Articles Posted in Business Litigation

Florida appellate courts will scrutinize the method employed in calculating damages in business litigation, because this involves a pure question of law.  Precedent from the Supreme Court of Florida in W.W. Gay Mech. Contractor, Inc. v. Wharfside Two, Ltd., 545 So.2d 1348 (Fla. 1989) held that, generally, a business seeking to recover lost profits “must prove that 1) the defendant’s action caused the damage and 2) there is some standard by which the amount of damages may be adequately determined.”  In applying the second prong, Florida’s Fourth District Court of Appeal in HCA Health Servs. of Fla., Inc. v. Cyberknife Ctr. of the Treasure Coast, LLC, 204 So.3d 469 (Fla. 4th DCA 2016), held that “[e]vidence pertaining to loss of income or gross receipts, without specific evidence concerning expenses, is inadequate to prove lost profits.”   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 appellate courts have denied recover of lost profits where the proof at trial where the plaintiff merely presents prof of lost income or gross receipts, but not profits.  In this vein, E.T. Legg & Assocs. v. Shamrock Auto Rentals, Inc., 386 So.2d 1273 (Fla. 3d DCA 1980), explained in pertinent part that, “[a]s to the damages, the only evidence presented pertained to income or gross receipts, not profits, and testimony concerning expenses did not establish specific dollar amounts.  The evidence was therefore inadequate to prove lost profits.”  Similarly, Florida’s Second District Court of Appeal in Bass Venture Corporation v. Devom, LLC, 342 So.3d 821 (Fla. 2d DCA 2022), explained that “the trial evidence was insufficient as a matter of law to support the award of lost profits because it addressed only revenues from the relevant time period, not expenses–or, consequently, profits.”

Florida law does not require a party to establish lost profits with “absolute exactness.” The failure to do so will not defeat recovery.  Federal precedent from the United States Court of Appeals for the Fifth Circuit in Nat’l Papaya Co. v. Domain Indus., 592 F.2d 813 (5th Cir. 1979), has been persuasive authority in Florida appellate courts, including Florida’s Third District Court of Appeal in Del Monte Fresh Produce Co. v. Net Results, Inc., 77 So.3d 667 (Fla. 3d DCA 2011), holding that “an inability to establish the amount of lost profits with absolute exactness will not defeat recovery” and “the contervailing rules require ‘reasonable certainty’ in the proof of those damages and the assumptions underlying them.”  In other words, “[d]amages cannot be based upon speculation or guesswork, but must have some reasonable basis in fact.”  Smith v. Austin Dev. Co., 538 So.2d 128 (Fla. 2d DCA 1989).

Parties to contracts sometimes include a “liquidated damages” provision, i.e., a certain financial amount in the event of a triggering event specified in the contract.  Liquidated damages provisions seek to ensure compliance with the parties bargain when damages would be difficult to determine from the parties’ vantage when they sign the contract.  As Miami’s Third District Court of Appeal explained in Gables v. Choate, 792 So.2d 520 (Fla. 3d DCA 2001), “Florida law recognizes that where damages are not clearly ascertainable, parties to a contract may agree to a predetermined amount of damages that will flow from a breach of the contract.”  Under Florida law, “[l]iquidated damages arising from breach of contract are appropriate when (1) damages from the breach of are not readily ascertainable, and (2) the sum stipulated is not grossly disproportionate to the damages reasonably expected to follow from the breach.”  Resnick v. Uccello Immobilien GMBH, Inc., 227 F.3d 1347 (11th Cir. 2000).  Peter Mavrick is 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.

Florida law does not permit a liquidated damages clause in a contract that operates as a “penalty,” i.e., a mere punitive measure.   An excessive liquidated damages provision, however, is not necessarily a penalty.  In Secrist v. Nat’l Service Industries, Inc., 395 So.2d 1280 (Fla. 3d DCA 1981),  the appellate court explained that “[t]he fact that the liquidated damages may be excessive at the time of breach does not lead to the conclusion that the liquidated damages clause is a penalty and therefore not enforceable.”  In its Resnick decision, the United States Court of Appeals for the Eleventh Circuit explained “liquidated damages are inappropriate when they serve only to punish the breaching party.”   Resnick explained that where a liquidated damages provision contains “two separate and distinct parts,” any one of which is excessive, a court may properly enforce the provision found not to be excessive.

Florida courts have considered situations where a settlement agreement contains incorporates a trigger provision requiring the full amount of a default or consent judgment, and whether such a provision may be determined to be an unenforceable penalty, as opposed to a valid liquidated damages sum.  For example, Florida’s Fifth District Court of Appeal evaluated this issue in Crosby Forrest Prods., Inc. v. Byers, 623 So.2d 565 (Fla. 5th DCA 1993).  There, the plaintiff sued defendant for nonpayment of a contract for goods sold in the amount of $89,922.65.  The parties thereafter signed a settlement agreement containing a stipulation that defendants “owed [plaintiff] $93,899.91”, i.e., an extra amount for attorneys’ fees, costs, and interest.  As an incentive to timely pay under the settlement agreement, the defendants were required to “pay [plaintiff] $80,000” in a series of “installments.”  The contract provided, however, that “[i]n the event of a default of any payment” the court would have the authority to “immediately … enter judgment against [defendants] for any sums remaining unpaid on the amount stipulated to be due,” i.e., the stipulated amount of $93,899.91.  Unfortunately, the defendants made only three payments under the settlement agreement, but failed to make the fourth payment.  On appeal, the defendants argued that “the portion of the [settlement agreement] requiring [defendants] to pay the remaining balance of the original $93,899.91[,] rather than the balance of the $80,000,” was an unenforceable “penalty.”  They contended that “damages for the breach” of the settlement agreement were “the agreed upon amount of $80,000 less payments made,” which was “readily ascertainable,” and therefore the higher stipulated amount was improper.  The District Court of Appeal in Byers rejected the defendants’ argument and reversed the trial court’s vacatur of the liquidated damages award.  Byers held that the parties lawfully bargained for the higher amount, explaining that “the larger amount payable upon default represents a legitimate amount … [that] is not a subterfuge for usury or an unconscionable premium.”  The appellate court explained that this did not violate any public policy, and instead  “enforcement of such a provision” could “encourage settlement of lawsuits.”

Florida law recognizes the doctrine of caveat emptor in commercial transactions.  Florida and some other jurisdictions understand this legal doctrine to mean “buyer beware,” thereby imposing on buyers in commercial real property transactions the legal obligation to investigate what they are buying.  Florida’s Fourth District Court of Appeal in Transcapital Bank v. Shadowbrook at Vero, LLC, 226 So.3d 856 (Fla. 4th DCA 2017), explained that Florida courts continue to apply the caveat emptor doctrine, which “places the duty to examine and judge the value and condition of the property solely on the buyer and protects the seller from liability for any defects.”  There are, however, three exceptions to this legal doctrine: “1) where some artifice or trick has been employed to prevent the purchaser from making an independent inquiry; 2) where the other party does not have an equal opportunity to become apprised of the fact; and 3) where a party undertakes to disclose facts and fails to disclose the whole truth.”  Peter Mavrick is 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 Transcapital, the buyer of a condominium was informed that the property was worth $14.8 million and, in support, was shown two prior notes supporting this valuation.  The buyer thereafter sued, and at trial the seller presented evidence that the buyer never asked for the actual appraisal and since it only purchased some of the units, some of which were in poor condition, the appraisal value was less than the orally represented amount.  At the close of the buyer’s case, the seller argued the property value was an opinion which could not form the basis of a fraud claim. The jury found for the buyer.  The appellate court reversed the jury verdict because of the caveat emptor doctrine.  The appellate court held that “the fraud claim could not survive a motion for directed verdict” because “[n]one of the exceptions to caveat emptor appl[ied].”  The buyer was able to inspect the property before the closing, could have obtained its own appraisal, and purchased the property without physically viewing the appraisal.  The buyer presented no evidence showing that the seller resorted to some fraudulent means in preventing the buyer from making an examination of the property.

Similarly, in Agrobin, Inc. v. Botanica Dev. Associates, Inc., 861 So.2d 445 (Fla. 3d DCA 2003), Miami’s Third District Court of Appeal held that, in the context of the doctrine of caveat emptor, that “a sophisticated  purchaser of commercial property who agreed to an ‘as is’ purchase contract, had ample opportunity to conduct inspections, and could have discovered an alleged defect through the exercise of ordinary diligence, may be disgruntled, but does not have a cause of action for fraud.”

Not every written contract is sufficiently comprehensive to address potential fraud claims. Under Florida law, however, a well-drafted written contract can bar a business litigation claim for fraud that essentially covers the same territory as the contract. Florida’s Fourth District Court of Appeal in Mac-Gray Servs., Inc. v. DeGeorge, 913 So.2d 630 (Fla. 4th DCA 2005), held that “[a] party cannot recover in fraud for alleged oral misrepresentations that are adequately covered or expressly contradicted in a later written contract.   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 Mac-Gray, the buyers entered  into a contract with the seller for the purchase of laundry equipment.  Before signing the contract, the seller’s agent allegedly told the buyers “that they were ‘pretty much guaranteed’ to make money as soon as the business opened.”  The written contract, however, contained provisions that the seller did not guarantee any income or profits and that the buyers were not relying on the seller’s expertise or representations.  The buyers delayed opening the business, and thereafter quickly sold what had become an unprofitable business.  To recoup their losses, the buyers sued the sellers for fraudulent inducement of the contract.  The buyers alleged the seller’s agent did not tell them they could lose money in the startup period and did not tell them that the seller had been involved in failed laundromats.  The appellate court held that the fraud claim for damages was barred because the contract “negate[d] the fraudulent inducement claim” and did not guarantee profitability.

To attempt to prevent claims of fraud, contracts sometimes contain what are called “as is” clauses.  However, not every “as is” clause is prophylactic.  Such clauses sometimes are not comprehensive and do not bar fraud claims.  Effective “as is” clauses are well-considered, extensive, and detailed.  For example, in Florida Holding 4800, LLC v. Lauderhill Mall Investment, LLC, 317 So.3d 121 (Fla. 4th DCA 2021),  the appellate court affirmed dismissal of a Broward County lawsuit claiming fraud.  In Florida Holding, the contract had comprehensive “as is” provisions.  They expressly stated that (1) “Seller makes absolutely no warranties, representations or covenants to Buyer whatsoever regarding the [p]roperty or the condition or quality thereof”; (2) “Buyer represents that it is purchasing the [p]ropery in its ‘As Is’ condition and based solely on Buyer’s own inspection, investigation and evaluation”; (3) “neither Seller nor any agent of Seller has made any representation or warranty, express or implied, oral or written, concerning the [p]roperty or which have induced Buyer to execute this Contract”; and (4) upon closing, Buyer “shall be deemed to have waived, relinquished and released Seller … from and against any and all claims.”  The appellate court explained that these provisions “clearly negate Buyer’s claim for damages, including the fraud claims.”  Similarly, Giallo v. New Piper Aircraft, Inc., 855 So.2d 1273 (Fla. 4th DCA 2003), held that, “[a]ssuming for purposes of argument that the oral statement is fraudulent, a party cannot recover for fraudulent oral representations which are covered in or contradicted by a later written agreement.”

Miami’s Third District Court of Appeal in Moriber v. Dreiling, 194 So.3d 369 (Fla. 3d DCA 2016), explained that the elements for a cause of action for fraudulent misrepresentation and fraudulent inducement are the same, namely “(1) a false statement concerning a material fact; (2) the representor’s knowledge that the representation is false; (3) an intention that the representation induce another to act on it; and (4) consequent injury by the party acting in reliance on the representation.”  When claims of fraud have been asserted in Florida courts concerning certain sales of real property, defendants have at times defended on the grounds that the plaintiff-buyer should have been more diligent in investigating the veracity of what the seller said prior to making the sale.  However, the Supreme Court of Florida’s precedent in Johnson v. Davis, 480 So.2d 625 (Fla. 1985), addressed this issue.  Johnson held that a buyer is justified in relying on a seller’s representation unless the representation’s falsity is obvious. Peter Mavrick is 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 Johnson, the buyers contracted to purchase a home that was just three years old.  After remitting the initial deposit, but prior to any additional deposit would be due, the buyers “noticed some buckling and peeling plaster around the corner of a window frame in the family room and stains on the ceilings in the family room and kitchen of the home.”  After the buyers asked the sellers about these issues, the sellers responded that “the window … had a minor problem that had long since been corrected and that the stains were wallpaper glue and the result of the ceiling beams being moved.”  The sellers allegedly told the buyers that no roof or ceiling issues ever existed.  Based on these representations, the buyers paid the additional deposit, but, several days later, “discovered water ‘gushing’ in from around the window frame, the ceiling in the family room, the light fixtures, the glass doors, and the stove in the kitchen.”  The buyers filed suit, alleging breach of contract and “fraud and misrepresentation.”  On appeal, the court found the sellers’ statement that no roof problems existed “was a false representation of material fact, made with knowledge of its falsity, upon which the [buyers] relied to their detriment.”  The court therefore held that the sellers were liable for fraudulent misrepresentation.  The buyers were justified in their reliance on the sellers’ misrepresentation. Even though the buyer did not investigate a clearly observable defect beyond inquiring of the seller, the seller’s mere representation that nothing was wrong with the home entitled the buyer to recover his additional deposit.  Similarly, Revitz v. Terrell, 572 So.2d 996 (Fla. 3d DCA 1990), held, in an action concerning fraudulent misrepresentation and nondisclosure, that even if the property built in contravention of local flood zone ordinances was readily observable, a buyer’s “duty to exercise reasonable diligence was satisfied when he specifically inquired why other homes on the street were built on stilts.”

Florida case law adds additional layers of depth, including scenarios where sellers have included contractual provisions that contradict pre-sale representations and application of the legal doctrine of “caveat emptor,” also known as the “buyer beware” doctrine.   Florida law addresses and distinguishes these issues in residential and commercial contexts, among other nuances.  These issues will be addressed in future articles.

In business litigation, parties sometimes try to sue out-of-state corporations in the state where the plaintiff resides or conducts its business, i.e., the “home state.”  Federal Constitutional law, under due process clause as applied through the Fourteenth Amendment to the United States Constitution, however, places limits on the ability to sue a foreign corporation (i.e., and out-of-state corporation) because the foreign corporation would not expect to be sued in state where it does not conduct business.  Some plaintiffs have nevertheless attempted to sue foreign corporations in the plaintiff’s home state via “tag jurisdiction,” which typically means a corporation’s officer or director is present in the home state and the process server hands that person the lawsuit.  This is often like a game of “tag” that children often play.  The corporate officer or director is “tagged” by handing him the lawsuit, and saying in effect that his corporate employer is now subject to the lawsuit in the home state.  Federal courts refer to “tag jurisdiction” as meaning personal jurisdiction based on physical presence in a state. 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 body of case law applying “tag jurisdiction” applies to individuals, not corporations.  For example, the United Supreme Court precedent in Burnham v. Superior Ct. of California, Cnty. Of Marin, 495 U.S. 604 (1990), analyzed whether a New Jersey resident husband in a divorce proceeding could be subject to “tag jurisdiction” in California while doing business there, and the plurality of the Supreme Court allowed tag jurisdiction for an individual.  Similarly, in Durkee v. Durkee, 906 So. 2d 1176 (Fla. 3th DCA 2005), Florida’s Third District Court of Appeal in Miami, Florida determined there was personal jurisdiction over a husband in a divorce proceeding who was served in Florida while living and working there, regardless of whether he was a resident of Florida or Texas).   The Supreme Court of Florida in Garrett v. Garrett, 668 So. 2d 991 (Fla. 1996) (concurring) stated in dicta (meaning a statement of law that is not essential to the appellate decision, and therefore is not considered precedent) that a husband living in Indiana in a divorce proceeding may have been subject to personal jurisdiction in Florida if he was served there.

By contrast, the consensus of federal circuit and district courts (including the U.S. District Court for the Southern District of Florida) is that tag jurisdiction does not apply to corporations. Although Florida courts have not addressed this, they would likely follow federal court precedent barring tag jurisdiction over foreign corporations because of their due process rights under the Fourteenth Amendment Due Process Clause of the United States Constitution.  Federal courts generally have held that the Supreme Court’s decision in Burnham applies “tag jurisdiction” only to individuals.   For example, the United States Court of Appeals for the Ninth Circuit in Martinez v. Aero Caribbean, 764 F.3d 1062, 1071 (9th Cir. 2014), held that “Burnham does not authorize tag jurisdiction over corporations.”  Similarly, the Fifth Circuit Court of Appeals in Wenche Siemer v. Learjet Acquisition Corp., 966 F.2d 179, 182 (5th Cir. 1992), affirmed a Texas District court ruling against personal jurisdiction over a foreign corporation where its registered agent in Texas was served, in pertinent part because “Burnham did not involve a corporation and did not decide any jurisdictional issue pertaining to corporations.”  The United States District Court for the Southern District of Florida recently held in In re Inmobiliaria Tova, S.A., No. 20-24981-MC, 2021 WL 925517, at *7 (S.D. Fla. Mar. 10, 2021), that “‘Tag’ jurisdiction does not apply to corporations[.]”