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Articles Posted in Non-Compete Agreements

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The recent appellate decision from Florida’s Second District Court of Appeal in Capital Wealth Advisors, LLC v. Capital Wealth Advisors, Inc., 2021 WL 4898462 (Fla. 2d DCA 2021), clarified whether a business can get out of a financially unfavorable contract on the grounds that its “lopsidedness or open-endedness” is an invalid restraint on trade or commerce.  In reaching its decision, the appellate court interpreted the meaning of Florida Statute § 542.18, which provides that “[e]very contract, combination, or conspiracy in restraint on trade or commerce in this state is unlawful,” and its interplay with Florida’s non-compete statute, Florida Statute § 542.335.  Peter Mavrick is a Fort Lauderdale business litigation lawyer, 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 litigation, and other legal disputes in federal and state courts and in arbitration.

The Capital Wealth Advisors case involved a dispute over a contract where a company promised to pay very generous commissions to an insurance agent.  The contract promised large commission percentages.  The contract also promised that the “commission sharing arrangement would survive termination and continue in perpetuity.  In the business litigation, the company obtained summary judgment against the agent on the grounds that the commissions contact “constituted an unlawful restraint on trade in violation of section 542.18 (i.e., Florida’s restraint on trade or commerce statute) and 542.335 (i.e., Florida’s non-compete contract statute).  In evaluating the trial court’s decision, the appellate court explained “we need not reach the reasonableness of the scope of the Agreement or whether it is necessary to protect a legitimate business interest under section 542.335 unless and until we determine that the commission sharing arrangement is, in fact, a restraint on trade or commerce under section 542.18.”  The company argued the contract constitutes a “restraint on trade or commerce” because it imposes a “substantial financial disincentive” on the company.  The company emphasized “how good a deal this is for the Agent, and how correspondingly severe the effects of the deal have been to the” company.  The appellate court explained, however, that the contract “might very well have been—or became, in light of circumstances developed after its execution—quite advantageous to the Agent and disadvantageous to the Company … This does not make it a restraint on trade or commerce.”

Capital Wealth Advisors explained that Florida Statute 542.18 prohibits restraints “on trade or commerce in general—not on the competitiveness or incentives of individual actors.”  The appellate court relied on federal courts’ interpretations of federal antitrust law, including the United States Supreme Court decision in Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (“The law directs itself not against conduct which is competitive, or even severely so, but against conduct that tends to destroy competition itself”) and a recent case from the United States District Court for the Southern District of Florida, United Am. Corp. v. Bitmain, Inc., 2021 WL 1807782 (S.D. Fla. 2021) (“[a]n unreasonable restraint on trade is one that harms competition in general, rather than the plaintiff, or any other competitor”).  Section 542.18 does not prohibit every contract that might substantially reduce the competitiveness or profit motive of a party to the contract.  On the contrary, “section 542.18 governs restraints on ‘trade’ or ‘commerce’ itself—not the discreet effects that agreements have on the parties who enter into them.”  The appellate court in Capital Wealth Advisors determined that the company agreed to the contract even though it financially favored the agent.  Nevertheless, such a contract does not retrain trade or commerce in the insurance market.  “Here, there is nothing keeping the Agent from competing against the Company, or vice versa, by utilizing the very same referral sources that it provided to the Company.”  Fundamentally, the contract did not negatively affect consumers’ ability to procure insurance products since both the company and the agent can freely compete for the same business.

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Florida law sets forth detailed statutory rules governing enforcement of restrictive covenants, commonly known as “non-compete agreements.”  Florida Statutes, section 542.335, provides that parties may agree to restrict or prohibit competition in certain circumstances, so long as they protect one or more legitimate business interests and are reasonable in geographic and temporal scope.  In determining whether to enforce a non-compete agreement, Florida courts assess whether enforcement of the non-compete will ultimately protect against unfair competition.  Under Florida law, set forth in F.S. § 542.335(1)(h), “[a] court shall construe a restrictive covenant in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement.”  Peter Mavrick is a Miami non-compete attorney, and also advocates for clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents clients in business litigation, trade secret litigation, non-compete agreement litigation, employment litigationtrademark litigation, and other legal disputes in federal and state courts and in arbitration.

In the recent appellate decision GFA International, Inc. v. Trillas, 2021 WL 3889283 (Fla. 3d DCA 2021), Miami’s Third District Court of Appeal reversed a trial Judge’s decision to deny an injunction against a former employee who was competing against the employer.  The appellate court took the extraordinary measure of remanding the case to the trial court for entry of a temporary injunction in favor of the employer.  The employer, GFA International, Inc. (GFA), was an engineering company that had hired Eric Trillas (Trillas) to serve as its inspections manager.  GFA promoted the employee to branch manager of its Miami location, and he managed the day-to-day operations of the branch including overseeing marketing, sales, finances, and helping bring in new clients and work for GFA.  Trillas was in charge of the facility support services department, which provided post storm engineering consulting, assisted with developing marketing materials, advertised GFA’s post hurricane marketing services, and brought in clients for post storm-related services.

During his employment, Trillas signed a restrictive covenant that prohibited during his employment, and for two years thereafter, (1) any direct or indirect competition against GFA and (2) accepting any business from any of GFA’s existing or prospective customers.  Trillas also contractually agreed to refrain, during his employment and for two years post-termination, from soliciting GFA’s GFA’s existing and prospective clients.  Aside from Florida’s restrictive covenant statute governing an employee’s competitive acts against his or her employer, Florida common law also prohibits an employee’s competition during the employment relationship.  Under Florida law, an employee may not engage in disloyal acts in competition against his or her employer, and this includes disloyal acts in anticipation with competition against his or her employer.”  Fish v. Adams, 401 So.2d 843 (Fla. 5th DCA 1981).  The case facts indicated that Trillas violated both his statutory non-compete duties as well as his common law duties barring competition against his employer GFA.

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Forensic examinations of cellular phones and other electronic devices are needed when a party willfully withholds relevant information during discovery or where a party is unwilling or unable to search their electronic devices on their own accord. Federal courts can order a party to submit their electronic devices for a forensic examination in business litigation cases under certain circumstances. A forensic examination creates a “mirror image” of an electronic device that “contains all the information in the computer, including embedded, residual, and deleted data.” Wynmoor Cmty. Council, Inc. v. QBE Ins. Corp., 280 F.R.D. 681, 686-87 (S.D. Fla. 2012). The forensic examination is typically performed by an independent third-party who is appointed by the court and agreed upon by the parties. Peter Mavrick is a Fort Lauderdale business litigation lawyer, and also represents clients in business litigation in Miami, Boca Raton, and Palm Beach.  The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

Forensic examinations of cellular phones are routine in Florida courts, so long as the forensic image will reveal relevant, discoverable information. Procaps S.A. v. Patheon Inc., 2014 WL 11878435, at *2-3 (S.D. Fla. 2014) (granting forensic examination of mobile phones). “During discovery, the producing party has an obligation to search available systems for the information demanded.” Wynmoor, 280 F.R.D. at 685.  In business litigation, electronically stored information is discoverable under Federal Rule of Civil Procedure  34(a). Deleted computer files, whether e-mails or otherwise, are likewise discoverable. Bank of Mongolia v. M&P Global Fin. Servs., 258 F.R.D. 514 (S.D. Fla. 2009). While a responding party usually may comply by “translat[ing] the data into a usable form,” a “requesting party itself may need to check the data compilation.”  In re Ford Motor Co., 345 F.3d 1315, 1316-17 (11th Cir. 2003).

In determining whether a forensic examination is necessary, courts generally consider “whether the responding party has withheld requested information, whether the responding party is unable or unwilling to search for the requested information, and the extent to which the responding party has complied with discovery requests.” Wynmoor, 280 F.R.D. at 687.  “When a requesting party demonstrates . . . the responding party’s failure to produce requested information, the scales tip in favor of compelling forensic imaging.”  Id.

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It is critical that Florida employers carefully write their non-compete agreements to ensure they are enforceable and prevent employees from performing the types of activities that the employer needs.  Non-compete law in Florida is nuanced and slight deviations in contract wording can sometimes mean the difference between success or failure.  Peter Mavrick is a Miami non-compete attorney, and also advocates for clients in Fort Lauderdale, Boca Raton, and Palm Beach, Florida.  The Mavrick Law Firm represents clients in business litigation, trade secret litigation, employment litigation, trademark litigation, and other legal disputes in federal and state courts and in arbitration.

While non-compete agreements are interpreted pursuant to principles of general contract law, non-compete law is often considered to be a niche area of law.  Non-compete contracts are governed by Florida Statute § 542.335.  This statute limits the enforcement of non-compete agreements in certain areas, inter alia, limiting enforcement in circumstances where the employer has a legitimate business reason for the non-compete agreement (§ 542.335(1)(b)), limiting the enforceable time period (§ 542.335(1)(d)(1)), and barring enforcement of contract terms limiting the court’s ability to enforce attorneys’ fees (§ 542.335(1)(k).

Particular terms in non-compete agreements often have particular meanings.  For example, determining whether the term “solicitation” applies to certain conduct can be deceptively difficult.  Generally, for an activity to qualify as solicitation under the common meaning of the word, there must be a communication coupled with an underlining intention behind that communication.  Solicit, Merriam-Webster (available at: https://www.merriam-webster.com/) (“to approach with a request or plea” or “to urge (something, such as one’s cause) strongly”);  Solicitation, Black’s Law Dictionary (11th ed. 2019) (“an attempt or effort to gain business”).  Whether a non-compete agreement barring “solicitation” bars particular conduct is determined by the general rules of contract interpretation and cases.

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The decision whether to bring a case in federal court or Florida state court can have significant consequences to the disposition of non-compete litigation.  While both federal and Florida will usually apply the same substantive law, the procedure applied differs.  This is particularly pertinent in non-compete litigation.  Florida courts, when considering whether to enjoin a former employee from competing, will not consider particular categories of evidence because of a Florida statute (§ 542.335(g)(1-3).  Federal courts are free of this limitation, and may consider nearly any admissible and relevant evidence.  This distinction can ultimately mean the difference between whether an employee or an employer will prevail in non-compete litigation. Peter Mavrick is a Miami non-compete attorney, and also advocates for clients in Fort Lauderdale, Boca Raton, and Palm Beach, Florida. The Mavrick Law Firm represents clients in business litigation, trade secret litigation, employment litigationtrademark litigation, and other legal disputes in federal and state courts and in arbitration.

Non-compete litigation can be heard in both federal courts and state courts.  While a Florida court almost always has jurisdiction to hear a Florida non-compete case, there are certain requirements before a matter may be heard in federal court.  The primary method by which a federal court would have jurisdiction is that a “federal question” is raised.  This can happen when a non-compete claim is brought along with a trade secret claim under the federal Defend Trade Secrets Act.  18 U.S.C. § 1836, et seq.  While it is technically possible that a federal court can have jurisdiction over the parties because a “diversity of citizenship” between the plaintiff and defendant, this would rarely happen because both a company attempting to enforce a non-compete and the employee will usually qualify as a citizens of Florida.

Federal courts and Florida courts have their own rules of civil procedure.  While the Florida Rules of Civil Procedure were derived in significant part from the federal rules, the differences between them are substantial, and include different pleading and discovery requirements.  There are also differences between federal and Florida courts which do not arise from the differences in procedural rules.  Generally, federal courts have a greater budget and fewer cases, and so may have more time and staff to address complex and nuanced issues.  Federal courts also tend to place more time constraints which are less flexible than their Florida counterpart.

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Preservation of a business’ trade secrets may constitute a legitimate business interest that justifies the enforcement of a non-compete agreement. However, it is vital that a business seeking to enforce the non-compete agreement sufficiently prove the existence of the trade secret. General statements that the business has such valuable information cannot act as a substitute for proof. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Palm Beach, Boca Raton, and Miami, Florida. The Mavrick Law Firm represents clients in breach of contract litigation, trade secret litigation, non-compete agreement litigation, employment litigationtrademark litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this occurred in the case of Gould & Lamb, LLC v. D’Alusio, 949 So. 2d 1212 (Fla. 2d DCA 2007). Gould & Lamb, LLC (Gould & Lamb) and John D’Alusio (D’Alusio) executed an employment agreement that contained a non-compete provision that prohibited D’Alusio from working for a competitor for a two-year period after termination of his employment. Gould & Lamb later terminated D’Alusio’s employment because they eliminated his position from the firm. After an intensive negotiation, Gould & Lamb and D’Alusio entered into a severance agreement.  The severance agreement did not reference the earlier non-compete agreement, but instead referenced a different agreement that the parties entered. D’Alusio filed a lawsuit against Gould & Lamb, seeking a declaration that the severance agreement superceded the non-compete agreement.  Gould & Lamb filed a counterclaim against D’Alusio to enforce the non-compete agreement.

Gould & Lamb requested that the court reform the severance agreement to incorporate the noncompete provisions of the earlier contract. Reformation is a legal doctrine that is applied to correct a defective writing to accurately reflect the true terms agreed to by the parties. Providence Square Assn v. Biancardi, 507 So. 2d 1366 (Fla. 1987). To allege a claim for reformation, a plaintiff must allege that: 1) there was a written agreement, 2) there was a defect in the writing due to mutual mistake, fraud or misrepresentation, and 3) proof by clear and convincing evidence. Providence Square Assn v. Biancardi, supra. The trial court found there was no mistake of fact or inequitable conduct by D’Alusio that would support reformation of the severance agreement. The trial court concluded that the noncompete agreement did not survive.

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Noncompete agreements sometimes designate the laws of other states to govern the parties’ contractual obligations, even if the agreement is made in Florida. This is known as a choice of law provision. When these choice-of-law provisions are valid and enforceable, they can have significant repercussions on the results of noncompete litigation.  Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Palm Beach, Boca Raton, and Miami, Florida. The Mavrick Law Firm represents clients in breach of contract litigation, trade secret litigation, non-compete agreement litigation, employment litigation, trademark litigation, and other legal disputes in federal and state courts and in arbitration.

Many corporations and limited liability companies throughout the United States are incorporated or organized under Delaware law, even though they may have no particular connection to Delaware.  This is because there are several benefits that medium to large sized business can enjoy from Delaware incorporation.  For example, intra-corporate disputes for Delaware corporations are adjudicated by the Delaware Court of Chancery which is a judicial body designed to quickly and effectively resolve such matters without a jury.  Because of the attractiveness of Delaware incorporation, many corporations will often choose Delaware as a choice of law in their contracts.  As a result, Florida courts will often adjudicate disputes under Delaware law.

When applying foreign law in Florida, courts “maintains the traditional distinction between substantive and procedural matters.”  Siegel v. Novak, 920 So. 2d 89 (Fla. 4th DCA 2006).  “Generally, when confronted by a choice of law problem, a court will apply foreign law when it deals with the substance of the case and will apply the forum’s law to matters of procedure.”  Siegel v. Novak, 920 So. 2d 89 (Fla. 4th DCA 2006).  This can be a critical issue when employers seek injunctions in non-compete matters.  Florida courts will apply Florida law as it relates to the procedural issues, such as whether a temporary injunction should be issued, and foreign choice of law for the substantive law questions associated with that analysis, such as the element of whether there is a likelihood of success on the merits.

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Florida employers who seek to protect their client lists from misappropriation by former employees will often need to show that the client list was a trade secret.  This is important even when the former employee is subject to a non-compete agreement.  This is because non-compete agreements cannot be enforced without a “legitimate business interest,” and the existence of a trade secret qualifies as a “legitimate business interest.”  Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Palm Beach, Boca Raton, and Miami, Florida. The Mavrick Law Firm represents clients in breach of contract litigation, trade secret litigation, non-compete agreement litigation, employment litigation, trademark litigation, and other legal disputes in federal and state courts and in arbitration.

A non-compete agreement cannot be enforced without a court finding that the agreement is supported by a “legitimate business interest” in the non-compete agreement.  Importantly, the existence of a trade secret can qualify as a legitimate business interest pursuant to Florida’s noncompete law.  Trade secrets are specifically delineated as legitimate business interests in Section 542.335(1)(b)(1), Florida Statutes.

The term “trade secret” is often associated with secret formulas like the ingredients of Coca-Cola or WD-40.  However, nearly any type of information can qualify as a trade secret as long as it qualifies as one under either the Florida Uniform Trade Secrets Act (FUTSA) or the federal Defend Trade Secrets Act (DTSA).  Particularly, FUTSA defines trade secrets as:

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Companies often hire experienced sales and business development professionals to expand their business. A non-solicitation provision in an employment contract is intended to prevent post-termination solicitation of clients with whom the business has substantial relationships. When an employee brings clients to a company, it is important to distinguish whether the employee had a prior business or personal relationship with the client, and whether it is part of the employee’s job to develop and maintain client relationships. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Palm Beach, Boca Raton, and Miami, Florida. The Mavrick Law Firm represents clients in breach of contract litigation, trade secret litigation, non-compete agreement litigation,  employment litigationtrademark litigation, and other legal disputes in federal and state courts and in arbitration.

In the case of Hilb Rogal & Hobbs of Florida, Inc. v. Grimmel, 48 So. 3d 957 (Fla. 4th DCA 2010), Hilb Rogal & Hobbs of Florida, Inc. (HRH) was an insurance broker who hired Mark Grimmel (Grimmel) as a producer to service its existing customers and to generate new customers. Grimmel signed an employment agreement with HRH, which included a non-piracy clause that prohibited Grimmel from soliciting HRH’s customers following termination of his employment. Four years after Grimmel resigned to operate his own competing insurance brokerage firm, Egis Insurance Advisors (Egis).

HRH filed a lawsuit for injunctive relief and damages against Grimmel and Egis. HRH alleged that Grimmel violated the non-piracy covenant in his employment agreement with HRH by misappropriating business from HRH to Egis. HRH also filed an emergency motion for a temporary injunction, requesting that the court prohibit Grimmel from soliciting, accepting business from, and continuing to do business with HRH’s customers. Also, HRH sought to enjoin Grimmel from using confidential or trade secret information. HRH obtained an ex-parte order (made without the other party’s awareness) granting a temporary injunction against Grimmel and posted a bond. Grimmel moved to dissolve the injunction and a hearing was held before a magistrate. The magistrate issued a Report and Recommendation proposing that the temporary injunction be dissolved. HRH filed its exceptions to the general magistrate’s report and requested a hearing. The trial court held a hearing and entered an order denying HRH’s exceptions, granting the motion to dissolve the temporary injunction, and ratifying and approving the general magistrate’s Report and Recommendation. HRH immediately appealed.

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When the wording of a contractual provision is confusing or ambiguous, courts must interpret the contract in a rational manner. Some examples of vague contractual provisions include, “during business hours” and time frames with no clear anchor date, i.e. “within six months of commencement.” The courts generally agree that where one interpretation of a contract would be absurd and another would be consistent with reason and probability, the contract should be interpreted in the rational manner. American Med. Int’l, Inc. v. Scheller, 462 So.2d 1 (Fla. 4th DCA 1984). Peter Mavrick is a Miami business litigation lawyer, and also represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach.  The Mavrick Law Firm represents clients in breach of contract litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

In the case of BKD Twenty-One Mgmt. Co. v. Delsordo, the appellate court addressed the interpretation of a lease agreement.  At the center of the business litigation was a dispute over the meaning of the term “Establishment.” The plaintiff contended that the term “Establishment” meant “ruling class” or “controlling group” and therefore referred to “the folks running the retirement community.” The defendants contended that “Establishment” meant “place of business.” The appellate court agree with the defendants’ interpretation. BKD Twenty-One Mgmt. Co. v. Delsordo held that “…where one interpretation of a contract would be absurd and another would be consistent with reason and probability, the contract should be interpreted in the rational manner.” The appellate court held that in the context of a commercial lease agreement, the term “Establishment” necessarily meant “an institution or place of business.” Even though there are other definitions of the term “establishment,” the appellate court found that none of those alternative definitions would make sense in for a lease agreement concerning a business. Courts must consider the contractual provision within the context of the overall contract.  The appellate court rejected plaintiff’s argument that the capitalization of the term “Establishment” in the lease meant that the term was referring to a “ruling class” or “the folks running the retirement community.” There were many key terms in the lease were capitalized, so the appellate court held that the capitalization of the term Establishment in the contract did not mean that the contract was referring to the “ruling class.”

“A true ambiguity does not exist merely because a contract can possibly be interpreted in more than one manner. Indeed, fanciful, inconsistent, and absurd interpretations of plain language are always possible.” American Med. Int’l, Inc. v. Scheller. It is the duty of the trial court presiding over business litigation to prevent such interpretations. For example, in the case of Sorota v. Belmat, Inc., 819 So. 2d 975 (Fla. 4th DCA 2002), the contract stated that the tenant was responsible for paying the utilities it uses in connection with the leased premises, but only its pro-rata share of those charges. The appellate court held that though it was not spelled out in the agreement, it was clear that by “pro-rata share” of the bill, the drafters intended that the tenant pay only for those utilities it actually used. The appellate court concluded that no other interpretation would make sense. Sorota v. Belmat, Inc. held that “contracts should be interpreted so as to avoid an absurd result.”

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