FOR THE FOURTH CIRCUIT FOR THE FOURTH CIRCUIT FOR THE FOURTH CIRCUIT In Re: ALOYS… v. Aloys Uwimana; Emma D. Uwimana

Filed: February 14, 2002
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
Nos. 01-1021(L)
(CA-00-763-DKC, BK-98-22039-PM, AP-98-1688)
Republic of Rwanda,
Plaintiff - Appellee,
versus
Aloys Uwimana, et al.,
Debtors - Appellants.
O R D E R
The court amends its opinion filed December 14, 2001, as
follows:
On the cover sheet, section 4, line 4 -- the Bankruptcy Court
number is corrected to read “BK-98-22039-PM.”
On page 10, second full paragraph, line 4 -- “improper asylum
purposes” is corrected to read “proper asylum purposes.”
For the Court - By Direction
/s/ Patricia S. Connor
Clerk

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PUBLISHED PUBLISHED PUBLISHED PUBLISHED
UNITED STATES COURT OF APPEALS UNITED STATES COURT OF APPEALS UNITED STATES COURT OF APPEALS UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT FOR THE FOURTH CIRCUIT FOR THE FOURTH CIRCUIT FOR THE FOURTH CIRCUIT
In Re: ALOYS UWIMANA and EMMA
D. UWIMANA,
Debtors.
REPUBLIC OF RWANDA, No. 01-1021
Plaintiff-Appellee,
v.
ALOYS UWIMANA; EMMA D.
UWIMANA,
Debtors-Appellants.
In Re: ALOYS UWIMANA and EMMA
D. UWIMANA,
Debtors.
REPUBLIC OF RWANDA, No. 01-1022
Plaintiff-Appellant,
v.
ALOYS UWIMANA; EMMA D.
UWIMANA,
Debtors-Appellees.
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)
Argued: October 29, 2001
Decided: December 14, 2001

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Before WIDENER, NIEMEYER, and MOTZ, Circuit Judges.
____________________________________________________________
Affirmed in part and vacated in part by published opinion. Judge
Motz wrote the opinion, in which Judge Widener and Judge Niemeyer
joined.
____________________________________________________________
COUNSEL COUNSEL COUNSEL COUNSEL
ARGUED: ARGUED: ARGUED: ARGUED: Christopher S. Moffitt, Alexandria, Virginia, for Appel-
lants. David J. Farber, PATTON BOGGS, L.L.P., Washington, D.C.,
for Appellee. ON BRIEF: ON BRIEF: ON BRIEF: ON BRIEF: Harold H. Kim, Lisa M. Dwyer, PATTON
BOGGS, L.L.P., Washington, D.C., for Appellee.
____________________________________________________________
OPINION OPINION OPINION 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 ambassa-
dor.
See 11 U.S.C. § 523(a)(4) (1993). The bankruptcy court held that
Uwimana had committed a defalcation and so owed Rwanda a non-
dischargeable debt of $17,475. The district court affirmed this hold-
ing,
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 "un-
clean 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, assert-
ing that the amount of Uwimana's nondischargeable debt is actually
$55,000. For the reasons that follow, we affirm the district court's
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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 prom-
ised 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 oth-
ers at the embassy to leave the country by that date. Only one diplo-
mat, 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 propos-
ing 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) "tran-
sition" support for embassy personnel. The letter also informed Uwi-
mana that Johnson was in touch with two attorneys, identified as Mr.
Rubin and Ms. Drew, who would handle asylum requests for the fam-
ilies 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, Uwi-
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mana'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
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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 bank-
ruptcy 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 commit-
ted 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 rati-
fied all but $17,475 of Uwimana's defalcation in the September 6 let-
ter. 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 fidu-
ciary duty, and that in any event, Emma Uwimana owed no such debt.
Rwanda cross-appeals, claiming that Aloys Uwimana owes a nondis-
chargeable debt in the amount of $55,000. We first address the Uwi-
manas' 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.
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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. Can-
tor, 202 B.R. 573 (D. Md. 1996) (noting that even truthful allegations
of self-dealing did not warrant application of "unclean hands" doc-
trine 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 threatening or misleading him. During the
bankruptcy hearing Aloys Uwimana did state that if he returned to
Rwanda he and his family might face a terrible "fate." But he has
never claimed that he sought asylum to avoid punishment
by Rwanda. 1111
Indeed, Aloys Uwimana asked the district court to take judicial notice
of the 1994 State Department Human Rights Report on Rwanda,
____________________________________________________________
1111 Mutaboba (formerly charge d'affaires and now the Rwandan Ambas-
sador to the United Nations) testified that Aloys Uwimana's defection
constituted high treason; Uwimana opined that high treason was punish-
able by death. But even assuming that Uwimana is correct, any such
threat would have arisen as the
result of his decision to seek asylum, and
could not have been the
cause of that decision.
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which concluded that the government of the country did
not sanction
extra-judicial killings.
See Republic of Rwanda, 255 B.R. at 677 n.10.
At most we can conclude, as the district court did, that Aloys Uwi-
mana was afraid to return to Rwanda because of the general unrest
there.
Id. at 677. Although we do not minimize this fear, we cannot
attribute it to the Republic of Rwanda for purposes of the unclean
hands doctrine.
Nor does the fact that the United States granted the Uwimanas'
request for asylum strengthen their argument. Under 8 U.S.C.A.
§ 1158(b) (West 1999) and § 1101(a)(42)(A) (West 1999), asylum is
available to persons with a well-founded fear of persecution by gov-
ernmental
or non-governmental forces. The Uwimanas have
presented no evidence to establish when their fear of persecution
materialized or what its source may have been. They may have been
in danger only
after and
because of Aloys' decision to use Rwandan
funds to seek asylum. Or, the danger may have come from vigilante
groups rather than the government. Accordingly, the doctrine of
unclean hands does not bar Rwanda's claim.
III.
We turn next to the question of defalcation. Defalcation is "the fail-
ure to meet an obligation" or "a nonfraudulent default." Black's Law
Dictionary 427 (7th ed. 1999). To be defalcation for purposes of 11
U.S.C. § 523(a)(4), an act need not "rise to the level of . . . `embezzle-
ment' or even `misappropriation.'"
Pahlavi v. Ansari (
In re Ansari),
113 F.3d 17, 20 (4th Cir. 1997) (citations omitted). Thus, negligence
or even an innocent mistake which results in misappropriation or fail-
ure to account is sufficient.
Although apparently no case so holds, we agree with the district
court that ambassadors are, by definition, fiduciaries for the country
they represent. Thus, Aloys Uwimana served as a fiduciary for the
Republic of Rwanda while serving as its ambassador to the United
States. When Rwanda appointed Uwimana its ambassador, the
Republic entrusted him with state secrets and financial assets, and
undoubtedly expected his undivided loyalty and faithful service. We
cannot conceive of any theory that would relieve an ambassador, so
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entrusted, from fiduciary responsibility, and the Uwimanas do not
propose one.
Instead they maintain that Aloys Uwimana never breached his fidu-
ciary duty to Rwanda because his $55,000 transfer was within the
scope of his discretion as ambassador. They rely on the Vienna Con-
vention, which explains that the duties of an ambassador include,
among other things, "protecting . . . the interests of the sending state
and its nationals." Vienna Convention on Diplomatic Relations, Apr.
18, 1971, Art. 3, 23 U.S.T. 3227, 3232.
See also Marcellus Donald
A.R. von Redlich,
The Law of Nations, at § 86 (2d ed. 1937) (noting
ambassadors may act to promote the private interests of their coun-
try's nationals). Here, the Uwimanas contend, they and the other dip-
lomat families had been endangered by the threat of deportation and
Aloys acted to assist them.
But of course, Aloys Uwimana's discretion as an ambassador arose
within the context of a principal-agent relationship. The purpose of
the privileges protected by the Vienna Convention, upon which the
Uwimanas so heavily rely, was "not to benefit individuals but to
ensure the efficient performance of the functions of diplomatic mis-
sions
as representing States." Vienna Convention, Preamble, 23
U.S.T. 3227, 3230 (emphasis added). In other words, the Convention
rests on the presumption that an ambassador exercises delegated dis-
cretion to further the interest of the state. And, under basic principles
of agency law, Aloys Uwimana plainly breached his duty to Rwanda. 2222
An agent must avoid conflicts of interests with his or her principal,
and "[i]f the agent is to receive any benefit from a transaction in
which he is serving his principal, the agent must fully disclose any
interest he has in the transaction and receive the consent of his princi-
pal to proceed, even if the principal ultimately was to benefit from the
transaction."
Gussin v. Shockey, 725 F. Supp. 271, 275 (D. Md. 1989)
(citations omitted),
aff'd, 933 F.2d 1001 (4th Cir. 1991).
____________________________________________________________
2222 The Uwimanas did not present either Rwandan law or established
embassy practice to support their broad view of ambassadorial discretion.
If they had, we would of course have considered that as part of our anal-
ysis.
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In this case, Aloys Uwimana used at least some of the funds
belonging to the Republic of Rwanda to purchase a substantial benefit
— preparation of a case for asylum — for himself and his family,
without disclosing his act to the government of the state he repre-
sented or seeking its consent. This was defalcation. 3333
Questions remain, however, about how much of the $55,000 was
used for improper asylum purposes and how much for proper expen-
ditures benefitting the Republic of Rwanda (e.g. "transition matters"),
and whether Rwanda later ratified any part of the $55,000 transfer.
Because we conclude that Rwanda ratified all but $17,475 of the
transfer, we need not reach the initial question of exactly how much
of the $55,000 was originally intended for improper asylum purposes.
Under the doctrine of ratification, a principal may later approve the
actions of an agent who acted without authority.
See e.g.,
Bruffey
Contracting Co., Inc. v. Burroughs Corp., 522 F. Supp. 769, 774 (D.
Md. 1981),
aff'd, 681 F.2d 812 (4th Cir. 1982). An "[i]ntention to rat-
ify may be inferred by words, conduct or silence on the part of the
principal that reasonably indicates its desire to affirm the unautho-
rized act."
Progressive Cas. Ins. Co. v. Ehrhardt, 518 A.2d 151, 156
(Md. Ct. Spec. App. 1986).
See generally Restatement (Second) of
Agency § 93 (1958); 3 Am. Jur. 2d,
Agency § 182, at 683-84 (2d ed.
1986).
In this case, the charge d'affaires at the Rwandan embassy, the
ranking officer at the embassy, wrote Johnson and Uwimana "to con-
firm the termination" of Aloys Uwimana's embassy projects. In his
letter, the charge d'affaires requested a
partial refund of "legal fees
related to the immigration business since necessary steps have been
____________________________________________________________
3333 This holding differs from that of the bankruptcy court, which found
no defalcation because Aloys Uwimana faced a charge of "high treason"
upon his return to Rwanda and did what "anyone faced with [that]
choice" would do. Actually, because there is no record evidence that
Aloys Uwimana was chargeable with high treason
before he transferred
the $55,000, the treason charge would have applied (if at all) only after
Uwimana transferred the $55,000.
Republic of Rwanda, 255 B.R. at 676.
Accordingly, the bankruptcy court's contrary finding of fact constituted
clear error.
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taken for only one diplomat family." The letter did not seek repay-
ment of any part of the $25,000 earmarked for Johnson, even though
it stated that Rwanda was closing out Aloys Uwimana's "[p]roject
s
for the Embassy." (emphasis added). Nor did the letter accuse Uwi-
mana of wrongdoing or ask him to repay funds used to obtain asylum
for his family. It asked him to return only the unspent portion of the
$30,000 earmarked for asylum applications, because the Karanis and
Rwakazinas no longer sought asylum. On this basis, the charge
d'affaires determined that the amount of the refund was $17,475. This
constituted a partial ratification, issued by a properly credentialed rep-
resentative of the Rwandan government in the United States, whom
the Bankruptcy Court expressly found to be acting in his "official
capacity."
Rwanda now claims that the charge d'affaires' ratification was
ultra vires and so ineffective. We are not persuaded. Rwanda does not
claim that it was unaware of the letter. Despite its knowledge,
Rwanda did not seek to retract or qualify the letter for more than two
months. Indeed, the Rwandan government retained Karani in a posi-
tion of responsibility at its embassy in Washington until at least Feb-
ruary 1995 — long after his assertedly unlawful September 1994
letter had been discovered. 4444 Even at the hearing before bankruptcy
court, no Rwandan official criticized Karani's performance or
asserted that the September letter had exceeded his authority. Rwan-
da's second thoughts now, during litigation, come too late.
In sum, Rwanda partially ratified Aloys Uwimana's acts: it forgave
the $25,000 paid directly to Johnson and all but $17,475 of the
remaining $30,000. The bankruptcy court found as a fact that the
$30,000 payment was originally "earmarked" for proper asylum
purposes, and nothing suggests that this finding is clearly erroneous.
Accordingly, we affirm the judgment of the district court that Aloys
Uwimana owes the Republic of Rwanda a nondischargeable debt in
the amount of $17,475.
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4444 The record does not reveal precisely how long Karani continued to
work at the Rwandan embassy.
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IV.
Finally, we consider the question of the judgment entered against
Emma Uwimana. The Republic of Rwanda has never maintained that
Emma Uwimana owed it a nondischargeable debt. Rwanda did not (1)
name her as a defendant in its complaint, (2) serve her with process,
or (3) make any allegations concerning her. In its appellate brief,
Rwanda concedes that the district court's judgment should not "apply
to" Emma Uwimana. Brief of Appellee at 22 n.8. Accordingly, we
vacate the judgment against her.
AFFIRMED IN PART AND VACATED IN PART
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