Articles Posted in Business Litigation

Published on: July 24, 2024

FORT LAUDERDALE BUSINESS LITIGATION: DEVELOPMENTS IN FTC BAN OF NON-COMPETE AGREEMENTS

Developments regarding the Federal Trade Commission’s (FTC) prohibition of non-compete agreements continue. Recently, a court in the Eastern District of Pennsylvania denied a motion for preliminary injunction to prevent enforcement of the ban in ATS Tree Services, LLC v. FTC, Case No. 2:24-CV-01743, 2024 WL 3511630 (E.D. Pa., July 23, 2024). This decision conflicts with Ryan LLC v. FTC, Case No. 3:24-CV-00986 (N.D. Tex., July 3, 2024), wherein the court granted a preliminary injunction preventing enforcement of the ban. Peter Mavrick is a Fort Lauderdale business litigation attorney. Peter Mavrick is a Fort Lauderdale business litigation attorney. 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 denying the motion for preliminary injunction, the court in ATS Tree Services, LLC found that the plaintiff did not establish irreparable harm or the likelihood of success on the merits. 2024 WL 3511630. The plaintiff argued, among other things, that the FTC rule would cause it to suffer irreparable harm because the plaintiff’s employees could immediately leave employment to work for a competitor thereby depriving the plaintiff of the benefits of the training it provided its employees. The plaintiff also claimed it would be irreparably harmed because there was a risk its employees would expose the employer’s confidential information to a competitor once they left the company. However, the court rejected both arguments. The argument regarding deprivation of training benefits was rejected because it was too speculative. The plaintiff did not provide any evidence that its employees would actually leave to work for a competitor. The argument regarding disclosure of confidential information was rejected because The FTC’s non-compete ban does not apply to non-disclosure agreements.

The court also denied the plaintiff’s request for an injunction prohibiting enforcement of the ban against non-compete agreements. The court determined that the plaintiff was not likely to succeed on the merits. The court determined the FTC had authority to engage in substantive rulemaking or its authority was not limited to procedural rulemaking. 2024 WL 3511630. The court analyzed the language of Section 6 of the FTC Act, which allows the FTC to “make rules and regulations for the purpose of carrying out the provisions of this chapter.” 15 U.S.C. § 46. The ATS court stated Section 6 does not explicitly limit the FTC’s rulemaking authority to only procedural rulemaking. In addition, the court analyzed Section 5 of the FTC Act, which allows the FTC to “prevent persons, partnerships, or corporations . . . from using unfair methods of competition . . . .” 15 U.S.C. § 45. Use of the word “prevent” inherently contemplates substantive rulemaking. 2024 WL 3511630. This holding contradicts the reasoning in Ryan LLC, which determined the FTC did not have substantive rulemaking authority. Ryan LLC, 2024 WL 3297524. Ryan LLC characterized Section 6 as a “housekeeping” statute.

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Published on: July 20, 2024

MIAMI BUSINESS LITIGATION: CIVIL CONSPIRACY UNDER FLORIDA LAW

By Mavrick Law Firm

If you are in a business dispute involving several persons acting in concert with one another, you could have a claim for civil conspiracy. The “gist of a civil conspiracy [claim] is not the conspiracy itself, but the underlying civil wrong” that is the focus or purpose of the conspiracy. Tejera v. Lincoln Lending Servs., LLC, 271 So. 3d 97 (Fla. 3d DCA). Therefore, civil conspiracy claim can be an effective tool to bring a civil action against every bad actor in a business dispute. 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.

The elements for a civil conspiracy claim are (1) a conspiracy between two or more parties; (2) to do an unlawful act or a lawful act through unlawful means; (3) the doing of some overt act in furtherance of the conspiracy; and (4) damage to the plaintiff resulting from the conspiracy. Walters v. Blankenship, 931 So. 2d 137 (Fla. 5th DCA 2006). The wrongful act giving rise to a civil conspiracy claim usually must be a tort. Rushing v. Bosse, 652 So. 2d 869 (Fla. 4th DCA 1995).

There are various examples of business disputes which could give rise to civil conspiracy claims. One example could involve a breach of fiduciary duty claim against a former executive who was assisted by others in breaching his or her fiduciary duty. Accord Blatt v. Green, Rose, Kahn & Piotrkowski, 456 So. 2d 949 (Fla. 3d DCA 1984) (allowing a claim of civil conspiracy against a law firm and its lawyer based on breach of fiduciary duty imposed for Florida probate code). The co-conspirators do not need to owe fiduciary duties to the former employer because they only need to have assisted one person who did owe those fiduciary duties in breaching them. See Logan v. Morgan, Lewis, & Bockius LLP, 350 So. 3d 404 (Fla. 2d DCA 2022) (allowing a civil conspiracy claim against law firm for aiding law firm’s client, an accounting firm, to breach the client’s fiduciary duty). Another example of a claim for civil conspiracy in a business dispute could involve tortious interference with a contract or business relationship. See Am. Diversified Ins. Servs., Inc. v. Union Fidelity Life Ins. Co., 439 So. 2d 904 (Fla. 2d DCA 1983) (holding that complaint stated cause of action for civil conspiracy based on tortiously interfering with company’s business relationships). The conspirers do not need to have interfered with the contract or business relationship directly because they need only help the main tortfeasor interfere.

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Published on: July 17, 2024

FORT LAUDERDALE BUSINESS LITIGATION: SHAREHOLDER DERIVATIVE LAWSUIT AND RECEIVER

By Mavrick Law Firm

In a derivative shareholder action where corporate waste is alleged, it might be prudent to ask the court to appoint a receiver to take control of the corporation. Tampa Waterworks Co. v. Wood, 121 So. 789 (Fla. 1929) (holding that a shareholder can request a court of equity to appoint a receiver to manage the affairs of a corporation). A “receiver” is a neutral person appointed by a court to protect and preserve property during litigation. See Knickerbocker Trust Co. v. Green Bay Phosphate Co., 56 So. 699 (Fla. 1911). A court exercises its powers to appoint a receiver with great circumspection. “A receiver may be appointed to wind up affairs of a corporation or manage and operate its business when actual fraud, or mismanagement amounting to fraud upon the right of a minority stockholder or creditor which [may] reasonably portend imminent danger of loss of corporate assets and seriously threaten corporate existence, is clearly established.” McAllister Hotel v. Schatzberg, 40 So. 2d 201 (Fla. 1929). Peter Mavrick is a Fort Lauderdale business litigation attorney. Peter Mavrick is a Fort Lauderdale business litigation attorney. 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.

The authority of a receiver is determined by the court. The court should allocate the receiver’s authority by describing the authority parameters in its order appointing the receiver. However, the trial court cannot provide the receiver overly broad authority to act on behalf of the corporation. See MB Plaza, LLC v. Wells Fargo Bank, Nat’l Ass’n, 72 So. 3d 205 (Fla. 2d DCA 2011) (stating that trial court granted too broad of authority to receiver, including authority to market and sell commercial property in foreclosure proceeding). A court should limit a receiver’s authority to the necessary issue at hand.

It is not uncommon for a court to confer the receiver with authority to manage the affairs of the corporation. The receiver can therefore market and sell the corporation’s property under certain circumstances. While “[a] sale by a receiver is ordinarily improper, . . . there are instances in which a sale by a receiver is expedient and proper.” Fugazy Travel Bureau, Inc. v. State by Dickinson, 188 So. 2d 842 (Fla. 4th DCA 1966). Sales commenced by a receiver are permitted when “the character of the property or the surrounding circumstances are such as to render a sale necessary for the adequate protection of the rights of the parties.” A sale should be closely watched by the court, and will only be approved if the sale is for at least the reasonable value of the property. For example, in Bailey v. Treasure, 462 So. 2d 537 (Fla. 4th DCA 1985), the court refused to approve of the sale of orange groves where the receiver did not present evidence of the reasonableness of the price.

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Published on: July 13, 2024

MIAMI BUSINESS LITIGATION: DISSOLUTION OF CORPORATION

By Mavrick Law Firm

Florida law provides a mechanism to forcibly dissolve corporations if that corporation is paralyzed by internal disputes between shareholders or board members. The mechanism can provide some frustrated shareholders an option to rid themselves of the asset and move on. 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.

The relevant Florida statute regarding court-ordered corporate dissolutions is section 607.1430, Florida Statutes. The statute enables a court to order dissolution in several circumstances. When shareholder bring a corporate dissolution lawsuit, the court can order dissolution in the following circumstances:

When the directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and (1) irreparable injury to the corporation is threatened or being suffered, (2) the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally because of the deadlock, or (3) both.

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Published on: July 10, 2024

FORT LAUDERDALE BUSINESS LITIGATION: LEGAL CHALLENGES TO FTC RULE AGAINST NON-COMPETE AGREEMENTS

By Mavrick Law Firm

The Federal Trade Commission (FTC) controversially issued a final rule banning most non-compete agreements. This rule severely impedes the ability of businesses to protect their legitimate business interests such as customer relationships, goodwill, confidential business information, and trade secrets. However, the FTC’s rule is facing legal challenges from different directions. Last week we wrote about a direct legal challenge and the Northern District of Texas’ injunction prohibiting enforcement of the rule. Ryan LLC v. FTC, Case No. 3:24-CV-00986-E, 2024 WL 3297524 (N.D. Tex., July 3, 2024). This week we examine a potential future indirect challenge to the FTC’s rule based on the Supreme Court Loper Bright Enterprises v. Raimondo, __ S. Ct. __, 2024 WL 3208360 (2024) decision eliminating Chevron deference. As discussed more fully below, Loper Bright effectively removed a tool the FTC could have used to enforce its non-compete ban. Peter Mavrick is a Fort Lauderdale business litigation attorney. Peter Mavrick is a Fort Lauderdale business litigation attorney. 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.

The Supreme Court established the legal doctrine known as Chevron deference in the case Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Chevron deference required court to be highly deferential to agency regulations. It established a two-step process a court must employ when determining whether to rely on an agency regulation. First, the court must determine “whether Congress has spoken to the precise question at issue.” This is done by reviewing the clarity of the relevant statute at issue. Second, if “the statute is silent or ambiguous with respect to the specific issue”, then the court must defer to an agency regulation when it “is based on a permissible construction of the statute.” This holding shifts power away from the executive branch of government and the agencies associated therewith in favor of the judicial branch of government.

In practice, Chevron essentially determined that agency regulations are binding precedent. In fact, courts have used Chevron as the foundation to enforce FTC regulations. See Mattox v. FTC, 752 F.2d 116 (5th Cir. 1985) (finding that FTC regulations regarding Hart-Scott-Rodino Act entitled to Chevron deference); Nat’l Automobile Dealers Ass’n v. FTC, 864 F. Supp. 2d 65 (D.D.C., May 22, 2012) (holding that FTC regulation regarding Fair Credit Reporting Act was entitled to Chevron deference). Therefore, FTC could have attempted to rely on Chevron to enforce its non-compete ban before Loper Bright.

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Published on: July 6, 2024

MIAMI BUSINESS LITIGATION: FTC CANNOT ENFORCE RULE AGAINST NON-COMPETE AGREEMENTS

By Mavrick Law Firm

Non-compete agreements have been a standard business practice for many years. Businesses use non-compete agreements to protect their interests like proprietary business information, trade secrets, customer, goodwill, staff, and others. However, on April 23, 2024, the Federal Trade Commission (FTC) upended this long-standing business practice by issuing a rule banning most non-compete agreements. See 16 C.F.R. § 910. The FTC’s new rule was recently challenged in Ryan LLC et. al v. FTC, and the court enjoined the FTC from enforcing its ban. Ryan LLC et. al. v. FTC, Case No. 3:24-CV-00986-E, 2024 WL 3297524 (N.D. Tex. July 3, 2024). 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.

The court prohibited the FTC from enforcing its non-compete ban because the FTC exceeded its statutory authority. See Am. Fin. Services Ass’n v. F.T.C., 767 F.2d 957 (D.C. Cir. 1985) (“The judiciary remains the final authority with respect to questions of statutory construction and must reject administrative agency actions which exceed the agency’s statutory mandate or frustrate congressional intent.”). The court based its decision on the plain meaning of the FTC Act, which only grants the FTC procedural rulemaking authority for rules regarding unfair methods of competition as opposed to substantive rulemaking authority. 15 U.S.C. § 46; see also W. Virginia v. Envtl. Prot. Agency, 597 U.S. 697 (2022) (“It is a fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.”). The applicable statute allows the FTC to “make rules and regulations for the purpose of carrying out the provisions of this subchapter.” 15 U.S.C. § 46. The Ryan LLC court interpreted this statute as a “housekeeping” statute because it lacks penalty provisions and was historically for procedural rulemaking. Ryan LLC, 2024 WL 3297524 (citing Chrysler Corp. v. Brown, 441 U.S. 281 (1979) (“It is indeed a “housekeeping statute,” authorizing what the APA terms “rules of agency organization procedure or practice” as opposed to “substantive rules.”)).

The court also issued a preliminary injunction because it was substantially likely the FTC’s non-compete ban was arbitrary and capricious. Ryan LLC, 2024 WL 3297524 (“[B]ecause the FTC is an administrative agency, the Commission’s actions are constrained by the APA’s arbitrary-and-capricious standard.”); see also Fed. Communications Comm’n v. Prometheus Radio Project, 592 U.S. 414 (2021) (“The APA’s arbitrary-and-capricious standard requires that agency action be reasonable and reasonably explained.”). The FTC lacked evidence demonstrating why it chose a sweeping ban against most non-competes instead of targeting specific non-competes, failed to consider the positive benefits of non-compete agreements, and insufficiently addressed rule alternatives. Ryan LLC, 2024 WL 3297524.

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Published on: July 3, 2024

FORT LAUDERDALE BUSINESS LITIGATION: TRADE SECRET INJUNCTION AND DAMAGES BASED ON “HEAD START PERIOD”

By Mavrick Law Firm

You should protect your trade secrets at all lawful costs. But sometimes, trade secrets are stolen and misappropriated despite your best efforts to protect them. This article discusses some of the remedies available when trade secrets are stolen and the duration you can obtain those remedies in the future. Peter Mavrick is a Fort Lauderdale business litigation attorney. 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.

The federal Defend Trade Secrets Act (DTSA) and the Florida Uniform Trade Secrets Act (FUTSA) allows a trade secret plaintiff to prevent the defendant from using his trade secret in the future through an injunction. Courts may also require the defendant to pay the trade secret plaintiff damages for revenues or profits the defendant will generate in the future by using the plaintiff’s trade secret. Fla. Stat. § 688.003; Fla. Stat. § 688.004; 18 U.S.C. § 1836.

Court’s sometimes use the head start period to determine the length of time an injunction should last or the cutoff for awarding damages for future use of the trade secret to the plaintiff. The duration of the head start is typically defined as the time it would have taken the defendant to independently develop its own product or process without the benefit of the plaintiff’s trade secret. Sensormatic Electronics Corp. v. The TAG Co. U.S., LLC, 632 F. Supp. 2d 1147 (S.D. Fla., Dec. 19, 2018); Medical Store, Inc. v. AIG Claim Servs., Inc., 2003 WL 25669175 (S.D. Fla., Oct. 17, 2003) (stating that the “damage period begins when the alleged misappropriation began” and ends “at the point in time when the Defendants would have been able to achieve the same results through the independent development of the protected information.”).

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Published on: July 2, 2024

MIAMI BUSINESS LITIGATION: STATUTE OF FRAUDS

By Mavrick Law Firm

Businesses often enter contracts with vendors, independent contractors, executives, employees, and others. But sometimes, these contracts may be verbal and unformalized. If a dispute arises regarding one of these verbal contracts, it may not be enforceable under the Statute of Frauds. 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.

The Statute of Frauds is a legal principle requiring certain contracts be in writing to be legally enforceable. The statute can be found at section 725.01, Florida Statutes and contains a list contract subject that must be reduced to writing to be enforceable. The subject matters include certain medical contracts and real estate contracts. Fla. Stat. § 725.01. However, the Statute of Frauds only applies to an “agreement that is not to be performed with the space of one year from the making thereof.”

If a verbal contract is not completed within one year, is it still enforceable? Florida courts established the one-year rule to address this question. The seminal case is Browning v. Poirier, 165 So. 3d 663 (Fla. 2015). In Browning, romantic partners entered into a verbal agreement in 1993 whereby they agreed to pool lottery winnings. One partner won a lottery in 2007, fourteen years after entering the verbal agreement. The other partner sued to enforce the verbal agreement, but the lottery winner argued the verbal agreement was not enforceable because it was not in writing and more than one year had passed since they entered into the verbal agreement. The Florida Supreme Court held that, despite the long passage of time, the contract did not come within the Statute of Frauds because the “contract’s full performance is possible within one year from the inception of the contract.”

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Published on: June 29, 2024

MIAMI BUSINESS LITIGATION: FRAUDULENT TRANSFER REMEDIES

By Mavrick Law Firm

If a creditor files a claim of fraudulent transfer against a debtor, the creditor has several options for remedies. The remedies available include injunctions, avoidance, attachment, appointment of a receiver, and potentially, money damages. These remedies are articulated in section 726.108, Florida Statutes. 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.

Avoidance of the transfer is unique remedy that annuls or voids the fraudulent transfer. See Smith v. Effective Teleservices, Inc., 133 So. 3d 1048 (Fla. 4th DCA 2014) (stating that a fraudulent transfer is “voidable at the instance of a creditor.”). The remedy is not often litigated in the context of strict creditor claims outside the bankruptcy context given the small number of state court legal authorities addressing the issue.

Attachment is the seizing of the fraudulently transferred property. A creditor seeking to attach the property must demonstrate the same criteria needed for an injunction. Therefore, the creditor must prove (1) irreparable harm, (2) a clear legal right, i.e., a substantial likelihood of success on the merits at trial, (3) an inadequate remedy at law, and (4) the injunction serves the public interest. Weinstein v. Aisenberg, 758 So. 2d 705 (Fla. 4th DCA 2000).

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Published on: June 26, 2024

FORT LAUDERDALE BUSINESS LITIGATION: FRAUDULENT TRANSFER LIABILITY

By Mavrick Law Firm

When a debtor fraudulently transfers assets to a third party to avoid paying a debt owed to a creditor, the creditor can pursue legal relief by filing a fraudulent transfer claim. But this begs the question – who can a creditor sue in a fraudulent transfer lawsuit to recover monies owed by the debtor? Is the creditor limited to suing the debtor, or can the creditor sue third-party recipients of the fraudulently transferred assets? This article explores those options. Peter Mavrick is a Fort Lauderdale business litigation attorney. 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.

A fraudulent transfer plaintiff has several options when determining who to sue to recover its debt. The plaintiff can sue the person transferring the assert, the recipient of the transferred asset (known as the transferee), and all subsequent asset transferees. Edwards v. Airline Support Group, 138 So. 3d 1209 (Fla. 4th DCA 2014); Fla. Stat. § 726.109. If the transferee is a business, a fraudulent transfer plaintiff can also sue the owner or officer of that business in his or her personal capacity.

Fraudulent transfer claims are usually brought against the transferee because the plaintiff knows the transferee has an asset of value that may fully or partially satisfy the debt owed. However, a fraudulent transfer plaintiff could likely assert a lawsuit against the asset transferor too. The fraudulent transfer statute contains a catchall remedy allowing a court to grant “other relief that the circumstances may require.” The Florida Fourth District Court of Appeals and First District Court of Appeals have stated that this catchall remedy allows a fraudulent transfer plaintiff to assert a claim for money damages against the asset transferor. Hansard Const. Corp. v. Rite Aid of Florida, Inc., 783 So. 2d 307 (Fla. 4th DCA 2001); McCalla v. E.C. Kenyon Const. Co., Inc., 183 So. 3d 1192 (Fla. 1st DCA 2016).

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