Articles Posted in Non-Compete Agreements

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.

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.”