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Articles Posted in Business Litigation

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Non-compete agreements often prohibit competition with other companies that are “similar to” or “competitive with” their own company. The wording of a non-compete covenant, however, can sometimes be understood to refer to the method of the business as opposed to the products or services being sold.  Under Florida law, a non-compete agreement that prohibits doing business with direct sales companies (such as door-to-door sales, home party sales, etc.) may be enforceable to protect a legitimate business interest. Peter Mavrick is a Miami non-compete attorney and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings.

An example of this circumstance occurred in the federal court case PartyLite Gifts, Inc. v. MacMillan, 895 F.Supp.2d 1213 (M.D. Fla. 2012), where Plaintiff, PartyLite, Inc. (“PartyLite”), filed a lawsuit against Defendant, Tarie MacMillan (“MacMillan”), claiming breach of the parties’ non-compete, non-solicitation, and non-disclosure agreements.  PartyLite sold candles and related home products to consumers through the “home party plan” method of direct sales. Independent contractors known as “Consultants” demonstrated products and accepted orders for PartyLite’s products. All PartyLite Consultants, including MacMillan, signed a form Consultant Agreement which incorporated by reference certain policies and procedures contained in the PartyLite’s Policies and Procedures. PartyLite’s Policies and Procedures included terms and conditions wherein the Consultant agreed: 1) not to promote or sell other products or services or recruit for other companies or other business activities at PartyLite Shows, meetings or other events, 2) if the Consultant represented another company or participated in other business activities outside PartyLite, that any information, printed materials or other items obtained through association with PartyLite be kept separate and not used to solicit, promote, market or sell at or for any non-PartyLite activity, and 3) to keep PartyLite information confidential.

MacMillan advanced to the highest-level recognized by PartyLite, specifically that of “Senior Regional Vice President.” After her promotion to “Senior Regional Vice President,” PartyLite and MacMillan entered into a Leader Commitment Agreement (the “Leader Agreement”). The Leader agreement expanded the terms of the Consultant Agreement and included a provision wherein MacMillan agreed that during the term of the Leader Agreement and after the term ends and thereafter, she would not solicit or otherwise attempt to persuade any PartyLite Consultant or Leader to sell, resell or promote products of any other direct sales company, or to cease to be a Consultant or Leader of the Company. The Leader Agreement allowed MacMillan to accept employment and participate in other activities without PartyLite’s approval provided those activities do not violate the Leader Agreement and did not involve “selling, reselling, promoting products, or actively representing other direct sales companies that are similar to or competitive with the Company.” MacMillan worked as a Leader for PartyLite for several years after executing the Leader Agreement.

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For a trade secret to be protectable under Florida law, a business must protect that information as confidential.  Disclosure of trade secret information to parties without an understanding that the information must be protected as confidential can cause that information to no longer be a protectable trade secret.  In the absence of an express confidentiality agreement, that information may still be protected if the business has an implied confidential relationship with the receiving party by making clear the intention to keep that information protected.  However, that implied confidential relationship may have to be shown by something more than a mere oral understanding, such as a stamp or watermark placed on the documents indicating they are confidential.  Peter Mavrick is a Fort Lauderdale trade secret attorney who represents businesses in trade secret litigation, non-competition agreement litigation, and other business litigation.

Whether information constitutes a trade secret can also make a material difference to the scope of a non-compete agreement.  Under Florida Statute section 542.335(b)2), a trade secret can be a “legitimate business interest” allowing a non-compete covenant and can justify a legal presumption for a more lengthy non-compete obligation.  Under Florida statute section 542.335(e), where trade secrets are proven, “a court shall presume reasonable in time any restraint 5 years or less and shall presume unreasonable in time any restraint of more than 10 years.  All such presumptions shall be rebuttable presumptions.”

It is well established that a business must protect the secrecy of business information for that information to be protected as a trade secret under the Florida Uniform Trade Secret Act (“FUTSA”).  Section 688.002(4)(b), Florida Statutes, describes that a trade secret, by definition, must be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

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Florida employers seeking an injunction to stop their former employees from engaging in competition in violation of a non-compete agreement must demonstrate specific criteria to a court or tribunal.  Under Section 542.335, Florida Statutes, an employer must plead and prove several facts to be entitled to a temporary injunction against a former employee breaching a non-compete agreement.  One critical requirement is the employer must show that an injunction is necessary because money damages will not adequately compensate the employer for the damages suffered. Once the employer has made this requisite showing, an employee must overcome the presumption of irreparable harm. Peter Mavrick is a Miami non-compete attorney and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings.

An example of this occurred in the recent case of Picture It Sold Photography, LLC v. Bunkelman, 45 Fla. L. Weekly D74 (Fla. 4th DCA Jan. 8, 2020).  In Picture It, the former employee contended that an injunction not to compete was unnecessary because the alleged harm had already occurred.  Some customers who were solicited by the former employee testified that if the former employee was enjoined from competition, they still would not have continued to be customers of the former employer. The trial court found that the former employer was not entitled to an injunction because its damages were calculable, and thus, it had an adequate remedy at law. The former employer appealed.

Picture It held that evidence showing that some customers would not continue to use the employer’s services does not overcome the presumption of irreparable harm once a breach of the non-compete agreement has been proven. The appellate court also found that “[t]he continued breach of a non-compete agreement threatens a former employer’s ‘goodwill and relationships with its customers, and nothing short of an injunction would prevent this loss.’” TransUnion Risk & Alt. Data Sols., Inc. v. Reilly, 181 So. 3d 548, (Fla. 4th DCA 2015). Picture It also found that the employee’s continued competition was sufficient to show that there was no adequate remedy at law.  “Absent an injunction, there is nothing to stop Contractor from soliciting Employer’s current and prospective customers and further competing with Employer in the market.”

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When a guarantor is sued based on an absolute guarantee of a debt, the guarantor may either challenge the validity of the guarantee or show that the guaranteed debt is not owed.  Under Florida law, the guarantor can be held liable only when a court determines the guaranty is lawful and the alleged debt is actually owed.  In other words, a guarantor may not escape liability if the absolute guarantee is lawful and the party owing the underlying debt is liable under that debt.  Peter Mavrick is a Fort Lauderdale business litigation attorney with extensive experience in defending and prosecuting the interests of businesses in court proceedings and arbitration.

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.

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Franchisors will often include non-compete provisions in their Franchise Agreements to protect their ability to sell new franchises in a geographic region that was formerly served by a terminated franchisee. A party seeking to enforce a non-compete agreement must plead and prove the existence of one or more legitimate business interests justifying the non-compete covenant and that the restriction is reasonably necessary to protect those legitimate business interests. Fla. Stat. § 542335(1)(b) and (c). Legitimate business interests under section 542.335(1)(b) include, among other things, client goodwill associated with a specific geographic location or specific marketing or trade area.  Peter Mavrick is a Miami business litigation lawyer who has substantial experience with non-compete litigation, including injunction proceedings.

An example of this circumstance is the case of Peterbrooke Franchising of America, LLC v. Miami Chocolates, LLC, et al, 312 F.Supp.3d 1325 (S.D. Fla. 2018), where Peterbrooke Franchising of America, LLC (hereinafter “PFA”) was assigned a franchise agreement with Miami Chocolates, LLC (“Miami Chocolates”) and its owners (the “Franchise Agreement”). The Franchise Agreement contained a non-compete provision that prohibits a former franchisee from operating a competing business within twenty-five miles of its former location or at other franchise locations for two years. During the term of the Franchise Agreement, Miami Chocolates refused PFA’s requirement to change its point-of-sale system (used to record all sales). PFA terminated the Franchise Agreement. Miami Chocolates continued operating after the termination. The parties disputed whether Miami Chocolates took sufficient measures to disassociate itself from PFA and its trademarks. It was undisputed, however, that Miami Chocolates operated a competing business at the former franchise location after termination of the Franchise Agreement.

PFA filed a lawsuit against Miami Chocolates and its owners (the “former franchisees”). PFA moved for summary judgment, in part, based on its contention that the former franchisees breached the non-compete provision. Section 542.335(1)(c) states that “[i]f a person seeking enforcement of the restrictive covenant establishes prima facie that the restraint is reasonably necessary, the person opposing enforcement has the burden of establishing that the contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the established legitimate business interest or interests.”

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Tortious interference is the intentional and unjustified interference with a relationship or contract that results in damages. However, tortious interference does not occur every time a contract or business relationship is consequentially affected. Direct interference is a necessary element of the tort (a wrongful act or an infringement of a right). Peter Mavrick is a Miami business litigation lawyer who has substantial experience representing the interests of businesses and business owners in commercial litigation and non-compete litigation.

Competition for business is not per se (by itself) an actionable interference, even if intentional. An example of this circumstance occurred in the case of Wackenhut Corp. v. Maimone, 389 So. 2d 656 (Fla. 4th DCA 1980), where plaintiff left his employment in the defendant’s security business and formed his own security company. Plaintiff solicited defendant’s supermarket client in violation of his non-compete and non-solicitation agreement with Defendant. Plaintiff’s contract with the supermarket was terminable by either party upon 30 days’ notice. Defendant, however, did not sue plaintiff, but instead it persuaded the supermarket client to come back under contract with it. Plaintiff sued defendant for tortious interference. Wackenhut Corp. v. Maimone held that defendant’s solicitation for the supermarket’s business did not constitute tortious interference with plaintiff’s contractual or business relationships. The evidence only showed that defendant persuaded the supermarket to lawfully terminate its “at-will” contract with plaintiff and re-establish its business relationship with defendant. The appellate court found that irrespective of defendant’s motives, there was no showing that defendant interfered with the supermarket’s payment to plaintiff during any 30-day period of plaintiff’s contract.  As Florida’s Fifth District Court of Appeal explained in the case Heavener, Ogier Services, Inc. v. R. W. Florida Region, Inc., 418 So. 2d 1074 (Fla. 5th DCA 1982), “[e]ven if the contract is terminable at will, the interferer’s actions are tortious… if the motive is purely malicious and not coupled with any legitimate competitive economic interest.”  In other words, a claim for tortious interference can stand only when there is malicious conduct devoid of any legitimate economic interest.

A tortious interference claim can also fail whern there is a lack of proof of direct interference with the agreement or relationship. “The law in Florida is clear that there is no such thing as a cause of action for interference with a contractual or advantageous business relationship which is only consequentially effected.” Florida Power & Light Co. v. Fleitas, 488 So. 2d 148 (Fla. 3d DCA 1986). Fleitas held that Florida law does not recognize a cause of action for negligent interference with a contractual or business relationship. In Fleitas, the plaintiff alleged that he was dismissed from his job with IRM because Florida Power & Light Co. (FP&L) negligently investigated an illegal drug complaint against him and barred him from FP&L’s Turkey Point Power Plant.  Plaintiff’s complaint was that he was fired by his employer as a result of FP&L’s negligent conduct. The trial court entered judgment in favor of plaintiff. FP&L immediately appealed. The appellate court reversed the ruling because plaintiff’s claim was only that FP&L negligently investigated the drug accusation and caused, albeit unintentionally, plaintiff to lose his job. Florida Power & Light Co. v. Fleitas held that this was not a cognizable cause of action in Florida or anywhere else in the country.

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Under Florida and federal law, whether a legal dispute is subject to the requirement that the parties submit to arbitration (what courts refer to as the “arbitrability” of the dispute) depends on what the wording of the arbitration agreement itself states. The parties’ intent as to what issues are to be arbitrated is typically evident from the plain language of the arbitration provision and contract. Courts generally favor arbitration provisions and will try to resolve an ambiguity in the wording of an arbitration provision in favor of arbitration.  Jackson v. Shakespeare Found., Inc., 108 So. 3d 587 (Fla. 2013).  Courts therefore usually apply the broadest possible interpretation of an arbitration provision and contract to determine whether a dispute is subject to arbitration.  Peter Mavrick is a business litigation attorney, practicing in Fort Lauderdale and Miami, who has extensive experience with arbitration proceedings and representing the interests of businesses and business owners.

Contracts containing arbitration clauses often limit the scope of “arbitrable issues” (i.e., the types of disputes encompassed in the arbitration provision) to those that are “related to” or “arise from” the contract. There are cases where courts analyzed the causes of action alleged in the complaint to determine whether the controversy at issue was arbitrable under the contract. For example, in Xerox Corp. v. Smartech Document Mgmt. Inc., 979 So.2d 957 (Fla. 3d DCA 2007), Miami’s Third District Court of Appeal held that the causes of action of defamation, intentional infliction of emotional distress, injunctive relief, respondeat superior (vicarious liability for agent’s actions), and intentional interference with an advantageous business relationship—constituted a “Covered Dispute” under the contract.  The appellate court reasoned that each cause of action arose out of or was related to the parties’ relationship under the parties’ contract.  In the case of BKD Twenty-One Mgmt. Co., Inc. v. Delsordo, 127 So.3d 527 (Fla. 4th DCA 2012), Florida’s Fourth District Court of Appeal determined that the arbitration provision in the subject lease agreement applied to the tenant’s action for negligence against the retirement facility.  The appellate court in Delsordo based is decision on the court’s interpretation of the word “Establishment” used in the parties’ contract.  The appellate court held that the negligence claims based on a trip and fall on the defendants’ premises arose out of or related to the defendants’ “Establishment.”

This type of analysis is unnecessary when an arbitration provision is so broad as to encompass all potential claims.  For example, in the federal appellate decision Doe v. Princess Cruise Lines, Ltd., 657 F.3d 1204 (11th Cir. 2011), the United States Court of Appeals for the Eleventh Circuit considered a broadly worded contract stating that the parties’ dispute had to relate to, arise from, or be connected with employee’s crew agreement or the employment services that she performed for the cruise line.  A broadly worded arbitration covenant will sweep most controversies between the parties into private arbitration.

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An undefined term in a non-compete agreement creates an ambiguity in the contract, and therefore uncertainty in a court’s interpretation of the term. When a term is left undefined, Florida law requires courts to give the term its ordinary meaning.  Although the terms “compete” and “line of business” may seem self-explanatory, the context in which they are to apply may require further definition.  Peter Mavrick is a Miami non-compete attorney and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings.

In the case of Circuitronix, LLC v. Kapoor, 748 Fed.Appx. 242 (11th Cir. 2018), Sunny Kapoor (“Kapoor”) was the Assistant CEO of Circuitronix, LLC (“Circuitronix”) from October 2012 until his termination in March 2015. Kapoor’s employment was subject to a series of employment agreements. After his termination, Circuitronix filed a lawsuit against Kapoor and alleged that he violated the terms of the parties’ non-compete agreement. Kapoor counterclaimed against employer and Rishi Kukreja (“Kukreja”), its chief executive officer, and alleged breach of employment contract, unlawful retaliation, civil theft and unpaid wages.

The parties resolved their claims in mediation and on December 1, 2015 signed a mediated settlement agreement (“Settlement Agreement”). The Settlement Agreement incorporated the Mediated Settlement Term Sheet by reference and prohibited Kapoor from competing “with Circuitronix, anywhere in the world, for a period of 3 years starting from September 15, 2015.” The non-compete agreement explicitly applied “to all lines of business in which Circuitronix engaged” during the time of Kapoor’s employment. The Settlement Agreement was formally approved by the district court two days later.

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For a business to be to protect its confidential information as a protectable trade secrets under the Florida Uniform Trade Secret Act, the business must preserve the secrecy of its confidential information.  There are no hard and fast rules that must be followed for a business to protect its confidential information as a trade secret.  “No single ‘step’ taken to maintain the secrecy of the information secrecy will be determinative; but if the claimant can establish a consistent approach to keeping the information ‘secret’ it will go along way to satisfying this element of the statutory definition.” Gary S. Gaffney and Maria E. Ellison, A Primer on Florida Trade Secret Law: Unlocking the “Secrets” to “Trade Secret” Litigation, 11 U. Miami Bus. L. Rev. 1 (2003). Peter Mavrick is a Fort Lauderdale trade secret attorney, non-compete attorney, and business litigation attorney who represents businesses in trade secret litigation, non-compete agreement litigation, and other business litigation.

A recurring issue in non-compete covenant litigation is whether a trade secret exists and justifies the restrictive covenant.  Under Florida Statutes § 542.335(b)2), a non-compete can be based on a legitimate business interest of a trade secret.  If a trade secret is a proven legitimate business interest under Florida’s non-compete statute, the consequences are severe for the opposing party due to the expanded time-frame the statute allows to enforce a non-compete.  Section 542.335(e), Florida Statutes, provides that “In determining the reasonableness in time of a postterm restrictive covenant predicated upon the protection of trade secrets, a court shall presume reasonable in time any restraint 5 years or less and shall presume unreasonable in time any restraint of more than 10 years.  All such presumptions shall be rebuttable presumptions.”  Because Florida law accords protection to genuine trade secrets and because of the potentially lengthy period of a non-compete based on trade secrets, parties in litigation will often scrutinize whether the alleged trade secrets were closely guarded to ensure and maintain their status as protectible trade secrets.

Trade secrets are defined under § 688.002(4), Florida Statutes, as:

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It is a fundamental premise that ownership of a corporation is evidenced by stock certificates.  However, this is not always the case with small, closely held corporations that do not sell stock on a market.  Sometimes those corporations do not issue certificates.  To accommodate that realty, Florida law allows for the equitable or beneficial ownership of stocks.  Indeed, Florida statute section 607.0626 allows issuance of shares of stock without certificates, provided that the articles of incorporation and bylaws do not provide otherwise.  The law regarding equitable and beneficial ownership of stocks, however, is grounded in case law.  Peter Mavrick is a Fort Lauderdale business litigation attorney who has extensive experience in representing the interests of businesses and business owners.

This concept of stock ownership is an important factor when someone believes that he or she has an ownership interest in a corporation but was not issued shares, and he or she wants to sue the corporation.   By showing that the person is an equitable owner of stock, that person may acquire standing to sue the corporation in a derivative action or an action to dissolve the corporation.  As Florida’s Third District Court of Appeal explained in Kaplus v. First Continental Corporation, 711 So. 2d 108 (Fla. 3d DCA 1998), “Florida courts have, to date, apparently aligned themselves with these jurisdictions which recognize that strict record ownership is not necessary and that holders of equitable or beneficial interest in shares have standing to sue.”

The determination of whether someone owns stock that was not transferred by certificate is an issue of fact and can become quite complicated.  An example is Acoustic Innovations, Inc. v. Schafer, 976 So. 2d 1139 (Fla. 4th DCA 2008).  The company Acoustic Innovations was owned by Mr. Miller.  One of his employees was Mr. Schafer.  While Mr. Schafer was an employee of Acoustic Innovations, Mr. Miller sent him a letter promising to give him thirty percent interest in the corporation upon sale or merger of the company.  Mr. Schafer signed the letter.  Mr. Miller later terminated Mr. Schafer’s employment and paid him a severance that Mr. Schafer deemed insufficient, due to the letter agreement.

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