Articles Posted in Business Litigation

Published on: December 17, 2023

MIAMI BUSINESS LITIGATION: ADMISSION OF EXPERT TESTIMONY AT TRIAL

In many business litigation cases, the issue of damages is an important issue at trial. For many cases, the parties will have expert witness on the issue of damages. Precedent from the United States Supreme Court in Daubert v. Merrell Dow Pharmaceuticals, Inc., 113 S.Ct. 2786 (1993), held that the “Frye standard,” i.e., the long dominant legal standard that “expert” testimony must have “general acceptance” in the scientific community or other relevant areas of knowledge, was no longer the legal standard for admitting expert testimony in evidence. The Supreme Court stated in pertinent part: “The merits of the Frye test have been much debated, and scholarship on its proper scope and application is legion. Petitioners’ primary attack, however is not on the content but on the continuing authority of the rule. They contend that the Frye test was superseded by the adoption of the Federal Rules of Evidence. We agree…The drafting history makes no mention of Frye, and a rigid ‘general acceptance’ requirement would be at odds with the ‘liberal thrust’ of the Federal Rules of Evidence…Frye made ‘general acceptance’ the exclusive test for admitting expert scientific testimony. That austere standard, absent from, and incompatible with, the Federal Rules of Evidence, should not be applied in federal trials.” 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 has codified the Daubert legal standard in the Florida evidence code. Section 90.702, Florida Statutes, allows expert testimony when “scientific, technical, or other specialized knowledge will assist the trier of fact in understanding the evidence or in determining a fact in issue.” Florida’s First District Court of Appeal, in May v. State, 326 So.3d 188 (Fla. 1st DCA 2021), explained that “Florida courts allow expert testimony if it will help the factfinder understand evidence or determine a fact in issue, but only if: ‘(1) The testimony is based upon sufficient facts or data; (2) [t]he testimony is the product of reliable principles and methods; and (3) [t]he witness has applied the principles and methods reliably to the facts of the case.'” In Vitiello v. State, 281 So.2d 554 (Fla. 5th DCA 2019), Florida’s Fifth District Court of Appeal explained that “[v]igorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence…These tools remain the ‘appropriate safeguards,’ and not ‘wholesale exclusion,’ where the basis for expert testimony meets the standards set forth by the rules of evidence.”

Trial judges play the role of an evidentiary “gatekeeper” along with advocacy by legal counsel for the parties. Florida appellate courts are deferential to the decisions of trial judges concerning the admission or rejection of expert testimony. The Supreme Court of Florida, in Salazar v. State, 991 So.2d 365 (Fla. 2008), explained that appellate courts will affirm their decisions “unless no reasonable person would adopt the trial court’s view.” For example, in May v. State, the appellate court affirmed the trial Judge’s decision to exclude an expert witness’ testimony based, in part, on the defendant’s failure to satisfy the “reliable method” prong of the Daubert standard: “Magill did not use a reliable method…Magill created his own method. He applied GAAP and a ‘reasonableness’ test…Yet Magill never explained what this reasonableness test was or why it negated Bryant’s analysis…[T]he trial court repeatedly pressed Magill to clarify his methodology, yet those explanations led to less clarity and more confusion. May cites no authority for Magill’s method, and we have found none either. Plus, if the parties needed accounting training just to understand Magill’s method, it follows that his testimony would not ‘assist the trier of fact in understanding the evidence or in determining a fact in issue’ [under Florida Statutes Section 90.702]…At bottom, we affirm because the trial court correctly performed its gatekeeping function in barring Magill’s testimony.”

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Published on: December 9, 2023

MIAMI BUSINESS LITIGATION: DISCLOSURE OF TRADE SECRETS IN COURT PROCEEDINGS

By Mavrick Law Firm

Florida law has a statutory privilege concerning disclosure of trade secrets in a lawsuit. Florida Statutes Section 90.506 states in pertinent part: “A person has a privilege to refuse to disclose, and to prevent other persons from disclosing, a trade secret owned by that person if the allowance of the privilege will not conceal fraud or otherwise work injustice. When the court directs disclosure, it shall take the protective measures that the interests of the holder of the privilege, the interests of the parties, and the furtherance of justice require. The privilege may be claimed by the person or the person’s agent or employee.” In American Expres Travel Related Svcs., Inc. v. Cruz, 761 So.2d 1206 (Fla. 4th DCA 2000), Florida’s Fourth District Court of Appeal explained that “[w]hen trade secret privilege is asserted as the basis for resisting production, the trial court must determine whether the requested production constitutes a trade secret; if so, the court must require the party seeking production to show reasonable necessity for the requested materials. The burden is on the party resisting discovery to show “good cause” for protecting or limiting discovery by demonstrating that the information sought is a trade secret or confidential business information and that disclosure may be harmful…If production is then ordered, the court must set forth its findings.” 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.

This determination will usually require that the trial court conduct an in camera inspection, i.e., the trial Judge reviews the subject documents to determine whether they contain trade secrets, and sometimes an evidentiary hearing. The issue of in camera review is an important procedural safeguard. A great deal of appellate litigation has occurred when trial courts did not review the allegedly “trade secret” documents before allowing the opposing party to review them. For example, in Salick Health Care, Inc. v. Spunberg, 722 So.2d 944 (Fla. 4th DCA 1998), the appellate court determined that the trial court departed from the essential requirements of law when it compelled production of documents alleged to be proprietary and confidential trade secret information, without first conducting an in camera hearing and inspection and making specific findings of fact concerning the trade secret objections. Trade secret litigation often involves highly technical information in the context of head-to-head competitors, making it essential for the trial court to conduct either in camera review or hold an evidentiary. In Beck v. Dumas, 709 So.2d 501 (Fla. 4th DCA 1998), the appellate court addressed whether certiorari review should lie when a lower court, upon a motion to compel production, required production of a source code, design documentation, and other technical information alleged to be computer trade secrets, without first conducting an in camera inspection or evidentiary hearing. The Beck decision explained: “The question before us is whether the court departed from the essential requirements of law by ordering [Petitioner] to disclose its trade secret without first conducting either an in camera inspection or an evidentiary hearing. We think so, given the sophisticated and highly technical nature of the requested materials. The broad judicial discretion which the trial court enjoys in ruling on discovery matters of this type cannot properly be exercised in a vacuum or on a mere whim. The court needs sufficient insight into the relevant factors which must be weighed before deciding the competing interests of the respective parties. Conceivably, on a matter with which the court is familiar and which is not the subject of a genuine factual dispute, argument of counsel might well suffice. But here the matters were of a highly technical nature, and the court candidly acknowledged its lack of familiarity with the requested materials. Under the circumstances, and given the inherent nature of advocacy, the court needed more than the argument of [Respondent’s]’ counsel that he “needed” the materials upon which to base its decision to override [Petitioner’s] statutory privilege against disclosure.”

Peter Mavrick is a Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.

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Published on: December 6, 2023

FORT LAUDERDALE BUSINESS LITIGATION: SALE OF BUSINESS THAT INCLUDES A NON-COMPETE COVENANT

By Mavrick Law Firm

Under Florida law, courts evaluate the enforceability of non-compete agreements based on Florida Statutes Section 542.335 as well as case law interpreting this statute. Under Section 542.335(1)(b), Florida Statutes, to establish that the contract restricting competition is itself lawful and enforceable, a party must simply “plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant.” Once the party, which is typically a business, has established that the restraint is reasonably necessary to protect the legitimate business interest, the burden shifts to party opposing enforcement of the contract to establish that it is overbroad or otherwise not reasonably necessary. Balasco v. Gulf Auto Holding, Inc., 707 So.2d 858 (Fla. 2d DCA 1998). Florida law accords substantially more deference to the scope and duration of a non-compete agreement in the context of sale of a business or its asserts, as distinct from a non-compete agreement solely concerning an employment relationship. 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.

For example, in Avalon Legal Information Services, Inc. v. Keating, 110 So.3d 75 (Fla. 5th DCA 2013), Florida’s Fifth District Court of Appeal decided the proper scope of a non-compete/non-solicitation covenant arising from the purchase of a civil service of process consulting business from a paralegal that sold the business. The seller of the business (the paralegal) argued to the court that the non-compete/non-solicitation agreement did not protect legitimate business interests in “substantial relationships with existing and prospective clients” and “client goodwill.” The seller argued there were no “substantial relationships” as part of the business sale because the seller “enjoyed long-standing relationships” with the buyer’s clients. The appellate court was unpersuaded and ruled against the seller of the business, stating in pertinent part that the seller’s “argument ignores the fact that Keating paid Schneider $200,000 for the consulting business, which included Schneider’s client relationships and goodwill. Because the purchaser of the assets and goodwill of a business has a legitimate business interest in preventing the seller from servicing former clients, the trial court did not err in finding the non-compete/non-solicitation covenant was supported by a legitimate business interest.”

Although the Avalon decision determined the restrictive covenant was enforceable, the appellate court also determined that the trial court’s injunction was overbroad. “[T]he restrictive covenant prohibits Avalon from competing for and soliciting Keating’s clients. The court’s order is overly broad to the extent it enjoined Avalon and Schneider from competing for ‘any sheriffs in Florida’ in the area of civil service consulting, irrespective of whether they were a client of Keating. The trial court should modify the injunction allow Avalon and Schneider to compete for the remaining sheriffs’ offices with which Keating shares no substantial relationship.”

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Published on: November 29, 2023

FORT LAUDERDALE BUSINESS LITIGATION: WAIVER OF A CONTRACTUAL RIGHT TO ARBITRATION

By Mavrick Law Firm

Commercial contracts often have dispute resolution provisions requiring the parties to the contract to have their claims decided in arbitration. Arbitration is legal proceeding decided by a private decisionmaker, i.e., a judge. Parties sometimes choose arbitration due to its more private approach and because the right to appeal is very limited. Courts consider at least three issues to determine whether a dispute is subject to arbitration: (1) whether a valid written agreement to arbitrate exists; (2) whether arbitrable issue exists; and (3) whether the right to arbitration was waived. Stacy David, Inc. v. Consuegra, 845 So.2d 303 (Fla. 2d DCA 2003). As with many legal rights, the contractual right to proceed to arbitration can be waived. 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.

Precedent from the Supreme Court of Florida in Raymond James Fin. Servs., Inv. v. Saldukas, 896 So.2d 707 (Fla. 2005), defined the legal term “waiver” as “the voluntary and intentional relinquishment of a known right or conduct which implies the voluntary and intentional relinquishment of a known right.” The general definition of waiver is applicable to the right to arbitrate. The Raymond James considered the issue of waiver in the context of an arbitration agreement, and found persuasive the federal appellate case of National Foundation for Cancer Research v. A.G. Edwards & Sons, Inc., 821 F.2d 772 (D.C. Circ. 1987), stating in pertinent part: “The right to arbitration, like any contract right, can be waived…The Supreme Court made clear that the ‘strong federal policy in favor of enforcing arbitration agreements’ is based upon the enforcement of contract rather than a preference for arbitration as an alternative dispute resolution mechanism. Thus, whether there has been a waiver in the arbitration agreement context should be analyzed in much the same way as in any other contractual context. The essential question is whether, under the totality of the circumstances, the defaulting party has acted inconsistently with the arbitration right.” For these reasons, the National Foundation decision explained, “there is no requirement for proof of prejudice in order for there to be an effective waiver of the right to arbitrate…[A]n arbitration right must be safeguarded by a party who seeks to rely upon that right and the party must not act inconsistently with the right.”

One way to waive the contractual right to arbitrate is by a party’s active participation in a lawsuit. Seville Condo. #1 v. Clearwater Dev. Corp., 340 So.2d 1243 (Fla. 2d DCA 1976), explained that “[t]he prosecution or defense of a lawsuit on issues subject to arbitration may constitute a waiver.” For example, the Seville Condo. appellate decision indicated a party may waive his right to arbitration by filing a lawsuit without seeking arbitration. Similarly, Bared & o. v. Specialty Maint. & Constr., Inc., 610 So.2d 1 (Fla. 2d DCA 1992), suggested waiver of arbitration can occur when a party files an answer to a pleading seeking affirmative relief without raising the right to arbitration. In addition, Lapidus v. Arlen Beach Condo. & Constr., Inc., 394 So.2d 1102 (Fla. 3d DCA 1981), explained that arbitration can be waived by moving for summary judgment in the trial court.

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Published on: November 25, 2023

MIAMI BUSINESS LITIGATION: LIABILITY FOR AIDING AND ABETTING FRAUD

By Mavrick Law Firm

Under Florida law, an underlying fraud can expose third parties to liability for the fraud. As Florida’s Second District Court of Appeal explained in Ramel v. Chasebrook Construction Co., 135 So.2d 876 (Fla. 2d DCA 1962), an underlying fraud exists when the defendant makes a false statement concerning a material fact, the defendant knows the statement is false, and has the intention to induce the plaintiff to rely on the misrepresentation, and, in reliance on that representation, the plaintiff suffers injury. Fraudsters enlist third parties to perpetuate the fraudulent schemes, sometimes by lulling the victim into a false sense of security and thereby failing to detect the fraud. Under Florida law, one theory of liablity to sue third parties is “aiding and abetting fraud.” 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.

To successfully plead the claim of aiding and abetting fraud, the plaintiff must allege (1) the existence of the underlying fraud, (2) knowledge of the fraud, and (3) the defendant provided substantial assistance to the commission of the fraud. XP No. 54 Ltd. P’ship v. Fidelty & Deposit Co. of Maryland, 917 So.2d 368 (Fla. 5th DCA 2005). One important method that fraudsters use is to have a knowledgeable third party, such as an accountant, assist the fraud by vouching for certain facts or making statements that are likely to lead the victim to believe the business deal is honest and legitimate. Third parties try sometimes claim they cannot be liable for their statements to fraud victims, claiming they made no statement of fact, but instead merely gave their opinion. However, the Ramel decision explained in pertinent part: “Even if the representations are viewed as expressions of opinion, they would be governed by the principle that statements of a party having exclusive or superior knowledge may be regarded as statements of fact although they would be considered as opinion if the parties were dealing on equal terms.” In Gilison v. Flagler Bank, 303 So.3d 999 (Fla. 4th DCA 2020), Florida’s Fourth District Court of Appeal reversed the trial court’s dismissal of a claim against bank and accountants for aiding and abetting fraud. The victim of the fraud was a lender to the alleged fraudster, Chariots of Palm Beach, Inc., a retail seller and renter of luxury cars. The appellate court in Gilison explained in pertinent part: “[T]he bank had superior knowledge through the accountants that Chariots’ books contained fraudulent misrepresentations. The accountants, one of whom also served as the bank’s President and CEO and another as a board member, prepared Chariots’ balance sheets. The plaintiffs alleged through them the bank knew the books contained inaccurate and fraudulent information. Since 2011, the accountants reported 1099-INT income to the plaintiffs in excess of $300,000 per year. But Chariots’ books reflected significantly smaller debt than would support those interest payments. An employee of the accounting firm flagged the discrepancy and notified Mackail, a principal of the accountants and CEO of the bank. The discrepancy remained on Chariots’ books without proper documentation. The complaint alleged the plaintiffs relied on Chariots’ representation that it could sell the cars it financed only after Chariots paid off their loan. It alleged the bank knew through the accountants that Chariots obtained duplicate titles for those cars. The plaintiffs’ reliance on this representation caused them injury when Chariots paid the bank money owed to them.”

Third parties sometimes try to disclaim liability for fraud claiming they lack knowledge there was fraud. Concerning this often raised defense, the United States Court of Appeals for the Eleventh Circuit, in Woods v. Barnett Bank of Fort Lauderdale, 765 F.2d 1004 (11th Cir. 1985), explained that a defendant has knowledge of an underlying fraud if it has general awareness that its role was part of an overall improper activity. Seidman & Seidman v. Gee, 625 So.2d 1 (Fla. 3d DCA 1992), explained that knowledge of the fraud will be imputed to a corporation when the plaintiff demonstrates “without dispute, that a corporate officer’s fraud intended to and did benefit the corporation, to the detriment of” the plaintiff. In Seidman & Seidman, the corporation’s managing officer knew about the ongoing fraud and the corporation benefited from the managing officer’s fraudulent conduct.

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Published on: November 19, 2023

MIAMI BUSINESS LITIGATION: POACHING CUSTOMERS WHEN THERE IS NO NON-COMPETE AGREEMENT

By Mavrick Law Firm

Florida’s non-compete statute, Section 542.335, Florida Statutes, accords broad protection in favor of a business seeking to prevent former employees from competing with the business via goodwill with customers with whom the former employee dealt during his employment. In this regard, section 542.335(1)(b)(3) expressly considers a “legitimate business interest” to include “[s]ubstantial relationships with specific prospective or existing customers, patients, or clients.” Under Florida law, however, in the absence of a non-soliciation agreement or non-compete agreement, a former employee cannot be precluded from using contacts and expertise he gained from employment with his former employer. Businesses have sometimes tried to bar former employees from competing for customers when the employee never even signed a non-compete or non-soliciation agreement. In such cases, businesses have argued that the customers are part of a “trade secret” and are confidential. Florida’s Second District Court of Appeal, in Templeton v. Creative Loafing Tampa, Inc., 552 So.2d 288 (Fla. 2d DCA 1989), held in pertinent part that: “The only arguably secret information on the advertiser list was the contact person. However, the testimony shows that appellant knows all of these persons on a first name basis as a result of his experience working for Music and that he did not need a secret list to enable him to ascertain their identity. Appellant cannot be precluded from utilizing contacts and expertise gained during his former employment.” 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 appellate courts distinguish between customer lists that are the product of great expense and effort, that are distillations of larger lists, or include information that is not available from public sources. Under appropriate circumstances, such customer lists can qualify as trade secrets. However, an employee’s mental knowledge of customer relationships, as per prior employment, generally will not qualify for protection as a trade secret. Precedent from the Supreme Court of Florida, in Pure Foods, Inc. v. Sir Sirloin, Inc., 84 So.2d 51 (Fla. 1956), stated in pertinent part: “We do not think the circumstances in this case justify further exploration of the law on that subject or a condemnation of appellee’s erstwhile employees because they undertook to sell to customers whom they had come to know during their former employment. Both corporations were wholesalers and their products were sold to retailers of food such as restaurants and ‘drive-ins.’ Certainly, the names of such concerns were easily obtainable from classified telephone directories and like sources, and surely the employees of appellee who became owners of an interest in the appellant-corporation could not be precluded from attempting to sell all customers whom they had known in their former positions.” Florida’s Fifth District Court of Appeal, in Fish v. Adams 401 So.2d 843 (Fla. 5th DCA 1981), has taken these legal principles a step further, explaining that “an employee may take with him a customer list he himself has developed.” How broadly courts will interpret this wording from Fish v. Adams will likely depend on the factual details, including how intricate and valuable was the customer list the employee took and used after leaving his employment with the business. It is important to emphasize that when the employer-employee relationship does not include a restrictive covenant barring competition or solicitation, it can be an uphill battle to bar an employee’s dealing with his former employer’s customers.

Published on: November 15, 2023

FORT LAUDERDALE BUSINESS LITIGATION: TRADE SECRET MISAPPROPRIATION WITH DERIVATIVE PRODUCT

By Mavrick Law Firm

The plaintiff in a trade secret misappropriation case must prove it has a trade secret and the defendant misappropriated the trade secret. Humphreys & Associates, Inc. v. Cressman, 2015 WL 12698428 (C.D. Cal. Aug. 31, 2015) (“To succeed on a claim of trade secret misappropriation, the plaintiff must establish that (1) the plaintiff owned a trade secret, (2) the defendant acquired, disclosed, or used the plaintiff’s trade secret through improper means….). Defendants usually misappropriate a trade secret by using the same secret they stole from the plaintiff. See, e.g., WHIC LLC v. NextGen Labs., Inc., 341 F. Supp. 3d 1147 (D. Haw. 2018) (enjoining the defendant because it used the plaintiff’s trade secret customer list to contact the plaintiff’s customers and generate business). However, misappropriation is not limited in this respect. Defendants may misappropriate a trade secret by using the secret to test a product or create a derivative product. Peter Mavrick is a Fort Lauderdale business litigation attorney. 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.

Trade secret statutes typically define misappropriation as disclosure or use of a trade secret without consent. See 18 U.S.C.A. § 1839. But this begs the question – what constitutes use? Mere possession of a trade secret without more probably does not satisfy the use requirement. However, use is not limited to implementing or selling the exact same trade secret stolen from the plaintiff. Derivative uses of the plaintiff’s trade secret can constitute use, and therefore, misappropriation. For example, a defendant that experiments with the plaintiff’s trade secret uses that trade secret even if the experiments do not yield a commercial product. See 02 Micro Intern. Ltd. v. Monolithic Power Sys., Inc., 399 F. Supp. 2d 1064 (N.D. Cal. 2005) (“Based on the California and federal cases presented by the parties, the Court concludes that internal experimentation with trade secret information not resulting in a market product can constitute use.”). Defendants also misappropriate trade secrets when they use a substantial portion of the trade secret even if the defendants independently improved that trade secret. BladeRoom Group Ltd. v. Emerson Elec. Co., 331 F. Supp. 3d 977 (N.D. Cal. 2018), vacated and remanded on other grounds, 11 F.4th 1010 (9th Cir. 2021), and vacated and remanded on other grounds, 20 F.4th 1231 (9th Cir. 2021) (holding that “use of any substantial portion of the secret is sufficient to subject the actor to liability” and an “actor is liable for using the trade secret with independently created improvements or modifications if [they]… derived from the trade secret.”).

Courts broadly interpret use to protect trade secrets and effectuate trade secret law. “If trade secret law were not flexible enough to encompass modified or even new products that are substantially derived from the trade secret of another, the protections that law provides would be hollow indeed.” Dev. Corp. v. Nat’l Chem. Co., Inc., 87 F.3d 937, 944 (7th Cir. 1996). In fact, a strong impetus for enjoining defendants in trade secret actions results from the desire to prevent unfair head starts. Lamb–Weston, Inc. v. McCain Foods, Ltd., 941 F.2d 970, 974 (9th Cir. 1991) (noting that a trade secret injunction “seeks to protect the secrecy of misappropriated information and to eliminate any unfair head start the defendant may have gained”). Courts prevent defendants from selling products that are inextricably connected with the plaintiff’s trade secrets because the defendant cannot unlearn or abandon the misappropriated technology. See 02 Micro Intern. Ltd., 399 F. Supp. 2d 1064 (citing General Electric Co. v. Sung, 843 F. Supp. 776 (D. Mass. 1994)). Therefore, defendants cannot evade trade secret liability by incorporating the plaintiff’s trade secret into a new or different product. See, e.g., Speech Tech. Assocs. v. Adaptive Commc’n Sys., 1994 WL 449032 (N.D. Cal. Aug. 16, 1994) (finding misappropriation where some of the technology used in the offending new products was different from that claimed in the trade secret, but most of the functional aspects of the trade secret technology were incorporated).

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Published on: November 12, 2023

MIAMI BUSINESS LITIGATION: DAMAGES FOR WILLFUL AND MALICIOUS MISAPPROPRIATION OF TRADE SECRETS

By Mavrick Law Firm

The Defend Trade Secrets Act (DTSA), 18 U.S.C. section 1836, is the federal statute that provides a cause of action for misappropriation of trade secrets. Under DTSA, “a court may” award (1) “damages for actual loss caused by the misapropriation of the trade secret,” (2) “damages for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss,” and (3) “if the trade secret is willfully and maliciously misappropriated, … exemplary damages in an amount not more than 2 times the amount of the damages awarded.” Although there is no clearly articulated test for determining whether, upon a finding of willful and malicious misappropriation, an award of exemplary damages is proper, federal courts have considered several factors. 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.

For example, in examining whether exemplary damages are appropriate, the United States District Court for the Southern District of New York, in Syntel Sterling Best Shore Mauritius Ltd. v. TriZetto Group, Inc., 2021 WL 1553926 (S.D.N.Y. April 20, 2021), cited “the degree of reprehensibility associated with the wrongdoer’s actions.” In AgroFresh Inc. v. Essentiv LLC, 2020 WL 7024867 (D.Del. November 30, 2020), the United States District Court for the District of Delaware cited two additional factors: “the duration of misappropriative conduct” and “the defendant’s consciousness of resulting injury and any efforts to cover up malfeasance.” DiscoverOrg Data, LLC v. Vitnine Global, Inc., 2020 WL 6562333 (N.D. Cal. November 9, 2020), the federal district court considered “the need to deter similar misconduct in the future.” The U.S. District Court for the Northern District of California, in Citron USA, LLC v. RiverPay, Inc., 2020 WL 5365980 (N.D. Cal. September 8, 2020), identified two additional factors: “the amount of compensatory damages awarded” and “the wealth of the particular defendant.” All of these factors must be considered in the larger context of Supreme Court precedent concerning punitive damages in all litigation. Precedent from the United States Supreme Court in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), discussed limits on punitive damages in all cases in the context of the United States Constitution’s requirement of Due Process. The Supreme Court explained that “flagrancy of the misconduct is thought to be the primary consideration in determining the amount of punitive damages.”

Florida’s trade secret statute allows recovery of exemplary damages. Under Florida Statutes section 688.004(2), “[i]f willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award” for compensatory damages for trade secret misappropriation. In addition, Florida law (at Florida Statutes section 688.005) provides that “[i]f … willful and malicious misappropriation exists, the court may award reasonable attorney’s fees to the prevailing party.” In Fin. Techs., LLC v. iControl Sys., USA, LLC, 21 F.4th 1267 (11th Cir. 2021), the United States Court of Appeals for the Eleventh Circuit interpreted Florida’s trade secret statute to allow an award of exemplary damages when “the defendant acts willfully, or with such gross negligence as to indicate a wanton disregard for the rights of others.” In Perdue Farms Inc. v. Hook, 777 So.2d 1047 (Fla. 2d DCA 2001), Florida’s Second District Court of Appeal explained that the traditional standards for evaluating “willful and malicious” conduct in other contexts apply in the context of trade secret misappropriation under Florida law. Applying Florida law as well as the DTSA to assess exemplary damages in a trade secret misappropriation case, the United States District Court for the Northern District of Florida, in Capital City Home Loans, LLC v. Darnell, 2023 WL 4169614 (N.D. Fla. May 11, 2023), stated in pertinent part: “Here, the admitted facts show that Darnell intentionally stole trade secrets…Her conduct exhibited a complete disregard for Capital City’s trade-secret rights, and it constituted at least gross negligence. That is enough to show entitlement to exemplary damages and attorney’s fees under… [Florida’s trade secret statute] and the DTSA. I therefore find, as a matter of discretion, that Capital City is entitled to such damages.”

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Published on: November 4, 2023

MIAMI BUSINESS LITIGATION: JOINT VENTURE AGREEMENTS

By Mavrick Law Firm

Businesses often work together to achieve common goals. In these cases, businesses can unwittingly expose themselves to each other’s liabilities through the creation of a joint venture. A “joint venture” is broadly defined as the formation of a relationship between two parties for purposes of generating profit. Haley v. C.I.R., 203 F.2d 815 (5th Cir. 1953) (“A joint venture has been defined as a special combination of two or more persons, where in some specific venture [for] a profit is jointly sought without any actual partnership or corporate designation”). The relationship can form by expressed contractual intent or implicitly through the parties’ actions. Williams v. Obstfeld, 314 F.3d 1270 (11th Cir. 2002) (“A joint venture… may be created by express or implied contract”). Joint ventures can have a significant, far-reaching, and unwanted affect because all participants in the venture are responsible for each other’s actions even if they do not know anything about the liability or are not otherwise responsible for the liability. 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.

Determining whether two or more parties created a joint venture can be difficult because there is no bright line test. Courts consider several factors such as the existence of a common purpose, a joint proprietary interest in the subject matter, the right to share profits and the duty to share losses, and joint control or right of control. Williams, 314 F.3d 1270 (providing the elements for establishing a joint venture). No single element controls the court’s decision as to joint venture status. In other words, the existence of any one element does not automatically create joint venture formation. See Sasportes v. M/V Sol de Copacabana, 581 F.2d 1204 (5th Cir. 1978) (“Of course these elements cannot be applied mechanically. No one aspect of the relationship is decisive… [because m]any business dealings other than joint ventures might involve, for example, joint property holdings.”). For example, courts will not find the existence of a joint venture merely because the parties shared profits. Fulcher’s Point Pride Seafood, Inc. v. M/V Theodora Maria, 935 F.2d 208 (11th Cir. 1991) (“Though profit -sharing is a significant factor, we consider the total circumstances of an agreement to determine its status as a joint venture.”).

Businesses should be mindful of the possibility of inadvertent formation of a joint venture, which would subject the businesses to all liabilities within the scope of the venture. Florida Tomato Packers, Inc. v. Wilson, 296 So.2d 536 (Fla. 3d DCA 1974) (citations omitted) (“Each joint venturer is vicariously liable for the acts of a servant working on behalf of the joint venture, no matter which joint venturer actually employed the servant.”); Progress Rail Services Corp. v. Hillsborough Reg’l Transit Auth., 2005 WL 1051932 (M.D. Fla. Apr. 12, 2005) (“One joint venturer can bind the others in matters within the scope of the joint enterprise.”). The amorphous nature of joint venture formation makes liability exposure even more concerning because it is difficult to determine when the preverbal line is crossed. Therefore, businesses should proactively avoid unwanted joint venture formation by including anti-joint venture provisions in their B2B agreements. See Blow v. Carnival Corp., 2023 WL 3686840 (S.D. Fla. May 26, 2023) (dismissing the plaintiff’s claim because the contract disclaimed joint control, established that the tortfeasor may not bind the defendant, and disclaimed an intent to create a joint venture). These provisions are not, however, a cure-all because the parties’ subsequent conduct can create a joint venture despite their contractual wording disclaiming a “joint venture.” Ash v. Royal Caribbean Cruises Ltd., 2014 WL 6682514 (S.D. Fla. Nov. 25, 2014) (“While the… Agreement specifically states that it does not constitute a joint venture, a subsequent course of conduct may have created such a joint venture agreement.”).

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Published on: November 1, 2023

FORT LAUDERDALE BUSINESS LITIGATION: NON-COMPETE AGREEMENTS AND THE LEGAL DOCTRINE OF THE “BLUE-PENCIL”

By Mavrick Law Firm

The plain terms of a contract control the parties’ course of conduct for all matters subject to that contract’s terms. See Maher v. Schumacher, 605 So.2d 481 (Fla. 3d DCA 1992) (holding that the plain meaning of the contractual language used by the parties controls). The Court is prohibited from rewriting contract terms. Pol v. Pol, 705 So. 2d 51, 53 (Fla. 3d DCA 1997) (“It is well established that a court cannot rewrite the clear and unambiguous terms of a voluntary contract.”). However, non-complete law contains a powerful exception allowing courts to disregard the well- pronounced prohibition against rewriting contracts. Courts can “blue-pencil” (i.e., Judicially modify) provisions of non-compete agreements when they do not conform to the requirements of Florida’s restrictive covenant statute, Section 542.335, Florida Statutes. In doing so, blue pencil laws breathe life into an otherwise invalid contractual provision. The blue pencil exception can be an important tool for those attempting to obtain relief under a contractual provision that violates the restrictive covenant statute. 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.

A court’s ability to “blue-pencil” a restrictive covenant is limited to modifying the scope of the provision to bring it within the ambit of non-compete law. See White v. Mederi Caretenders Visiting Services of Se. Florida, LLC, 226 So. 3d 774 (Fla. 2017) (Courts are commanded to “modify, or blue pencil, a non-competition agreement that is overbroad, overlong, or otherwise not reasonably necessary to protect the legitimate business interest.”). The court can only narrow a restrictive covenant to the extent needed to protect the plaintiff’s established legitimate business interests. Id. (noting that courts can modify overbroad restrictive covenants to “grant only the relief reasonably necessary to protect such interest”). Courts can shorten a restrictive covenant that is too long in duration, may curtail the geographical scope to a more limited area, or may constrain the subject matter to particular legitimate business interests. Id.

Blue penciling laws can create perverse incentives for employers and similarly situated parties to draft overbroad provisions they know have little chance of being enforceable. Employers may force their employees to agree to overbroad restrictive covenants to intimidate employees and make them believe they cannot compete in any respect. Employers may believe there is little risk in drafting an overbroad restrictive provision because a court will probably blue-pencil the provision if enforcement is necessary. Therefore, employers could face little risk in purposefully drafting an onerous overbroad restrictive covenant.

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