The defendant in a lawsuit for breach of a restrictive covenant can argue his or her alleged competitive actions do not breach the restrictive covenant because they pertain to a different line of business as the plaintiff’s company. A defendant might argue he or she does not target the same types of customers or offers different product or services than those of the plaintiff even both operate in the same industry. USI Insurance Services of Fla., Inc. v. Pettineo, 987 So. 2d 763 (Fla. 4th DCA 2008), addressed this issue within the context of a business purchase. In USI, the owner of an insurance agency sold the company to a buyer pursuant to a sales agreement that included a non-compete provision prohibiting the seller from providing any insurance-related services. After the purchase, the buyer decided it would only sell expensive insurance policies. The seller then opened a new business selling more economical insurance policies that the buyer refused to sell. The buyer sued the seller for breaching the non-compete restrictive covenant and asked the trial court to enjoin the seller from competing. The trial court denied the injunction request because the buyer did not operate a “like business” as the seller. The buyer catered to persons desiring expensive insurance policies while the seller catered to persons desiring more economical insurance policies. However, the trial court was reversed on appeal. The appellate court determined the buyer’s decision to refrain from selling economical insurance policies did not remove the buyer from the broad “line of business” the seller agreed to avoid under the sales contract. USI Insurance’s broad interpretation of “line of business” suggests that persons or companies targeting different customers in the same industry are within the same “line of business.”

The holding in USI Insurance raises questions about when companies are, and are not, in the same line of business. The questions can get more complex for companies with different divisions or product lines. Lincare, Inc. v. Tinklenberg, 2020 WL 10354020 (M.D. Fla., June 26, 2020) may provide some instruction on these complexities. In Lincare, a large conglomerate had many business lines in the medical services and supplies industry. The conglomerate hired a manager that only worked in two of the conglomerate’s business lines. The manager was required to sign a broad non-compete agreement prohibiting the manager from competing against the conglomerate in all of its business lines. The manager left the conglomerate for a competing company and the conglomerate sought an injunction to stop the manager from competing. The court found that the agreement was overbroad and narrowed the restrictive covenant to the two specific business lines the manager worked in during her employment with the conglomerate.

Lincare appears to take a narrower interpretation of “line of business” than USI Insurance. Lincare allowed the manager to continue working in the medical services and supplies industry so long as the manager did not participate in the same line of business as she did when she worked for the conglomerate. Conversely, USI Insurance broadly prohibited the seller from working in the insurance industry even though the customers pool was different. This shows that determining the scope of a “line of business” is case specific and fact specific. The result could very well come down to each individual judge’s interpretation and the facts presented to the judge.

The Miami business litigation lawyers of the Mavrick Law Firm also represent 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.

In Winn Dixie Stores, Inc. v. Dolgencorp, Inc., 964 So.2d 261 (Fla. 4th DCA 2007), Florida’s Fourth District Court of Appeal overturned summary judgment against grocery store that sought sued the commercial landlord for failure to abide by the restrictive covenant their commercial lease. The covenant required that Winn Dixie be the exclusive grocery store in the shopping center, as its anchor tenant. The appellate court rejected the argument that section 542.335, Florida Statutes, applied to restrictive covenants that run with the land, explaining: “When read in context with the other provisions of section 542.335, subsection (1)(a)’s reference to ‘a restrictive covenant’ does not include real property covenants running with the land. Rather, the section is directed at personal service contracts not to compete. For example, section 542.335(1) refers to ‘contracts that restrict or prohibit competition’ that ‘are reasonable in time.’ Subsections 542.335(1)(d) & (e) set out four rebuttable presumptions a court is to apply to determine the ‘reasonableness in time’ of a ‘postterm restrictive covenant.’ ‘Postterm’ connotes an employment relationship that has terminated, which is the time when one party seeks to enforce a covenant not to compete. ‘Postterm’ is nonsensical when applied to a real property covenant, which typically does not have a stated termination point. Absent a specified term or materially changed conditions, a real property covenant running with the land is without duration … All four presumptions in subsections 542.335(1)(d) & (e) apply to personal service contracts, concerning restrictive covenants sought to be enforced (1) against a former employee, agent, or independent contractor; (2) against a former distributor, dealer, franchisee, or licensee of a trademark or service mark; (3) against a seller of all or part of a business, and (4) to protect trade secrets. None of these presumptions have any application to real property covenants that run with the land.” More recently, Florida’s First District Court of Appeal in Amelia Island Restaurant II, Inc. v. Omni Amelia Island, LLC, 164 So.3d 26 (Fla. 1st DCA 2015), also concluded that Section 542.335, Florida Statutes, did not require invalidation of a commercial lease’s exclusivity provision even though the restrictive covenant in that case did not run with the land. The appellate court questioned the restrictive covenant statute’s applicability to “real property related restrictive covenants, because the law appears directed a personal covenants not to compete.”

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.

As discussed in the recent decision by Florida’s Fourth District Court of Appeal in Gulfstream Park Racing Ass’n, Inc. v. MI-V1, Inc., 286 So. 3d 315 (Fla. 4th DCA 2019), guarantors are limited in the defenses they may bring in a breach of contract action concerning a guaranteed debt. In Gulfstream, the appellate court reviewed the propriety of a jury verdict holding the tenant liable but not, however, the guarantor of the tenant’s debt. The plaintiff was a commercial landlord. The landlord claimed that the tenant had not paid required monthly rent, and therefore locked the entrance to the tenant’s nightclub. The landlord’s action was an apparent violation of § 83.05, Florida Statutes, which prohibits commercial landlords from undertaking “self-help” that inhibits tenant use over the leased property unless either the landlord won a judgment of eviction, the tenant surrendered the property, or the tenant abandoned the property.

The Gulfstream landlord sued the tenant and the guarantor for the tenant’s liability for a breach of the lease. The tenant and the guarantor claimed they were not required to pay rent because the landlord’s self-help violated § 83.05, Florida Statutes.

The trial court granted summary judgment against the guarantor concerning his liability on the guarantee. At trial, both the tenant and the guarantor were permitted to assert their affirmative defenses to the jury concerning their liability to pay the damages under the lease. The jury came to different conclusions concerning the guarantor and the tenant’s liability. The jury determined that the guarantor was not liable because he proved an affirmative defense, but the jury’s verdict did not specify which affirmative defense the guarantor proved.

Following the jury’s verdict, the appellate court in Gulfstream found that the jury’s verdict was legally inconsistent. Once summary judgment had been entered, the guarantor became liable for the tenant’s debt. “Once the trial court determined the guarantor was liable for the tenant, it was subject only to the jury’s finding on the tenant’s liability.” The guarantor could still effectively enjoy the benefit of the tenant’s affirmative defenses, because if the tenant prevailed, there would be no liability for the guarantor. The guarantor could not, however, assert its own affirmative defenses as to liability for the debt.

Gulfstream based its decision on the legal precedent of Anderson v. Trade Winds Enterprises Corp., 241 So. 2d 174 (Fla. 4th DCA 1970), which distinguished between the defenses available to a guarantor of an absolute guarantee as opposed to a conditional guarantee. Anderson described a similar circumstance to the facts in Gulfstream, i.e., when guarantors availed themselves of affirmative defenses which were not related to the validity or enforceability of the guarantee. Anderson held that because the guarantors entered an absolute guarantee rather than a conditional guarantee, the guarantors must be liable. “Where the guaranty is absolute, the guarantor becomes liable upon non-payment by the principal, and the person in whose favor the guaranty runs has no duty to first pursue the principal before resorting to the guarantors.” By contrast, a guarantor of a conditional guarantee may maintain the defense that the condition precedent for the guarantee to be enforceable has not occurred. “[A] conditional guaranty is one which is not enforceable immediately on the default of the principal debtor, but some contingency other than such default must happen, or the guarantee must take some steps, to fix the liability under the guaranty.” Nw. Bank v. Cortner, 275 So. 2d 317, 320 (Fla. 2d DCA 1973). When a guarantor’s guarantee is conditional, as opposed to absolute, the guarantor “does not become liable until the occurrence of the conditions.” Mullins v. Sunshine State Serv. Corp., 540 So. 2d 222 (Fla. 5th DCA 1989).

It is common for commercial landlords to require a signed guaranty as part of a commercial lease transaction. Typically, business owners will sign a guaranty to allow the business enterprise to launch. However, business owners should carefully review the wording of the guaranty, including whether the guaranty is absolute or conditional. Business owners also should carefully consider their risk profile, including the legal consequences of premature termination of the business’s tenancy.

Peter Mavrick is a Fort Lauderdale business litigation lawyer. This article does not serve as a substitute for legal advice tailored to a particular situation.

An oral agreement is usually binding but not always. Florida has a statute of frauds so certain types of contracts are not binding unless they’re in writing and signed by the party against whom it’s charged. For example, selling a house or a piece of real property requires a written agreement. It has to be signed by the other party. Commercial leases exceeding a year’s length will need to be in writing. There’s a witness requirement of 2 witnesses to the execution of the lease. Many other contracts can be enforced simply because they’re oral contracts where one part has agreed and as somebody has often said, its simply a handshake where they’ve mutually agreed orally as to what the contract is.

A lease guarantee is a promise by somebody to pay the obligations under the lease, separate from the signatory to the lease. This typically will happen where a business owner will lease premises in a shopping center. The business will sign a lease and the landlord of the shopping center will demand that the business owner himself personally sign a promise that it will pay for what’s owed in the lease in case the business doesn’t pay. Those are very risky documents to sign sometimes because sometimes the business owner many years later will sell the business and forget that it had this guarantee. If the new buyer years later breaches the lease the shopping center owner, the landlord sometimes will come after the guarantor. The business owners often have to be very careful to revoke the guarantee.