Articles Posted in Business Litigation

Florida courts have recognized that corporate officers and directors owe both a duty of loyalty and a duty of care to the corporation that they serve.  Florida courts often look to Delaware courts due to the well developed body of Delaware corporate law.  Corporate law recognizes two fundamental fiduciary duties by directors and officers: the duty of care and the duty of loyalty.  The Delaware Court of Chancery in In re Walt Disney Co. Derivative Litig., 907 A.2d 793 (Del. Ch. 2005), explained that the duty of care is the requirement to “use that amount of care which ordinarily careful and prudent men would use in similar circumstances, and consider all material information reasonably available in making business decisions,” with alleged breaches giving rise to liability only if the actions are grossly negligent.  In Zirn v. VLI Corp., 681 A.2d 1050 (Del. 1996), the Supreme Court of Delaware explained that “[a] good faith erroneous judgment…implicates the duty of care rather than the duty of loyalty.”  By contrast, the duty of loyalty “mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders directly.”  Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (De. 1993).  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.

Claims for breach of either the corporate duties of care or loyalty are asserted as claims for breach of fiduciary duty.  The Supreme Court of Florida, in Gracey v. Eaker, 837 So.2d 348 (Fla. 2002), explained that “[t]he elements of a claim for breach of fiduciary duty are: the existence of a fiduciary duty, and the breach of that duty such that it is a proximate cause of the plaintiff’s damages.”  The Florida Supreme Court further explained, in Flight Equip & Eng’g Corp. v. Shelton, 103 So.2d 615 (Fla. 1958), that “[o]fficers and directors of a corporation are liable for damages to the corporation which result from a breach of their trust, a violation of their authority or neglect of duty.”  This liability arises from the common law rule that “every agent is responsible to his principal for such acts which result in damage to the principal.”

In Cohen v. Hattaway, 595 So.2d 105 (Fla. 5th DCA 1992), Florida’s Fifth District Court of Appeal  stated that “[c]orporate directors and officers owe a fiduciary obligation to the corporation and its shareholders and must act in good faith and in the best interests of the corporation.”  In practice, this means that fiduciary obligors may not “either directly or indirectly, in their dealings on behalf of the fiduciary beneficiary [i.e., the corporation] …, make any profit or acquire any other personal benefit or advantage, not also enjoyed by the fiduciary beneficiary, and if they do, they may be compelled to account to the beneficiary in an appropriate action.”   The Hattaway decision added that “‘[i]f a fiduciary obligor acquires ‘in opposition to the corporation, property in which the corporation has an interest or tangible expectancy or which is essential to its existence[,]’ he violates the doctrine of corporate opportunity.”  Fundamentally, corporate officers and directors stand in a position of trust, requiring them to subordinate their personal interests in favor of the corporation.  Their positions require they act with care in their business decisions and loyalty to the best interests of the corporation.

As the United States Supreme Court explained in Nw Nat’l Life Ins. Co. v. Riggs, 203 U.S. 243 (1906), the freedom of contract is a constitutionally protected right. Contracting parties are free to address any issue they choose, including the question of whether  their agreement may be modified at all and, if so, how.  When contracting parties elect to adopt a term or condition, including one addressing the question of modification, it is not the province of a court to second guess the wisdom of their bargain, or to relieve either party from the burden of that bargain by rewriting the document.  In Int’l Expositions, Inc. v. City of Miami Beach, 274 So.2d 29 (Fla. 3d DCA 1973), Florida’s Third District Court of Appeal stated that “courts may not rewrite, alter, or add to the terms of a written contract between the parties and may not substitute their judgment for that of the parties in order to relieve one from an alleged hardship of an improvident bargain.”  It is instead the court’s duty to enforce the contract as plainly written.  For example, in Rybovich Boat Works, Inc. v. Atkins, 587 So.2d 519 (Fla. 4th DCA 1991), the appellate court reversed the trial court’s refusal to give effect to an unambiguous “anti-waiver” clause in the parties’ written contract.  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.

Under Florida law, a contractual provision barring oral modification will generally be enforced because this is plainly what was agreed by the parties.  There are, however, exceptions to this legal principle.  One of the most important exceptions arises from important precedent from the Supreme Court of Florida in Professional Insurance Corp. v. Cahill, 90 So.2d  916 (Fla. 1956), which held that even when an agreement expressly forbids oral modifications, “[a] written contract or agreement may be altered or modified by an oral agreement if the latter has been accepted or acted upon by the parties in such a manner as would work a fraud on either party to refuse to enforce it.”  The Cahill decision did not elaborate on precisely what is required to prove that an alleged oral agreement had “been accepted and acted upon by the parties,” or under what circumstances a failure to enforce such a modification would “work a fraud.”  Florida’s Fourth District Court of Appeal in Okeechobee Resorts, L.L.C. v. E Z Cash Pawn, Inc., 145 So.3d 989 (Fla. 4th DCA 2014), followed the Supreme Court’s precedent in Cahill, and further developed the legal standard to assess enforcement of contractual clause barring oral modification.  Okeechobee Resorts explained in pertinent part: “Cahill undoubtedly remains our Supreme Court’s governing precedent on the question of when a party may enforce an alleged oral modification of a written contract which expressly requires that any modification be in writing.  There also is no doubt that Cahill requires that a party pursuing such a claim allege and prove more–indeed much more–than just a ‘mutual agreement,’ or just ‘detrimental reliance,’ or just ‘subsequent conduct,’ or just generalized ‘inequitable conduct.’  Rather, a plaintiff must again allege–and eventually prove–that the oral amendment was ‘accepted and acted upon by the parties in such a manner as would work a fraud on either party to refuse to enforce it.’  This requires  that a plaintiff plead (and again eventually prove): (a) that the parties agreed upon and accepted the oral modification (i.e., mutual assent); and (b) that both parties (or at least the party seeking to enforce the amendment) performed consistent with the terms of the alleged oral modification (not merely consistent with their obligations under the original contract); and (c) that due to the plaintiff’s performance under the contract as amended the defendant received and accepted a benefit it otherwise was not entitled to under the original contract (i.e., independent consideration).  Absent such a showing, the parties will be held to the bargain as negotiated and memorialized in their written agreement.”

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.

For a long time, Florida courts have employed the “litigation privilege” to provide “all persons involved in judicial proceedings, including parties and counsel, and absolute privilege from civil liability for acts taken in relation to those proceedings.”  North Star Cap. Acquisitions, LLC v. Krig, 611 F.Supp.2d 1324 (M.D. Fla. 2009).    Precedent from the Supreme Court of Florida in Levin, Middlebrooks, Mabie, Thomas, Mayes & Mitchell, P.A. v. U.S. Fire Ins. Co., 639 So.2d 606 (Fla. 1994), explained that the litigation privilege provides “absolute immunity … [for] any act occurring during the course of a judicial proceeding, regardless of whether the act involved a defamatory statement…so long as the act has some relation to the [judicial] proceeding.”  This privilege broadly extends to any allegedly tortious behavior.  Levin explained that, “absolute immunity must be afforded to any act occurring during the course of a judicial proceeding, regardless of whether the act involves a defamatory statement or other tortious behavior such as the alleged misconduct at issue, so long as the act has some relation to the proceeding.” The reason behind this rule, the Florida Supreme Court has said, is to ensure that the “participants be free to use their best judgment in prosecuting or defending a lawsuit without fear of having to defend their actions in a subsequent civil action for misconduct.”  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.

Courts have extended the litigation privilege to acts occurring outside the courtroom or pre-trial court hearings.  In its later opinion in DelMonico v. Traynor, 116 So.3d 1205 (Fla. 2013), the Supreme Court explained that this absolute privilege is applied based on whether the alleged misconduct occurred during the course of some “formal” judicial proceeding, including the “formal discovery process.”  The United States Court of Appeals for the Eleventh Circuit in Jackson v. Bellsouth Telecomms., 372 F.3d 1250 (11th Cir. 2004), explained that “[e]vents taking place outside the courtroom during discovery or settlement discussions are no less an integral part of the judicial process, and thus deserving of the protection of the [litigation] privilege, than in-court proceedings.”  For example, in Stucchio v. Tincher, 726 So.2d 372 (Fla. 5th DCA 1999), the Florida appellate court applied the litigation privilege to statements made during a witness interview in preparation for trial because “the question is not whether the statement was compelled or under oath; the question is merely whether the statement was made ‘in connection with’ or ‘in the course of’ an existing judicial proceeding.”

In its Levin decision, the Supreme Court of Florida emphasized the need to avoid chilling legal advocacy for clients. “In determining that the public interest of disclosure outweighs an individual’s right to an unimpaired reputation, courts have noted that participants in judicial proceedings must be free from the fear of later civil liability as to anything said or written during litigation so as not to chill the actions of the participants in the immediate claim.  Although the immunity afforded to defamatory statements may indeed bar recovery for bona fide injuries, the chilling effect on free testimony would seriously hamper the adversary system if absolute immunity were not provided.”  More recently, the United States District Court for the Southern District of Florida in Gonzalez v. Porter, 2023 WL 2923601 (S.D. Fla. April 12, 2023), applied the litigation privilege in the context of a criminal defense attorney who advised his client during a federal investigation: “The plaintiffs seek to be able to impose civil penalties on a criminal defense attorney for his provision of advice during a federal investigation. This outcome would place criminal defense attorneys in a position of needing to constantly guard against how their advice to their clients could be used against them in a subsequent civil proceeding.  It would therefore necessarily interfere with the criminal defendant’s constitutional right to competent counsel.  It would also interfere with the constitutional right to avoid self-incrimination in the face of government questioning.  This is precisely the sort of chilling effect that the Florida Supreme Court has sought to avoid in over a century of consistent jurisprudence.”

Tortious interference claims are frequently pled in business litigation against competitors, and generally assert a type of “unfair competition” that interferes with a business relationship.  Under Florida law, the elements of tortious interference with a business relationship are: (1) the existence of a business relationship that affords the plaintiff existing or prospective legal rights; (2) the defendant’s knowledge of the business relationship; (3) the defendant’s intentional and unjustified interference with the relationship; and (4) damage to the plaintiff.  Precedent  from the Supreme Court of Florida in  Ethan Allen, Inc. v. Georgetown Manor, Inc., 647 So.2d 812 (Fla. 1994), explained that a business relationship need not be evidenced by a contract, but it generally requires “an understanding between the parties [that] would have been completed had the defendant not interfered.”  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 Ethan Allen case addressed a dispute between Ethan Allen, a furniture manufacturer, and its former dealer, Georgetown Manor.  Georgetown decided to convert its Ethan Allen galleries to other furniture outlets.  Ethan Allen responded by placing an advertisement in several newspapers that announced its split with Georgetown and asked customers who had unfilled orders with Georgetown to contact the new Ethan Allen outlets.  Georgetown then sued Ethan Allen for tortious interference with its alleged business relationship with past Georgetown customers.  The Supreme Court rejected Georgetown’s claim, holding that Georgetown’s relationship with its 89,000 past customers was not one upon which a tortious interference claim could be established because Georgetown’s optimism that some of its past customers would continue to purchase from Georgetown was mere “speculation.”  The court concluded that “Georgetown had no identifiable agreement with its past customers that they would return to Georgetown to purchase furniture in the future.”

In finding no business relationship between Georgetown and its past customers, the Supreme Court distinguished a prior appellate decision, Insurance Field Services, Inc. v. White & White Inspection & Audit Service, Inc., 384 So.2d 203 (Fla. 5th DCA 1980).  In Insurance Field Services, the appellate court held that the plaintiff, who had regularly been performing underwriting inspections, premium audits, and loss control work for sixteen insurance company clients, could establish a business relationship with these companies even though the plaintiff and his clients did not have written agreements.  The Supreme Court in Ethan Allen noted that the relationship in the Insurance Field Services case was “ongoing” and “far different that the one maintained by a retail furniture dealer with 89,000 past customers.”

Precedent from the Supreme Court of Florida in Argonaut Insurance Company v. May Plumbing Company, 474 So.2d 212 (Fla. 1985), set forth the legal standard for recovery prejudgment interest where there is recovery of financial loss at trial.  Argonaut held that “when a verdict liquidates damages on a plaintiff’s out-of-pocket, pecuniary losses, plaintiff is entitled, as a matter of law, to prejudgment interest at the statutory rate from the date of that loss.”   Under Florida law, this is generally the legal standard in business litigation concerning breach of contract and business torts, as distinct from, for example, personal injury cases.   In its later Musa Holdings decision, 46 So.3d 42 (2020), the Supreme Court explained that, “[t]hus, it has long been the law in Florida that in contract actions, and in certain tort cases, once the amount of damages is determined, prejudgment interest is allowed from the date of loss or the accrual of damages.”  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.

In Argonaut, the Supreme Court discussed the rationale for its decision, explaining in pertinent part: “since at least before the turn of the century, Florida has adopted the position that prejudgment interest is merely another element of pecuniary damages.  While doing so, the Court recognized and rejected an alternative but traditional rationale–that prejudgment interest was to be awarded as a penalty for defendant’s ‘wrongful’ act of disputing a claim found to be just and owing.  This view is still the rule in some jurisdictions.”  Argonaut ultimately rejected this “penalty” approach to liquidated damages, and instead used the “loss theory” for recovery of prejudgment interest.  “When prejudgment  interest is considered retribution rather than restitution, the finder of fact, whether judge or jury, has to decide both entitlement to and amount of prejudgment interest.  As jurisdictions have adopted the ‘loss theory’ many, including Florida, have nonetheless retained this vestige of the earlier theory and left to the jury the duty of awarding such interest.  Such a procedure is anomolous in a jurisdiction where prejudgment interest is held to be an element of damages as a matter of law.  Once a verdict has liquidated the damages as of a date certain, computation of prejudgment interest is merely a mathematical computation.  There is no ‘finding of fact’ needed.  Thus it is a purely ministerial duty of the trial judge or clerk of the court to add the appropriate amount of interest to the principal amount of damages awarded in the verdict.  We conclude that the finder of fact should not consider the time-value of money in its consideration of damages.”

Under Florida law, there is no discretion in either the award of prejudgment interest or the interest rate.  Argonaut explained in pertinent part that, “just as the loss theory forecloses discretion in the award of prejudgment interest, there is no discretion in the rate of interest.  The legislature has established a statutory interest rate which controls prejudgment interest.”  The relevant statutory provision is Florida Statutes Section 687.01.   Subsequently, Florida’s Fourth District Court of Appeal in Palm Beach Florida Hotel v. Nantucket Enterprises, Inc., 211 So.3d 42 (Fla. 4th DCA 2016), explained that, “[i]n all cases, either of tort of contract, where the loss is wholly pecuniary, and may be fixed as of a definite time, interest should be allowed as a matter of right, whether the loss is liquidate or unliquidated. … [T]he plaintiff will not be fully compensated unless he receive, not only the value of what he has lost, but receive it as nearly as may be as of the date of his loss”, quoting William B. Hale, The Law of Damages, § 67 (2d ed. 1912).