fort lauderdale business litigation attorney

Published on: October 30, 2017

FLORIDA ARBITRATION LAW: ATTACKING THE VALIDITY OF A CONTRACT DOES NOT INVALIDATE ARBITRATION PROVISIONS CONTAINED THEREIN

It has become common practice for businesses to include arbitration provisions within agreements. Arbitration provides businesses a more efficient and less costly alternative to expensive, time-consuming litigation. Normally, arbitration provisions are drafted very broadly to cover all disputes or controversies that could arise between the contractual parties, commonly using the wording “arising from” or “relating to” the contract or agreement. Thus, anyone who signs an agreement containing such a provision will usually be required to proceed with arbitration if a contractual dispute occurs. Often times, however, a dispute will arise and the complaining party will wish to proceed in court rather than being compelled to participate in arbitration. To circumvent arbitration, the complaining party will attempt to argue that the contract is not valid for some reason, i.e. lack of consideration or arguing that the contract was procured by fraud. Based on these arguments, the complaining party will assert that the contract, as well as the arbitration provision contained therein, is not enforceable. Peter Mavrick is a Fort Lauderdale business litigation attorney who has defeated such arguments by arguing that courts, at both the state and federal levels, have concluded that attacking the validity of a contract does not remove a party from the scope of an arbitration provision contained therein.

The leading authority for this principle is the 1967 United States Supreme Court decision in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967). In Prima Paint, the plaintiff brought an action seeking to rescind a contract based on fraud in the inducement. The contract contained an arbitration provision, and the Supreme Court held that the plaintiff’s action for fraud was undoubtedly encompassed by the broad wording of the arbitration provision. In so holding, the court reasoned that if the alleged fraud related to the arbitration clause itself, then a court should resolve the issue. But if the fraud in inducement related to the whole contract which contained an agreement to arbitrate, that issue should be resolved by arbitration.

Although Prima Paint was decided under federal law, Florida courts have found its reasoning persuasive and have extended Prima Paint’s holding to contracts formed and executed in Florida. For example, in Simpson v. Cohen, 812 So. 2d 588 (Fla. 4th DCA 2002), the Florida Fourth District Court of Appeal cited Prima Paint when holding that “[c]ontract language agreeing to arbitrate ‘[a]ny controversy or claim arising out of or relating to this Agreement, or breach thereof ’ has been found to be broad enough to encompass a claim that the execution of an agreement itself was procured by fraud…The fraud in the inducement claim arises from the contract and relates to the other claims that the arbitrator must determine.”

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Published on: October 10, 2017

BUSINESS LITIGATION: THE PRE-SUIT DEMAND REQUIREMENT FOR CORPORATE DERIVATIVE ACTIONS IN FLORIDA

By Mavrick Law Firm

A derivative lawsuit is a lawsuit whereby a shareholder of a corporation sues a third party on behalf of the corporation. Any recovery from such lawsuits are the property of the corporation, not the shareholder who brought the lawsuit. Often times, the defendant of a derivative lawsuit will be someone close to the corporation, such as a director or corporate officer, who has allegedly engaged in, or continues to engage in, improper conduct to the detriment of the corporation. However, a shareholder cannot bring a derivative lawsuit whenever he, she, or it wishes. In Florida, derivative lawsuits are governed by § 607.07401, Florida Statutes, stating in pertinent part:

(2) A complaint in a proceeding brought in the right of a corporation must…allege with particularity the demand made to obtain action by the board of directors and that the demand was refused or ignored by the board of directors…

As such, under Florida law, a shareholder must first make a demand to the board of directors to bring the lawsuit. It is only when the board of directors refuses to bring such an action that the shareholder may file the derivative suit. In some cases, however, a shareholder may attempt to circumvent the pre-suit demand requirement by alleging it would be “futile” to bring such a demand to the board of directors. The Fort Lauderdale business litigation attorneys at the Mavrick Law Firm have successfully defended corporate officers and directors in corporate derivative actions.

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Published on: October 3, 2017

BUSINESS LITIGATION: BUSINESS RELATIONSHIPS WITH ENTITIES SOLICITING BIDS VIA OPEN BIDDING PROCESS ARE GENERALLY NOT PROTECTED IN FLORIDA

By Mavrick Law Firm

Competitive bidding is common for many businesses, including construction companies, supply companies, and retail providers, among others. In most cases, an entity will solicit bids from competing bidders through a request for proposal (RFP) and will award a contract to the most attractive bid, which can depend on several factors. Although competitive bidding can lead to great for results for the entity soliciting the bids and for the bidder ultimately chosen, it can also leave the unsuccessful bidders resentful. In some cases, the losing bidder may attempt to bring an action for tortious interference with a business relationship against a person or entity they believe may have interfered with their bid. However, the Fort Lauderdale business litigation attorneys at the Mavrick Law Firm have extensive experience defending against claims for tortious interference, and, based on such experience, know that these claims will generally be unsuccessful.

To prevail on a tortious-interference claim, the plaintiff must prove “(1) the existence of a business relationship; (2) knowledge of the relationship on the part of the defendant; (3) an intentional and unjustified interference with the relationship by the defendant; and (4) damage to the plaintiff as a result of the breach of the relationship.” Ethan Allen, Inc. v. Georgetown Manor, Inc., 647 So.2d 812 (Fla.1994). Pursuant to the Southern District of Florida’s ruling in Duty Free Americas, Inc. v. Estee Lauder Companies, Inc., 946 F. Supp. 2d 1321 (S.D. Fla. 2013), the plaintiff is the factual scenario supra will likely be unable to demonstrate a protected business relationship sufficient to justify a claim for tortious interference.

Duty Free involves the competitive bidding process for airport duty-free stores. Duty-free operators, such as the plaintiff Duty Free Americas, Inc. (“DFA”), generally secure space to operate duty-free stores in a particular airport via competitive bidding. Defendant, Estee Lauder Companies, Inc. (“ELC”), is the largest manufacturer of beauty products sold in duty-free stores. Prior to June 2008, DFA and ELC had a healthy business relationship. However, beginning in June 2008, ELC announced it would be raising its pricing, causing DFA to object and refuse to further sell ELC products. DFA subsequently discovered that ELC ultimately did not raise its prices, and thus tried to mend its relationship with ELC, but ELC refused to continue doing business with DFA.

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Published on: August 28, 2017

Purchasers of Businesses Should Not Rely On the Representations of the Sellers

By Mavrick Law Firm

Prospective business purchasers should diligently verify the accuracy of a sellers representations because misrepresentations made by sellers sometimes are inactionable under Florida law. Florida courts routinely apply the doctrine of caveat emptor, otherwise known as the buyer beware doctrine, to preclude misrepresentation claims that arise out of commercial transactions. See Transcapital Bank v. Shadowbrook at Vero, LLC, 2017 WL 3169271, at *4 (Fla. 4th DCA July 26, 2017) (citing Wasser v. Sasoni, 652 So.2d 411, 412 (Fla. 3d DCA 1995) (“[T]he doctrine of caveat emptor, or ‘buyer beware,’ is still the common law rule applied to purchasers” in commercial transactions)). The buyer beware doctrine places the burden of diligence on consumers. Prospective business owners must, at a minimum, try to make an assessment of a seller’s representations concerning the business before purchasing the business. Courts are generally not sympathetic to seemingly imprudent would-be plaintiffs. The Fort Lauderdale office of the Mavrick Law Firm advises businesses sellers and prospective purchasers on issues concerning the sales of businesses.

Exceptions to the buyer beware doctrine exist. Purchasers may be able to prevail in misrepresentation claims if they can prove that: 1) a trick was employed to prevent the purchaser from making independent inquiry; 2) the purchaser did not have an equal opportunity to become apprised of the misrepresented fact; and, 3) the seller disclosed some facts but failed to disclose the whole truth. Transcapital Bank, 2017 WL 3169271, at *5. However, the exceptions do not apply to commercial transactions between sophisticated parties. See Wasser v. Sasoni, 652 So. 2d at 413 (“where the parties are equally sophisticated, and have an equal opportunity to discover a defect…a negligent purchaser is not justified in relying upon a misrepresentation which is obviously false, and ‘which would be patent to him if he had utilized his opportunity to make a cursory examination or investigation’”). Courts expect relatively sophisticated buyers to use their acumen to screen out deceptive tactics.

If prospective purchasers have any doubt regarding the viability of the buyer beware doctrine, the Fourth District Court of Appeal’s recent decision in Transcapital Bank v. Shadowbrook at Vero, LLC, is instructive. The court found that the buyer beware doctrine entitled the defendants to a judgment as a matter of law on the plaintiffs’ fraudulent misrepresentation claim. See 2017 WL 3169271, at *5 (“Even if … defendants … misrepresented the property’s appraised value, such a misrepresentation would not be actionable under the doctrine of [buyer beware] in the absence of … fraudulent means in preventing a prospective purchaser from making an examination of the property under consideration”). Therefore, prospective purchasers have a duty to protect themselves when evaluating the representations of the seller of a business. Moreover, if purchasers have doubts about the validity of a seller’s claims, they may want to protect their interests by avoiding certain contractual terms that could prevent a misrepresentation claim. See Wasser v. Sasoni, 652 So. 2d at 413 (holding that contractual provisions such as “integration clauses … are recognized as valid defenses to claims of fraud [ and misrepresentation]” when there is no evidence that the contract induced by fraud.) Moreover, fraud can be difficult to prove as “there must be evidence of ‘the [speaker’s] knowledge that the representation is false.” MDVIP, Inc. v. Beber, 42 Fla. L. Weekly D1248 (Fla. 4th DCA May 31, 2017). In sum, purchasers who do not make best efforts to evaluate a business do so at their own peril.

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Published on: August 21, 2017

Members of LLC’s Should Be Prepared To Prove Discrete Harms Before Bringing A Lawsuit Against A Fellow LLC Member

By Mavrick Law Firm

Under Florida law, if a member of an LLC wishes to individually sue another member for damages arising out of the membership, the plaintiff-member must prove: “(1) a direct harm to the … member such that the alleged injury does not flow subsequently from an initial harm to the company and (2) a special injury to the … member that is separate and distinct from those sustained by the other … members.” Dinuro Investments, LLC v. Camacho, 141 So. 3d 731, 739-740 (Fla. 3d DCA 2014). Alternatively, a plaintiff-member may prove that the defendant-member owes a separate duty to the plaintiff member that is distinct from the duties owed by the members to the LLC. See Dinuro Investments, LLC v. Camacho at 740. The Mavrick Law Firm regularly represents businesses and their owners in business litigation in Miami, Fort Lauderdale, and Palm Beach.

To initiate a lawsuit, a plaintiff must have standing, otherwise described as the right to sue. Accordingly, the right to sue varies depending on the particular context of the plaintiff’s alleged harm. § 605.0802, Fla. Stat. allows for a member to “maintain a derivative action to enforce a right of a limited liability company,” but the statute does not provide the right to sue individually. A derivative action seeks to “enforce a corporate right or to prevent or remedy a wrong to the corporation,” when “the corporation, because it is controlled by the wrongdoers or for other reasons, fails and refuses to take appropriate action for its own protection.” Salit v. Ruden, McClosky, Smith, Schuster & Russell, P.A., 742 So. 2d 381, 388 (Fla. 4th DCA 1999). Whereas, an individual suit seeks to recover damages that the plaintiff suffered as a result of a wrong done to the corporation. Thus, the right to sue individually as a member of an LLC presents special considerations that were confusing and opaque in Florida until recently.

In Dinuro Investments, LLC v. Camacho, the Third District Court of Appeal used a two-prong test that has been adopted throughout Florida to resolve the issue of individual standing in actions for individual damages in LLC disputes. See Strazzulla v. Riverside Banking Co., 175 So. 3d 879, 884 (Fla. 4th DCA 2015) (“we agree with the Third District[‘s decision in Dinuro Investments, LLC v. Camacho] and adopt a two-prong test”). The South Florida offices of The Mavrick Law Firm represents plaintiff-members and defendant-members in disputes throughout the judicial circuits that are bound by Third and Fourth DCA decisions. In Dinuro Investments, LLC v. Camacho, the court thoroughly examined the three tests routinely are routinely applied to resolve the direct versus derivative claim question: The Direct Harm Test, The Special Injury Test, and The Duty Owed Test. After addressing the pros and cons of each of the tests, and in an attempt to “reconcile nearly fifty years of apparently divergent case law” the court reasoned that a two-prong test was appropriate. See 141 So. 3d at 740.

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