FORT LAUDERDALE BUSINESS LITIGATION: CONTRACTS ALLEGED TO BE UNLAWFUL RESTRAINTS ON TRADE OR COMMERCE

The recent appellate decision from Florida’s Second District Court of Appeal in Capital Wealth Advisors, LLC v. Capital Wealth Advisors, Inc., 2021 WL 4898462 (Fla. 2d DCA 2021), clarified whether a business can get out of a financially unfavorable contract on the grounds that its “lopsidedness or open-endedness” is an invalid restraint on trade or commerce. In reaching its decision, the appellate court interpreted the meaning of Florida Statute § 542.18, which provides that “[e]very contract, combination, or conspiracy in restraint on trade or commerce in this state is unlawful,” and its interplay with Florida’s non-compete statute, Florida Statute § 542.335. Peter Mavrick is a Fort Lauderdale business litigation lawyer, and represents clients in business litigation in Miami, 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.

The Capital Wealth Advisors case involved a dispute over a contract where a company promised to pay very generous commissions to an insurance agent. The contract promised large commission percentages. The contract also promised that the “commission sharing arrangement would survive termination and continue in perpetuity. In the business litigation, the company obtained summary judgment against the agent on the grounds that the commissions contact “constituted an unlawful restraint on trade in violation of section 542.18 (i.e., Florida’s restraint on trade or commerce statute) and 542.335 (i.e., Florida’s non-compete contract statute). In evaluating the trial court’s decision, the appellate court explained “we need not reach the reasonableness of the scope of the Agreement or whether it is necessary to protect a legitimate business interest under section 542.335 unless and until we determine that the commission sharing arrangement is, in fact, a restraint on trade or commerce under section 542.18.” The company argued the contract constitutes a “restraint on trade or commerce” because it imposes a “substantial financial disincentive” on the company. The company emphasized “how good a deal this is for the Agent, and how correspondingly severe the effects of the deal have been to the” company. The appellate court explained, however, that the contract “might very well have been—or became, in light of circumstances developed after its execution—quite advantageous to the Agent and disadvantageous to the Company … This does not make it a restraint on trade or commerce.”

Capital Wealth Advisors explained that Florida Statute 542.18 prohibits restraints “on trade or commerce in general—not on the competitiveness or incentives of individual actors.” The appellate court relied on federal courts’ interpretations of federal antitrust law, including the United States Supreme Court decision in Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (“The law directs itself not against conduct which is competitive, or even severely so, but against conduct that tends to destroy competition itself”) and a recent case from the United States District Court for the Southern District of Florida, United Am. Corp. v. Bitmain, Inc., 2021 WL 1807782 (S.D. Fla. 2021) (“[a]n unreasonable restraint on trade is one that harms competition in general, rather than the plaintiff, or any other competitor”). Section 542.18 does not prohibit every contract that might substantially reduce the competitiveness or profit motive of a party to the contract. On the contrary, “section 542.18 governs restraints on ‘trade’ or ‘commerce’ itself—not the discreet effects that agreements have on the parties who enter into them.” The appellate court in Capital Wealth Advisors determined that the company agreed to the contract even though it financially favored the agent. Nevertheless, such a contract does not retrain trade or commerce in the insurance market. “Here, there is nothing keeping the Agent from competing against the Company, or vice versa, by utilizing the very same referral sources that it provided to the Company.” Fundamentally, the contract did not negatively affect consumers’ ability to procure insurance products since both the company and the agent can freely compete for the same business.

Florida courts generally will not protect businesses from contracts under Florida Statute § 542.18 unless, following federal antitrust principles, the contract has a negative affect on consumers by restraining trade or commerce. Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents business litigation clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.