Articles Posted in Business Litigation

The Florida Deceptive and Unfair Trade Practices Act (FDUTPA), § 501.201 et seq., Florida Statutes, is a remedial statute intended “to protect the consuming public and legitimate business enterprises from those who engage in unfair methods of competition, or unconscionable, deceptive, or unfair acts or practices in the conduct of any trade or commerce.” § 501.202(2), Fla. Stat.  Rollins, Inc. v. Butland, 951 So. 2d 860 (Fla. 2d DCA 2006), defines a deceptive practice as “one that is likely to mislead” and an unfair practice as “one that offends established public policy” and/or “is immoral, unethical, oppressive, unscrupulous or substantially injurious.”  The explicit wording of FDUTPA and its interpretations by Florida courts are purposefully broad and intended to help protect consumers and businesses against a wide range of deceitful or unfair trade practices.  However, the broad wording and interpretations of FDUTPA could also be harmful to businesses, as they provide an avenue for customers and/or competitors adversely affected by lawful trade practices to bring meritless lawsuits.  A perfect example is when a party brings a FDUTPA claim against a business based on pre-suit communications threatening potential litigation, such as a demand letter or a cease and desist letter.  It is common practice for businesses to send such pre-suit communications as an attempt to curb another party from further engaging in conduct that is either violating the law or some other obligation the party owes to the business without the need for costly litigation.  This is useful in situations that include, inter alia, when a former employee is violating a non-compete agreement, when a party to a contract fails to fulfill his or her contractual obligations, or when a party is infringing on a business’s trademark or interfering with advantageous business relationships.  Despite the practicality of using these pre-suit communications, the recipients typically view it as harassing and threatening conduct forming the basis of FDUTPA claims.

One way businesses can defend against and dismiss these meritless FDUTPA claims is by invoking immunity under the Noerr-Pennington doctrine.  The foundation of Noerr-Pennington immunity arises from the First Amendment’s right to petition and it is traditionally utilized to shield a defendant from antitrust liability for resorting to litigation to obtain an anticompetitive result from the court.  Nevertheless, McGuire Oil Co. v. Mapco, Inc., 958 F.2d 1552 (11th Cir. 1992), extended the doctrine to protect “pre-litigative and litigative activities” from claims for unfair trade practices.

Based on the Eleventh Circuit’s reasoning in McGuire Oil Co., Florida federal courts have consistently applied Noerr-Pennington immunity to dismiss actions based on pre-suit communications.  PODS Enterprises, Inc. v. ABF Freight Sys., Inc., 100 U.S.P.Q.2d 1708 (M.D. Fla. 2011), and Atico Intern. USA, Inc. v. LUV N’ Care, Ltd., 2009 WL 2589148 (S.D. Fla. Aug. 19, 2009), both dismissed FDUTPA claims based on pre-litigation letters, holding that pre-suit demand and cease and desist letters are “immunized” under Noerr-Pennington.  Similarly, Rolex Watch U.S.A., Inc. v. Rainbow Jewelry, Inc., 2012 WL 4138028 (S.D. Fla. Sept. 19, 2012), applied Noerr-Pennington to dismiss a defendant’s FDUTPA counterclaim based on pre-suit threats of litigation and alleged injuries it sustained in having to defend against the plaintiff’s trademark infringement suit.  Another example, Marco Island Cable, Inc. v. Comcast Cablevision of S., Inc., 2006 WL 1814333 (M.D. Fla. July 3, 2006), granted partial summary judgment to the defendant for a FDUTPA claim based on pre-suit letters threatening to sue to enforce defendant’s exclusivity contracts.  These cases are just a few examples of how courts have applied the Noerr-Pennington doctrine to help business defend against meritless FDUTPA lawsuits.

Fraud in the inducement is a common cause of action in business litigation.  It typically involves a plaintiff alleging a contract he or she entered into with a defendant is not enforceable due to some misrepresentation or omission made by the defendant, which the plaintiff relied upon, inducing him or her to enter into the contract to the plaintiff’s detriment.  In such cases, the main remedy sought is to have the contract rescinded, effectively voiding the contract and returning the parties to the position they were in prior to entering into the contract.  Common examples of fraud in the inducement are when a business seller misrepresents the company’s financial state to induce a potential buyer into purchasing the business or when a seller of real property fails to disclose a construction defect to a potential buyer.  While these types of fraud claims are legitimate, it is not unusual for a party to a contract to allege fraud in the inducement against the other contractual party merely because the first party is unhappy with the result of the binding contract he or she legally entered into.  In these situations, it is important to know how to defend against these meritless fraud claims.

One way to defend against such claims is by applying the principle first stated by the Florida Supreme Court in Canell v. Arcola Housing Corp., 65 So.2d 849 (Fla. 1953) that a party cannot reasonably rely to its detriment on an unenforceable promise.  In Canell, a plaintiff brought suit against a seller of subdivision lots who allegedly promised purchasers that they would have the right to use a bathing beach that the developer promised to build.  However, the Court held that the plaintiff’s fraud in the inducement claim failed as a matter of law because it relied on an unenforceable promise that violated the statute of frauds. The statute of frauds, § 725.01, Florida Statutes, requires certain contracts to be in a writing signed by the party to be charged to be enforceable, such as inter alia contracts for the sale of real property.  The Florida Supreme Court explained in pertinent part that:

The plaintiffs are relying upon a mere oral promise to create the easement, which is clearly within the terms of the statute of frauds and thus cannot be enforced directly or indirectly…While it is contended by plaintiffs that they are suing for damages for fraud and deceit, such an action under the circumstances of this case is simply an attempt in an indirect manner to obtain damages for breach of the contract.  Since the provision in the statute prohibiting any action to be brought on an oral contract within the statute includes actions based indirectly on the contract, an action for damages cannot be maintained on the ground of fraud in refusing to perform the contract, even though the defendant at the time of the making of the oral contract may have had no intention of performing it.

Incorporating a business or forming a limited liability company (LLC) are both very smart decisions for business owners.  While each one has its own individual benefits, both allow a business owner to protect his or her personal assets in case someone sues their business.  However, sometimes individuals or businesses will form a corporation or LLC to shield themselves from liability, but utilize them for improper purposes.  In such cases, a victim who is wronged by such conduct may have limited recourse, as they could attempt to sue a business that is merely a shell with little to no financial assets to recover.  It is for this reason that courts allow these victims to “pierce the corporate veil,” essentially disregarding the corporate entity and allowing recovery directly from either the parent company or the individual(s) who formed the corporation or LLC.

XL Vision, LLC. v. Holloway, 856 So. 2d 1063 (Fla. 5th DCA 2003) states that under Florida law, a court may pierce the corporate veil if a person proves both that the corporation is a “mere instrumentality” or alter ego of the wrongdoer, and that the wrongdoer engaged in “improper conduct” in the formation or use of the corporation.” Hilton Oil Transp. v. Oil Transp. Co., S.A., 659 So. 2d 1141, 1151-52 (Fla. 3d DCA 1995) provides a list of factors courts deem relevant in determining whether a corporation or LLC is a “mere instrumentality” or “alter ego”, stating:

There are at least fifteen factors that have been deemed to be relevant in a determination of whether a corporate entity should be disregarded: (1) the absence of the formalities and paraphernalia that are part and parcel of the corporate existence, i.e. issuance of stock, election of directors, keeping of corporate records and the like; (2) inadequate capitalization; (3) whether funds are put in and taken out of the corporation for personal rather than corporate purposes; (4) overlap in ownership, officers, directors, and personnel; (5) common office space, address and telephone numbers of corporate entities; (6) the amount of business discretion displayed by the allegedly dominated corporation; (7) whether the related corporations deal with the dominated corporation at arm’s length; (8) whether the corporations are treated as independent profit centers; (9) the payment or guarantee of debts of the dominated corporations by other corporations in the group; (10) whether the corporation in question has been properly used by others of the corporations as if it were their own; (11) financing of subsidiary by parent; (12) informal intercorporate loan transactions; (13)  parent and subsidiary’s filing of consolidated income tax returns; (14) whether subsidiary’s directors act independently in interest of subsidiary rather than in interest of parent; (15) existence of fraud, wrongdoing or injustice to third parties.