DISTRICT COURT OF APPEAL NON-COMPETE LAW SPLIT RESOLVED: IN HOME HEALTH CARE SERVICE INDUSTRY, REFERRAL SOURCES ARE PROTECTABLE LEGITIMATE BUSINESS INTERESTS

The Mavrick Law Firm’s earlier publication, Florida Non-Compete: Supreme Court To Resolve Conflicting Appellate Court Decisions, examined a conflict between the Fourth District Court of Appeal and the Fifth District Court of Appeal that centered around of the protection of referral sources in the home healthcare industry by Florida’s Non-Compete Statute, § 542.335, Fla. Stat. The Fourth DCA had an expansive view of the statute, finding § 542.335’s enumerated list of legitimate business interests to be non-exclusive. In so doing, the Fourth DCA distinguished referral sources from unidentified prospective patients: using a context-based analysis that viewed the substantial relationships with the referral sources as “the lifeblood” of the industries’ employers. Infinity Home Care, L.L.C. v. Amedisys Holding, LLC, 180 So. 3d 1060, 1067 (Fla. 4th DCA 2015). Conversely, the Fifth DCA found § 542.335’s enumerated list of legitimate business interests to be limited to the plain language of statute: finding that “unidentified prospective patients, and correspondingly referring physicians, do not qualify as legitimate business interests for the purpose of enforcing restrictive covenants.” Hiles v. Americare Home Therapy, Inc., 183 So. 3d 449, 454 (Fla. 5th DCA 2015). The Mavrick Law Firm regularly represents businesses, their owners, and former employees who become entrepreneurs in non-compete disputes in Fort Lauderdale, Miami, and Palm Beach. Mr. Mavrick has successfully handled many cases concerning enforcement of and defense against non-compete agreements.

Resolving the conflict, the Florida Supreme Court, in White v. Mederi Caretenders Visiting Services of Se. Florida, LLC, SC16-28, 2017 WL 4053930 (Fla. Sept. 14, 2017), sided with the Fourth DCA and held that “home health service referral sources can be a protected legitimate business interest under the statute.” Id. at *1. The court explained that section 542.335’s listed legitimate business interests are illustrative and non-exhaustive. In other words, courts are able to expand the list of “legitimate business interests” beyond those explicitly enumerated in Florida’s non-compete statute. Thus, the statute can protect non-enumerated legitimate business interests in certain circumstances, which depend upon industry-specific and factual contexts. Accordingly, employers now have an easier task of tailoring restrictive covenants to protect their context-specific legitimate business interests.

At the beginning of its analysis, the court first analyzed section 542.335 to determine if the statute provides protection for non-enumerated interests. Quashing the Fifth DCA’s decision in Hiles, the court explained that “[r]eferral sources are simply not antithetical to the plain language of the statute because they are different interests than those contemplated by section 542.335(1)(b)3.” Id. at*5. The court further explained that “barring the protection of interests not specifically precluded by the statute is problematic because that would essentially convert section 542.335(1)(b)3 into an unintended and silent limitation on the statute’s non-exhaustive list definition.” Id. at *6. Further, the court sought out the legislative intent of the § 542.335 by reviewing the plain language of the statute: finding that the list of legitimate business interests was non-exhaustive based on the statute’s language, which provides that “[t]he term ‘legitimate business interest includes, but is not limited to…” Id. The court concluded that the list of legitimate business interests was illustrative and does not limit judicial finding of additional legitimate business interests: requiring courts to “engage in fact -and industry-specific determinations when construing non-enumerated interests.” Id. at *7.

Section 542.335 ’s purpose is to prevent “unfair competition by protecting crucial business interests.” 2017 WL 4053930 at *7. While the Florida Supreme Court expanded § 542.335’s protection of legitimate business interests, the court stated that the expansion was not without limitation. The Florida Supreme Court instructed the lower courts to balance an employer’s legitimate business interests with “a person’s inalienable right to work.” Id. at*8 (citing Art. I, § 2, Fla. Const.). Moreover, the court reminded potential litigants that “the scope of unprotected business interests is well established” and that the statute does not protect non-compete agreements “whose sole purpose is to prevent competition per se” Id. Accordingly, “[f]or an employer to be entitled to protection, ‘there must be special facts present’ over and above ordinary competition such that, absent a non-competition agreement, ‘the employee would gain an unfair advantage in future competition with the employer.’” Id. In the same vein, the court highlighted § 542.335’s protection from overly restrictive non-compete agreements. “Section 542.335 commands courts to modify” non-competition agreements that are “overbroad, overlong, or otherwise not reasonably necessary to protect” a “legitimate business interest.” Id. at 9. Therefore, employers should not view the court’s endorsement of an expansive view of § 542.335’s protection as a license to preclude all competition from a former employee. “[T]he fact that referral sources [or other critical business interests] can constitute a legitimate business interest does not automatically satisfy all possible factual issues” as business interests that are capable of protection in some circumstances could unprotected in others. 2017 WL 4053930 at *9.

Even though the Florida Supreme Court’s holding in White explicitly concerned referral sources in the home health service industry, the holding has applicability outside of the home health service industry. A business interest can be legitimate and protectable in some industries and in some factual scenarios, but not in others. The court explained that because section 542.335 provides for “a plethora of [non-enumerated] protected legitimate business interests” that are applicable in a variety of commercial contexts, courts are free to examine the “legitimacy of a particular business interest – in conjunction with the industry context and evidence adduced.” 2017 WL 4053930 at *9. Thus litigants disputing the legitimacy of previously unprotected business interests must present evidence that will allow the trial courts to engage in the context-based factual analysis.

In sum, the Florida Supreme Court’s decision in White expanded protections for employers, but it also tempered the expansion with an industry-specific context-based analysis that is balanced with the ideals of fair competition. Employees seeking to avoid non-compete agreements should be aware of the fact that employers have an easier task of defining legitimate business under this more expansive interpretation of the statute. Employers, however, should be aware of the fact that many legitimate interests are well-defined, and to the extent that additional or uncontemplated protectable legitimate business interests exist, they will be subject to a context-based analysis that will be balanced against consideration of the former employee’s inalienable right to work.

Peter T. Mavrick has successfully represented many businesses and individuals in non-competition covenant litigation. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website:www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.

FEDERAL OVERTIME WAGE COLLECTIVE ACTIONS (SOMETIMES CALLED “CLASS ACTIONS”): DISTRICT COURTS SHOULD CONSIDER ALTERNATIVES TO THE TWO-TIER SYSTEM IN SECTION 216(b) COLLECTIVE ACTIONS

The use of the two-tier method to determine whether collective actions should proceed under Section 216(b) of the Fair Labor Standards Act (“FLSA”) is inappropriate because it: (1) conflates Rule 23 standards with non-applicable wage and overtime claims under the Fair Labor Standards Act; and (2) wastes judicial resources and the resources of the parties. While the two-tier approach is popular among the district courts, the Eleventh Circuit has stressed that “[n]othing in [the Eleventh Circuit’s] precedent … requires district courts to utilize this approach. Hipp v. Liberty Nat. Life Ins. Co., 252 F.3d 1208, 1219 (11th Cir. 2001). Thus, courts should consider the utility of authorizing notice under Section 216(b) rather than relying on jurisprudential concerns that are based in “imprecise pleading and stare decisis yield[ing] path-dependence and lock-in.” Turner v. Chipotle Mexican Grill, Inc., 123 F. Supp. 3d 1300, 1306 (D. Colo. 2015).

The two-tier approach is a method of determining whether collective actions should proceed under Section 216(b). The first phase uses a very lenient standard to determine whether the named plaintiffs are similarly situated to the putative opt-in plaintiffs and whether there are similarly situated individuals who want to join the litigation. Most plaintiffs clear the low bar of the first phase, just to, in most cases, have their classes de-certified in second phase when the court makes a factual determination on the “similarly situated” issue. See Hipp 252 F.3d at 1218 (“Based on our review of the case law, no representative class has ever survived the second stage of review”).

The conflation of Rule 23 class action standards with the application of 216(b) to collective actions can traced to the 1976 enactment of the Age Discrimination Enforcement Act (“ADEA”). The ADEA authorized similarly situated plaintiffs to aggregate their claims by incorporating 216(b) as its enforcement mechanism. As a result of the proliferation of ADEA lawsuits, the leading cases that address collective action proceedings under section 216(b) are ADEA actions, rather than actions brought under the FLSA. Moreover, because ADEA 216(b) cases often import Title VII discrimination standards that are subject Rule 23 class certification. Thus, what should be a relatively straightforward analysis of wage and overtime claims under the FLSA, is now a confounding analysis that assesses wage and overtime claims with the Rule 23 like two-tiered method, which was designed to address patterns and practices of discrimination. See Turner 123 F. Supp. 3d at 1305–06 (finding that reliance on Rule 23 “class certification” concepts in true 216(b) FLSA cases to be the result of a confluence of factors, including haphazard terminology, a misunderstanding of precedent and legislative intent, and excessive path dependence in the application of stare decisis.) “Rule 23 actions are fundamentally different from collective actions under the FLSA,” Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523, 1530 (2013), as such, courts should not default to the use of the two-tier method when determining if a class should be conditionally certified.

The use of the formulaic two-tier system to authorize court facilitated notice or conditional certification of a “class” under 216(b) wastes resources. Congress authorized collective treatment of actions under 216(b) for the purposes of judicial economy. See Holt v. Rite Aid Corp., 333 F. Supp. 2d 1265, 1269 (M.D. Ala. 2004) (““the judicial system benefits by efficient resolution in one proceeding of common issues of law and fact arising from the same alleged discriminatory [or illegal] activity.”) However, the pervasiveness of the two tiered method has made the “[s]eeking out and notifying sleeping potential plaintiffs”- an activity that “was once demeaned as a drain on judicial resources” – into a misguided “tool of judicial administration.” See Hoffmann-La Roche Inc. v. Sperling, 493 U.S. 165 (SCALIA, J., dissenting). As many courts grant conditional certification without “cognizan[ce] of the factual and legal issues presented by the case,” West v. Verizon Communications, Inc., WL 2957963, at *4 (M.D. Fla. Sept. 10, 2009), the goal of judicial economy is vitiated by the futile litigation regarding class certification. “To create a collective action class, including the cost associated with that when a Court is convinced that there is insufficient support for the same prior to certification would be an exercise in futility and wasted resources for all parties involved.” Hart v. JPMorgan Chase Bank, N.A., WL 6196035, at *6 (M.D. Fla. Dec. 12, 2012). Thus, courts should use their discretion to practically assess the appropriateness of conditional certification. See id. at *4 (“[d]istrict [c]ourts enjoy broad discretion in deciding how best to manage the cases before them”). For a discussion regarding how employers can successfully defend against Section 216(b) collective actions, please our article addressing this topic and the defense of “individualized” claims.

Peter T. Mavrick has successfully represented many businesses in labor and employment law litigation. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website:www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.

DEFENDING AGAINST OVERTIME WAGE COLLECTIVE ACTIONS (SOMETIMES CALLED “CLASS ACTIONS”): INDIVIDUALIZED NATURE OF CLAIMS CAN PREVENT COLLECTIVE ACTIONS UNDER SECTION 216(b)

Employers that are faced with collective actions under the Fair Labor Standards Act may be able to defeat Motions for Conditional Certification if they can demonstrate the individualized nature of named plaintiff’s claims. See Caballero v. Kelly Services, Inc., WL 12732863, at *7 (S.D. Tex. Oct. 5, 2015) (denying certification where alleged violations were “not the result of a systemic policy,” so “assessment of the[ ] issues necessitates an individual inquiry for each Plaintiff, thereby making a collective action inappropriate.”) Employers can prove that the potential plaintiffs’ claims are individualized and unfit for collective action by establishing the disparate nature of the putative class’ and its representatives job requirements and pay provisions. The need for individualized inquires contravenes the basic theory of judicial economy upon which the certification of collective actions is based. See id. at *1. Therefore, employers who highlight the individualized defenses and inquiries may prevent a collective proceeding. See Lugo v. Farmer’s Pride Inc., 737 F. Supp. 2d 291, 300–01 (E.D. Pa. 2010).

To determine whether 216(b) collective actions are appropriate, most courts utilize the two-tier method. See Hipp. at 1208. At the first “notice stage,” the district court makes a decision—usually based only on the pleadings and any affidavits which have been submitted— as to whether the putative class should be conditionally certified. See id. When assessing the pleadings and affidavits, courts in the Southern District of Florida satisfy themselves that “(1) there are similarly situated with regard to their job requirements and pay provisions; and (2) there is a desire among similarly situated individuals to opt-in to the class.” See Martinez at 1853.  Put another way, there is a two-part analysis to assessing the first tier, which determines whether conditional certification will be granted.

A defendant that successfully highlights the differences in pay and job requirements between the putative plaintiffs will probably defeat a Motion for Conditional Certification. Defendants should contrast on the job requirements and pay provisions of the named plaintiff with those that the named plaintiff seeks to represent. Thus, defendants should bring attention to inconsistencies in the pleadings and affidavits or declarations to establish that plaintiff differences in pay provisions and job requirements: defendants should highlight differences such as exempt status, job duties, and schedules, among other things. See Palacios v. Boehringer Ingelheim Pharm., Inc., WL 6794438, at *1 (S.D. Fla. Apr. 19, 2011) (denying first stage “notice” authorization because an individualized analysis was required to determine whether putative class members are exempt from the FLSA overtime provisions); Holt v. Rite Aid Corp., 333 F. Supp. 2d 1265, 1272 (M.D. Ala. 2004) (denying conditional certification because “similarly situated” inquiry must be analyzed in terms of the nature of the job duties performed by each putative plaintiff); Udo v. Lincare, Inc., WL 5354589, at *11 (M.D. Fla. Sept. 17, 2014) (denying notice authorization partly due to the variance in schedules among the potential opt-in plaintiffs.)

Moreover, even if named plaintiffs prove that they are similarly situated in pay provisions and job requirements, a Motion for Conditional Certification can still be defeated if the defendant can prove that there are no similarly situated individuals who wish to join the litigation. Statements or claims that reference that plaintiffs have “spoken to multiple other employees… who advised that, if given formal notice in this case, they would opt-in….”  are insufficient as they are hearsay. See Davis v. Charoen Pokphand (USA), Inc., 303 F.Supp.2d 1272, 1277 (M.D.Ala.2004) (holding that plaintiff failed to demonstrate other plaintiffs exist who want to opt-in when only evidence was that plaintiff spoke to employees who stated that they would join the suit.) Further, unsupported assertions that are based on “beliefs” “anticipation” and “conversations” are considered to be conclusory and fall short of the “substantial” and “detailed” allegations necessary to satisfy the “similarly situated” element. See Louis–Charles v. Sun–Sentinel Co., 2008 WL 708778 (S.D.Fla. Mar.14, 2008) (holding that plaintiff’s “anticipation” is merely his own opinion and, therefore, insufficient to certify the class); see also Hipp at 1219.

Peter T. Mavrick has successfully represented many businesses in labor and employment law litigation. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website:www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.

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

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.

Peter T. Mavrick has successfully represented many buyers and sellers of businesses in commercial disputes. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.

 

FLORIDA DECEPTIVE AND UNFAIR TRADE PRACTICES ACT: DEFENSE AGAINST LAWSUIT USING NOERR-PENNINGTON DOCTRINE

The Florida Deceptive and Unfair Trade Practices Act (FDUTPA), § 501.201 et seq., Florida Statutes, is a remedial statute intended “to protect the consuming public and legitimate business enterprises from those who engage in unfair methods of competition, or unconscionable, deceptive, or unfair acts or practices in the conduct of any trade or commerce.” § 501.202(2), Fla. Stat.  Rollins, Inc. v. Butland, 951 So. 2d 860 (Fla. 2d DCA 2006), defines a deceptive practice as “one that is likely to mislead” and an unfair practice as “one that offends established public policy” and/or “is immoral, unethical, oppressive, unscrupulous or substantially injurious.”  The explicit wording of FDUTPA and its interpretations by Florida courts are purposefully broad and intended to help protect consumers and businesses against a wide range of deceitful or unfair trade practices.  However, the broad wording and interpretations of FDUTPA could also be harmful to businesses, as they provide an avenue for customers and/or competitors adversely affected by lawful trade practices to bring meritless lawsuits.  A perfect example is when a party brings a FDUTPA claim against a business based on pre-suit communications threatening potential litigation, such as a demand letter or a cease and desist letter.  It is common practice for businesses to send such pre-suit communications as an attempt to curb another party from further engaging in conduct that is either violating the law or some other obligation the party owes to the business without the need for costly litigation.  This is useful in situations that include, inter alia, when a former employee is violating a non-compete agreement, when a party to a contract fails to fulfill his or her contractual obligations, or when a party is infringing on a business’s trademark or interfering with advantageous business relationships.  Despite the practicality of using these pre-suit communications, the recipients typically view it as harassing and threatening conduct forming the basis of FDUTPA claims.

One way businesses can defend against and dismiss these meritless FDUTPA claims is by invoking immunity under the Noerr-Pennington doctrine.  The foundation of Noerr-Pennington immunity arises from the First Amendment’s right to petition and it is traditionally utilized to shield a defendant from antitrust liability for resorting to litigation to obtain an anticompetitive result from the court.  Nevertheless, McGuire Oil Co. v. Mapco, Inc., 958 F.2d 1552 (11th Cir. 1992), extended the doctrine to protect “pre-litigative and litigative activities” from claims for unfair trade practices.

Based on the Eleventh Circuit’s reasoning in McGuire Oil Co., Florida federal courts have consistently applied Noerr-Pennington immunity to dismiss actions based on pre-suit communications.  PODS Enterprises, Inc. v. ABF Freight Sys., Inc., 100 U.S.P.Q.2d 1708 (M.D. Fla. 2011), and Atico Intern. USA, Inc. v. LUV N’ Care, Ltd., 2009 WL 2589148 (S.D. Fla. Aug. 19, 2009), both dismissed FDUTPA claims based on pre-litigation letters, holding that pre-suit demand and cease and desist letters are “immunized” under Noerr-Pennington.  Similarly, Rolex Watch U.S.A., Inc. v. Rainbow Jewelry, Inc., 2012 WL 4138028 (S.D. Fla. Sept. 19, 2012), applied Noerr-Pennington to dismiss a defendant’s FDUTPA counterclaim based on pre-suit threats of litigation and alleged injuries it sustained in having to defend against the plaintiff’s trademark infringement suit.  Another example, Marco Island Cable, Inc. v. Comcast Cablevision of S., Inc., 2006 WL 1814333 (M.D. Fla. July 3, 2006), granted partial summary judgment to the defendant for a FDUTPA claim based on pre-suit letters threatening to sue to enforce defendant’s exclusivity contracts.  These cases are just a few examples of how courts have applied the Noerr-Pennington doctrine to help business defend against meritless FDUTPA lawsuits.

The Mavrick Law Firm has extensive experience dealing with the Florida Deceptive and Unfair Trade Practices Act and has successfully defended businesses against FDUTPA lawsuits.  This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.

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

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.

As mentioned earlier, a member can only individually sue another member for damages if the two-prong test is met, or if the member can prove the existence of a separate duty owed by the defendant-member(s) to the individual plaintiff-member that is based on a contractual or statutory mandate. Dinuro Investments, LLC v. Camacho, 141 So. 3d at 740. Concerning the first prong, direct harm, a member can only bring a direct suit if the damages are unrelated to the damages that are suffered by the LLC, and if the LLC would have no right to recover in its own action. Strazzulla v. Riverside Banking Co., 175 So. 3d 879, 885–86 (Fla. 4th DCA 2015). Regarding the second prong, the plaintiff-member’s injuries must be separate and distinct from the other members. Id.  Moreover, unless explicitly stated, an LLC’s operating agreement will not function to impose individual rights and liabilities to individual members. See Dinuro Investments, LLC v. Camacho, 141 So. 3d at 741 (“[w]hen analyzing a claim for breach of an operating agreement, the precise terms of the agreement are critical”). Therefore, potential plaintiff-members should assess the nature of their harm and any individual contractual rights before suing another member of an LLC. A failure to make a thoughtful and reasoned assessment of the factors discussed in this article will likely result in a waste of resources.

Peter T. Mavrick has successfully represented many businesses in non-competition covenant litigation. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.

NON-COMPETE AGREEMENTS: BUSINESSES SHOULD INCLUDE THIRD-PARTY ENFORCEMENT PROVISIONS IN THEIR NON-COMPETE AGREEMENTS

All businesses, especially those that may become the target of a merger or acquisition, that want their successor entities or assignees to have the right to enforce non-compete agreements against their former employees should include a provision that allows third-parties to enforce the non-compete agreements. Unless a non-compete agreement expressly authorizes enforcement of the non-compete by an employer’s assignees or successors, employers that did not include an assignment provision in their non-compete agreements could find their non-competes to be unenforceable if they are found to be “successor” entities. See Fla. Stat. § 542.335(1)(f); see also Collier HMA Physician Mgmt., LLC v. Menichello, 42 Fla. L. Weekly D1228 (Fla. 2d DCA May 31, 2017) (citing Corneal v. CF Hosting, Inc., 187 F.Supp.2d 1372, 1375 (S.D. Fla. 2001) (“[t]he term successor ‘is generally applicable to corporations wherein one corporation by a process of amalgamation, consolidation or duly authorized legal succession becomes vested in the rights and assumes the burdens of its predecessor corporation”).  Employers that include third-party enforcement provisions ensure that the employer’s interest in the agreement will survive in the event that the employer undergoes a corporate transformation and is found to be a successor in interest to the original employer. Thus, during the applicable restructuring event (merger, acquisition, spinoff, etc.), the controlling entity of an employer with executed non-compete agreements should balance the necessity of the maintenance of the employer’s non-compete agreements with the necessity of the employer becoming a different “successor” entity within the “traditional principles of corporate and business law.” Menichello, 42 Fla. L. Weekly D1228 at *7.  The Mavrick Law Firm regularly handles non-compete law in Broward, Miami-Dade, and Palm Beach Counties and has specifically handled matters concerning enforcement of non-compete agreements where there has been corporate assignees and successors.

In Menichello, the 2nd DCA recently held that the “successor defense” is ineffective against a valid non-compete agreement when the corporate identity of an employer – whose parent organizations underwent a series of mergers and acquisitions – is unchanged. See generally 42 Fla. L. Weekly D1228. In Menichello, the employer Collier HMA entered into a non-compete agreement (the Agreement) with the employee Dr. Menichello. After the parties entered into the Agreement, the ultimate parent of Collier HMA, Health Management Associates, Inc. was acquired and became a subsidiary of Community Health Systems, Inc. (CHS). After the merger, Dr. Menichello terminated his employment with Collier HMA and started working for Collier HMA’s direct competitor, in violation of his covenant not to compete. Collier HMA sought an injunction against Dr. Menichello that prohibited his employment with its competitor.

Reversing the lower-court’s refusal to enter an injunction against Dr. Menichello, the 2nd DCA clarified that “traditional principles of corporate law” determine “the obligations and liabilities of a successor corporation,” 42 Fla. L. Weekly D1228 at *7. The court then found that Collier HMA was not a “successor” within the meaning of the statute because Collier HMA “had not been consolidated with or amalgamated into another company after the merger.” It also noted that “Collier HMA had not acquired the rights of or assumed the burdens of any other entity” and that “nothing about the corporate structure or ownership of Collier HMA was different after the merger.” Id. Thus, in this case the court found that a third-party enforcement provision was not needed. See id. (“Collier HMA had not assigned the Agreement to another entity because no such assignment was required.”) Nevertheless, employers should include third-party enforcement provisions in their non-compete agreements so that they can engage in restructuring without the looming threat of a successor defense in a non-compete dispute.

Peter T. Mavrick has successfully represented many businesses in non-competition covenant litigation. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website:www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.

Fraud Claims Cannot Be Based on Puffery

            Most businesses that sell products or services encourage their salesmen to do whatever it takes to make a sale.  This leads to the salesmen exaggerating regarding the quality of the product or service they are selling.  Although exaggerations or statements promoting the quality of a product or service can lead to increased sales, it could also be problematic for businesses.  Customers who rely on such statements when purchasing a product or service can be severely disappointed if the product or service does not live up to salesman’s exaggerations, and this often leads to lawsuits for fraudulent misrepresentations or fraud in the inducement.  Fortunately, Florida law provides a useful avenue to defend against these types of fraud lawsuits.  To allege a claim for fraud, a person must demonstrate that a seller made a “misrepresentation of material fact.” Florida courts have consistently held that a seller’s exaggerations or statements of opinion, otherwise known as puffery, cannot constitute a misrepresentation of material fact.  The leading case on this issue in Florida is Wasser v. Sassoni, 652 So. 2d 411 (Fla. 3d DCA 1995).

            In Wasser, the purchaser of a 67-year-old apartment building sued the seller for, inter alia, fraudulent misrepresentation based on the seller’s statements that the building was “a very good building” requiring “normal type of maintenance,” and “an excellent deal.” The Third District Court of Appeal found that such statements were merely “puffing” or statements of opinion that could not constitute fraudulent misrepresentations.  Based on the foregoing, the court affirmed summary judgment in favor of the seller.

            More recently, the Fourth District Court of Appeal was confronted with a fraud claim based on puffery in MDVIP, Inc. v. Beber, 2017 WL 2364729 (Fla. 4th DCA May 31, 2017).  The plaintiff brought suit against a personalized healthcare program after a doctor employed by the program failed to diagnose and misdiagnosed the plaintiff’s leg pain, forcing the plaintiff to undergo an above-the-knee amputation. The plaintiff’s fraud claim was based on the defendant’s statements that it would provide “exceptional doctors, exceptional care, and exceptional results.” The plaintiff also alleged the defendant made promises that the plaintiff “would be seen by the finest national specialists with advanced treatment” and defendants claimed to be “a network fraternity of some of the nation’s finest physicians,” among other things.  In making its decision, the court relied in part on Wasser and determined that the plaintiff’s fraud claims could not be maintained to the extent they depended on defendant’s alleged statements, as such statements constituted non-actionable puffery or statements of opinion.

            Although fraud claims based on puffery will usually be disposed of by the court, businesses still must be cautious when using puffery or statements of opinion to make sales.  In Mejia v. Jurich, 781 So.2d 1175 (Fla. 3d DCA 2001), the court provided an exception to the general rule that fraud claims cannot be based on statements of opinion.  Mejia states:

Where the person expressing the opinion is one having superior knowledge of the subject of the statement and the plaintiff can show that said person knew or should have known from facts in his or her possession that the statement was false, then the opinion may be treated as a statement of fact.

            The Mavrick Law Firm has successfully represented many businesses in fraud cases as well as other business litigation cases throughout the Miami-Dade, Broward, and Palm Beach County areas encompassed by the Third and Fourth District Courts of Appeal, as well as Hillsborough, Sarasota, and other counties encompassed by the Second Circuit Court of Appeals.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.