Articles Posted in Business Litigation

Published on: September 24, 2023

MIAMI BUSINESS LITIGATION: ANTICIPATORY REPUDIATION OF A CONTRACT

Under Florida law, breach of contract by anticipatory repudiation allows the non-breaching party to terminate his own contract and then sue for damages. The Supreme Court of Florida in Hospital Mortgage Group v. First Prudential Development Corp., 411 So.2d 181 (Fla. 1982), explained in pertinent part that, “[i]n dealing with anticipatory repudiations[,] the law is clear that a repudiation gives rise to a claim for damages by the nonbreaching party.” Relying on earlier precedent from the Supreme Court of Florida in Poinsettia Dairy Products, Inc. v. Wessel Co., 123 Fla. 120 (Fla. 1936), Hospital Mortgage explained that “the nonbreaching party is relieved of its duty to tender performance and has an immediate cause of action against the breaching party.” Peter Mavrick a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

In its Hospital Mortgage decision, the Supreme Court of Florida adopted important aspects of the Restatement (Second) of Contracts concerning the law of anticipatory breach of contract. As stated in Restatement (Second) of Contracts at Section 253 (1979):

(1) Where an obligor repudiates a duty before he has committed a breach by non-performance and before he has committed a breach by non-performance and before he has received all of the agreed exchange for it, his repudiation alone gives rise to a claim for damages for total breach.

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Published on: September 17, 2023

MIAMI BUSINESS LITIGATION: UNJUST ENRICHMENT CLAIMS AND THE “DIRECT BENEFIT” REQUIREMENT

By Mavrick Law Firm

Business litigation cases frequently assert claims of unjust enrichment that fail to satisfy the requirements of Florida law. Florida’s Third District Court of Appeal in Gonzalez v. Eagle Insurance Co., 948 So.2d 1 (Fla. 3d DCA 2006), explained that, “[a]t the core of the law of restitution and unjust enrichment is the principle that the party who has been unjustly enriched at the expense of another is required to make restitution to the other.” Frito v. Attorney’s Title Insurance Fund, Inc., 83 So.3d 755 (Fla. 3d DCA 2011), set forth the elements for an unjust enrichment claim under Florida law, requiring the plaintiff to prove that (1) the plaintiff conferred a benefit on the defendant, (2) the defendant voluntarily accepted and retained the benefit, and (3) it would be inequitable for the defendant to retain the benefit without paying the value of the benefit to the plaintiff. However, precedent from the Supreme Court of Florida in Kopel v. Kopel, 229 So.2d 812 (Fla. 2017), explained an important qualification on these elements: the plaintiff must directly confer a benefit on the defendant. Peter Mavrick a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

In Extraordinary Title Services, LLC v. Florida Power & Light Co., 1 So.3d 400 (Fla. 3d DCA 2009), the appellate court held the plaintiff’s unjust enrichment claim failed because the plaintiff did not prove a direct benefit had been conferred on the defendant. Extraordinary Title Services explained that, “[i]n the instant case, the second amended complaint indicates that Plaintiff has absolutely no relationship with Group and has not conferred a direct benefit upon Group. Plaintiff contracted with FPL, not Group, for electricity; Plaintiff paid FPL, not Group; and Group provided no services to Plaintiff. Based on these facts, which are not in dispute, the Plaintiff cannot allege nor establish that it conferred a direct benefit upon Group. Therefore, we conclude that the trial court properly dismissed with prejudice the unjust enrichment claim asserted against Group.” Similarly, in People’s National Bank of Commerce v. First Union National Bank of Florida, 667 So.2d 876 (Fla. 3d DCA 1996), Florida’s Third District Court of Appeal affirmed dismissal with prejudice of an unjust enrichment count, because the plaintiff failed to allege a direct benefit given to the defendant. In that decision, Southeast Bank had made two loans to a developer. Before making these loans, Southeast Bank made separate participation agreements with five lenders, including Peoples National. Under the participation agreements, Southeast Bank was supposed to act as the lead lender. It was responsible for collecting payments from the developer and then remitting payments to each of the five participant lenders. Several years later, Peoples National filed an unjust enrichment action against the other four participant lenders, demanding a refund of alleged overpayments made to the four participant lenders. The appellate court rejected the plaintiff’s unjust enrichment claim, holding in pertinent part, “[h]ere, the plaintiff, Peoples National, could not and did not allege that it had directly conferred a benefit on the defendants, the other participant lenders. In actuality, if any benefit was conferred upon each participant lender in the form of overpayments, it could only have been conferred upon them by Southeast, not Peoples National. Because Peoples National failed to allege ultimate facts that support a prima facie case of unjust enrichment, the trial court properly dismissed with prejudice that count against the other participant lenders.”

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.

Published on: September 13, 2023

FORT LAUDERDALE NON-COMPETE AGREEMENTS: LEGITIMATE BUSINESS INTERESTS AND UNFAIR COMPETITION

By Mavrick Law Firm

The Sherman Anti-Trust Act prohibits conspiracies unreasonably restraining trade. A group of competitors cannot enter agreements fixing prices or wages; rigging bids; or allocating customers, workers, or markets. 15 U.S.C. § 1. Consequently, exclusivity contracts and other restrictive covenants reducing competition may violate the Sherman Antitrust Act if they are solely intended to prevent ordinary competition. The Supreme Court of Florida, in White v. Mederi Caretenders Visting Servs., 226 So.3d 744 (Fla. 2017), explained that “[c]ovenants whose sole purpose is to prevent competition per se are void against public policy.” In addition, Florida Statutes Section 542.18 states that, “[e]very contract, combination, or conspiracy in restraint of trade or commerce in this state is unlawful.” In the the White decision, the Supreme Court explained Florida courts will enforce non-compete agreements only to the extent they prevent unfair competition, that is, “there [are] special facts present over and above ordinary competition’ such that, absent a non-competition agreement, the employee would gain an unfair advantage in future competition with the employer.” The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

This is why Florida’s non-compete statute, Section 542.335, Florida Statutes, requires that non-compete covenants be supported by a legitimate business interest. Fla. Stat. § 542.335 (“Any restrictive covenant not supported by a legitimate business interest is unlawful and is void and unenforceable.”); see also Tri-Cont’l Fin. Corp. v. Tropical Marine Enterprises, Inc., 265 F. 2d 619 (5th Cir. 1959) (“Measured by rules governing such ancillary agreements, the covenant, limited as it is in time and in scope, is, in every respect important here, reasonable in time, territory and extent, and of no further extent than is necessary to protect West India; and that the authorities are almost uniform that such a restriction does not violate the anti-trust laws”).

Florida’s restrictive covenant statute provides a non-exhaustive list of legitimate business interests. The statute specifically references protection of trade secrets, confidential information that does not qualify as trade secret, relationships with existing customers, and relationships with specific prospective customers. Following the statutory requirement to establish a “legitimate busiess interest” to enforce a non-compete agreement, the United States District Court for the Southern District of Florida in Autonation, Inc. v. O’Brien, 347 F. Supp. 2d 1299 (S.D. Fla. 2004), held that “AutoNation… established legitimate business interests justifying the enforcement of [the]… Non–Compete Agreement [because t]he testimony and evidence submitted… demonstrated [the defendant] was exposed to confidential and proprietary information.” Similarly, Florida’s Fourth District Court of Appeal in Hilb Rogal & Hobbs of Florida, Inc. v. Grimmel, 48 So. 3d 957 (Fla. 4th DCA 2010), stated that “HRH proved that it had a legitimate business interest in its substantial relationships with specific existing customers; that the restrictive covenant prohibiting the piracy of those customers was no broader than necessary to protect that interest.” In the White decision, the Supreme Court of Florida held that referral sources also can qualify as a legitimate business interest under the statute. White explained that, “Section 542.335… is non-exhaustive and does not preclude the protection of referral sources; hence, home health service referrals may be a protected legitimate business interests depending on the context and proof adduced.”

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Published on: September 10, 2023

MIAMI BUSINESS LITIGATION: DEFENDING AGAINST CLAIMS ALLEGING DECEPTIVE OR UNFAIR TRADE PRACTICES

By Mavrick Law Firm

Florida’s Deceptive and Unfair Trade Practices Act, often called “FDUPTA,” prohibits certain deceptive and unfair trade practices. In Bookworld Trade, Inc. v. Daughters of St. Paul, Inc., 532 F.Supp.2d 1350 (M.D. Fla. 2007), the United States District Court for the Middle District of Florida explained that “[a] deceptive practice is one that is likely to mislead consumers, and an unfair practice is one that ‘offends established public policy’ or is ‘immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.'” To establish a cause of action under FDUPTA, a plaintiff must establish the following three elements: (1) a deceptive act or unfair practice; (2) causation; and (3) actual damages. Peter Mavrick a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

In business litigation where FDUPTA claims are based on alleged fraudulent acts, some defendants have successfully argued the plaintiff must plead the claim with specificity. In Blair v. Wachovia Mortg. Corp., 2012 WL 868878 (M.D. Fla. Mar. 14, 2012), the federal court held, “this Court concludes that where the gravamen of the [FDUPTA] claim sounds in fraud, as here, the heightened pleading standard of Rule 9(b) would apply.” In Pop v. Lulifama.com LLC, 2023 WL 4661977 (M.D. Fla. July 20, 2023), the federal court explained that: “This Court, however, applies the heightened pleading standards to FDUPTA allegations sounding in fraud…Here, Mr. Pop alleges that both the Luli Fama and Influencer Defendants engaged in ‘a deceptive act or unfair practice’ by ‘engaging in fraud and statutory violations.’ … Mr. Pop’s FDUPTA claim sound in fraud as it avers ‘unscrupulous [practices] … likely to mislead any consumer acting reasonably in the circumstances.’ … Therefore, Rule 9(b)’s heightened pleading standard applies.” The United States Court of Appeals for the Eleventh Circuit, in Garvield v. NDS Health Corp., 466 F.3d 1255 (11th Cir. 2006), explained that this heightened pleading standard governing fraud claims requires a plaintiff allege with particularity the “who, what, when, where, and how” of the alleged fraudulent misconduct. However, not all courts agree that FDUPTA claims alleging fraudulent conduct must be pled with specificity. For example, the United States District Court for the Middle District of Florida, in Allstate Ins. Co. v. Auto Glass Am, LLC, 418 F.Supp.3d 1009 (M.D. Fla. 2019), stated that, “[a]s a threshold matter, this Court declines to impose the heightened pleading standard set forth in Rule 9(b).”

Regardless of whether there is a heightened pleading standard for FDUPTA claims based on fraud, the plaintiff has the legal burden to prove certain elements. The “deceptive or unfair practice” element of a FDUPTA claim can be proved in two ways. The first way is by proving a violation of “any rules promulgated pursuant to the Federal Trade Commission Act” or “any law, statute, regulation, or ordinance which proscribes unfair methods of competition, or unfair, deceptive, or unconscionable acts or practices” (under Florida Statute Section 501.203(3)(a), (c)). The second way, as explained by Blair v. Wachovia Mortg. Corp., 2012 WL 868878 (M.D. Fla. Mar. 14, 2012), is by proving that “there is a representation, omission, or practice that is likely to mislead the consumer acting reasonably in the circumstances, to the consumer’s detriment.” The plaintiff also must prove that the unfair practice at issue caused his allege harm. Florida’s Fourth District Court of Appeal, in Stewart Agency, Inc. v. Arrigo Enterprises, Inc., 266 So.3d 207 (Fla. 4th DCA 2019), explained that “[c]ausation under FDUPTA must be direct, rather than remote or speculative.” The United States Court of Appeals for the Eleventh Circuit held, in Fitzpatrick v. Gen Mills, Inc., 635 F.3d 1279 (11th Cir. 2011), that the element of causation is met when the alleged misrepresentations would have deceived an objectively reasonable person. Where the harm does not result from the FDUPTA violation, the claim fails for lack of causation.

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Published on: September 7, 2023

FORT LAUDERDALE BUSINESS LITIGATION: COMPELLING AND RESISTING ARBITRATION

By Mavrick Law Firm

This article discusses the circumstances obligating parties in business litigation to arbitrate and when they can avoid arbitration. “Arbitration is a preferred method of dispute resolution.” Obolensky v. Chatsworth as Wellington Green, 240 So. 3d 6 (quoting BallenIsles Country Club, Inc. v. Dexter Realty, 24 So. 3d 649, 652 (Fla. 4th DCA 2009)). Precedent from the Supreme Court of Florida, in Jackson v. Shakespeare Found., Inc., 108 So. 3d 587 (Fla. 2013), explained that “[c]ourts generally favor [arbitration] provisions, and [ ] try to resolve ambiguity… in favor of arbitration.” But this favorability does not always force unwilling participants to arbitrate. Courts can, and do, refuse to mandate arbitration despite the existence of an contractual provision seemingly requiring arbitration. For example, Florida’s Third District Court of Appeal, in Apartment Inv. & Mgmt. Co. v. Flamingo/S. Beach 1 Condo. Ass’n, Inc., 84 So. 3d 1090 (Fla. 3d DCA 2012), upheld the trial court’s denial of a motion to compel arbitration because the parties had amended their contract to exclude certain legal issues from arbitration. Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, 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 must consider three elements when faced with a motion to compel arbitration: “(1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived.” Seifert v. U.S. Home Corp., 750 So. 2d 633 (Fla. 1999). The first two steps rest on contract interpretation, thereby requiring courts to construe the contracting parties’ intent.

The first factor requires a careful framing of the issue for consideration because it will dictate the presiding tribunal. Challenges to contract validity are resolved by arbitrators, while challenges to contract formation or the existence of a contract are resolved by courts. HHH Motors, LLP v. Holt, 152 So. 3d 745, 747 (Fla. 1st DCA 2014) (citing Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287 (2010)). Sometimes, it is easy to determine when a party challenges validity rather than contract formation. See, e.g., Airbnb, Inc. v. Doe, 336 So. 3d 698 (Fla. 2022) (explaining that “because Airbnb’s Terms of Service incorporate by reference the AAA Rules that expressly delegate arbitrability determinations to an arbitrator, the agreement clearly and unmistakably evidences the parties’ intent to empower an arbitrator, rather than a court, to resolve questions of arbitrability.”). Other times it is less obvious. See, e.g., Duval Motors Co. v. Rogers, 73 So. 3d 261 (Fla. 1st DCA 2011) (the court considered the issue of arbitrability because it had to determine whether a contract containing an arbitration provision was superseded by another contract entered contemporaneously that contained a merger clause negating all prior writings).

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Published on: September 2, 2023

MIAMI BUSINESS LITIGATION: FLORIDA AND FEDERAL CLAIMS FOR UNAUTHORIZED ACCESS TO COMPUTERS

By Mavrick Law Firm

Federal law and Florida law provide private causes of action for unauthorized access to computers. The federal law is called the Computer Fraud and Abuse Act (CFAA), and imposes civil liability on those who “intentionally access[ ] a computer without authorization or exceed[ ] authorized access.” 18 U.S.C. § 1030(a)(2). Florida’s statute is the Computer Abuse and Data Recovery Act (CADRA), and imposes liability on persons who knowingly obtain “information from a protected computer without authorization.” Fla. Stat. § 668.803. Peter Mavrick a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

At first blush, the wording in both statutes appears self-explanatory. When someone accesses a computer without authorization, he or she is liable for damages. But this begs the question – what is authorization? Does an individual violate CFAA or CADRA by accessing part of another’s computer system he or she was never authorized to access? Or does that individual violate CFAA or CADRA by accessing information he or she was authorized to access but for purposes exceeding the authorization? In business litigation over the statutes, courts struggled to answer these questions and this led to divergent legal interpretations by various courts. See United States v. Valle, 807 F.3d 508 (2d Cir. 2015) (recognizing the circuit split and noting that this sharp division means that the statute is readily susceptible to different interpretations). In 2021, the United States Supreme Court addressed CFAA in Van Buren v. United States, 141 S. Ct. 1648 (2021), to settle how CFAA should be interpreted. In Van Buren, a law enforcement officer was charged with criminally violating CFAA because he used a patrol car computer to access license plate information for a friend. Id. The law enforcement officer was convicted because he “exceed[ed] his authorized access.” An appeal ensued, and the case was ultimately decided by the United States Supreme Court. The court initially noted both parties agreed the law enforcement officer was given the right to acquire license-plate information from the law enforcement computer database. Therefore, the question was whether the law enforcement office was “entitled so to obtain” the license-plate information, as required by CFAA. The Supreme Court held that “the phrase ‘is not entitled so to obtain’ is best read to refer to information that a person is not entitled to obtain by using a computer that he is authorized to access.” For example, if a person has access to information stored in a computer—e.g., in ‘Folder Y,’ from which the person could permissibly pull information—then he does not violate the CFAA by obtaining such information, regardless of whether he pulled the information for a prohibited purpose. But if the information is instead located in prohibited ‘Folder X,’ to which the person lacks access, he violates the CFAA by obtaining such information. See also Armor Corr. Health Services, Inc. v. Teal, 2021 WL 5834245 (S.D. Fla. Dec. 8, 2021) (the former employee did not lack authorization to downloaded documents from his employer’s server for the improper purpose competing against the employer because the employee was authorized to access those files).

Courts construing the “authorization” wording in CADRA seem to apply a similar analysis. See Grow Fin. Fed. Credit Union v. GTE Fed. Credit Union, 2017 WL 3492707 (M.D. Fla. Aug. 15, 2017) (finding “that no such liability could exist because ‘exceeds authorized access’ simply means that, while an employee’s initial access was permitted, the employee accessed information for which the employer had not provided permission”); see also Maintenx Mgmt., Inc. v. Lenkowski, 2015 WL 310543 (M.D. Fla. Jan. 26, 2015) (“To the extent Maintenx attempts to derive support for its allegation by maintaining that Lenkowski’s use of the data was improper, ‘exceeds authorized access’ should not be confused with exceeds authorized use”). However, it is difficult to determine whether the application of CADRA will continue running parallel to CFAA because (1) the two statutes define “without authorization” differently and (2) CADRA has not been sufficiently tested in the court system. Contrast 18 U.S.C.A. § 1030 (defining “exceeds authorized access” under CFAA) with Fla. Stat. § 668.802 (defining “without authorization).

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Published on: August 31, 2023

FORT LAUDERDALE BUSINESS LITIGATION: SUCCESSFUL DEFENSE AGAINST A TRADE SECRETS CLAIM AND RECOVERY OF LEGAL FEES

By Mavrick Law Firm

The Defend Trade Secrets Act (commonly called “DTSA”) is a federal law that prohibits trade secret misappropriation. DTSA states, at 18 U.S.C. section 1836(a), that “[a]n owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” DTSA allows a party to recover “reasonable attorney’s fees the prevailing party” if a claim of misappropriation is “made in bad faith.” DTSA, however, does not define the term “bad faith.” A body of federal case law has evolved to determine what will trigger a determination of “bad faith” for recovery of attorney’s fees to the prevailing party. One of the predominant tests is the so-called “Stilwell test,” based on the decision from the United States District Court for the Central District of California in Stilwell Dev., Inc. v. Chen, 1989 WL 418783 (C.D. Cal. Apr. 25, 1989). Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

The Stilwell test is a two-pronged analysis that has been frequently adopted to evaluate claims of bad faith in the context of trade secret misappropriation. Under Stilwell, “[t]he party seeking an award of attorney’s fees must show (2) the objective speciousness of [an] opposing party’s claim, and (2) the subjective bad faith of the opposing party in bringing or maintaining the action for an improper purpose.” In Kipu Sys. LLC v. Zencharts LLC, 2021 WL 1891710 (S.D. Fla. Apr. 6, 2021), the United States District Court for the Southern District of Florida essentially used the Stilwell test. Kipu explained that “objective speciousness” means “generally shown with a demonstration that there was no misappropriation or threatened misappropriation or that the opposing party could not have suffered any economic harm…’Objective speciousness exists where there is a complete lack of evidence supporting Plaintiff’s claims.’” The second prong, requiring subjective bad faith, is satisfied when it may be inferred from the evidence that a party “intended to cause unnecessary delay, filed the action to harass [the opposing party], or harbored an improper motive.” Relying on California appellate court precedent, Kipu explained that “[s]ubjective bad faith means the action was commenced or continued for an improper purpose, such as harassment, delay, or to thwart competition…That question ‘involves a factual inquiry into the plaintiff’s subjective state of mind: Did he or she believe the action was valid? What was his or her intent or purpose in pursuing it?’” Kipu relied, in part, on case law from the United States Court of Appeals for the Sixth Circuit, in Degussa Admixtures, Inc. v. Burnett, 27 F.App’x 530 (6^th Cir. 2008), concerning an award of attorneys’ fees in a trade secret case governed by Michigan law. Degussa awarded attorneys’ fees under Michigan law when the evidence showed, not that the plaintiff had an objectively supportable and good-faith claim that the defendant was using trade secrets to gain new customers, but that the plaintiff’s “own product-quality, employee-retention and marketing shortcomings led it to file this action in an attempt to slow the bleeding from those self-inflicted wounds—to avoid losing additional market share and salespeople to [the competitor] and to convert [the defendant’s] confidentiality agreement into a noncompete agreement.” The Degussa decision summarized its holding that, “[f]iling a trade-secret action to restrain legitimate competition and job mobility, needless to say, is not proper.”

Federal courts do not generally look at the failure to properly state a claim, by itself, as enough to warrant an inference of bad faith for an award of attorney’s fees. The United States Court of Appeals for the Eleventh Circuit, in Mar. Mgmt., Inc. v. United States, 242 F.3d 1326 (11th Cir. 2001), explained that “[i]n determining the propriety of a bad faith award, ‘the inquiry will focus primarily on the conduct and motive of a party, rather on the validity of the case.'”

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Published on: August 26, 2023

MIAMI BUSINESS LITIGATION: CONTRACTUAL DISCLAIMERS OF FRAUDULENT INDUCEMENT

By Mavrick Law Firm

Sellers and buyers have competing interests when negotiating a contract. One term sellers and buyers should consider when negotiating their purchase agreement is the fraudulent inducement disclaimer provision. These provisions can help sellers avoid or defeat lawsuits if the buyer develops “buyer’s remorse” after entering the agreement because the buyer cannot claim the seller’s representations tricked him or her into entering the purchase agreement. However, fraudulent inducement disclaimer provisions may harm buyers by preventing them from asserting an otherwise legitimate fraudulent inducement claim against the seller. Peter Mavrick a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

The general rule of contracts prohibits parties from disclaiming fraudulent inducement because contracting parties are entitled to rely on each other’s representations before entering a contract. The Supreme Court of Florida explained in Oceanic Villas Inc. v. Godson, 4 So. 2d 689 (Fla. 1941), that “[i]t is well settled that a party can not [sic] contract against liability for his own fraud.” Florida’s appellate courts have generally reiterated this legal principle concerning exculpatory clauses concerning fraud. Mankap Enters., Inc. v. Wells Fargo Alarm Servs., a Div. of Baker Protective Servs., Inc., 427 So. 2d 332 (Fla. 3d DCA 1983) (“A party cannot contract against liability for his own fraud in order to exempt him from liability for an intentional tort, and any such exculpatory clauses are void as against public policy.”); Zuckerman-Vernon Corp. v. Rosen, 361 So. 2d 804 (Fla. 4th DCA 1978) (“A party cannot contract against liability for his own fraud in order to exempt him from liability for an intentional tort.”); see also HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So. 2d 1238 (Fla. 1996) (“The interest protected by fraud is a plaintiff’s right to justifiably rely on the truth of a defendant’s factual representation.”) However, disclaimer is permitted in limited circumstances when contracting parties “expressly state that [the contract] is incontestable on the ground of fraud.” Global Quest, LLC v. Horizon Yachts, Inc., 849 F. 3d 1022 (11th Cir. 2017) (summarizing the holding in Oceanic Villas). The enforceability of a fraudulent inducement disclaimer depends on the provision’s specificity because it is so draconian. Bank of Am., N.A. v. GREC Homes IX, LLC, 2014 WL 351962, at *6 (S.D. Fla. Jan. 23, 2014) (“‘A party cannot contract against liability for his own fraud[,]’ absent specific contractual language to the contrary.”).

Courts allow disclaimers of fraudulent inducement for several reasons. Courts presume contracting parties read the contract before agreeing to its terms. In Billington v. Ginn-La Pine Island, Ltd., 192 So.3d 77 (Fla. 5th DCA 2016), Florida Fifth District Court of Appeal explained that the “law necessarily presumes that parties to a contract have read and understood [the contract’s] contents.” The Billington appellate decision added that prohibiting fraudulent inducement disclaimers would prevent parties from protecting “themselves against those who would fabricate claims of fraud to avoid the consequences of a contractual obligation.” The appellate court also referenced that the sanctity of a contract and predictability of an outcome, together, take precedence over claim waiver when the parties clearly manifest their intent to avoid fraudulent inducement claims

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Published on: August 24, 2023

FORT LAUDERDALE BUSINESS LITIGATION: EQUITABLE TOLLING OF STATUTE OF LIMITATIONS FOR NON-COMPETE AGREEMENTS

By Mavrick Law Firm

The expiration of a non-compete period does not necessarily mean the covenant is unenforceable. A former employer may be able to enforce a non-compete against a former employee if the non-compete period expired and the non-compete period was tolled by the former employee’s violation of his restrictive covenant. Restrictive covenants, like non-compete agreements and non-solicitation agreements, must be reasonable in time as a general matter. Non-compete statutes often contain durational periods a restrictive covenant is considered reasonable and unreadable. The enforceable durations are usually based on the relationship between the obligor and obligee. In Florida, courts presume a restraint that is six months or less reasonable if the obligor is an employee and the obligee is an employer. Fla. Stat. § 542.335. The same statute dictates that a restrictive covenant between an employee and employer is presumptively unreasonable after two years. The presumptive enforceable duration increases if the obligor sold his business to the obligee. In that case, a court presumes a restrictive to be reasonable if is three years or less and unreasonable it if is more than seven years. Therefore, restrictive covenants usually contain a provision expressly stating their enforceable duration to ensure compliance with the reasonableness standard and statutory corresponding presumptions. Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

But what happens when a former employer discovers his or her former employee breached the restrictive covenant (during the restrictive period) after the covenant lapses? Can the covenant still be enforced? The answer is – probably if your state applies the equitable tolling doctrine to restrictive covenants. This doctrine allows the obligor to enforce a restrictive covenant against the obligee after the restrictive period lapses if the obligee breached the covenant during the restrictive period. For example, precedent from Florida’s Fourth District Court of Appeal in Orkin Exterminating Co., Inc. v. Bailey, 550 So. 2d 563 (Fla. 4th DCA 1989), held that “Appellant is entitled to the full duration of the two-year restriction.” The rationale supporting equitable tolling is fairness. In this vein, Florida’s Fourth District Court of Appeal, in Anakarli Boutique, Inc. v. Ortiz, 152 So. 3d 107, 109 (Fla. 4th DCA 2014, explained that “[i]t would be stunningly unfair if the law held that a valid non-compete clause could be nullified because the non-compete period was devoured by the time it took to appeal an erroneous ruling on the interpretation of the clause.” The obligor is entitled to the benefit of what he or she bargained for under the contract, i.e., a prohibition against certain competitive conduct for a limited duration. Capelouto v. Orkin Exterminating Co. of Fla., Inc., 183 So. 2d 532, 534 (Fla. 1966) (“Inasmuch as the appellant had been in competition with the appellee continuously since his resignation, the chancellor must have determined that this was the only way to give the appellee its two competition-free years.”).

All states do not permit equitable tolling because courts are generally prohibited from rewriting private contracts. See Coffee Sys. of Atlanta v. Fox, 227 Ga. 602, 602, 182 S.E.2d 109 (1971) (“The litigation did not toll the one year period so as to provide additional time for enjoining the employe [sic] [because s]uch an extension would in effect rewrite the one year feature of the agreement. Courts do not make contracts for the parties.”). In these states, it is important to include a tolling provision inside the contract. Including this provision could allow a former employer to toll a restrictive covenant post violation even if the state’s common law does not allow for equitable tolling because the parties expressly bargained for tolling. See Gaylord Broad. Co. v. Cosmos Broad. Corp., 746 F.2d 251 (5th Cir. 1984) (“The parties may contractually provide for the tolling of the noncompetition period, if an employee breaches a covenant not to compete and the resulting civil proceedings to enforce the covenant consume more time than the period of the covenant itself.”).

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Published on: August 17, 2023

FORT LAUDERDALE BUSINESS LITIGATION: FLORIDA TRADE SECRETS CLAIMS PREEMPTION

By Mavrick Law Firm

Florida employers who have non-compete agreements may enforce the restrictive covenants based on the legitimate business interest of trade secrets under Florida Statutes Section 542.335(1)(b)(1). Employers may also sue for misappropriation of trade secrets. However, employers sometimes sue former employees for common law claims that are related to misappropriation of company trade secrets. Such common law claims have sometimes faced roadblocks because many state law trade secret statutes preempt or displace all other non-contract claims arising from the trade secret misappropriation. Florida’s trade secret statute, like many others, preempts all potential claims arising from the unauthorized use of a trade secret unless the claim sounds in contract. Fla. Stat. § 688.008 (The Uniform Trade Secrets Act “displace[s] conflicting tort, restitutory, and other law of this state providing civil remedies for misappropriation of a trade secret [except]… contractual remedies”). Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, 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’s Third District Court of Appeal in Digiport, Inc. v. Foram Dev. BFC, LLC, 314 So. 3d 550 (Fla. 3d DCA 2020), provided an analysis of Florida law trade secret preemption. Digiport explained that Florida courts look to the facts alleged in the complaint to determine whether “there are material distinctions between the allegations comprising the additional torts and the allegations supporting the [trade secret claim].” The appellate court determined the plaintiff’s claims were preempted because they were premised on the same allegations and elements as its trade secret claims, stating “[b]oth the trade secret misappropriation claim and the misappropriation of a business idea count are premised upon allegations that [the plaintiff] invested substantial time in creating a novel business idea, the idea was disclosed to [the defendant] in confidence, reasonable measures to protect the secrecy were undertaken, and [the defendant] misappropriated the idea by disclosing its plans to other companies for its own benefit.” Conversely, courts allow claims affiliated with trade secrets to proceed if trade secret misappropriation does not alone comprise the underlying wrong. For example, in Mortgage Now, Inc. v. Stone, 2009 WL 4262877 (N.D. Fla. Nov. 24, 2009), the United States District Court for the Northern District of Florida allowed a claim of civil conspiracy to proceed because the defendant’s acts were unrelated to the misappropriation of trade secrets.

Preemption is a powerful tool that may apply to claims involving the use of information that does not qualify as a trade secret. K3 Enterprises, Inc. Saspwski, 2021 WL 8363506 *9 (S.D. Fla. Nov. 19, 2021), explained that, “[a]ccording to the majority view, non-FUTSA, non-contractual civil misappropriation claims do constitute conflicting law under Florida Statute § 688.008(1) and are preempted at the motion to dismiss stage.”) (internal quotations omitted). Similarly, another federal district court in American Registry, LLC v. Hanaw, 2014 WL 12606501, *6 (M.D. Fla. July 16, 2014), stated in pertinent part that, “[t]he Court finds that the FUTSA preempts all non-contract claims based on the misappropriation of confidential and/or commercially valuable information even if the information does not constitute a trade secret under the FUTSA.”

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