MIAMI BUSINESS LITIGATION: FRAUD DAMAGES AND LOST PROFITS UNDER FLORIDA LAW

Under Florida law where fraud is alleged and proven, courts calculate damages using a a doctrine called the “flexibility theory” of damages. Totale, Inc., v. Smith, 877 So. 2d 813 (Fla. 4th DCA 2004). Under this doctrine, the plaintiff in a fraud action may seek recovery of “out-of-pocket” expenses or “benefit-of-the-bargain” damages, but not both. Beefy Trail, Inc. v. Beefy King Intern., Inc., 267 So. 2d 853 (Fla. 4th DCA 1972). The doctrine permits the plaintiff to choose, and the trial court to instruct the jury on, the measure of damages that is more likely to compensate the plaintiff for its injury. Nordyne, Inc. v. Fla. Mobile Home, Supply, Inc., 625 So. 2d 1283 (Fla. 1st DCA 1993). Peter Mavrick is a Miami business litigation attorney, and represents clients in business litigation 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.

While Florida law does not explicitly state that recovery of lost profits is permitted in fraud cases, Florida courts have allowed evidence of lost profit damages in fraud cases where such evidence is relevant to calculation of “benefit-of-the-bargain” damages. In Nordyne, Inc. v. Florida Mobile Home Supply, Inc., 625 So. 2d 1283 (Fla. 1st DCA 1993), the First District Court of Appeal held that evidence of lost profits was properly admitted as relevant to the plaintiff’s fraud claim because “but for [defendant’s] fraudulent misrepresentations, [the plaintiff business] would have continued, for at least five years, to enjoy annual profits, as it had for many years.” The court explained “evidence of profits that [the plaintiff business] would have realized in the ensuing five years but for [defendant’s] fraudulent representations was relevant under the ‘out-of-pocket rule,’ because it tended to prove the position that [the plaintiff business] would have been in but for [defendant’s] wrongful acts.” The court further held such evidence was also relevant to the benefit-of-the-bargain rule to the extent “evidence of such damages was necessary to achieve justice.”

The Fourth District Court of Appeal subsequently recognized that lost profits can be relevant to establish damages in a case involving fraudulent misrepresentations. In Teca, Inc. v. WM-TAB, Inc., 726 So. 2d 828 (Fla. 4th DCA 1999), the buyer alleged that had the true status of pending litigation been disclosed, the buyer would not have closed or would have reduced its offer to take into consideration the impact of the new construction on future business. However, the buyer failed to set forth “testimony fixing the actual value of the business on the date of the sale, a crucial element in the damage equation.” The court explained, “[t]he expert testified that he had not analyzed the value of the business at the time of the sale and that such an evaluation would take four or five days. Although the lost profits would have been relevant to establish the value of the business on the date of the sale, they are not the proper measure of damages in this case.”

Therefore, Florida courts have allowed evidence of lost profits in fraud cases where such evidence is relevant to the fraud claim. The Fourth District Court of Appeal has nevertheless rejected evidence of lost profits where the plaintiff fails to meet its burden of proof. Kind v. Guttman, 889 So. 2d 87 (Fla. 4th DCA 2004), rev. denied, 907 So. 2d 1170 (Fla. 2005), did not allow recovery of lost profits or lost rents in a fraudulent misrepresentation case because “the buyer did not prove the element of damages.” Specifically, “[a]lthough [the buyer] alleged in his complaint that he did not receive the benefit of his bargain because he paid an ‘inflated price’ for the property, at trial he presented no testimony fixing the actual value of the property on the date of the sale. The only evidence of damages he presented was a description of lost rental profits.” Thus, the court held that “[l]ost profits were not a proper measure of damages in this fraud case. Because there was no proof at trial of the correct measure of damages, judgment should have been entered for the sellers.” Three years after deciding Kind, the Fourth District Court of Appeal reiterated that evidence of lost profits can be admitted where relevant to a fraud claim, stating that “benefit-of-the-bargain damages may be considered only when the evidence of lost profits is reasonably certain.” Meadows v. English, McCaughan & O’Bryan, P.A., 909 So. 2d 926 (Fla. 4th DCA 2005).

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.