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Articles Posted in Business Law

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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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To have legal recourse for the misappropriation of a trade secret under Florida law, a plaintiff must: (1) prove the existence of a trade secret; (2) prove that it took reasonable measures to protect the trade secret; and (3) demonstrate that the trade secret was misappropriated. See Del Monte Fresh Produce Co. v. Dole Food Co., Inc., 136 F. Supp. 2d 1271 (S.D. Fla. 2001). The Florida Uniform Trade Secrets Act (the “Act”) protects a party’s trade secrets from “misappropriations.” Section 688.002 of the Act defines misappropriation as:

(a) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or

(b) Disclosure or use of a trade secret of another without express or implied consent by a person who:

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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.  Nevertheless, the Fort Lauderdale business litigation attorneys at the Mavrick Law Firm have 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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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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Today, many businesses are including arbitration provisions for the resolution of any disputes or controversies that may arise from the contract. This is because arbitration provides a more efficient and less costly alternative to litigation. Despite the existence of such arbitration provisions within business contracts, often times, when a dispute arises, a plaintiff will still file a lawsuit in state or federal court. The Miami arbitration attorneys at the Mavrick Law Firm have extensive commercial arbitration experience and can help businesses dismiss such lawsuits and enforce valid arbitration agreements.

When faced with the scenario supra, it is critical that the first thing the defendant-business does is assert its right to arbitration, most often via a motion to compel arbitration. This is because a party’s right to arbitrate, like any other contractual right, can be waived. Under Florida law, it is well settled that active participation in a lawsuit can waive your right to arbitrate. This was demonstrated by the Fifth District Court of Appeal’s decision Morrell v. Wayne Frier Manufactured Home Ctr., 834 So. 2d 395 (Fla. 5th DCA 2003).

In Morrell, purchasers of a mobile home brought suit against a mobile home sales company. After the purchasers filed their complaint in October 2000, the company answered and asserted affirmative defenses against the purchasers and filed a motion to dismiss the lawsuit, asserting that some of the plaintiff’s did not have standing to bring the lawsuit. The parties thereafter participated in a settlement conference, exchanged discovery, and trial was scheduled to occur during December 10, 2001 docket. However, in September 2001, the company submitted a motion to stay the proceedings and refer the matter to arbitration. On the eve of trial in December 2001, the trial court granted the company’s motion and referred the matter to arbitration. On appeal, the Fifth DCA reversed, explaining that “a party waives its right to arbitration by: (1) actively participating in the lawsuit; or (2) taking action which is inconsistent with the right to arbitrate.” The court found that because the company had already participated in the subject lawsuit, it had waived its right to arbitrate.

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Arbitration is an increasingly popular alternative to traditional litigation because arbitration proceedings are faster and more cost effective. Many would-be litigants are incorporating binding arbitration clauses into their agreements for the economic benefits. However, parties who enter agreements with arbitration clauses should consider the conclusive nature of an arbitration proceeding. As arbitration clauses become prevalent in the consumer and commercial context, more and more individuals and businesses will face the reality of an oftentimes-unreviewable arbitration award. The Mavrick Law Firm has significant experience with assessing the validity of arbitration clauses and successfully representing clients in arbitration proceedings.

The Revised Florida Arbitration Code allows parties to arbitration to file a motion to vacate, modify, or correct an award in limited circumstances. See §§ 682.13 – 682.14, Fla. Stat. § 682.13 provides, in part, that a court can vacate an arbitration award only if:

(a) The award was procured by corruption, fraud…(b) There was:1. Evident partiality by an arbitrator …3. Misconduct by an arbitrator prejudicing the rights of a party to the arbitration proceeding; (c) An arbitrator refused to postpone the hearing upon showing of sufficient cause for postponement, refused to hear evidence material to the controversy, …(d) An arbitrator exceeded the arbitrator’s powers;(e) There was no agreement to arbitrate …(f) The arbitration was conducted without proper notice …

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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.

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Incorporating a business or forming a limited liability company (LLC) are both very smart decisions for business owners.  While each one has its own individual benefits, both allow a business owner to protect his or her personal assets in case someone sues their business.  However, sometimes individuals or businesses will form a corporation or LLC to shield themselves from liability, but utilize them for improper purposes.  In such cases, a victim who is wronged by such conduct may have limited recourse, as they could attempt to sue a business that is merely a shell with little to no financial assets to recover.  It is for this reason that courts allow these victims to “pierce the corporate veil,” essentially disregarding the corporate entity and allowing recovery directly from either the parent company or the individual(s) who formed the corporation or LLC.

XL Vision, LLC. v. Holloway, 856 So. 2d 1063 (Fla. 5th DCA 2003) states that under Florida law, a court may pierce the corporate veil if a person proves both that the corporation is a “mere instrumentality” or alter ego of the wrongdoer, and that the wrongdoer engaged in “improper conduct” in the formation or use of the corporation.” Hilton Oil Transp. v. Oil Transp. Co., S.A., 659 So. 2d 1141, 1151-52 (Fla. 3d DCA 1995) provides a list of factors courts deem relevant in determining whether a corporation or LLC is a “mere instrumentality” or “alter ego”, stating:

There are at least fifteen factors that have been deemed to be relevant in a determination of whether a corporate entity should be disregarded: (1) the absence of the formalities and paraphernalia that are part and parcel of the corporate existence, i.e. issuance of stock, election of directors, keeping of corporate records and the like; (2) inadequate capitalization; (3) whether funds are put in and taken out of the corporation for personal rather than corporate purposes; (4) overlap in ownership, officers, directors, and personnel; (5) common office space, address and telephone numbers of corporate entities; (6) the amount of business discretion displayed by the allegedly dominated corporation; (7) whether the related corporations deal with the dominated corporation at arm’s length; (8) whether the corporations are treated as independent profit centers; (9) the payment or guarantee of debts of the dominated corporations by other corporations in the group; (10) whether the corporation in question has been properly used by others of the corporations as if it were their own; (11) financing of subsidiary by parent; (12) informal intercorporate loan transactions; (13)  parent and subsidiary’s filing of consolidated income tax returns; (14) whether subsidiary’s directors act independently in interest of subsidiary rather than in interest of parent; (15) existence of fraud, wrongdoing or injustice to third parties.

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When two parties commit the same wrongdoing and are equally at fault, the court generally will not get involved in their transaction.  That rule is known as the doctrine of “in pari delicto.”  The doctrine of in pari delicto generally will apply to various forms of unlawful contracts.  For example, if two parties enter into an illegal contract to split the profits of a robbery, neither party can seek to have the court enforce the contract when one party refuses to share the profits.  Both parties were equally at fault—or in pari delicto—and the court will leave the parties as they are.  Until recently, some Florida courts applied the doctrine of in pari delicto to construction contracts entered into by unlicensed contractors.

In Earth Trades, Inc. v. T&G Corp., 108 So. 3d 580 (Fla. 2013), an unlicensed subcontractor (“Earth Trades”) entered into a construction contract with a general contractor (“T&G”).  T&G knew that Earth Trades was unlicensed when it entered into the contract.  After a dispute between the parties arose, Earth Trade sued T&G for breach of the contract.  T&G countersued for breach of contract against Earth Trade.  At that point Earth Trade argued that neither T&G nor Earth Trade could enforce the contract because the contract was unlawful.  Earth Trade further argued that because both parties knew that the contract was unlawful, the parties were in pari delicto.  The Florida Supreme Court disagreed.

The Florida legislature amended the statute regarding unlicensed construction contractors in 2003.  As amended, the statute reads as follows: “contracts entered into on or after October 1, 1990, by an unlicensed contractor shall be unenforceable in law or in equity by the unlicensed contractor.”  Fla. Stat. § 489.128(1) (emphasis added).  The statute therefore explicitly makes the contract unenforceable only by the unlicensed contractor and not the party contracting with the unlicensed contractor.  Because the legislature placed the liability on the unlicensed contractor, “the fault of the person or entity engaging in unlicensed contracting is not substantially equal to that of the party who merely hires a contractor with knowledge of the contractor’s unlicensed status.”  Earth Trades, Inc., 108 So. 3d at 587.  Earth Trades was therefore not in pari delicto with T&G even though T&G knew that Earth Trades was unlicensed.

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Franchise agreements can serve to establish a mutually beneficial relationship for the franchisor and the franchisee.  Under a franchise agreement, the franchisor’s brand is allowed to grow through an independent business, i.e., the franchisee, and the franchisee is able to start a business without having to create a new product or brand.  Because franchisees are generally independent businesses, the franchisor will normally not be liable for the franchisee’s actionable conduct.  However, the franchise agreement and other factual circumstances could render a franchisor vicariously liable for its franchisees’ actions.

In Parker v. Domino’s Pizza, 629 So. 2d 1026 (Fla. 4th DCA 1993), two plaintiffs were harmed as a result of an accident caused by a delivery driver employed by J&B Enterprises, a Domino’s Pizza (“Domino’s”) franchisee.  Under Florida law, an employer can be vicariously liable for his or her employees’ actions.  J&B Enterprises, as the employer of the delivery driver, could therefore be liable for the plaintiffs’ injuries.  The plaintiffs argued, however, that Domino’s also was vicariously liable for the injuries caused by the delivery driver.  The trial court held that Domino’s was not liable to the plaintiffs because the delivery driver was not a Domino’s employee.  On appeal, the appellate court disagreed.

The appellate court held that the operating manual that Domino’s provided to J&B Enterprises was “a veritable bible for overseeing a Domino’s operation,” which contained “prescriptions for every conceivable facet of the business.”  Parker v. Domino’s Pizza, 629 So. 2d 1026, 1029 (Fla. 4th DCA 1993).  Because the manual indicated that Domino’s retained a high degree of control over J&B Enterprises, J&B Enterprises could be considered an agent of Domino’s.  Consequently, the appellate court held that Domino’s could be found liable for the delivery driver’s actions.

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