Business Litigation

Published on: June 3, 2014

FRANCHISOR’S LIABILITY FOR FRANCHISEE ACTIONS

Franchise agreements can serve to establish a mutually beneficial relationship for the franchisor and the franchisee. Under a franchise agreement, the franchisor’s brand is allowed to grow through an independent business, i.e., the franchisee, and the franchisee is able to start a business without having to create a new product or brand. Because franchisees are generally independent businesses, the franchisor will normally not be liable for the franchisee’s actionable conduct. However, the franchise agreement and other factual circumstances could render a franchisor vicariously liable for its franchisees’ actions.

In Parker v. Domino’s Pizza, 629 So. 2d 1026 (Fla. 4th DCA 1993), two plaintiffs were harmed as a result of an accident caused by a delivery driver employed by J&B Enterprises, a Domino’s Pizza (“Domino’s”) franchisee. Under Florida law, an employer can be vicariously liable for his or her employees’ actions. J&B Enterprises, as the employer of the delivery driver, could therefore be liable for the plaintiffs’ injuries. The plaintiffs argued, however, that Domino’s also was vicariously liable for the injuries caused by the delivery driver. The trial court held that Domino’s was not liable to the plaintiffs because the delivery driver was not a Domino’s employee. On appeal, the appellate court disagreed.

The appellate court held that the operating manual that Domino’s provided to J&B Enterprises was “a veritable bible for overseeing a Domino’s operation,” which contained “prescriptions for every conceivable facet of the business.” Parker v. Domino’s Pizza, 629 So. 2d 1026, 1029 (Fla. 4th DCA 1993). Because the manual indicated that Domino’s retained a high degree of control over J&B Enterprises, J&B Enterprises could be considered an agent of Domino’s. Consequently, the appellate court held that Domino’s could be found liable for the delivery driver’s actions.

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Published on: May 23, 2014

CONTRACT PROVISIONS FOR ATTORNEY’S FEES: FLORIDA’S RECIPROCITY LAW AND THE AMERICAN RULE

By Mavrick Law Firm

The “American rule” holds that each party to a lawsuit will pay for his or her own attorney’s fees regardless of who prevails in the case. Unless a statute or contractual provision says otherwise, Florida courts will apply the American rule. For that reason, contracts oftentimes contain provisions stating that if litigation arises under the contract, the losing party must pay the prevailing party’s attorney’s fees.

Florida statutory law, however, requires reciprocity. In other words, if “a contract contains a provision allowing attorney’s fees to a party when he or she … enforce[s] the contract, the court may also allow reasonable attorney’s fees to the other party when that party prevails … with respect to the contract.” Fla. Stat. § 57.105(7). For example, the following contractual provision is not reciprocal: “Buyer shall pay for Seller’s attorney’s fees if Seller prevails in a claim against Buyer.” The terms of the contract grant only Seller, not Buyer, the right to attorney’s fees upon prevailing. However, because Florida law requires reciprocity, Florida courts generally will read that contractual provision as also granting Buyer a right to attorney’s fees upon prevailing in a suit to enforce the contract.

In Fla. Hurricane Prot. & Awning, Inc. v. Pastina, 43 So. 3d 893 (Fla. 4th DCA 2010), a homeowner entered into a contract with a contractor to install shutters. The contract included the following provision: “Purchaser [i.e., the homeowner,] is responsible for all costs of collection including Attorney’s fees.” Fla. Hurricane Prot. & Awning, Inc., 43 So. 3d at 894. The contractual provision is not reciprocal, i.e., it grants only the contractor the right to recover attorney’s fees from the homeowner. After the contractor failed to install the shutters, the homeowner sued for breach of contract and prevailed. Relying on Florida’s reciprocity statute, the homeowner sought attorney’s fees from the contractor. While the trial court agreed with the homeowner and awarded her attorney’s fees, the appellate court disagreed.

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Published on: April 2, 2014

ARBITRATION AGREEMENTS AND THE FLSA: THE EFFECT OF FEE-SPLITTING AND FEE-SHIFTING PROVISIONS

By Mavrick Law Firm

Because arbitration usually is cheaper and faster than litigation, employers often include arbitration agreements in their employment contracts. However, courts do not always enforce arbitration agreements. Although federal law favors arbitration, state and federal courts may find an arbitration agreement unenforceable for several reasons. One such reason is when the arbitration agreement contains a provision that contrary a federal statutory remedy.

Generally, a “fee-splitting” provision is a contractual provision requiring that the parties to an arbitration agreement share (or “split”) the costs of arbitration. Moreover, a “fee-shifting” provision is a contractual provision that requires the losing party in an arbitration proceeding to pay the prevailing party’s fees and costs associated with the arbitration, i.e., the costs of arbitration “shifts” to the losing party. “Fee-splitting” and “fee-shifting” provisions would normally not render an arbitration agreement unenforceable. However, the analysis changes when federal statutory rights are subject to arbitration. The rule is as follows: an arbitration agreement is unenforceable if the cost of arbitration effectively precludes the employee from vindicating his federal statutory rights. One such federal statutory right is the right to payment of minimum and overtime wages under the Fair Labor Standards Act (FLSA).

In Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000), the U.S. Supreme Court held that the “risk” that a party will be saddled with prohibitive arbitration costs is too speculative to render an arbitration agreement unenforceable. Following Green Tree, several federal court have upheld the validity of arbitration agreement containing fee-splitting provision. For example, in Maldonado v. Mattress Firm, Inc., 2013 U.S. Dist. LEXIS 58742 (M.D. Fla. Apr. 24, 2013), an employee argued that the arbitration agreement’s fee-splitting provision rendered the agreement unenforceable against his FLSA claim. The federal court held that in order to prevail on his argument, the employee was required to present evidence of (1) the amount of costs he is likely to incur and (2) his inability to pay those costs. A showing of the “possibility” of incurring prohibitive costs is not sufficient. The federal court held that the arbitration agreement was enforceable despite the employee’s FLSA claim.

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Published on: April 26, 2013

SUCCESSFULLY USING BUSINESS RECORDS AT TRIAL

By Mavrick Law Firm

Trials in business disputes typically deal with documents such as correspondence, ledgers, contracts, and other business records. While those documents by themselves are often inadmissible hearsay, business trial attorneys usually get the documents into evidence via the “business records exception” to the rule against hearsay. The business record exception is based on the concept that records made in the regular course of business are sufficiently reliable to justify their admission into evidence.

In Florida, the business records exception is codified at section 90.803(6)(a), Florida Statutes, which provides:

[T]he following [is] not inadmissible as evidence, even though the declarant is available as a witness:

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Published on: April 21, 2013

APRIL 2013 TRIAL VICTORY FOR MAVRICK LAW FIRM CLIENT

By Mavrick Law Firm

In April 2013, the Mavrick Law Firm represented a victorious client in state court in Broward County, Florida. The case involved a lawsuit filed by a construction subcontractor against the general contractor in a commercial construction case. The Mavrick Law Firm successfully defended the general contractor at trial. The verdict was a complete defense verdict of no liability. In addition, the Mavrick Law Firm also filed a counterclaim on behalf of the general contractor, and prevailed in that counterclaim at trial. Attorney Peter Mavrick was lead counsel and was assisted by attorney David Friedman as second chair at the trial.

Published on: April 3, 2013

PERSONAL LIABILITY FOR A CORPORATION’S OBLIGATIONS UNDER FLORIDA LAW: “PIERCING THE CORPORATE VEIL”

By Mavrick Law Firm

In business litigation cases, it is important to evaluate the possibility of “piercing the corporate veil,” whether from the perspective of plaintiff/creditor or defendant/debtor. While a corporate debtor might be uncollectable due to its lack of financial resources, the story does not always end with the corporation’s own balance sheet. When a plaintiff/creditor can prove the requirements to pierce the corporate veil, a prudent corporate defendant/debtor and its principals might be more amenable to making substantial efforts to resolve the case rather than taking their chances on an adverse judgment.

As a general principle, corporations are legal entities that function with limited liability. Corporations are regarded as such because the corporate obligations remain those of the corporate entity, meaning that the corporation’s owners, officers, and shareholders are not held personally liable for corporate debt. However, in certain situations courts allow a creditor to “pierce the corporate veil” and hold corporate owners personally liable for corporate debts.

In Florida, “piercing the corporate veil” is governed by Florida Supreme Court case Dania Jai-Alai Palace, Inc. v. Sykes, 450 So. 2d 1114 (Fla. 1984), which holds “the corporate veil may not be pierced absent a showing of improper conduct.” This is not the most detailed description, especially in the legal realm where attorneys are accustomed to applying a particular set of facts to specific multi-factor tests. In a more recent case, Florida’s Third District Court of Appeal formulated a three factor test in Gasparini v. Pordomingo, 972 So.2d 1053 (Fla. 3d DCA 2008). Under the Gasparini case, to pierce the corporate veil and hold a shareholder liable for a corporate liability, a creditor must prove the following:

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Published on: December 17, 2012

Breach of Business Contract Claims & Commonly Raised Defenses

By Mavrick Law Firm

A breach of contract typically occurs when a party to an agreement fails to perform an obligation resulting from a valid offer and acceptance. In a business context, the five most common examples of breach of contract claims are as follows:

Failure to complete a job
Failure to deliver goods in a timely fashion

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Published on: December 10, 2012

What Constitutes a Breach of Warranty?

By Mavrick Law Firm

A warranty is either an express or implied representation about the quality or fitness of a given consumer product. When a warranty is breached, it usually occurs under the following circumstances:

A specific promise made by a seller or producer of a product is not honored
When a product is defective or in an unsafe condition at the time of the sale, whether or not the defect is apparent

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Published on: November 29, 2012

Legal Issues Involving Shareholder Disputes

By Mavrick Law Firm

Disputes among shareholders happen for a wide variety of reasons and if not properly addressed, can result in serious financial and legal problems. In general, the specific rights and responsibilities of shareholders vary according to the particular corporate form as well as the procedures used in implementing and enforcing them. Corporations, partnerships and other business entities also can alter the default provisions of Florida law through drafting bylaws and agreements tailored to the form of the business entity, and develop other agreements that specifically anticipate and address the kinds of situations that shareholders might need to resolve.Regardless of the preventative measures that businesses can implement to avoid shareholder disputes, there is no foolproof way to prevent these types of issues. Typically, both minority and majority shareholders tend to raise disputes over the following:

Decisions made by owners or managers of the company
The alleged breach of fiduciary duties by corporate officers and owners due to disloyalty, self-dealing, or not acting in the best interests of the company

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Published on: November 26, 2012

The Legalities Surrounding the Removal of a Business Partner

By Mavrick Law Firm

If you are in a business partnership with someone that seems to be failing, it is probably time to start reevaluating things. Perhaps you decided to partner up with someone based upon his or her skill-set or willingness to take on the responsibilities associated with running a successful business. However, if you answer yes to one or more of the following, it may be time to take command of your business and let the partner go:

You and your partner do not communicate effectively when problems arise.
You and your partner disagree about fundamental issues facing your business.

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