that petitioner ‘is in no position to come into equity and seeks specifie performance of the agreement’’ (683) and ‘‘is in a position where he eannot invoke the aid of a court of equity as a defrauded bene- ficiary’’ (684) and is not entitled to have the trust rela- tionship and trust principles applied on an Appellate review to the factual issue of the agreement made be- tween the wronged beneficiary and the Violating trustee, This principle of unclean hands was not pleaded by any defendant in the answer. No issue was presented or tried in respect thereto before District Judge MeVicar. It was not urged, presented or even mentioned in the briefs submitted to the trial court. It did not enter into the opinion or decision of the trial judge and he made no finding of fact or law on the subject. It was not urged or mentioned by either side in the briefs filed in the Court of Appeals, although therein respondent McLane urged many reasons why the trust principles should not be — 17 applicable to the decision of the factual issue and why the judgment below should be affirmed, Petitioner never has been given an opportunity of a hearing in this litigation, either on the facts or on the law, in respect of that principle. If petitioner had been given an opportunity of a hearing on that issue he readily could have shown as pointed out in his annexed petition that there is no basis in fact in this case for the applica- tion of that principle, that there is no basis in law for the application of that principle against the petitioner and that the true rule in respect of unclean hands here appli- eable is that set forth in Pomeroy’s Equity Jurisprudence, 5th Ed. Vol. 2, §399, infra. The Court of Appeal’s sponte sua application of the unclean hands doctrine against petitioner here is in con- flict with the controlling legal authorities in several respects. (1) The procedure of injecting that new and unlitigated issue into the decision on appeal—-and on that ground not only depriving petitioner of the kind of review on appeal to which he was entitled but also barring him entirely from recourse to equity—is in conflict with decisions of other Circuit Courts of Appeal and of this Court. It has been held uniformly in those Courts that a defense, question or issue not raised, tried or considered in the trial court can not be asserted or considered for the first time on appeal and that this is particularly so where, as here, the facts concerning that issue were not litigated upon the trial or made the subject of any finding of the trial court. The rule is stated typically in New York Life Ins. Co. v. Calhoun, 114 F. (2d) 526, 543 (C,C.A. 8th, 1940), cert. den. 311 U. S. 701, as follows; 18 “It is the general rule universally applied by appellate courts that courts of review will refuse to consider questions which have not been raised and tried in the trial court. The reasons for such ruling are numerous and varied. One is that in most instances any alleged error might have been corrected or the proper amendment made if an objection had been seasonably interposed, and that if a litigant were permitted to urge any point not going to the merits of the issue, it would give him an opportunity and an incentive to conceal errors during the trial in order that they might be used as grounds for reversal on review, in case the decision below was adverse. ““e * 6° 6*to permit a party, upon an appeal, to shift his ground so as to present here a question of law, not raised in the trial court, in a case where, had it been presented there, the court might have obviated it by allowing amendments and the intro- duction of further evidence, might enable him to mislead the trial court and the opposite party, and so, really, to commit a fraud.’ ”’ To the same effect see: Container Patents Corporation v. Stant, 143 F. (2d) 170, 172 (C.C.A. 7th, 1944), cert. den. 323 U. S. 734; Bergeron v. Mansour, 152 F. (2d) 27, 32 (C.C.A, Ist, 1945); Carter v. Powell, 104 F. (2d) 428, 430 (C.C.A. 5th, 1939), cert. den. 308 U. S. 611; Jones v. Tower Production Company, 120 F. (2d) 779, 782 (C.C.A. 10th, 1941); Goldie v. Cox, 130 F. (2d) 695, 715 (C.C.A. Sth, 1942); Hercules Powder Company v. Rich, 3 F. (2d) 12, 19 (C.C.A. 8th, 1925), cert. den. 268 U. S. 692; and United States v. LeBaron, 60 U. S. 73, 77 (1856). (2) Moreover, the Court of Appeals had no right, of its own accord or otherwise, to make an order on appeal on 19 the new issue of ‘‘unclean hands’’ as to which petitioner had no opportunity to present a defense before the trial court. Its procedure in doing so is directly in conflict with the recent decision of this Court in Fountain v. Filson, 336 U. S. 681, 683 (1949); rehearing denied, 336 U. S. 921 (1949) where, upon granting certiorari and re- versing a Court of Appeals this Court stated: ‘*For here the order was made on appeal on a new issue as to which the opposite party had no opportunity to present a defense before the trial court’’. Here, the order on appeal affirming the judgmert of the District Court (685) was made on the new issue of “unclean hands’’ as to which petitioner had no oppor- tunity to present a defense on the facts or on the law either in the trial court or in the appeal court. (3) The Cireuit Court’s decision is in conflict with the decisions of this Court under the Rules of Decision Act,* in that it disregarded the law and court decisions of the States of Pennsylvania and Ohio (as well as other leading authorities) which hold clearly that said doctrine of un- clean hands is not applicable to the situation involved in this case. In Erie R. Co. v. Tompkins, 304 U. S. 64 (1938) and subsequent cases, particularly King v. Order of Travelers, 333 U. S. 153 (1947), this Court held that the Rules of * Judiciary Act of 1789, .§34, R.S. §721, 28 U.S.C. §25, Title 28, $1652, which reads as follows: State laws as rules of decision. The laws of the several states, except where the Constitution or treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply.” 20 Decision Act commanded federal courts to regard as **rules of decision’’ the substantive ‘‘laws’’ of the appro- priate state, including not only state statutes but also the unwritten law of a state as pronounced by its courts. This Court frequently has granted certiorari to deter- mine whether a federal court’s failure to follow a state court’s decision is inconsistent with the Rules of Decision Act. For example, in King v. Order of Travelers, supra, this Court said (p. 154): ‘We granted certiorari in order to determine whether the Circuit Court of Appeals’ refusal to follow the only South Carolina decision directly in point, the decision of a Court of Common Pleas, was consistent with the Rules of Decision Act as applied in Erie R. Co. v. Tompkins, 304 U. 8S. 64 (1938), and subsequent cases.’’ This Court has held that the principle of Frie R. Co. v. Tompkins, supra, is applicable to a suit in equity— especially as to a purely substantive matter such as the doctrine of unclean hands—and that in an equity suit the federal courts must follow the law of the appropriate state (Guaranty Trust Co. v. York, 326 U. 8. 99 (1945) and Ruhlin v. New York Life Ins. Co., 304 U. S. 202 (1938). In this case the Court of Appeals did not follow the controlling decisions of Pennsylvania and petitioner was not even accorded an opportunity to present those deci- sions. The true rule in respect of unclean hands, here appli- cable, is as set forth in Pomeroy’s Equivy Jurisprudence, 5th Ed. Vol. 2, §399, supra, as follows: ‘‘The dirt upon his hands must be his bad conduct in the transaction complained of. If he is not guilty 21 of inequitable conduct toward the defendant im that transaction, his hands are as cleam as the court can require. * eo eo @ e ‘*The party to a suit, complaining that his opponent is in court with ‘unclean hands’ because of the lat- ter’s conduct in the transaction out of which the litigation arose, or with which it is connected, must show that he himself has been injured by such con- duct, to justify the application of the principle to the case. The wrong must have been done to the defendant himself and not to some third party.” (Italics ours.) This is not only a gene: >! equitable rule established by many authorities (see cases and annotation 4 A.L.R. 32, 44, 58-9) but it represents the law in Pennsylvania as stated by its Supreme Court. (See the following cases: Hays’ Estate Nat’l. Bank’s Appeal, 159 Pa. 381, 383; 28 Atl. 158 (1893) ; Comstock v. Thompson, 286 Pa. 457, 461, 462; 133 Atl. 688 (1926); Frazier v. Mansfield, 305 Pa. 359, 363; 157 Atl. 798 (1931); Lewis & Nelson’s Appeal, 67 Pa. 153, 166 (1870); Demster vy. Barmycr, 231 Pa, 28; 79 Atl. 805, 808 (1911); Cf. Percy A. Brown & Co. v. Raub, 357 Pa. 271, 291; 54 Atl. (2d) 35 (1947).) (4) Moreover, the Court of Appeals (in barring peti- tioner from the aid of a federal court of equity to seek specific performance of the parity agreement and as a de- frauded beneficiary on the ground of his alleged unclean hands in reference to some third parties) gave no con- sideration whatever to the conflict of laws question neces- sarily involved in that issue, as required under the Rules of Decision Act. 22 The complaint alleged and petitioner’s proof showe that the parity agreement,