Articles Posted in Business Law

Florida law permits parties in litigation to issue offers of judgment and demands for judgment/proposals for settlement to their adversaries in litigation.  If the opposing party accepts the offer, this will typically conclude litigation between the parties.  If the opposing party refuses, and the offering party prevails by more than 25%, then the offering party will be entitled to a judgment in its favor for the attorneys’ fees it has incurred since the date that the offer was made.  Florida businesses that seek to take advantage of this rule must consider the nuances of the rule to make best use of it.  Peter Mavrick is a Miami business litigation attorney who represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringment litigation, and other legal disputes in federal and state courts and arbitration.

Florida Statute 768.79 and Rule 1.442 of the Florida Rules of Civil Procedure set forth the applicable rules regarding offers of judgment/proposals for settlement. The award of attorneys’ fees is mandatory when the offer of judgment complies with both § 768.79, Florida Statutes, and Florida Rules of Civil Procedure Rule 1.442.  See Anderson v. Hilton Hotels Corp., 202 So. 3d 846 (Fla. 2016) (“The mandatory language of section 768.79 reinforces the notion that a proper offer automatically creates that entitlement, unless the offer is made in bad faith […] [t]hus, an offer that complies with section 768.79 and Rule 1.442 creates a ‘mandatory right’ to collect attorneys’ fees”).

Section 768.79(1) Florida Statutes, provides:

Contract termination can sometimes be necessary even when there has been no wrongdoing by any party. Unanticipated circumstances for one party can frustrate the purpose of the contract or render performance of a contract impractical.  The Mavrick Law Firm’s recent, related article addressed the legal excuse of “impossibility” when contractual obligations become impossible to perform (for example, the COVID-19 related “shelter-in-place” orders which prohibits activities such as the hosting an event in public). This article discusses the similar Florida law defenses of “frustration of purpose” and “impracticability.” Peter Mavrick is a Miami business litigation attorney who represents businesses in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringment litigation, and other legal disputes federal and state courts and arbitration.

The affirmative defenses of frustration of purpose and impracticability have the common principle that if the risk was foreseeable at the inception of the contract, then these defenses may not be applicable.  As Florida’s Fifth District Court of Appeal explained in the case of Genuinely Loving Childcare, LLC v. Bre Mariner Conway Crossings, LLC, 209 So.3d 622 (Fla. 5th DCA 2017), if the intervening event was reasonably foreseeable before entering the contract and could have been controlled by the terms of the contract, Florida courts will not allow a party to excuse its contractual performance and instead hold the party liable for a breach of contract. Unlike the doctrine of impossibility, the contractual duties do not need to be impossible to perform

The “frustration of purpose” legal defense may excuse performance of a contract when the overall purpose of the contract has been frustrated or negated by an unanticipated changed circumstance. .  For example, in Hilton Oil Transport v. Oil Transport Co., S.A., 659 So.2d 1141 (Fla. 3d DCA 1995), Florida’s Third District Court of Appeal in Miami held that the doctrine of commercial frustration applied to certain events but not other events that were the subject of the lawsuit, depending on whether the “intervening event” was reasonably foreseeable to the parties and should have been addressed by the contract.  The appellate court explained that Hilton Oil Transport (“Hilton”) entered into an agreement for its barge to haul asphalt to Honduras. Hilton employed Oil Transport Co. S.A. (“OTC”) to lease its tugboat to tow Hilton’s barge for part of the voyages. During one of the voyages, the Honduran local government detained the barge and tugboat due to the alleged possibility of the asphalt boiling over onto the shore. About one week later, a severe storm came through and destroyed the barge.  OTC filed a lawsuit against Hilton for failure to pay its invoice in breach of their charter agreement. Hilton raised the defense of commercial frustration of the charter agreement. The trial court found in favor of OTC. Hilton appealed and contended that the trial court’s award of the entire sixteen-month charter was in error because its charter was commercially frustrated by both the detention of the barge and tugboat, as well as the subsequent destruction by the storm.

As the world strives to persevere through the COVID-19 pandemic and the resulting economic fallout, it may become impossible for many Florida businesses to comply with their business contracts.  Businesses may be able to cancel those contracts if they contain a “force majeure” clause. Force majeure clauses are contractual terms which remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict parties from fulfilling contractual obligations. Typical force majeure clauses address global catastrophic events, such as acts of war, environmental catastrophe, riots or civil unrest, or complete unavailability of supply. Absent a force majeure clause, parties alternatively may be able to avoid liability by asserting the defense of “impossibility” to excuse their failure to perform on the basis that performance of the contract impossible.  Peter Mavrick is a Miami business litigation attorney with extensive experience in defending and prosecuting the interests of businesses in court proceedings and arbitration.

Generally, when a party to a contract fails to perform under the contract, they become liable for damages. Force majeure clauses are intended to excuse performance under a contract if calamity causes performance to become impossible or impractical, and that calamity could not have practically been predicted or prevented.  Essentially, a force majeure clause is an agreement that allocates the risk of calamity away from the victim.  For example, if a hurricane demolishes a factory overnight, such a calamity might excuse the performance under the contract for that company.  The company may have to return the money paid by the purchasers but will not be on the hook for the damages for all of purchases that it failed to fulfill.  Force majeure clauses may also only temporarily suspend performance, requiring the party to perform under the contract as soon as the calamity has passed.

Force majeure clauses “will generally only excuse a party’s nonperformance if the event that caused the party’s nonperformance is specifically identified.” ARHC NVWELFL01, LLC v. Chatsworth at Wellington Green, LLC, 18-80712, 2019 WL 4694146 (S.D. Fla. Feb. 5, 2019). An example of an exception to this general rule occurred in Devco Dev. Corp. v. Hooker Homes, Inc., 518 So. 2d 922 (Fla. 2d DCA 1987) where the court found that excessive rain qualified as “any other condition” within the force majeure clause, which excused the delayed construction of a home.

This article is the second in a two-part series on contractual “merger” or “integration” clauses (the terms merger and integration are used interchangeably).  Integration/merger clauses purport to define a contract as being limited to only what is contained in the written document signed by the parties.  This can help ensure that neither party will later claim that he was promised something as part of the deal, but that promise was not actually written into the contract terms.  Under Florida law, merger clauses are enforceable and effective ways to ensure that the parties are in complete accord as to the terms of their agreement.  Integration clauses, however, are not ironclad and there are some limitations.  Peter Mavrick is a Fort Lauderdale business litigation attorney and Miami business litigation attorney who has extensive experience with breach of contract lawsuits and related claims.

In the context of a case involving a non-compete contract, Environmental. Services, Inc. v. Carter, 9 So. 3d 1258 (Fla. 5th DCA 2009), gave great weight to an integration/merger clause that provided in pertinent part, “[t]his Agreement constitutes the complete agreement between the parties with respect to the subject matter contained herein and revokes and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral.”  Environmental Servs. v. Carter, 9 So. 3d 1258 (Fla. 5th DCA 2009) (emphasis added). Environmental Services, Inc. v. Carter found that, “[a]lthough the existence of a merger clause does not conclusively establish that the integration of the agreement is total, it is a highly persuasive statement that the parties intended the agreement to be totally integrated and generally works to prevent a party from introducing parol evidence to vary or contradict the written terms” and “the merger clause precludes the consideration of other documents to vary the terms of the agreement.”

“That [a contract] contained a merger clause is not determinative; the law remains that ‘the existence of a merger clause does not per se establish that the integration of the agreement is total.’”  Lowe v. Nissan of Brandon, Inc., 235 So. 3d 1021 (Fla. 2d DCA 2018).  There are three types of claims concerning the completeness of an agreement that may survive a merger clause: allegations that terms are missing from patently incomplete and ambiguous agreements, allegations concerning an agreement unrelated to the agreement at issue, and allegations that there is fraud in the inducement concerning a party’s motivation to sign the contract based on representations of the opposing party.

When parties execute two separate contracts and only one contract contains an arbitration clause, generally the parties cannot be compelled to arbitrate disputes arising from the contract that does not call for arbitration.  However, under certain circumstances courts will extend the arbitration provisions from one contract to a separate contract, and the parties may be bound to arbitrate disputes arising out of either agreement because the two agreements will be read together as one contract. Peter Mavrick has successfully represented clients in Palm Beach, Broward, and Miami-Dade business litigation and related arbitration proceedings.

Phoenix Motor Co. v. Desert Diamond Players Club, Inc. involved four agreements for the purchase of new motor vehicles. The purchase agreements contained an arbitration clause, but also stated that “[t]he Purchaser, before or at the time of delivery of the motor vehicle covered by the Order, shall execute such other forms of agreement or documents as may be required by the terms and conditions of payment indicated on the front of this Order.” Phoenix Motor Co. v. Desert Diamond Players Club, Inc., 144 So.3d 694 (Fla. 4th DCA 2014). The purchaser also signed an export policy imposing liquidated damages if Desert exported the new vehicle out of the United States within one year of purchase. The export policy stated that “[e]xecution of the purchase/lease documents by the purchaser/lessee shall constitute acceptance of these terms and conditions.”

The purchaser sued for a declaration that the export policy was invalid and unenforceable. The seller filed a motion to compel arbitration pursuant to the arbitration clause in the purchase agreements. The trial court in Phoenix Motor Co. addressed whether there was a valid agreement to arbitrate a dispute arising from the export policy. The trial court denied the seller’s motion and the seller immediately appealed.

An important trend in business contracts today involves the use of arbitration provisions to resolve some or all contemplated disputes that may arise between parties to the contract and sometimes “third-party beneficiaries” of the contract.  Contracts are often made for the benefit of a third-party who did not sign the agreements.  A third-party beneficiary is a person or entity that the parties to the contract intended to benefit from the contract.  The question sometimes arises: is a third-party, non-signatory to a contract legally obligated to submit itself to an arbitrator to decide the third-party’s rights/obligations in the business litigation?  To answer this question, Florida courts analyze the issue in the following manner.  Peter Mavrick is a Fort Lauderdale business litigation attorney who has successfully represented many Fort Lauderdale, Miami, and Palm Beach businesses in connection with arbitration proceedings.

Florida courts examine the following three factors when determining whether to compel arbitration: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived. Florida Power and Light Co. v. Road Rock, Inc., 920 So.2d 201 (Fla. 4th DCA 2006). The first factor requires the court to determine the validity of the arbitration provision. Ordinary contract principles determine who will be bound by such an agreement. Courts give arbitration clauses their broadest possible interpretation to accomplish the statutory purpose of resolving controversies out of the court. Royal Caribbean Cruises, Ltd. v. Universal Employment Agency, 664 So.2d 1107 (Fla. 3d DCA 1995).  Doubts concerning the scope of an arbitration agreement should be resolved in favor of arbitration. Breckenridge v. Farber, 640 So. 2d 208 (Fla. 4th DCA 1994).  While it is fundamental that a court may compel parties to a contract to arbitrate their disputes when the contract mandates arbitration, generally “[o]ne who has not agreed to be bound by an arbitration agreement cannot be compelled to arbitrate.” Liberty Communications, Inc. v. MCI Telecommunications Corp., 733 So.2d 571 (Fla. 5th DCA 1999).  “Where the contract contains an arbitration clause which is legally enforceable, the general view is that the beneficiary is bound thereby to the same extent that the promisee is bound.” Zac Smith & Co., Inc. v. Moonspinner Condominium Ass’n, Inc., 472 So.2d 1324 (Fla. 1st DCA 1985) quoting 2 Williston on Contracts (3d ed.) § 364A (1959). A third-party beneficiary’s contractual rights, however, cannot rise higher than the rights of the contracting party through whom he claims. Crabtree v. Aetna Casualty & Surety Co., 438 So.2d 102, 105 (Fla. 1st DCA 1983).

For example, Florida’s First District Court of Appeal in Zac Smith & Co., Inc. held that an arbitration clause in a contract is binding on a third-party beneficiary and can compel the third-party to participate in arbitration.  In Zac Smith & Co., a condominium association sued a contractor, based in part, on an alleged breach of a construction contract to which the condominium association was a third-party beneficiary.  The defendant contractor moved to compel arbitration because that condominium association was required to abide by arbitration clause contained in contract. The condominium association was asserting its rights as a third-party beneficiary to the contract but disputed being bound to the arbitration clause. The trial court denied the motion and the contractor immediately appealed.  The appellate court reversed the trial court’s decision and held that that the Florida Arbitration Code applies to third-party beneficiaries to a contract containing an arbitration clause.