Articles Posted in Business Litigation

Just because parties sign two separate documents or contracts does not mean Florida law actually views these contracts separately. This is significant because rights and liabilities arising from one document may extend to the other. Many business litigation cases in Florida deal with business sales involving actions on a promissory note that usually involve a number of intertwined contracts (such as the purchase agreement and pledge agreements). 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.

In Clayton v. Howard Johnson Franchise Sys., Inc., 954 F.2d 645 (11th Cir. 1992), the United States Court of Appeals for the Eleventh Circuit explained that, “where two or more documents are executed by the same parties, at or near the same time and concerning the same transaction or subject matter, the documents are generally construed together as a single contract.” Similarly, in Quix Snaxx, Inc. v. Sorensen, 710 So. 2d 152, 153 (Fla. 3d DCA 1998), Florida’s Third District Court of Appeals stated that, “Where a writing expressly refers to and sufficiently describes another document, the other document, or so much of it as is referred to, is to be interpreted as part of the writing.”  Quix Snaxx involved a settlement agreement between parties requiring them to enter into two distinct agreements: (1) a license agreement with an arbitration clause that outlined geographic limitations as to rights to sell certain vending machines and (2) a purchase order agreement without an arbitration clause that required a party to purchase a certain number of vending machines.  One party sued for a breach of the purchase order agreement and the other sought to compel arbitration based on the license agreement’s arbitration clause.  The court compelled arbitration.  It reasoned that the agreements “were all executed with a span of days, as part of an orchestrated effort to settle pending federal litigation” while the license agreement made reference to the purchase order agreement and its terms.  In the same vein, Collins v. National Fire Insurance Co., 105 So. 2d 190 (Fla. 2d DCA 1958), held that where a written contract refers to and sufficiently describes another document, that other document or so much of it as is referred to may be regarded as a part of the contract and therefore is properly considered in its interpretation.

Because Florida courts can view related contracts that as part of an integrated transaction, this can affect whether an aggrieved party should be filing a compulsory counterclaim.  Florida’s compulsory counterclaim rule, Florida Rule of Civil Procedure 1.170(a), requires claims arising out of the same “transaction or occurrence” to be brought together.  The Supreme Court of Florida’s precedent in Londono v. Turkey Creek, Inc., 609 So. 2d 14  (Fla. 1992), held that courts should apply the “logical relationship test” to determine whether claims arise from the same “transaction or occurrence.”  The measuring stick for “logical relation” is whether the claim “arises out of the same aggregate of operative facts.” The consequence of failing to assert compulsory counterclaims can result in waiver of a compulsory counterclaim.  Claims arising from documents “construed as a single contract” would likely satisfy the “logical relationship test,” because such claims would naturally have the same aggregate of operative facts.  Integrated contracts involve the same parties, having been executed around the same time, and relate to the same transaction. Accordingly, disputes relating to transactions involving multiple related agreements (such as many business sales) must be analyzed and litigated diligently to avoid waiving rights and to ensure all remedies are pursued.

In business litigation cases, parties frequently plead the affirmative defense of “mitigation of damages.”  Although commonly referred to as the “duty” to mitigate damages, Florida courts instead refer to this as the doctrine of unavoidable consequences.  This legal doctrine prevents a party from recovering those damages inflicted by a wrongdoer which the injured party “could have avoided without undue risk, burden, or humiliation.”  Restatement (Second) of Contracts, § 350(1).  Precedent from the Supreme Court of Florida in Sys. Components Corp. v. Fla. Dep’t of Transp., 14 So.3d 967 (Fla. 2009), explained that “[t]he doctrine of unavoidable consequences…commonly applies in contract and tort actions…. The doctrine does not permit damage reduction based on what ‘could have been avoided’ through Herculean efforts.  Rather, the injured party is only accountable for those hypothetical ameliorative actions that could have been accomplished through ‘ordinary and reasonable care’ without requiring undue effort or expense.”  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.

Sys. Components Corp. further explained that “[t]here is no actual ‘duty to mitigate’ damages, because the injured party is not compelled to undertake any ameliorative efforts.”  Whether the doctrine applies in a given case depends on the facts.  A leading legal treatise on the law of contracts, J.D. Calamari and J.M. Perillo, The Law of Contracts sections 14-16 (1977), discussed limits to this doctrine: “If the relation between the parties is such that the wronged party was legally free to enter into similar contracts with others[,] the fact that subsequent to the breach the wronged party could have or actually has made similar contracts in no way reduces the damages to which he is entitled.”  In Graphic Associates, Inc. v. Riviana Restaurant Corporation, 461 So.2d 1011 (Fla. 4th DCA 1984), Florida’s Fourth District Court of Appeal explained that: “For example, an employee fired improperly cannot sit idly by and then recover his entire salary.  He is required to use reasonable efforts to obtain other suitable employment in order to reduce his damages.  Conversely, a new car dealership theoretically has an unlimited number of cars to sell.  A purchaser who breaches his contract to buy an automobile is not entitled to credit against claimed damages for other sales of automobiles made by the dealer.  The latter situation falls into the category of non-exclusive contracts, an area generally considered as an exception to the requirement of avoiding foreseeable consequences.”  Graphic Associates added that “if Graphic [(the appellant)] could have performed the Riviana contract in addition to all of the contracts which it actually did perform[,] then Riviana is not entitled to claim that some or all of those contracts were substitutes for its contract.  In other words, there would be no diminution of damages.  If performance of the Riviana contract would have precluded Graphic from accepting some or all additional contracts[,] then such potentially excluded contracts are properly considered as substitutes for the Riviana contract and profits therefrom mitigate the damages owed by Riviana to Graphic.”

To preserve its rights, it is essential for the defending party in litigation to assert mitigation of damages as an affirmative defense.  However, under Florida law, if the plaintiff made reasonable efforts to avoid the damages caused by the breach of contract, then the jury award should include reasonable amounts that the plaintiff spent for this purpose.

Florida appellate courts will scrutinize the method employed in calculating damages in business litigation, because this involves a pure question of law.  Precedent from the Supreme Court of Florida in W.W. Gay Mech. Contractor, Inc. v. Wharfside Two, Ltd., 545 So.2d 1348 (Fla. 1989) held that, generally, a business seeking to recover lost profits “must prove that 1) the defendant’s action caused the damage and 2) there is some standard by which the amount of damages may be adequately determined.”  In applying the second prong, Florida’s Fourth District Court of Appeal in HCA Health Servs. of Fla., Inc. v. Cyberknife Ctr. of the Treasure Coast, LLC, 204 So.3d 469 (Fla. 4th DCA 2016), held that “[e]vidence pertaining to loss of income or gross receipts, without specific evidence concerning expenses, is inadequate to prove lost profits.”   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.

Florida appellate courts have denied recover of lost profits where the proof at trial where the plaintiff merely presents prof of lost income or gross receipts, but not profits.  In this vein, E.T. Legg & Assocs. v. Shamrock Auto Rentals, Inc., 386 So.2d 1273 (Fla. 3d DCA 1980), explained in pertinent part that, “[a]s to the damages, the only evidence presented pertained to income or gross receipts, not profits, and testimony concerning expenses did not establish specific dollar amounts.  The evidence was therefore inadequate to prove lost profits.”  Similarly, Florida’s Second District Court of Appeal in Bass Venture Corporation v. Devom, LLC, 342 So.3d 821 (Fla. 2d DCA 2022), explained that “the trial evidence was insufficient as a matter of law to support the award of lost profits because it addressed only revenues from the relevant time period, not expenses–or, consequently, profits.”

Florida law does not require a party to establish lost profits with “absolute exactness.” The failure to do so will not defeat recovery.  Federal precedent from the United States Court of Appeals for the Fifth Circuit in Nat’l Papaya Co. v. Domain Indus., 592 F.2d 813 (5th Cir. 1979), has been persuasive authority in Florida appellate courts, including Florida’s Third District Court of Appeal in Del Monte Fresh Produce Co. v. Net Results, Inc., 77 So.3d 667 (Fla. 3d DCA 2011), holding that “an inability to establish the amount of lost profits with absolute exactness will not defeat recovery” and “the contervailing rules require ‘reasonable certainty’ in the proof of those damages and the assumptions underlying them.”  In other words, “[d]amages cannot be based upon speculation or guesswork, but must have some reasonable basis in fact.”  Smith v. Austin Dev. Co., 538 So.2d 128 (Fla. 2d DCA 1989).

Parties to contracts sometimes include a “liquidated damages” provision, i.e., a certain financial amount in the event of a triggering event specified in the contract.  Liquidated damages provisions seek to ensure compliance with the parties bargain when damages would be difficult to determine from the parties’ vantage when they sign the contract.  As Miami’s Third District Court of Appeal explained in Gables v. Choate, 792 So.2d 520 (Fla. 3d DCA 2001), “Florida law recognizes that where damages are not clearly ascertainable, parties to a contract may agree to a predetermined amount of damages that will flow from a breach of the contract.”  Under Florida law, “[l]iquidated damages arising from breach of contract are appropriate when (1) damages from the breach of are not readily ascertainable, and (2) the sum stipulated is not grossly disproportionate to the damages reasonably expected to follow from the breach.”  Resnick v. Uccello Immobilien GMBH, Inc., 227 F.3d 1347 (11th Cir. 2000).  Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, 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 litigation, and other legal disputes in federal and state courts and in arbitration.

Florida law does not permit a liquidated damages clause in a contract that operates as a “penalty,” i.e., a mere punitive measure.   An excessive liquidated damages provision, however, is not necessarily a penalty.  In Secrist v. Nat’l Service Industries, Inc., 395 So.2d 1280 (Fla. 3d DCA 1981),  the appellate court explained that “[t]he fact that the liquidated damages may be excessive at the time of breach does not lead to the conclusion that the liquidated damages clause is a penalty and therefore not enforceable.”  In its Resnick decision, the United States Court of Appeals for the Eleventh Circuit explained “liquidated damages are inappropriate when they serve only to punish the breaching party.”   Resnick explained that where a liquidated damages provision contains “two separate and distinct parts,” any one of which is excessive, a court may properly enforce the provision found not to be excessive.

Florida courts have considered situations where a settlement agreement contains incorporates a trigger provision requiring the full amount of a default or consent judgment, and whether such a provision may be determined to be an unenforceable penalty, as opposed to a valid liquidated damages sum.  For example, Florida’s Fifth District Court of Appeal evaluated this issue in Crosby Forrest Prods., Inc. v. Byers, 623 So.2d 565 (Fla. 5th DCA 1993).  There, the plaintiff sued defendant for nonpayment of a contract for goods sold in the amount of $89,922.65.  The parties thereafter signed a settlement agreement containing a stipulation that defendants “owed [plaintiff] $93,899.91”, i.e., an extra amount for attorneys’ fees, costs, and interest.  As an incentive to timely pay under the settlement agreement, the defendants were required to “pay [plaintiff] $80,000” in a series of “installments.”  The contract provided, however, that “[i]n the event of a default of any payment” the court would have the authority to “immediately … enter judgment against [defendants] for any sums remaining unpaid on the amount stipulated to be due,” i.e., the stipulated amount of $93,899.91.  Unfortunately, the defendants made only three payments under the settlement agreement, but failed to make the fourth payment.  On appeal, the defendants argued that “the portion of the [settlement agreement] requiring [defendants] to pay the remaining balance of the original $93,899.91[,] rather than the balance of the $80,000,” was an unenforceable “penalty.”  They contended that “damages for the breach” of the settlement agreement were “the agreed upon amount of $80,000 less payments made,” which was “readily ascertainable,” and therefore the higher stipulated amount was improper.  The District Court of Appeal in Byers rejected the defendants’ argument and reversed the trial court’s vacatur of the liquidated damages award.  Byers held that the parties lawfully bargained for the higher amount, explaining that “the larger amount payable upon default represents a legitimate amount … [that] is not a subterfuge for usury or an unconscionable premium.”  The appellate court explained that this did not violate any public policy, and instead  “enforcement of such a provision” could “encourage settlement of lawsuits.”

Florida law recognizes the doctrine of caveat emptor in commercial transactions.  Florida and some other jurisdictions understand this legal doctrine to mean “buyer beware,” thereby imposing on buyers in commercial real property transactions the legal obligation to investigate what they are buying.  Florida’s Fourth District Court of Appeal in Transcapital Bank v. Shadowbrook at Vero, LLC, 226 So.3d 856 (Fla. 4th DCA 2017), explained that Florida courts continue to apply the caveat emptor doctrine, which “places the duty to examine and judge the value and condition of the property solely on the buyer and protects the seller from liability for any defects.”  There are, however, three exceptions to this legal doctrine: “1) where some artifice or trick has been employed to prevent the purchaser from making an independent inquiry; 2) where the other party does not have an equal opportunity to become apprised of the fact; and 3) where a party undertakes to disclose facts and fails to disclose the whole truth.”  Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, 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 litigation, and other legal disputes in federal and state courts and in arbitration.

In Transcapital, the buyer of a condominium was informed that the property was worth $14.8 million and, in support, was shown two prior notes supporting this valuation.  The buyer thereafter sued, and at trial the seller presented evidence that the buyer never asked for the actual appraisal and since it only purchased some of the units, some of which were in poor condition, the appraisal value was less than the orally represented amount.  At the close of the buyer’s case, the seller argued the property value was an opinion which could not form the basis of a fraud claim. The jury found for the buyer.  The appellate court reversed the jury verdict because of the caveat emptor doctrine.  The appellate court held that “the fraud claim could not survive a motion for directed verdict” because “[n]one of the exceptions to caveat emptor appl[ied].”  The buyer was able to inspect the property before the closing, could have obtained its own appraisal, and purchased the property without physically viewing the appraisal.  The buyer presented no evidence showing that the seller resorted to some fraudulent means in preventing the buyer from making an examination of the property.

Similarly, in Agrobin, Inc. v. Botanica Dev. Associates, Inc., 861 So.2d 445 (Fla. 3d DCA 2003), Miami’s Third District Court of Appeal held that, in the context of the doctrine of caveat emptor, that “a sophisticated  purchaser of commercial property who agreed to an ‘as is’ purchase contract, had ample opportunity to conduct inspections, and could have discovered an alleged defect through the exercise of ordinary diligence, may be disgruntled, but does not have a cause of action for fraud.”

Not every written contract is sufficiently comprehensive to address potential fraud claims. Under Florida law, however, a well-drafted written contract can bar a business litigation claim for fraud that essentially covers the same territory as the contract. Florida’s Fourth District Court of Appeal in Mac-Gray Servs., Inc. v. DeGeorge, 913 So.2d 630 (Fla. 4th DCA 2005), held that “[a] party cannot recover in fraud for alleged oral misrepresentations that are adequately covered or expressly contradicted in a later written contract.   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.

In Mac-Gray, the buyers entered  into a contract with the seller for the purchase of laundry equipment.  Before signing the contract, the seller’s agent allegedly told the buyers “that they were ‘pretty much guaranteed’ to make money as soon as the business opened.”  The written contract, however, contained provisions that the seller did not guarantee any income or profits and that the buyers were not relying on the seller’s expertise or representations.  The buyers delayed opening the business, and thereafter quickly sold what had become an unprofitable business.  To recoup their losses, the buyers sued the sellers for fraudulent inducement of the contract.  The buyers alleged the seller’s agent did not tell them they could lose money in the startup period and did not tell them that the seller had been involved in failed laundromats.  The appellate court held that the fraud claim for damages was barred because the contract “negate[d] the fraudulent inducement claim” and did not guarantee profitability.

To attempt to prevent claims of fraud, contracts sometimes contain what are called “as is” clauses.  However, not every “as is” clause is prophylactic.  Such clauses sometimes are not comprehensive and do not bar fraud claims.  Effective “as is” clauses are well-considered, extensive, and detailed.  For example, in Florida Holding 4800, LLC v. Lauderhill Mall Investment, LLC, 317 So.3d 121 (Fla. 4th DCA 2021),  the appellate court affirmed dismissal of a Broward County lawsuit claiming fraud.  In Florida Holding, the contract had comprehensive “as is” provisions.  They expressly stated that (1) “Seller makes absolutely no warranties, representations or covenants to Buyer whatsoever regarding the [p]roperty or the condition or quality thereof”; (2) “Buyer represents that it is purchasing the [p]ropery in its ‘As Is’ condition and based solely on Buyer’s own inspection, investigation and evaluation”; (3) “neither Seller nor any agent of Seller has made any representation or warranty, express or implied, oral or written, concerning the [p]roperty or which have induced Buyer to execute this Contract”; and (4) upon closing, Buyer “shall be deemed to have waived, relinquished and released Seller … from and against any and all claims.”  The appellate court explained that these provisions “clearly negate Buyer’s claim for damages, including the fraud claims.”  Similarly, Giallo v. New Piper Aircraft, Inc., 855 So.2d 1273 (Fla. 4th DCA 2003), held that, “[a]ssuming for purposes of argument that the oral statement is fraudulent, a party cannot recover for fraudulent oral representations which are covered in or contradicted by a later written agreement.”