Florida Business Litigation Lawyer Blog
Under Florida’s non-compete statute, Florida Statutes section 542.335(1(a), a court “shall not enforce a restrictive covenant unless it is set forth in a writing signed by the person against whom enforcement is sought.” The most common method of enforcing restrictive covenants is an injunction, i.e., a court order barring a particular act such as operating a competing business. Sometimes, however, an enjoined party seeks to evade the requirements of a non-compete covenant or an injunction by using a nominee, such as a spouse, family members, or a shell corporation. The legal doctrine of “aiding and abetting” liability is designed to address such a situation. Aiding and abetting liability can extend the reach of an injunction to non-parties, i.e., strangers, to a non-compete contract, where they are assisting the real party in interest who signed the restrictive covenant and is trying to avoid compliance with contractual obligations. Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, 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 law, and other legal disputes in federal and state courts and in arbitration.
The Supreme Court of Florida in West Shore Restaurant Corp. v. Turk, 101 So.2d 123 (Fla. 1958), stated that the “rule that a stranger to a covenant may be enjoined from aiding and assisting the covenanter in violating his covenant is supported by an overwhelming weight of authority.” Non-parties to a restrictive covenant may be enjoined from aiding and abetting a party who is directly obligated to abide by the restrictive covenant. In other words, Florida courts will not allow a party to use or conspire with another person as an indirect method of evading a direct contractual obligation. In West Shore, the plaintiff had paid a substantial sum of money to buy a restaurant. One of the material terms of the deal was that the seller would refrain from competition. The seller, however, used a relative (his father) and another person to evade the non-compete covenant by operating a competing business. The Supreme Court explained that: “Covenants not to compete are in the best of circumstances difficult to enforce. If the covenantor wishes to avoid the agreement[,] the covenantee is required to become a policeman and a detective to catch him. When the covenantee is able to prove a breach[,] he finds it most difficult to prove, with the certainty required by law, the damages which he has suffered. For these reasons, there are few types of contracts which require greater attention by the courts in their enforcement, an in so doing the moral obligation of the covenantor, the obligation to observe the spirit as well as the letter of the agreement must be considered and enforced.” In ruling in favor of the buyer of the business, the Supreme Court added that: “‘Where one is so lost to a sense of moral obligation as to accept full consideration for his stock in trade and good-will, upon express condition that he refrain from again entering that business for a limited time, within a certain territory, and then immediately, having pocketed the fruits of the agreement, deliberately and wilfully [sic] ignores the controlling condition thereof, courts should certainly not hunt for legal excuse to uphold him in such moral delinquency.'”
Subsequent case law has held that courts can enjoin non-parties to the restrictive covenant, such as a family member of the signator or an alter ego corporation, where the nonparty is either under the signator’s control or otherwise being used to aid or abet the signator in violating the non-compete clause. For example, in Leighton v. First Universal Lending, LLC, 925 So.2d 462 (Fla. 4th DCA 2006), Florida’s Fourth District Court of Appeal explained that “[t]here is no doubt that a court can enjoin others who were not parties to the non-compete agreement.” However, before non-parties to a contract can be enjoined, they must be given notice of the allegations and have right to be heard and defend themselves. Sheoah Highlands, Inc. v. Daugherty, 837 So.2d 539 (Fla. 5th DCA 2003).
Peter Mavrick is a Fort Lauderdale business litigation lawyer, and represents clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.