MIAMI BUSINESS LITIGATION: FRAUD DAMAGES UNDER FLORIDA’S FLEXIBILITY THEORY

In business litigation, Florida courts typically apply a flexibility theory of damages in fraud case. Gregg v. U.S. Industries, Inc., 887 F.2d 1462 (11th Cir. 1989). “The ‘flexibility’ theory of damages allows a plaintiff to choose either benefit-of-the-bargain or out-of-pocket damages in fraud cases[.]” Morgan Stanley & Co. Inc. v. Coleman (Parent) Holdings Inc., 955 So. 2d 1124 (Fla. 4th DCA 2007). This theory “assure[s] that an injured party will obtain full compensation for the effect of the fraud[.]” Trafalgar Cap. Specialized Inv. Fund, FIS v. Atl. Energy Sols., Inc., 2010 WL 11505575 (S.D. Fla. Nov. 30, 2010). 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.

If the defrauded party seeks recovery “of only the amount he actually lost, his damages will be measured under [the out-of-pocket-rule].” DuPuis v. 79th Street Hotel, Inc., 231 So. 2d 532 (Fla. 3d DCA 1970). Thus, “[t]he out-of-pocket-rule allows for recovery of amounts that the plaintiff actually lost.” Laney v. Am. Equity Inv. Life Ins. Co., 243 F. Supp. 2d 1347 (M.D. Fla. 2003). The out-of-pocket rule awards as damages the difference between the purchase price and the real or actual value of the property. Kind v. Gittman, 889 So. 2d 87 (Fla. 4th DCA 2004). “[W]here the circumstances disclosed by the proof are so vague as to cast virtually no light upon the value of the property had it conformed to the representations, the court will award damages equal only to the loss sustained.” DuPuis v. 79th Street Hotel, Inc., 231 So. 2d 532 (Fla. 3d DCA 1970).

On the other hand, the benefit-of-the-bargain-rule “is utilized when the out-of-pocket rule does not fully compensate the plaintiff.” Laney v. Am. Equity Inv. Life Ins. Co., 243 F. Supp. 2d 1347 (M.D. Fla. 2003). “Under the benefit-of-bargain-rule, the plaintiff is entitled to the loss of its bargain, similar to a recovery on a warranty.” Laney v. Am. Equity Inv. Life Ins. Co., 243 F. Supp. 2d 1347 (M.D. Fla. 2003). “[I]f the fraudulent misrepresentation also amounts to a warranty, recovery may be had for the loss of the bargain, because a fraud accompanied by a broken promise should cost the wrongdoer as much as the latter alone[.]” DuPuis v. 79th Street Hotel, Inc., 231 So. 2d 532 (Fla. 3d DCA 1970). The benefit-of-the-bargain rule awards as damages the difference between the value of the property as represented and the actual value of the property. In re Biddiscombe Intern., L.L.C., 392 B.R. 909 (Bank. M.D. Fla. 2008).

“[B]enefit-of-the-bargain damages are available only when they are established with sufficient certainty.” Laney v. Am. Equity Inv. Life Ins. Co., 243 F. Supp. 2d 1347 (M.D. Fla. 2003). The evidence cannot be “so vague as to cast virtually no light upon the value of the property.” Totale, Inc. v. Smith, 877 So. 2d 813, 816 (Fla. 4th DCA 2004). “[W]hen the evidence on damages is too speculative, it is not proper for jury consideration.” Meadows v. English, McCaughan & O’Bryan, P.A., 909 So. 2d 926 (Fla. 4th DCA 2005). For example, in Meadows, the plaintiff wired $35,000 to the law firm for purchase of stock. Meadows v. English, McCaughan & O’Bryan, P.A., 909 So. 2d 926 (Fla. 4th DCA 2005). The plaintiff did not provide reasonably certain evidence of her future plans for the stock. While the plaintiff provided expert testimony concerning “possibilities” of the stock’s investment value, there was no evidence to support a plan by the plaintiff to either resell or obtain recourse loans on the stock. The court held that “the evidence of benefit-of-the-bargain damages was speculative and failed the certainty test . . . [and therefore] the trial court properly limited the plaintiff’s damages to out-of-pocket expenses.” Meadows v. English, McCaughan & O’Bryan, P.A., 909 So. 2d 926 (Fla. 4th DCA 2005). Meadows is distinguishable from Compare Golden Mobil Oil Corp., 882 F.2d 490 (11th Cir. 1989), in which the court found both lost profits and rental rebates recoverable as benefit-of-the-bargain damages because “[a] reasonable jury could find that if Mobil actually had fulfilled its promise of a long-term relationship with Golden or its promises to replace all of his liter pumps with gallon pumps, the profits and rental rebates would not have been lost.”

The trial court to instruct the jury on the theory of damages that “will more fully compensate the defrauded party.” Gregg v. U.S. Industries, Inc., 887 F.2d 1462 (11th Cir. 1989). The party seeking damages can request jury instructions based only on the theory of damages that is supported by the evidence at trial. Concept, L.C. v. Gesten, 662 So. 2d 970 (Fla. 4th DCA 1995). Where the defrauded party is content with recovering only the amount actually lost, the trial court will instruct the jury on the out-of-pocket rule. Laney v. Am. Equity Inv. Life Ins. Co., 243 F. Supp. 2d 1347 (M.D. Fla. 2003). Where the fraudulent misrepresentation also amounts to a warranty, the trial court will instruct on the benefit-of-the-bargain rule. DuPuis v. 79th Street Hotel, Inc., 231 So. 2d 532 (Fla. 3d DCA 1970). Where the circumstances disclosed by the proof are so vague as to cast virtually no light upon the value of the property had it conformed to the representations, the court will instruct the jury on the out-of-pocket rule. DuPuis v. 79th Street Hotel, Inc., 231 So. 2d 532 (Fla. 3d DCA 1970). Where the damages under the benefit-of-the-bargain rule are proved with sufficient certainty, the trial court will instruct the jury on that rule. DuPuis v. 79th Street Hotel, Inc., 231 So. 2d 532 (Fla. 3d DCA 1970).

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.