Articles Posted in Business Litigation

Published on: April 10, 2020

MIAMI BUSINESS LITIGATION: FRUSTRATION OF PURPOSE OR IMPRACTICABILITY MAY EXCUSE PERFORMANCE OF CONTRACTUAL OBLIGATIONS DUE TO PANDEMIC

Contract termination can sometimes be necessary even when there has been no wrongdoing by any party. Unanticipated circumstances for one party can frustrate the purpose of the contract or render performance of a contract impractical. The Mavrick Law Firm’s recent, related article addressed the legal excuse of “impossibility” when contractual obligations become impossible to perform (for example, the COVID-19 related “shelter-in-place” orders which prohibits activities such as the hosting an event in public). This article discusses the similar Florida law defenses of “frustration of purpose” and “impracticability.” Peter Mavrick is a Miami business litigation attorney who represents businesses in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringment litigation, and other legal disputes federal and state courts and arbitration.

The affirmative defenses of frustration of purpose and impracticability have the common principle that if the risk was foreseeable at the inception of the contract, then these defenses may not be applicable. As Florida’s Fifth District Court of Appeal explained in the case of Genuinely Loving Childcare, LLC v. Bre Mariner Conway Crossings, LLC, 209 So.3d 622 (Fla. 5th DCA 2017), if the intervening event was reasonably foreseeable before entering the contract and could have been controlled by the terms of the contract, Florida courts will not allow a party to excuse its contractual performance and instead hold the party liable for a breach of contract. Unlike the doctrine of impossibility, the contractual duties do not need to be impossible to perform

The “frustration of purpose” legal defense may excuse performance of a contract when the overall purpose of the contract has been frustrated or negated by an unanticipated changed circumstance. . For example, in Hilton Oil Transport v. Oil Transport Co., S.A., 659 So.2d 1141 (Fla. 3d DCA 1995), Florida’s Third District Court of Appeal in Miami held that the doctrine of commercial frustration applied to certain events but not other events that were the subject of the lawsuit, depending on whether the “intervening event” was reasonably foreseeable to the parties and should have been addressed by the contract. The appellate court explained that Hilton Oil Transport (“Hilton”) entered into an agreement for its barge to haul asphalt to Honduras. Hilton employed Oil Transport Co. S.A. (“OTC”) to lease its tugboat to tow Hilton’s barge for part of the voyages. During one of the voyages, the Honduran local government detained the barge and tugboat due to the alleged possibility of the asphalt boiling over onto the shore. About one week later, a severe storm came through and destroyed the barge. OTC filed a lawsuit against Hilton for failure to pay its invoice in breach of their charter agreement. Hilton raised the defense of commercial frustration of the charter agreement. The trial court found in favor of OTC. Hilton appealed and contended that the trial court’s award of the entire sixteen-month charter was in error because its charter was commercially frustrated by both the detention of the barge and tugboat, as well as the subsequent destruction by the storm.

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Published on: April 5, 2020

FLORIDA NON-COMPETE AGREEMENTS: FORUM SELECTION AND NON-SIGNATORIES

By Mavrick Law Firm

Forum selection clauses are contract provisions intended to assign the forum where any disputes under the contract will be resolved, such as Broward County or Miami-Dade County, Florida. While signatories to the contract have agreed to be bound to the forum selected in the agreement, it is not always evident whether non-signatories will be bound. Non-compete lawsuits often involve non-signatory parties, such as the employee’s new employer and related parties. Peter Mavrick is a Fort Lauderdale, Palm Beach, and Miami non-compete attorney and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings.

An example of this circumstance occurred in East Coast Karate Studios, Inc. v. Lifestyle Martial Arts, LLC, 65 So. 3d 1127 (Fla. 4th DCA 2011). A martial arts business hired an employee to work in its Broward County location and had the employee sign a non-compete agreement. The non-compete agreement prohibited the employee from engaging in the same business in Broward County or within a twenty-five mile radius of Broward County for two years from the date of termination of his employment. The agreement also contained a mandatory forum selection clause which required Broward County to be the “exclusive” forum for any case or controversy arising either directly or indirectly, under or in connection with the non-compete agreement. The employee also agreed not to contest or challenge the jurisdiction or venue of the court. The employee subsequently resigned and immediately began working for a martial arts business in Delray Beach. The new employer was located within a twenty-five mile radius of Broward County. The new employer’s managing member was the employee’s wife.

The employee, his wife, and the new employer filed a declaratory judgment lawsuit in Palm Beach County. They sought a declaration that the non-compete agreement was unenforceable. The former employer moved to transfer venue from Palm Beach County to Broward County. The former employer’s motion to transfer was based on the non-compete agreement’s mandatory forum selection clause. The employee, his wife, and the new employer contended that Palm Beach was the appropriate venue because: the employee and his wife resided in Palm Beach County; the new employer’s business address was in Palm Beach County; and the employee’s wife and the new employer were not bound by the mandatory forum selection clause because they did not sign the non-compete agreement.

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Published on: April 4, 2020

FLORIDA BUSINESS LITIGATION: WHEN CONTRACTUAL PERFORMANCE MAY BE EXCUSED BECAUSE OF PANDEMIC

By Mavrick Law Firm

As the world strives to persevere through the COVID-19 pandemic and the resulting economic fallout, it may become impossible for many Florida businesses to comply with their business contracts. Businesses may be able to cancel those contracts if they contain a “force majeure” clause. Force majeure clauses are contractual terms which remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict parties from fulfilling contractual obligations. Typical force majeure clauses address global catastrophic events, such as acts of war, environmental catastrophe, riots or civil unrest, or complete unavailability of supply. Absent a force majeure clause, parties alternatively may be able to avoid liability by asserting the defense of “impossibility” to excuse their failure to perform on the basis that performance of the contract impossible. Peter Mavrick is a Miami business litigation attorney with extensive experience in defending and prosecuting the interests of businesses in court proceedings and arbitration.

Generally, when a party to a contract fails to perform under the contract, they become liable for damages. Force majeure clauses are intended to excuse performance under a contract if calamity causes performance to become impossible or impractical, and that calamity could not have practically been predicted or prevented. Essentially, a force majeure clause is an agreement that allocates the risk of calamity away from the victim. For example, if a hurricane demolishes a factory overnight, such a calamity might excuse the performance under the contract for that company. The company may have to return the money paid by the purchasers but will not be on the hook for the damages for all of purchases that it failed to fulfill. Force majeure clauses may also only temporarily suspend performance, requiring the party to perform under the contract as soon as the calamity has passed.

Force majeure clauses “will generally only excuse a party’s nonperformance if the event that caused the party’s nonperformance is specifically identified.” ARHC NVWELFL01, LLC v. Chatsworth at Wellington Green, LLC, 18-80712, 2019 WL 4694146 (S.D. Fla. Feb. 5, 2019). An example of an exception to this general rule occurred in Devco Dev. Corp. v. Hooker Homes, Inc., 518 So. 2d 922 (Fla. 2d DCA 1987) where the court found that excessive rain qualified as “any other condition” within the force majeure clause, which excused the delayed construction of a home.

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Published on: March 18, 2020

FLORIDA NON-COMPETE AGREEMENTS: RESTRICTING COMPETITION WITH COMPANIES WITH SIMILAR BUSINESS METHODS

By Mavrick Law Firm

Non-compete agreements often prohibit competition with other companies that are “similar to” or “competitive with” their own company. The wording of a non-compete covenant, however, can sometimes be understood to refer to the method of the business as opposed to the products or services being sold. Under Florida law, a non-compete agreement that prohibits doing business with direct sales companies (such as door-to-door sales, home party sales, etc.) may be enforceable to protect a legitimate business interest. Peter Mavrick is a Miami non-compete attorney and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings.

An example of this circumstance occurred in the federal court case PartyLite Gifts, Inc. v. MacMillan, 895 F.Supp.2d 1213 (M.D. Fla. 2012), where Plaintiff, PartyLite, Inc. (“PartyLite”), filed a lawsuit against Defendant, Tarie MacMillan (“MacMillan”), claiming breach of the parties’ non-compete, non-solicitation, and non-disclosure agreements. PartyLite sold candles and related home products to consumers through the “home party plan” method of direct sales. Independent contractors known as “Consultants” demonstrated products and accepted orders for PartyLite’s products. All PartyLite Consultants, including MacMillan, signed a form Consultant Agreement which incorporated by reference certain policies and procedures contained in the PartyLite’s Policies and Procedures. PartyLite’s Policies and Procedures included terms and conditions wherein the Consultant agreed: 1) not to promote or sell other products or services or recruit for other companies or other business activities at PartyLite Shows, meetings or other events, 2) if the Consultant represented another company or participated in other business activities outside PartyLite, that any information, printed materials or other items obtained through association with PartyLite be kept separate and not used to solicit, promote, market or sell at or for any non-PartyLite activity, and 3) to keep PartyLite information confidential.

MacMillan advanced to the highest-level recognized by PartyLite, specifically that of “Senior Regional Vice President.” After her promotion to “Senior Regional Vice President,” PartyLite and MacMillan entered into a Leader Commitment Agreement (the “Leader Agreement”). The Leader agreement expanded the terms of the Consultant Agreement and included a provision wherein MacMillan agreed that during the term of the Leader Agreement and after the term ends and thereafter, she would not solicit or otherwise attempt to persuade any PartyLite Consultant or Leader to sell, resell or promote products of any other direct sales company, or to cease to be a Consultant or Leader of the Company. The Leader Agreement allowed MacMillan to accept employment and participate in other activities without PartyLite’s approval provided those activities do not violate the Leader Agreement and did not involve “selling, reselling, promoting products, or actively representing other direct sales companies that are similar to or competitive with the Company.” MacMillan worked as a Leader for PartyLite for several years after executing the Leader Agreement.

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Published on: March 6, 2020

FLORIDA TRADE SECRET LITIGATION: DISCLOSURE WITHOUT CONFIDENTIALITY AGREEMENT OR CONFIDENTIAL RELATIONSHIP

By Mavrick Law Firm

For a trade secret to be protectable under Florida law, a business must protect that information as confidential. Disclosure of trade secret information to parties without an understanding that the information must be protected as confidential can cause that information to no longer be a protectable trade secret. In the absence of an express confidentiality agreement, that information may still be protected if the business has an implied confidential relationship with the receiving party by making clear the intention to keep that information protected. However, that implied confidential relationship may have to be shown by something more than a mere oral understanding, such as a stamp or watermark placed on the documents indicating they are confidential. Peter Mavrick is a Fort Lauderdale trade secret attorney who represents businesses in trade secret litigation, non-competition agreement litigation, and other business litigation.

Whether information constitutes a trade secret can also make a material difference to the scope of a non-compete agreement. Under Florida Statute section 542.335(b)2), a trade secret can be a “legitimate business interest” allowing a non-compete covenant and can justify a legal presumption for a more lengthy non-compete obligation. Under Florida statute section 542.335(e), where trade secrets are proven, “a court shall presume reasonable in time any restraint 5 years or less and shall presume unreasonable in time any restraint of more than 10 years. All such presumptions shall be rebuttable presumptions.”

It is well established that a business must protect the secrecy of business information for that information to be protected as a trade secret under the Florida Uniform Trade Secret Act (“FUTSA”). Section 688.002(4)(b), Florida Statutes, describes that a trade secret, by definition, must be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

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Published on: March 1, 2020

FLORIDA NON-COMPETE AGREEMENTS: JUDICIAL ANALYSIS OF INJUNCTIONS IN THE CONTEXT OF EMPLOYEE DEFENSES

By Mavrick Law Firm

Florida employers seeking an injunction to stop their former employees from engaging in competition in violation of a non-compete agreement must demonstrate specific criteria to a court or tribunal. Under Section 542.335, Florida Statutes, an employer must plead and prove several facts to be entitled to a temporary injunction against a former employee breaching a non-compete agreement. One critical requirement is the employer must show that an injunction is necessary because money damages will not adequately compensate the employer for the damages suffered. Once the employer has made this requisite showing, an employee must overcome the presumption of irreparable harm. Peter Mavrick is a Miami non-compete attorney and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings.

An example of this occurred in the recent case of Picture It Sold Photography, LLC v. Bunkelman, 45 Fla. L. Weekly D74 (Fla. 4th DCA Jan. 8, 2020). In Picture It, the former employee contended that an injunction not to compete was unnecessary because the alleged harm had already occurred. Some customers who were solicited by the former employee testified that if the former employee was enjoined from competition, they still would not have continued to be customers of the former employer. The trial court found that the former employer was not entitled to an injunction because its damages were calculable, and thus, it had an adequate remedy at law. The former employer appealed.

Picture It held that evidence showing that some customers would not continue to use the employer’s services does not overcome the presumption of irreparable harm once a breach of the non-compete agreement has been proven. The appellate court also found that “[t]he continued breach of a non-compete agreement threatens a former employer’s ‘goodwill and relationships with its customers, and nothing short of an injunction would prevent this loss.’” TransUnion Risk & Alt. Data Sols., Inc. v. Reilly, 181 So. 3d 548, (Fla. 4th DCA 2015). Picture It also found that the employee’s continued competition was sufficient to show that there was no adequate remedy at law. “Absent an injunction, there is nothing to stop Contractor from soliciting Employer’s current and prospective customers and further competing with Employer in the market.”

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Published on: February 23, 2020

FLORIDA BUSINESS LITIGATION: GUARANTORS AND AFFIRMATIVE DEFENSES BASED ON UNDERLYING DEBT

By Mavrick Law Firm

When a guarantor is sued based on an absolute guarantee of a debt, the guarantor may either challenge the validity of the guarantee or show that the guaranteed debt is not owed. Under Florida law, the guarantor can be held liable only when a court determines the guaranty is lawful and the alleged debt is actually owed. In other words, a guarantor may not escape liability if the absolute guarantee is lawful and the party owing the underlying debt is liable under that debt. Peter Mavrick is a Fort Lauderdale business litigation attorney with extensive experience in defending and prosecuting the interests of businesses in court proceedings and arbitration.

As discussed in the recent decision by Florida’s Fourth District Court of Appeal in Gulfstream Park Racing Ass’n, Inc. v. MI-V1, Inc., 286 So. 3d 315 (Fla. 4th DCA 2019), guarantors are limited in the defenses they may bring in a breach of contract action concerning a guaranteed debt. In Gulfstream, the appellate court reviewed the propriety of a jury verdict holding the tenant liable but not, however, the guarantor of the tenant’s debt. The plaintiff was a commercial landlord. The landlord claimed that the tenant had not paid required monthly rent, and therefore locked the entrance to the tenant’s nightclub. The landlord’s action was an apparent violation of § 83.05, Florida Statutes, which prohibits commercial landlords from undertaking “self-help” that inhibits tenant use over the leased property unless either the landlord won a judgment of eviction, the tenant surrendered the property, or the tenant abandoned the property.

The Gulfstream landlord sued the tenant and the guarantor for the tenant’s liability for a breach of the lease. The tenant and the guarantor claimed they were not required to pay rent because the landlord’s self-help violated § 83.05, Florida Statutes.

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Published on: February 5, 2020

FLORIDA NON-COMPETE AGREEMENTS: FRANCHISORS MAY HAVE A LEGITIMATE BUSINESS INTEREST IN RE-ENTERING MARKET SERVED BY TERMINATED FORMER FRANCHISEE

By Mavrick Law Firm

Franchisors will often include non-compete provisions in their Franchise Agreements to protect their ability to sell new franchises in a geographic region that was formerly served by a terminated franchisee. A party seeking to enforce a non-compete agreement must plead and prove the existence of one or more legitimate business interests justifying the non-compete covenant and that the restriction is reasonably necessary to protect those legitimate business interests. Fla. Stat. § 542335(1)(b) and (c). Legitimate business interests under section 542.335(1)(b) include, among other things, client goodwill associated with a specific geographic location or specific marketing or trade area. Peter Mavrick is a Miami business litigation lawyer who has substantial experience with non-compete litigation, including injunction proceedings.

An example of this circumstance is the case of Peterbrooke Franchising of America, LLC v. Miami Chocolates, LLC, et al, 312 F.Supp.3d 1325 (S.D. Fla. 2018), where Peterbrooke Franchising of America, LLC (hereinafter “PFA”) was assigned a franchise agreement with Miami Chocolates, LLC (“Miami Chocolates”) and its owners (the “Franchise Agreement”). The Franchise Agreement contained a non-compete provision that prohibits a former franchisee from operating a competing business within twenty-five miles of its former location or at other franchise locations for two years. During the term of the Franchise Agreement, Miami Chocolates refused PFA’s requirement to change its point-of-sale system (used to record all sales). PFA terminated the Franchise Agreement. Miami Chocolates continued operating after the termination. The parties disputed whether Miami Chocolates took sufficient measures to disassociate itself from PFA and its trademarks. It was undisputed, however, that Miami Chocolates operated a competing business at the former franchise location after termination of the Franchise Agreement.

PFA filed a lawsuit against Miami Chocolates and its owners (the “former franchisees”). PFA moved for summary judgment, in part, based on its contention that the former franchisees breached the non-compete provision. Section 542.335(1)(c) states that “[i]f a person seeking enforcement of the restrictive covenant establishes prima facie that the restraint is reasonably necessary, the person opposing enforcement has the burden of establishing that the contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the established legitimate business interest or interests.”

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Published on: February 1, 2020

FLORIDA BUSINESS LITIGATION: ORDINARY COMPETITION MAY NOT CONSTITUTE A TORTIOUS INTERFERENCE CLAIM

By Mavrick Law Firm

Tortious interference is the intentional and unjustified interference with a relationship or contract that results in damages. However, tortious interference does not occur every time a contract or business relationship is consequentially affected. Direct interference is a necessary element of the tort (a wrongful act or an infringement of a right). Peter Mavrick is a Miami business litigation lawyer who has substantial experience representing the interests of businesses and business owners in commercial litigation and non-compete litigation.

Competition for business is not per se (by itself) an actionable interference, even if intentional. An example of this circumstance occurred in the case of Wackenhut Corp. v. Maimone, 389 So. 2d 656 (Fla. 4th DCA 1980), where plaintiff left his employment in the defendant’s security business and formed his own security company. Plaintiff solicited defendant’s supermarket client in violation of his non-compete and non-solicitation agreement with Defendant. Plaintiff’s contract with the supermarket was terminable by either party upon 30 days’ notice. Defendant, however, did not sue plaintiff, but instead it persuaded the supermarket client to come back under contract with it. Plaintiff sued defendant for tortious interference. Wackenhut Corp. v. Maimone held that defendant’s solicitation for the supermarket’s business did not constitute tortious interference with plaintiff’s contractual or business relationships. The evidence only showed that defendant persuaded the supermarket to lawfully terminate its “at-will” contract with plaintiff and re-establish its business relationship with defendant. The appellate court found that irrespective of defendant’s motives, there was no showing that defendant interfered with the supermarket’s payment to plaintiff during any 30-day period of plaintiff’s contract. As Florida’s Fifth District Court of Appeal explained in the case Heavener, Ogier Services, Inc. v. R. W. Florida Region, Inc., 418 So. 2d 1074 (Fla. 5th DCA 1982), “[e]ven if the contract is terminable at will, the interferer’s actions are tortious… if the motive is purely malicious and not coupled with any legitimate competitive economic interest.” In other words, a claim for tortious interference can stand only when there is malicious conduct devoid of any legitimate economic interest.

A tortious interference claim can also fail whern there is a lack of proof of direct interference with the agreement or relationship. “The law in Florida is clear that there is no such thing as a cause of action for interference with a contractual or advantageous business relationship which is only consequentially effected.” Florida Power & Light Co. v. Fleitas, 488 So. 2d 148 (Fla. 3d DCA 1986). Fleitas held that Florida law does not recognize a cause of action for negligent interference with a contractual or business relationship. In Fleitas, the plaintiff alleged that he was dismissed from his job with IRM because Florida Power & Light Co. (FP&L) negligently investigated an illegal drug complaint against him and barred him from FP&L’s Turkey Point Power Plant. Plaintiff’s complaint was that he was fired by his employer as a result of FP&L’s negligent conduct. The trial court entered judgment in favor of plaintiff. FP&L immediately appealed. The appellate court reversed the ruling because plaintiff’s claim was only that FP&L negligently investigated the drug accusation and caused, albeit unintentionally, plaintiff to lose his job. Florida Power & Light Co. v. Fleitas held that this was not a cognizable cause of action in Florida or anywhere else in the country.

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Published on: January 19, 2020

FLORIDA BUSINESS LITIGATION: ARBITRATION PROVISIONS AND THEIR SCOPE

By Mavrick Law Firm

Under Florida and federal law, whether a legal dispute is subject to the requirement that the parties submit to arbitration (what courts refer to as the “arbitrability” of the dispute) depends on what the wording of the arbitration agreement itself states. The parties’ intent as to what issues are to be arbitrated is typically evident from the plain language of the arbitration provision and contract. Courts generally favor arbitration provisions and will try to resolve an ambiguity in the wording of an arbitration provision in favor of arbitration. Jackson v. Shakespeare Found., Inc., 108 So. 3d 587 (Fla. 2013). Courts therefore usually apply the broadest possible interpretation of an arbitration provision and contract to determine whether a dispute is subject to arbitration. Peter Mavrick is a business litigation attorney, practicing in Fort Lauderdale and Miami, who has extensive experience with arbitration proceedings and representing the interests of businesses and business owners.

Contracts containing arbitration clauses often limit the scope of “arbitrable issues” (i.e., the types of disputes encompassed in the arbitration provision) to those that are “related to” or “arise from” the contract. There are cases where courts analyzed the causes of action alleged in the complaint to determine whether the controversy at issue was arbitrable under the contract. For example, in Xerox Corp. v. Smartech Document Mgmt. Inc., 979 So.2d 957 (Fla. 3d DCA 2007), Miami’s Third District Court of Appeal held that the causes of action of defamation, intentional infliction of emotional distress, injunctive relief, respondeat superior (vicarious liability for agent’s actions), and intentional interference with an advantageous business relationship—constituted a “Covered Dispute” under the contract. The appellate court reasoned that each cause of action arose out of or was related to the parties’ relationship under the parties’ contract. In the case of BKD Twenty-One Mgmt. Co., Inc. v. Delsordo, 127 So.3d 527 (Fla. 4th DCA 2012), Florida’s Fourth District Court of Appeal determined that the arbitration provision in the subject lease agreement applied to the tenant’s action for negligence against the retirement facility. The appellate court in Delsordo based is decision on the court’s interpretation of the word “Establishment” used in the parties’ contract. The appellate court held that the negligence claims based on a trip and fall on the defendants’ premises arose out of or related to the defendants’ “Establishment.”

This type of analysis is unnecessary when an arbitration provision is so broad as to encompass all potential claims. For example, in the federal appellate decision Doe v. Princess Cruise Lines, Ltd., 657 F.3d 1204 (11th Cir. 2011), the United States Court of Appeals for the Eleventh Circuit considered a broadly worded contract stating that the parties’ dispute had to relate to, arise from, or be connected with employee’s crew agreement or the employment services that she performed for the cruise line. A broadly worded arbitration covenant will sweep most controversies between the parties into private arbitration.

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