MIAMI BUSINESS LITIGATION: COURTS INTERPRET CONTRACTS TO AVOID ABSURD RESULTS

When the wording of a contractual provision is confusing or ambiguous, courts must interpret the contract in a rational manner. Some examples of vague contractual provisions include, “during business hours” and time frames with no clear anchor date, i.e. “within six months of commencement.” The courts generally agree that where one interpretation of a contract would be absurd and another would be consistent with reason and probability, the contract should be interpreted in the rational manner. American Med. Int’l, Inc. v. Scheller, 462 So.2d 1 (Fla. 4th DCA 1984). Peter Mavrick is a Miami business litigation lawyer, and also represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents clients in breach of contract litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

In the case of BKD Twenty-One Mgmt. Co. v. Delsordo, the appellate court addressed the interpretation of a lease agreement. At the center of the business litigation was a dispute over the meaning of the term “Establishment.” The plaintiff contended that the term “Establishment” meant “ruling class” or “controlling group” and therefore referred to “the folks running the retirement community.” The defendants contended that “Establishment” meant “place of business.” The appellate court agree with the defendants’ interpretation. BKD Twenty-One Mgmt. Co. v. Delsordo held that “…where one interpretation of a contract would be absurd and another would be consistent with reason and probability, the contract should be interpreted in the rational manner.” The appellate court held that in the context of a commercial lease agreement, the term “Establishment” necessarily meant “an institution or place of business.” Even though there are other definitions of the term “establishment,” the appellate court found that none of those alternative definitions would make sense in for a lease agreement concerning a business. Courts must consider the contractual provision within the context of the overall contract. The appellate court rejected plaintiff’s argument that the capitalization of the term “Establishment” in the lease meant that the term was referring to a “ruling class” or “the folks running the retirement community.” There were many key terms in the lease were capitalized, so the appellate court held that the capitalization of the term Establishment in the contract did not mean that the contract was referring to the “ruling class.”

“A true ambiguity does not exist merely because a contract can possibly be interpreted in more than one manner. Indeed, fanciful, inconsistent, and absurd interpretations of plain language are always possible.” American Med. Int’l, Inc. v. Scheller. It is the duty of the trial court presiding over business litigation to prevent such interpretations. For example, in the case of Sorota v. Belmat, Inc., 819 So. 2d 975 (Fla. 4th DCA 2002), the contract stated that the tenant was responsible for paying the utilities it uses in connection with the leased premises, but only its pro-rata share of those charges. The appellate court held that though it was not spelled out in the agreement, it was clear that by “pro-rata share” of the bill, the drafters intended that the tenant pay only for those utilities it actually used. The appellate court concluded that no other interpretation would make sense. Sorota v. Belmat, Inc. held that “contracts should be interpreted so as to avoid an absurd result.”

Another example of this circumstance occurred in the non-compete agreement litigation case of Anarkali Boutique, Inc. v. Ortiz, 104 So. 3d 1202 (Fla. 4th DCA 2012). The parties disputed whether the employee’s change in status from employee to independent contractor affected when the non-compete period in the agreement began running. The appellate court held that the purpose of the agreement was to preclude Ortiz from competing against her employer after her employer trained her and enabled her to build clientele as an employee of the business. The appellate court held that the Employer’s change of Ortiz’ status to an independent contractor did not change the fundamental purpose behind the non-compete agreement. Instead it changed only her duties, salary, and compensation. Ortiz was no longer a trainee being paid a salary. Instead, Ortiz was permitted to maintain her own clientele and “make more money” by being paid through commissions minus her share of the Employer’s expenses. Consequently, the mere change of the worker’s status from employee to independent contractor did not cause the two-year non-compete period to begin running.

Peter Mavrick is a Miami business litigation attorney who also practices business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.