It is not uncommon for parties in a business relationship, such as partners, franchisors and franchisees, and employers and employees, to discover that they cannot agree on their rights with respect to each other. Sometimes contracts are ambiguous, or the parties never determined how they would address a particular problem that later arises.
Florida law provides a mechanism to resolve such problems by way of declaratory judgment action. This is a type of lawsuit that seeks clarification of rights rather than money damages. It is most common in insurance coverage disputes, but also is used in business and employment disputes. Peter Mavrick is a Miami business litigation lawyer.
Florida Statute § 86.011 allows Florida courts to render judgment on “the existence, or nonexistence: (1) Of any immunity, power, privilege, or right; or (2) Of any fact upon which the existence or nonexistence of such immunity, power, privilege, or right does or may depend, whether such immunity, power, privilege, or right now exists or will arise in the future.” If a declaratory judgment is sought as to rights provided in a contract, it can be sought “either before or after there has been a breach” of the contract. Fla. Stat. § 86.031.
By seeking a declaratory judgment, parties in a business relationship can clarify what rights they each have with respect to the other. The Florida Legislature enacted the declaratory judgment statute in order “to settle and to afford relief from insecurity and uncertainty with respect to rights, status, and other equitable or legal relations.” Fla. Stat. § 86.101.
Florida courts have been clear, however, that the purpose of declaratory judgment actions is not to render an opinion, or to provide legal advice, but to resolve an actual dispute. The distinction between the two can be challenging to discern.
In State of Florida Department of Environmental Protection v. Garcia, 99 So. 3d 539 (Fla. 3d DCA 2011), for example, the appellate court in Miami, Florida found that it was not proper for the trial court to declare whether multiple claims bills could be submitted in a negligence action because the declaratory judgment action was filed as a procedural maneuver rather than resolve an actual controversy. The court noted that “a complaint seeking declaratory relief must allege ultimate facts showing that there is ‘a bona fide adverse interest between the parties concerning a power, privilege, immunity or right of the plaintiff; the plaintiff’s doubt about the existence or non-existence of his rights or privileges that he is entitled to have the doubt removed.’” In other words, there must be an actual controversy between the parties, not just curiosity by them as to rights, privilege, immunity or power. 1108 Ariola, LLC v. Jones, 71 So. 3d 892, 898 (Fla. 1st DCA 2011).
By contrast, the court in Argus Photonics Group, Inc. v. Dickenson, 841 So. 2d 598 (Fla. 4th DCA 2003), found that a declaratory judgment action was the proper vehicle to determine the scope and extent of a non-compete agreement in an employment contract.
Another example of the proper use of declaratory judgment actions is found in Conley v. Morley Realty Corporation, 575 So. 2d 253 (Fla. 3d DCA 1991). In Conley, the court held a declaratory judgment action was the proper method to decide whether a liquidated damages clause in a real estate contract was enforceable.
Declaratory judgments are used in federal court as well. 28 U.S.C. § 2201 provides, with limited exceptions, that a district court may declare the rights and other legal relations of parties. Of course, the jurisdictional requirements for federal court must be met before a declaratory action can be filed in federal court, and, as with state law, an actual controversy must exist for a federal declaratory judgment action.Under federal law, “[t]he test for an ‘actual controversy’ … does not require a present dispute, but only the ‘practical likelihood’ that a dispute will arise.” Tudor Insurance Company v. Zelwin, LLC, 2016 WL 383040.
Peter Mavrick is a Miami business litigation attorney. This article does not serve as a substitute for legal advice tailored to a particular situation.