## Facts

- North Pacific Lumber Co., an Oregon lumber wholesaler, employed Les A. Oliver beginning in 1967 as a hardwood-division lumber trader; he later became assistant manager.
- Oliver’s employment contract contained a two-year covenant not to compete after termination, with detailed limits on prohibited competition.
- The contract authorized North Pacific to seek injunctive relief and damages for breach and included an attorney-fee clause tied to North Pacific successfully enforcing the covenant.
- In April 1976, Oliver resigned and soon began working for Tree Products Company, a competitor within the contract’s definition of competition.
- North Pacific sued in equity seeking to enjoin competition, use of confidential information, and solicitation of its customers and suppliers; it also sought damages, costs, and attorney fees. Tree Products was named but never served and did not become a party.
- After learning of the suit, Oliver ceased actively soliciting sales for his new employer.
- Oliver defended on the grounds that the covenant was unreasonable and that North Pacific had unclean hands based on deceptive business practices.
- Evidence showed North Pacific’s managers encouraged traders to misrepresent settlement amounts to suppliers and customers during dispute resolutions, allowing North Pacific to retain undisclosed “spread” profits; there was also evidence of intrusive monitoring and related unethical trading controls.
- Oliver had participated in and benefited from the settlement-misrepresentation practice while employed by North Pacific.

## Issues

1. Whether North Pacific’s deceptive business practices were sufficiently connected to the interests it sought to protect to bar equitable enforcement of the noncompetition covenant under the unclean-hands doctrine.
2. Whether Oliver, despite prevailing against enforcement, could receive an attorney-fee award when he had participated in the same improper practices.

## Decision

- The Oregon Supreme Court, reviewing de novo in equity, affirmed the refusal to enforce the noncompetition covenant.
- The court held North Pacific’s misconduct had a direct connection to the customer/supplier relationships and goodwill it claimed needed protection, making injunctive enforcement inequitable.
- The court modified the judgment to strike the attorney-fee award to Oliver because awarding fees would grant affirmative relief to a party who also lacked clean hands.
- The complaint’s dismissal was affirmed as modified; Oliver’s request for increased fees was rejected.

## Legal Principles

- Equitable relief may be denied under unclean hands only when the plaintiff’s misconduct has an immediate and necessary relation to the equity sought, not when it is unrelated wrongdoing or mere bad character.
- A covenant not to compete may be reasonable as a restraint of trade yet still be unenforceable in equity when enforcement would protect advantages obtained through the plaintiff’s deceptive dealing with the same market participants the covenant is said to protect.
- When both parties are tainted by related misconduct, equity may deny enforcement to the plaintiff without granting affirmative relief (such as attorney fees) to the defendant who participated in the same wrongdoing.

## Conclusion

The court refused to enjoin competition under a facially reasonable noncompete because the employer’s deceptive settlement practices were tied to the business relationships it sought to protect, and it also denied attorney fees to the employee because equity would not award affirmative relief to a participant in the same misconduct.


North Pac. Lumber Co. v. Oliver, 596 P.2d 931 (Or. 1979)