MIAMI BUSINESS LITIGATION: SPECIAL DUTY EXCEPTION TO FLORIDA’S TEST FOR ESTABLISHING DIRECT STANDING

Business litigation often involves disputes between a corporate entity and its equity owners. In Florida, the corporation and the limited liability company are two common types of corporate entities. The owners of a corporation are known as shareholders, and the owners of a limited liability company are known as members. Florida law requires a shareholder or member to show direct harm and special injury to maintain a direct action against the company. Otherwise, the equity holder must pursue their claims derivatively as a shareholder or member to recover damages on behalf of the company. However, “Florida courts also recognize an exception to the [two-prong] test when an individual member or manager owes a ‘specific duty’ to another member or manager apart from the duty owed to the company.” Dinuro Investments, LLC v. Camacho, 141 So. 3d 731 (Fla. 3d DCA 2014). This special duty may arise under contractual or statutory mandates. Peter Mavrick is a Miami business litigation attorney, and represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

Florida Courts have recognized that “[t]here are two major, often overlapping exceptions to the general rule that a shareholder cannot sue for injuries to his corporation: (1) where there is a special duty, such as a contractual duty, between the wrongdoer and the shareholder, and (2) where the shareholder suffered an injury separate and distinct from that suffered by the shareholders.” Harrington v. Batchelor, 781 So. 2d 1133 (Fla. 3d DCA 2001). The special duty exception may still apply even if the alleged injury impacted all equity holders in the same way. Florida courts have held that, “[w]here the wrongful acts are not only wrongs against the corporation but are also violations by the wrongdoer of a duty arising from contract or otherwise, and owing directly to the shareholders, individual shareholders can sue in their own right.”

In Harrington v. Batchelor, Florida’s Third District Court of Appeal specifically recognized that “a shareholder can sue [directly] for breach of [a] contract to which he is a party, even if he has not suffered an injury separate and distinct from that suffered by other shareholders.” 781 So. 2d 1133 (Fla. 3d DCA 2001). In Harrington, a shareholder of a bankrupt-airline business brought suit against two other shareholders for breach of shareholder agreement. The plaintiff alleged that one of the shareholders rejected actual offers to buy the company and ultimately failed to use their best efforts to sell the airline. As a result, the plaintiff claimed the shareholders violated the shareholder agreement by causing the airline to enter into transactions that were never submitted to the board of directors for approval. On appeal, Harrington concluded that the suit could be brought individually based on parties’ shareholder agreement, and that there was no need to prove separate and distinct injury.

In Wishinsky v. Choufani, Florda’s Fifth District Court of Appeal held that a special duty could arise under statutory mandates. 278 So. 3d 803 (Fla. 5th DCA 2019). In Wishinsky, the appellant and appellee were both members of a limited liability company. The appellee was also the company’s chairman, CEO, and chief manager. The Appellee formed another entity for the purpose of owning and operating a restaurant. Appellant subsequently filed a complaint alleging in count one that appellee committed constructive fraud by breaching the fiduciary duties of loyalty, care, and good faith and fair dealing through the diversion of the company’s assets to fund the appellee’s new business venture. The Wishinsky Court held that, even though appellant did not sufficiently allege direct harm and a special injury, he still met the exception to the two-prong rule and could bring his lawsuit on a direct basis because of duties owed under Section 608, Florida Statutes. Wishinsky held that “a manager owes the statutory duties of loyalty, care, and good faith and fair dealing to the members of an LLC” under section 608, Florida Statutes, and appellee’s complaint sufficiently alleged breaches of those duties. Likewise, in Ferk Family, LP v. Frank, Florida’s Third District Court of Appeal held that an LLC member did not need to satisfy the two-prong test because other members owed the plaintiff a separate statutory duty under section 608.4225, Florida Statutes. 240 So. 3d 826 (Fla. 3d DCA 2018) (holding that member did not need to satisfy.

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