MIAMI BUSINESS LITIGATION: CHOICE OF LAW AND LITIGATION OF CLAIMS OF FRAUD

Florida businesses that enter into contracts will often place “choice of law” provisions within their contracts. There provisions typically govern which state or country’s laws apply to a given transaction. These clauses are usually enforced by the courts, with some exceptions. While states generally share the same fundamental rules of contract law, the choice of law selected by the parties can dramatically change how a business litigation dispute will be resolved. A previous article explored how these choice of law provisions can have a significant effect on litigation over non-compete agreements. Non-reliance clauses can also significantly affect whether a party can claim that it was fraudulently induced into entering into an agreement. Peter Mavrick is a Miami business litigation lawyer, and also represents clients in business litigation in Fort Lauderdale and Palm Beach. The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

A contracting party that regrets entering into a contract may claim that he was fraudulently induced into entering into that agreement. Under Florida law, a plaintiff can prove fraud by showing, “(1) a false statement concerning a specific material fact; (2) the maker’s knowledge that the representation is false; (3) an intention that the representation induces another’s reliance; and (4) consequent injury by the other party acting in reliance on the representation.” Wadlington v. Cont’l Med. Services, Inc., 907 So. 2d 631 (Fla. 4th DCA 2005).

Even an honest Florida business can find itself a defendant in claims of fraud. Dishonest plaintiffs can claim that oral statements were made which only they remember. Even honest plaintiffs may remember conversations incorrectly or unintentionally have very selective memory. Because of this, parties will often ensure that non-reliance clauses are present in their contracts. These clauses typically state that the parties affirm that they are not relying on any statement made by the other party.

Courts are often hesitant to enforce these types of clauses in business litigation. The logic of this concern arises from the inherent injustice which can arise if someone truly is the victim of fraud and the offending party is protected merely because it inserted such a non-reliance clause. As a result, different states have developed different philosophies concerning how to address non-reliance clauses. In Billington v. Ginn-La Pine Island, Ltd., LLLP, 192 So. 3d 77(Fla. 5th DCA 2016), Florida’s Fifth District Court of Appeal considered whether to apply a non-reliance clause to a claim of fraud. Billington recognized that Florida courts differ in how they interpret and enforce non-reliance clauses. Billington explored the different interpretations and came to the conclusion that the general rule is that non-reliance clauses should be respected and enforced. Billington also concluded that there should be no distinction between sophisticated and unsophisticated parties, explaining “[w]e cannot discern a logical basis for a distinction based on the sophistication of the party against whom the clause is sought to be enforced, because all parties, big and small, are bound by the terms of a contract.” Id. Billington certified the question for consideration by the Florida Supreme Court, but the matter was never dispositively determined and it remains an open question.

Delaware is far more certain on the subject. Many corporations and limited liability companies are organized in the State of Delaware because of laws that many find friendly to business. As a result, many companies choose Delaware law as the governing law for their contracts.

Delaware law clearly provides that non-reliance provisions are enforceable between sophisticated parties. H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129 (Del. Ch. 2003) (“The Court of Chancery has consistently held that sophisticated parties to negotiated commercial contracts may not reasonably rely on information that they contractually agreed did not form a part of the basis for their decision to contract”); Progressive Intern. Corp. v. E.I. Du Pont de Nemours & Co., C.A. 19209, 2002 WL 1558382 (Del. Ch. July 9, 2002) (“Delaware courts have held that sophisticated parties may not reasonably rely upon representations that are inconsistent with a negotiated contract, when that contract contains a provision explicitly disclaiming reliance upon such outside representations”); RAA Mgmt., LLC v. Savage Sports Holdings, Inc., 45 A.3d 107 (Del. 2012) (Delaware Supreme Court case concluding that sophisticated parties in commercial transactions can enforce non-reliance provisions).

In a case where the contract had an enforceable Delaware choice-of-law provision, the non-reliance clause would almost certainly be enforced against sophisticated parties; however, that same provision might not apply to unsophisticated parties or consumers. In Florida, it is uncertain how the Florida Supreme Court may ultimately rule on non-reliance clauses, but it appears likely that there would not be any distinction between sophisticated and unsophisticated parties. The contract’s choice of law can have a significant impact on how the court would ultimately resolve the business litigation. Peter Mavrick is a Miami-Dade business litigation lawyer, and practices business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.