Articles Posted in Non-Compete Agreements

Published on: October 19, 2024

MIAMI NON-COMPETE AGREEMENTS: CUSTOMER RELATIONSHIPS AND ENFORCEMENT

Restrictive covenants, such as non-solicitation and non-compete agreements, are important tools for businesses to protect their business interests. Restrictive covenants are enforceable if they are reasonable in time, geographic area, line of business, and supported by a “legitimate business interest.” Fla. Stat. § 542.335. Florida Statutes section 542.335 contains a non-exhaustive list of legitimate business interests that could support a restrictive covenant, which include the protection of trade secrets, valuable confidential business information, substantial relationships with specific prospective and existing customers, patients, or clients, and customer or client goodwill. But what is a “substantial business interest” with a customer? The Miami business litigation attorneys of the Mavrick Law Firm represent 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.

A business must plead and prove “the identity of specific customers and the substantially of the relationship with those customers” to establish the legitimate business interest legal requirement. Vital Pharmaceuticals, Inc. v. Alfieri, 23 F.4th 1282 (11th Cir. 2022). In Evans v. Generic Solution Engineering, LLC, 178 So. 3d 114 (Fla. 5th DCA 2015), the appellate court reversed a trial court order that granted a preliminary injunction enforcing a restrictive covenant against a former employee because the business failed to prove the existence of substantial relationships with customers. The restrictive covenant prohibited the former employee from providing services to customers of the business. After the former employee left and formed a competitive company, the business sued. The business argued the former employee was providing services to a specific former customer of the business, and the trial court granted a preliminary injunction. However, the appellate court reversed. The appellate court reasoned that the business failed to prove substantial relationships with customers because the former customer did not have an exclusive relationship with the business. The former customer often used competitors. As a result, the business had no reasonable expectation that the customers would continue to obtain services from the business in the future. Likewise, in Anich Industries, Inc. v. Raney, 751 So. 2d 767 (Fla. 5th DCA 2000), the court also found that a business failed to prove substantial relationships with customers when customers had no exclusivity relationship with the business.

Although the Evans and Anich decisions were based on the absence substantial relationships due to a lack of exclusivity, Environmental Services, Inc. v. Carter, 9 So. 3d 1258 (Fla. 5th DCA 2009) was decided a similar issue differently. In Environmental Services, Inc., the court stated that exclusivity was not required to have substantial relationships with customers. The court determined substantial business relationships existed where a company “was attempting to protect established relationships with identifiable clients with whom it either had current projects of ongoing relationships.” The juxtaposition of these cases demonstrate the decision on whether substantial business relationships concerning customers often involves construing the likelihood that the customer will continue conducting business with the employer and whether the customer/business relationship is exclusive.

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Published on: October 12, 2024

MIAMI BUSINESS LITIGATION: FORMER EMPLOYERS CANNOT RE-LITIGATE THE SAME NON-COMPETE AGREEMENTS AGAINST THE SAME FORMER EMPLOYEES WHEN THE FORMER EMPLOYERS FAILED TO PREVAIL THE FIRST TIME

By Mavrick Law Firm

A lawsuit is generally considered over once a litigant obtains judgment in its favor assuming no appeal is taken and no post-judgment collection issues exist. However, the losing party is often left unsatisfied. Therefore, the loser may try to “re-do” the lawsuit by suing the defendant again using slightly different claims or lodging the lawsuit in a different jurisdiction. The doctrines of res judicata and collateral estoppel can prevent a litigant from having a second bite of the apple. The Miami business litigation attorneys of the Mavrick Law Firm represent 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.

Res judicata, also known as “claim preclusion,” is a judicial doctrine that prevents parties from relitigating issues decided in a previous action. Anderson v. Vanguard Car Rental USA Inc., 60 So. 3d 570 (Fla. 4th DCA 2011). “Under the doctrine of res judicata, a final judgment issued by a court of competent jurisdiction bars a subsequent suit between the same parties based upon the same cause of action.” Felder v. State, Dep’t of Management Services, Div. of Retirement, 993 So. 2d 1031 (Fla. 1st DCA 2008). A court of competent jurisdiction has been defined to include courts in other states and even other countries. See, e.g., Republic of Ecuador v. Dassum, 346 So. 3d 1250 (Fla. 3d DCA 2022) (finding res judicata barred lawsuit because issues were litigated to final determination in Ecuador).

Florida law requires a party arguing res judicata to establish four “identities.” They are (1) identity of the thing sued for; (2) identity of the cause of action; (3) identity of the parties; (4) identity of the quality in the person for or against whom the claim is made. Saadeh v. Stanton Rowing Foundation, Inc., 912 So. 2d 28 (Fla. 1st DCA 2005). The first identity (the identity of the thing sued for) applies if the remedies requested in the previous and subsequent lawsuits are the same and are based on the same facts. See Accardi v. Hillsboro Shores Improvement Ass’n, Inc., 944 So. 2d 1008 (Fla. 4th DCA 2005) (finding no identity in the things sued for because the prior lawsuit requested equitable relief to prevent a continued violation of a restrictive covenant, while the subsequent lawsuit requested monetary damages based on nuisance and trespass stemming from violations of the restrictive covenant).

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Published on: September 7, 2024

MIAMI BUSINESS LITIGATION: LEGALITY OF GEOGRAPHIC AREA IN NON-COMPETE AGREEMENTS

By Mavrick Law Firm

Businesses commonly enter into restrictive covenants with their employees to prohibit them from unfairly competing with the business during and after employment. Restrictive covenants include contracts that restrict competition, such as non-compete agreements, non-disclosure agreements, and confidentiality agreements. When preparing a restrictive covenant, what provisions should be included? Typically, a business should include provisions that specifically define the geographic area, time limit, and line of business of the covenant. Many states require that the restrictive covenant be reasonable in time, geographic area, line of business, and be supported by a legitimate business interest. Seemingly, the requirement that a restrictive covenant be reasonable in geographic area means that the restrictive covenants should have a defined geographic scope. However, a recent case from the Supreme Court of Georgia, North American Senior Benefits, LLC v. Wimmer, 2024 WL 4029937 (Ga. 2024), has eliminated any such requirement in Georgia. The Miami business litigation attorneys of the Mavrick Law Firm represent 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 Georgia Supreme Court issued its decision in North American Senior Benefits, LLC v. Wimmer, 2024 WL 4029937 (Ga. 2024), on September 4, 2024. Wimmer involved a non-solicitation agreement between an employer and two former employees that prohibited the former employees from soliciting any employees of the employer. The non-solicitation agreement had an effective period of two years after the end of employment, and was not limited to a geographic area. The employees left the employer and started a competing business. The employer then sued the employees for violation of the non-solicitation provision. The trial court granted to the employees a motion for judgment on the pleadings because the non-solicitation provision did not define a geographic area, and the Georgia Court of Appeals affirmed. However, the Georgia Supreme Court reversed. The Georgia Supreme Court held that a restrictive covenant does not require an express geographic area. It reasoned that the geographic area can be determined “from the facts and circumstances” of the case without being expressly stated in the restrictive covenant.

Florida law also enforces restrictive covenants only if they are reasonable in time, geographic area, and line of business. Fla. Stat. § 542.335. Yet, some courts have also treated Florida’s geographic area requirement with flexibility. For example, recently, in Hayes Medical Staffing, LLC v. Eichelberg, 2024 WL 670440 (S.D. Fla., Jan. 23, 2024), a court in the Southern District of Florida granted a permanent injunction that enforced a non-disclosure provision that did not contain a geographic area. In another example, in Office Depot v. Babb, 2020 WL 1306984 (S.D. Fla., March 19, 2020), the court enforced a broad restrictive covenant that included the entire United States. It is also notable that Florida has the “blue pencil” rule. The “blue pencil” rule allows courts to modify an overly broad restrictive covenant to make its scope reasonable. See Fla. Stat. § 542.335 (“If a contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the legitimate business interest or interests, a court shall modify the restraint and grant only the relief reasonably necessary to protect such interest or interests.”).

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Published on: August 21, 2024

FORT LAUDERDALE BUSINESS LITIGATION: COURT OVERRULES FEDERAL RULE BANNING NON-COMPETE CONTRACTS

By Mavrick Law Firm

The Federal Trade Commission’s (FTC) rule banning most non-compete agreements continues to produce legal developments. Conflicting opinions were previously issued by a court in the U.S. District Court for the Northern District of Texas and by a court in the U.S. District Court for the Eastern District of Pennsylvania. In Ryan LLC v. FTC, Case No. 3:24-CV-00986-E, 2024 WL 3297524 (N.D. Tex., July 3, 2024), the United States District Court for the Northern District of Texas issued a preliminary injunction prohibiting the enforcement of the FTC’s rule against the named plaintiff in that case. On the other hand, in ATS Tree Services, LLC v. FTC, Case No. 2:24-CV-01743, 2024 WL 3511630 (E.D. Pa., July 23, 2024), the court denied a motion for a preliminary injunction to prevent enforcement of the rule. On August 20, 2024, this legal saga saw another significant development as the Ryan LLC court issued a permanent injunction against the FTC rule in Ryan LLC v. FTC, Case No. 3:24-CV-00986, 2024 WL 3879954 (N.D. Tex., Aug. 20, 2024). Unlike the preliminary injunction that the court previously issued, the permanent injunction is national. The non-compete agreement ban, which was scheduled to go into effect on September 4, 2024, is now nullified due to the permanent injunction of the federal court. This, however, is subject to appeal and other possible legal developments. The Fort Lauderdale business litigation attorneys of the Mavrick Law Firm represent 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 federal court in Ryan LLC issued the permanent injunction based on many of the same reasons as its preliminary injunction entered earlier in the case. The Judge relied heavily on the federal Administrative Procedures Act (APA), which requires that courts set aside administrative agency actions when they are “arbitrary, capricious, or otherwise not in accordance to the law” or “in excess of statutory jurisdiction, authority, limitations, or short of statutory right.” 5 U.S.C. § 706. In applying the APA, the court found that the FTC Act does not grant substantive rulemaking authority to the FTC, and the non-compete ban is arbitrary and capricious. 2024 WL 3879954. The court reasoned that the FTC Act does not grant it substantive ruler making authority. Section 6 only vested the FTC with the authority “to make rules and regulations to carry out the provisions of the subchapter.” The Ryan LLC court characterized section 6 as a “housekeeping” statute. See also Chrysler Corp. v. Brown, 441 U.S. 281 (1979). It lacks a statutory penalty and is in a nonessential location. In addition, the court determined the non-compete ban is arbitrary and capricious because it is unreasonably broad. The studies the FTC relied on a to enact its rule did not support a such a sweeping ban.

In reaching its holding, the Ryan LLC court did cite to Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024), the recent Supreme Court case that eliminated court deference to agency rules. This reference suggests the court did not provide deference to the rule that would normally be applied before the Looper Bright Enterprises decision. However, the court did not expressly make such a ruling.

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Published on: July 24, 2024

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

By Mavrick Law Firm

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 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: June 1, 2024

MIAMI BUSINESS LITIGATION: NON-COMPETE AGREEMENTS AND “CONFIDENTIAL INFORMATION”

By Mavrick Law Firm

Under Florida law, enforcement of a non-compete agreement requires requires proof of at least one “legitimate business interest.” Fla. Stat. § 542.335 (“The person seeking enforcement of a restrictive covenant shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant.”). A failure to plead or prove the existence of a legitimate interest justifying the non-compete covenant can void its enforcement. Id. (“Any restrictive covenant not supported by a legitimate business interest is unlawful and is void and unenforceable.”). Florida’s non-compete statute specifically references a nebulous legitimate business interest called “valuable confidential business…information.” Florida and federal cases interpreting the meaning of the term “valuable confidential business information” have reached different conclusions depending on the factual context. See Proudfoot Consulting Co. v. Gordon, 576 F.3d 1223 (11th Cir. 2009) (“It is unclear under Florida law when confidential information will justify a broad restriction that prevents an employee from working for a competitor.”). 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.

Some courts have determined that a person possesses valuable confidential business information when the employee is in a position to engage in unfair competition against the former employer. See Autonation v. O’Brien, 347 F. Supp. 2d 1299 (S.D. Fla. 2004). For example, in Open Magnetic Imaging, Inc. v. Nieves–Garcia, 826 So.2d 415 (Fla. 3d DCA 2002) (per curiam), Florida’s Third District Court of Appeal held that the defendant’s knowledge about a confidential database created as part of a confidential strategic marketing plan was a legitimate business interest because a competitor hired the defendant as its marketing representative. By contrast, in Austin v. Mid State Fire Equip. of Cent. Florida, Inc., 727 So.2d 1097 (Fla. 5th DCA 1999), the Florida appellate court refused to enforce the non-compete designed to protect pricing information known to the former employee because the former employee was only a technician that did not “set up service runs or set prices.”

Other courts appear to use a slightly higher standard advocated by the drafters of Florida Statue § 542.335, Senator John Grant and Thomas Steele. Senator Grant and Mr. Steele contend courts should look to the definition of threatened misappropriation used in trade secrets law to determine whether a defendant’s knowledge of confidential information justifies a restrictive covenant. See John A. Grant & Thomas Steele, Restrictive Covenants: Florida Returns to the Original “Unfair Competition” Approach to the 21st Century, 70 Fla. B.J. 53 (Nov. 1996) (hereinafter “Grant & Steele”). Under this approach, Valuable Confidential Information exists when disclosure of the information would be inevitable. Id. At least one Florida decision appears to have enforced a restrictive covenant based on the inevitable disclosure theory. See Proudfoot Consulting Co., 576 F. 3d 1223 (citing Fountain v. Hudson Cush–N–Foam Corp., 122 So.2d 232 (Fla.3d DCA 1960) (finding that employee’s “knowledge of the trade secrets would be so entwined with his employment” that “it would seem logical to assume that his employment by a competitor … would eventually result in a disclosure of this information”)).

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Published on: May 15, 2024

FORT LAUDERDALE BUSINESS LITIGATION: THIRD-PARTIES ENFORCING NON-COMPETE AGREEMENTS

By Mavrick Law Firm

A third-party can enforce a contract even though it is not a party to that contract if the contracting parties expressly intended to primarily and directly benefit the third-party. Bochese v. Town of Ponce Inlet, 405 F.3d 964 (11th Cir. 2005) (“Under Florida law, a third party is an intended beneficiary of a contract between two other parties only if a direct and primary object of the contracting parties was to confer a benefit on the third party.”). One should not assume all contractual benefits befalling a third-party allows that third-party to enforce the contract because the benefit may only be incidental. Id. (“If the contracting parties had no such purpose in mind, any benefit from the contract reaped by the third party is merely ‘incidental,’ and the third party has no legally enforceable right in the subject matter of the contract.”) (collecting cases). Therefore, the court must determine whether the contracting parties entered the agreement for the direct and substantial purpose of conferring a benefit on the third-party. Id. 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.

Ordinarily, the contract does not need to contain an express third-party beneficiary provision to allow that third-party to enforce the contract because courts look to the nature or terms of a contract to determine whether the contracting parties’ manifested an intent to benefit the third-party. Jenne v. Church & Tower, Inc., 814 So. 2d 522 (Fla. 4th DCA 2002) (“Florida law looks to “nature or terms of a contract” to find the parties’ clear or manifest intent that it “be for the benefit of a third party.” (citing Am. Sur. Co. of New York v. Smith, 130 So. 440 (Fla. 1930)). However, restrictive covenants are an exception to the rule. Florida Statute § 542.335 requires that “the restrictive covenant expressly identif[y] the person as a third-party beneficiary of the contract and expressly state[ ] that the restrictive covenant was intended for the benefit of such person.” Therefore, a third-party cannot enforce a restrictive covenant unless the contract contains an express provision allowing that third-party to do so. See Cellco P’ship v. Kimbler, 68 So. 3d 914 (Fla. 2d DCA 2011) (“The undisputed evidence was that Alltel and Cellco did not merge and that Alltel did not assign the restrictive covenant rights to Cellco. As a result, Cellco cannot enforce the Alltel–Kimbler agreement because it is not a party to the agreement nor is it a third-party beneficiary, assignee, or successor in interest.”).

Tusa v. Roffe, 791 So. 2d 512 (Fla. 4th DCA 2001) illustrates this point of law well. Tusa was a pizza restaurant and entered a contract with Roffe to rent commercial space needed to make and sell pizzas. Id. The lease contract prohibited Roffe from leasing other property on the premises to anyone who sold pizza. Id. About two months later, Roffe leased space to KKA, which also sold pizza. Id. The Roffe/KKA lease contained a provision prohibiting KKA from selling pizzas. Id. Tusa quickly discovered KKA was a pizza restaurant and commenced a lawsuit against KKA and Roffe to stop KKA from selling pizza. Id. The court dismissed Tusa’s lawsuit against KKA because the Roffe/KKA lease did not contain a provision expressly identifying Tusa as a third-party beneficiary to the contract. Id. However, the court also determined Roffe breached the Roffe/Tusa lease because Roffe allowed KKA to open a pizza restaurant on premises in violation of Tusa’s restrictive covenants. Id. (“The only reasonable interpretation of the covenant’s language that would support its protective purpose is if Roffe was prohibited from leasing space to another restaurant that sold pizza in the same building as Tusa’s restaurant.”).

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Published on: May 11, 2024

MIAMI BUSINESS LITIGATION: AMBIGUOUS CONTRACT AND PAROL EVIDENCE

By Mavrick Law Firm

The parol evidence rule is a substantive rule of law that limits the introduction of evidence to interpret the meaning of a contractual provision. King v. Bray, 867 So. 2d 1224 (Fla. 5th DCA 2004) (“The parol-evidence rule is a substantive rule of law and… provides that a written document intended by the parties to be the final embodiment of their agreement may not be contradicted, modified or varied by parol evidence.”). The general rule prohibits the use of parol evidence to interpret contracts. As Florida’s Fifth District Court of Appeal explained in King v. Bray, 867 So. 2d 1224 (Fla. 5th DCA 2004), courts presume the parties entering the contract intended their writing “to be the sole expositor of their agreement.” As an example, the parol evidence rule would prohibit the introduction of evidence regarding an oral agreement the parties entered contemporaneously with the written agreement. Madsen, Sapp, Mena, Rodriguez & Co., P.A. v. Palm Beach Polo Holdings, Inc., 899 So. 2d 435 (Fla. 4th DCA 2005) (“The parol evidence rule provides that a contemporaneous oral agreement may not be used to vary the terms of a written agreement unless there is ambiguity as to the meaning of the contract.”). 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.

Contractual ambiguity is an exception to the parole evidence rule. When the term of a contract is ambiguous, parol evidence is admissible to “explain, clarify or elucidate” the ambiguous term. Strama v. Union Fid. Life Ins. Co., 793 So.2d 1129 (Fla. 1st DCA 2001) (citation omitted). However, a trial court cannot admit parol evidence until it first determines the term in dispute is ambiguous. See Weisfeld-Ladd v. Estate of Ladd, 920 So. 2d 1148 (Fla. 3d DCA 2006). Ambiguous terms are susceptible to more than one meaning. Friedman v. Va. Metal Prods. Corp., 56 So.2d 515 (Fla.1952). The court must determine whether the provision in question is susceptible to more than one meaning because it is a question of law. Strama v. Union Fid. Life Ins. Co., 793 So. 2d 1129, 1132 (Fla. 1st DCA 2001) (“The initial determination of whether the contract term is ambiguous is a question of law for the court, and, if the facts of the case are not in dispute, the court will also be able to resolve the ambiguity as a matter of law.”). Thereafter, the fact finder determines the correct interpretation of the ambiguous provision assuming the parties disagree on the interpretation. Universal Underwriters Ins. Co. v. Steve Hull Chevrolet, Inc., 513 So.2d 218 (Fla. 1st DCA 1987). (“Where the terms of the written instrument are disputed and reasonably susceptible to more than one construction, an issue of fact is presented as to the parties’ intent which cannot properly be resolved by summary judgment.”).

Non-compete contracts are no exception. The parol evidence rule prohibits introduction of evidence intended to demonstrate the meaning of a restrictive covenant provision unless a party shows the covenant is susceptible to more than one meaning. Thompson v. Squibb, 183 So.2d 30 (Fla. 2d DCA 1966). (“In construing restrictive covenants[,] the question is primarily one of intention, and the fundamental rule is that the intention of the parties as shown by the agreement governs, being determined by a fair interpretation of the entire text of the covenant.”); Barnett v. Destiny Owners Ass’n, Inc., 856 So. 2d 1090 (Fla. 1st DCA 2003) (holding that when a restrictive covenant is ambiguous, parol evidence regarding the developer’s intent is material). Application of the parol evidence rule in a restrictive covenant lawsuit may enable the party opposing enforcement to create a factual issue and avoid early judgment. See Evergreen Communities, Inc. v. Palafox Pres. Homeowners’ Ass’n, Inc., 213 So. 3d 1127 (Fla. 1st DCA 2017) (finding that the “language in the declaration of covenants and restrictions that expressed the developer’s personal intent to develop the property for commercial use is ambiguous as to whether the developer intended to create a restriction on the property such that it could only be used for commercial purposes” and reversing summary judgement because an ambiguity existed).

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