Articles Posted in Business Litigation

A prevalent issue arising in business litigation is whether a party wrongfully interfered with another parties’ business relationships. Parties in business litigation often assert claims under Florida law for tortious interference with their prospective or existing business relationships. These relationships must be identifiable. Such relationships are often governed by existing contractual relationships between parties, but valid claims may also exist against parties who interfere with non-contractual business relationships as well. Parties can sue a business or person for tortious interference where the business or person unjustifiably interfered with the party’s business or contractual relationships. “The tort of tortious interference teeters between two competing values—the desire to protect the reasonable expectations of the parties to a business relationship on the one hand, and the need to avoid excessive restrictions on freedom of competition on the other.” Jay v. Mobley, 783 So. 2d 297 (Fla. 4th DCA 2001). Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in Miami, 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 litigation, and other legal disputes in federal and state courts and in arbitration.

Tortious interference with a contract and tortious interference with a business relationship are very similar causes of action. The primary difference is that one claim involves an express contract, while the other involves only a business relationship. Plain Bay Sales, LLC v. Gallaher, 2018 WL 4208343 (S.D. Fla. Aug. 23, 2018).  The elements essential to recovery for tortious interference with a contract are: “(1) the contract; (2) the wrongdoer’s knowledge thereof; (3) his intentional procurement of its breach; (4) the absence of justification; and (5) damages resulting therefrom.” Smith v. Ocean State Bank, 335 So. 2d 641 (Fla. 1st DCA 1976).

The elements of a claim for tortious interference with a business relationship are: (1) “the existence of a valid business relation (not necessarily evidenced by an enforceable contract) or expectancy; [ (2) ] knowledge of the relationship or expectancy on the part of the interferer; [ (3) ] an intentional interference inducing or causing a breach or termination of the relationship or expectancy; and [ (4) ] resultant damage to the party whose relationship or expectancy has been disrupted.” Smith v. Ocean State Bank, 335 So. 2d 641 (Fla. 1st DCA 1976). Tortious interference with a business relationship requires interference with “business relations of another, both existing and prospective, by including a third person not to enter into or continue a business relation with another or by preventing a third person from continuing a business relation with another.” Plain Bay Sales, LLC v. Gallaher, 2018 WL 4208343 (S.D. Fla. Aug. 23, 2018).

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.

Claims for fraudulent inducement are common in business litigation. In an action for fraudulent inducement,  the “plaintiff must show that the fraudulent act induced the formation of contract between the parties.” GlobeTec Const., LLC v. Custom Screening & Crushing, Inc., 77 So. 3d 802 (Fla. 3d DCA 2011). The elements of fraud in inducement include representation of material fact that is knowingly false and intentionally made to induce the other party to do an act from which he suffers damage. Lou Bachrodt Chevrolet, Inc. v. Savage, 570 So. 2d 306 (Fla. 4th DCA 1990). Under Florida law, “[i]t is a fundamental proposition that a contract induced by fraud is voidable.” Lance Holding Co. v. Ashe, 533 So. 2d 929 (Fla. 5th DCA 1988). 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.

In Florida, in an action for fraudulent inducement, the party must . . . show (1) a false statement of a material fact; (2) that the defendant knew or should have known was false; (3) that was made to induce the plaintiff to enter into a contract; and (4) that proximately caused injury to the plaintiff when acting in reliance on the misrepresentation. Bradley Factor, Inc. v. United States, 86 F. Supp. 2d 1140 S.D. Fla. 2000). Florida law provides for an election of remedies in fraudulent inducement cases: rescission, whereby the party repudiates the transaction, or damages, whereby the party ratifies the contract. A prerequisite to rescission is placing the other party in status quo. “Generally, a contract will not be rescinded even for fraud when it is not possible for the opposing party to be put back into his pre-agreement status.” Florida Evergreen Foliage v. E.I. Dupont De Nemours & Co., 336 F. Supp. 2d 1239 (S.D. Fla. 2004).

A contract that was procured by a materially false statement, while still legally considered valid, is ultimately voidable and does not automatically trigger the performance of the defrauded party. Where misrepresentation of the character or essential terms of a proposed contract occurs, assent to the contract is impossible. Cancanon v. Smith Barney, Harris, Upham & Co., 805 F.2d 998 (11th Cir. 1986). Indeed, the Eleventh Circuit Court of Appeals has expressly held that a contract induced by fraud is voidable by the defrauded party. Nat’l Union Fire Ins. Co. of Penn. v. Carib Aviation, Inc., 759 F.2d 873 (11th Cir. 1985). In Oceanic Villas, Inc. v. Godson, Florida’s Supreme Court recognized “the rule to be that fraud in the procurement of a contract is ground for rescission and cancellation of a contract.” 148 Fla. 454 (1941).