In Re: Uwimana

• Decision Date: 29 October 2001
• Docket Number: No. 01-1021,N,01-1021
• Citation: 274 F.3d 806
• Parties: (4th Cir. 2001) In Re: Aloys Uwimana and Emma D. Uwimana, Debtors. Republic Of Rwanda, Plaintiff-Appellee, v. Aloys Uwimana; Emma D. Uwimana, Debtors-Appellants. In Re Aloys Uwimana; and Emma D. Uwimana, Debtors. Republic of Rwanda, Plaintiff Appellant, v. Aloys Uwimana; Emma D. Uwimana, Debtors-Appellees. o. 01-1022 Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 806

274 F.3d 806 (4th Cir. 2001)

In Re: Aloys Uwimana and Emma D. Uwimana, Debtors.

Republic Of Rwanda, Plaintiff-Appellee, v. Aloys Uwimana; Emma D. Uwimana, Debtors-Appellants.

In Re Aloys Uwimana; and Emma D. Uwimana, Debtors.

Republic of Rwanda, Plaintiff Appellant, v. Aloys Uwimana; Emma D. Uwimana, Debtors-Appellees.

No. 01-1021, No. 01-1022

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Argued: October 29, 2001

Decided: December 14, 2001

Appeals from the United States District Court for the District of Maryland, at Greenbelt. Deborah K. Chasanow, District Judge. (CA-00-763-DKC, BK-98-22039-PM, AP-98-1688) [Copyrighted Material Omitted] COUNSEL ARGUED: Christopher S. Moffitt, Alexandria, Virginia, for Appellants. David J. Farber, PATTON BOGGS, L.L.P., Washington, D.C., for Appellee. ON BRIEF: Harold H. Kim, Lisa M. Dwyer, PATTON BOGGS, L.L.P., Washington, D.C., for Appellee.

Before WIDENER, NIEMEYER, and MOTZ, Circuit Judges.

OPINION

DIANA GRIBBON MOTZ, Circuit Judge:

This appeal stems from a Chapter 7 petition for bankruptcy relief, filed by the former Rwandan Ambassador to the United States, Aloys Uwimana, and his wife, Emma D. Uwimana. The Republic of Rwanda initiated an adversary proceeding in that case in which it alleged that Aloys Uwimana owed it a nondischargeable debt arising from "defalcation" while acting in his fiduciary capacity as ambassador. See 11 U.S.C. S 523(a)(4) (1993). The bankruptcy court held that Uwimana had committed a defalcation and so owed Rwanda a nondischargeable debt of $17,475. The district court affirmed this holding, see Republic of Rwanda v. Uwimana, 255 B.R. 669 (D. Md. 2000), and the Uwimanas appeal, contending that: (1) Rwanda cannot maintain a claim to a nondischargeable debt because of its own "unclean hands"; (2) Aloys Uwimana did not breach his fiduciary duty to Rwanda; (3) judgment should not have been entered against Emma Uwimana, whom Rwanda never sued. Rwanda cross-appeals, asserting that the amount of Uwimana's nondischargeable debt is actually $55,000. For the reasons that follow, we affirm the district court's judgment as to Aloys Uwimana but vacate its judgment as to Emma Uwimana.

I.

Aloys Uwimana served as Rwandan Ambassador to the United States from October 1, 1987 until July 22, 1994. Toward the end of his tenure, in April 1994, a plane carrying the Presidents of Rwanda and Burundi was shot down and a bloody civil war began. By July 4, 1994, elements of the Rwandan Patriotic Front (RPF) had captured the Rwandan capital. In America, Uwimana opposed the RPF. On July 8 1994, he contracted with Washington, D.C. attorney Robert W. Johnson for lobbying services, asking Johnson to help "isolat[e] . . . the RPF" and "[o]btain the support of American authorities to a political solution of the Rwandan conflict." JA 264. Uwimana paid Johnson $28,000 from the embassy's accounts on July 13, and promised to pay another $42,000 over the next several months if Johnson's work was satisfactory.

Events soon outpaced Uwimana's plan. On July 15, the United States State Department ordered the Rwandan embassy closed by July 22. The State Department also ordered Uwimana, his family, and others at the embassy to leave the country by that date. Only one diplomat, Boniface Karani, was permitted to remain "for the present to oversee closing of the embassy, the departure of all other Embassy personnel, and the disposition of all property." On July 19, the RPF swore in its leaders as the new government of Rwanda.

Two days later, on July 21, Johnson sent Uwimana a letter proposing a new set of projects. Johnson requested $25,000 to fund: (1) "oversight and assistance with respect to . . . asylum requests"; (2) outreach to the United States government "when the Embassy's bank accounts are eventually frozen or otherwise restricted"; and (3) "transition" support for embassy personnel. The letter also informed Uwimana that Johnson was in touch with two attorneys, identified as Mr. Rubin and Ms. Drew, who would handle asylum requests for the families of three embassy diplomats: Uwimana, Karani, and Jean-Baptiste Rwakazina. Rubin and Drew demanded part payment before they would begin work and estimated that representation could cost as much as $30,000 "[i]f the cases [we]re contested." On July 22, Uwimana's last day as ambassador, he arranged for the transfer of $55,000 from the embassy's account to Johnson. Pursuant to embassy policy, Karani and Rwakazina cosigned the check.

Uwimana and his family subsequently won asylum, and remain in the United States. Neither the Karani nor Rwakazina families sought or obtained asylum, however. In fact, Karani found favor with the new government and was retained as charge d'affaires of the embassy. As Rwanda did not appoint a new ambassador, this made Karani the ranking embassy official. On September 6, Karani wrote a letter to Johnson on embassy stationery, in his official capacity, which stated in full:

I am writing to confirm the termination of the project Projects [sic] for the Embassy as for [sic] our discussions of September 6, 1994.

By that decision a refund is requested for legal fees related to the immigration business since necessary steps have been taken for only one diplomat family.

Therefore the requested amount is $30,000 less $10,760 legal fees estimated for the said diplomat family and less $1,765 refund to another diplomat for medical expenses related to TPS application.

The check to be paid to the Embassy will be of $30,000 $10,760 $1,765 = $17,475.

I take this opportunity to renew to you the expension [sic] of my high consideration.

Johnson did not send the refund. Instead, on September 15, he sent to Karani, at the proper embassy address, written notification that in Uwimana's view the new Rwandan government could not compel return of any portion of the $55,000 transfer. For some weeks, neither Karani nor any other Rwandan official protested or even responded. Finally, on November 22, a new Rwandan charge d'affaires, Joseph W. Mutaboba, who assumed office on September 21 and became Karani's superior sent Johnson a letter requesting return of the entire $55,000 transferred to Johnson on July 22. Johnson and Uwimana again refused to return any funds.

On July 7, 1997, the Republic of Rwanda sued Aloys Uwimana, Johnson, and others for conversion and breach of fiduciary duty to recover, inter alia, the $55,000 Uwimana transferred to Johnson. See Government of Rwanda v. Rwanda Working Group, 150 F. Supp. 2d 1, 4 (D.D.C. 2001). On September 11, 1998, Aloys Uwimana filed a Chapter 7 bankruptcy case in the District of Maryland. Three months later the Republic commenced this adversary proceeding in that bankruptcy case, seeking a determination that Aloys Uwimana's $55,000 transfer was a nondischargeable debt because it resulted from his defalcation while acting as a fiduciary for the Republic of Rwanda.

The bankruptcy court found that the $55,000 transfer was within the scope of Uwimana's authority as ambassador, but that he committed defalcation when he refused, without justification, to tender back $17,475 after receiving the September 6 letter. Accordingly, the court held that this latter amount constituted a nondischargeable debt. The district court affirmed on other grounds. It found that Uwimana had had authority to transfer only the $25,000 paid to Johnson, and that the remaining $30,000 paid to Drew and Rubin for asylum efforts was a defalcation. The court also found, however, that Rwanda had ratified all but $17,475 of Uwimana's defalcation in the September 6 letter. The district court therefore concluded that Aloys and Emma Uwimana owed a nondischargeable debt to the Republic of Rwanda in the amount of $17,475.

The Uwimanas appeal, asserting that the unclean hands doctrine bars Rwanda's claim, that Aloys Uwimana never breached his fiduciary duty, and that in any event, Emma Uwimana owed no such debt. Rwanda cross-appeals, claiming that Aloys Uwimana owes a nondischargeable debt in the amount of $55,000. We first address the Uwimanas' affirmative defense, then the question of Aloys Uwimana's defalcation, and finally the judgment against Emma Uwimana.

II.

The Uwimanas note that the equitable powers of bankruptcy courts are "available only to . . . creditors with `clean hands,'" Carolin Corp. v. Miller, 886 F.2d 693, 698 (4th Cir. 1989) (citation omitted). A plaintiff with "unclean hands" is "not entitled to relief from a court of equity in the form of an order denying the dischargeability of debt." Hutchinson v. Bromley, 126 B.R. 220, 223 (Bankr. D. Md. 1991). The Uwimanas argue that Rwanda has unclean hands because it seeks to "persecute" Aloys Uwimana for his political beliefs, and they accuse Rwanda of an "unholy quest" to undermine their finances and reputation.

Even if these assertions could be proven, they would not bar Rwanda from relief in this action. A court can deny relief under the doctrine of unclean hands only when there is a close nexus between a party's unethical conduct and the transactions on which that party seeks relief. See Keystone Driller Co. v. General Excavator Co., 290 U.S. 240, 245 (1933) (predicate act underlying an unclean hands defense must have an "immediate and necessary relation to the equity that [one] seeks in respect of the matter in litigation"); Wetzler v. Cantor, 202 B.R. 573 (D. Md. 1996) (noting that even truthful allegations of self-dealing did not warrant application of "unclean hands" doctrine if the self-dealing was not "connected with the transaction upon which the claimaint s[ought] relief") (citation omitted). We are not open to arguments about a party's general moral fitness, but only apply the unclean hands doctrine to prevent a party from using the courts to reap the benefits of wrongdoing.

In this case, the Uwimanas have produced no evidence that Rwanda was responsible for Aloys Uwimana's decision to spend embassy funds, either by...