Parties involved in a business litigation dispute may sometimes seek extraordinary remedies when they believe the circumstances warrant it. A party will sometimes seek to enjoin or compel another’s conduct to prevent them from causing irreparable harm through their action or inaction. In business litigation, one party often tries to get the court to order a party to refrain from a particular action or compel a certain action, such as, for example, a court order allowing one party use of an easement over a parcel of real estate or an order requiring a party to return personal property or real property to an opposing party in litigation. Courts, however, are limited in their lawful authority to require an opposing party in business litigation to sign a contract. A recent Florida case has explained that the court cannot require a person to enter into a contract which the person does not desire to enter into, even when the failure to do so would cause extraordinary harm. Peter Mavrick is a Miami business litigation attorney. The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.
Generally, business contracts are no different from any other type of contracts: they govern the terms of the relationship between the contracting entities which are enforceable by law. Under Florida law, “[c]ontracts are voluntary undertakings, and contracting parties are free to bargain for—and specify—the terms and conditions of their agreement.” Okeechobee Resorts, L.L.C. v. E Z Cash Pawn, Inc., 145 So. 3d 989 (Fla. 4th DCA 2014).
Courts have consistently found that the freedom for a person or company to associate with others and agree to be bound by the agreed-upon terms of that association are important rights which the government cannot interfere with except the most extraordinary circumstances. “[I]t is a matter of great public concern that freedom of contract be not lightly interfered with.” City of Largo v. AHF-Bay Fund, LLC, 215 So. 3d 10 (Fla. 2017). “The right to contract is one of the most sacrosanct rights guaranteed by our fundamental law” Miles v. City of Edgewater Police Dep’t/Preferred Governmental Claims Sols., 190 So. 3d 171 (Fla. 1st DCA 2016). “The right to make contracts … is both a liberty and property right and is within the protection of the guaranties against the taking of liberty or property without due process of law.”
In a typical case involving the right to enter a business contract, the dispute is whether the government can impair or take away another’s right to enter into or enforce contracts with others. However, “freedom of contract entails the freedom not to contract, except in the case of innkeepers, common carriers, and certain other ‘public service companies,’ and except as restricted by antitrust, antidiscrimination[,] and other statutes.” Yachting Promotions, Inc. v. Broward Yachts, Inc., 792 So. 2d 660 (Fla. 4th DCA 2001).
In the recent business litigation case Lugassy v. Lugassy, 4D20-216, 2020 WL 3261409 (Fla. 4th DCA June 17, 2020), the court was evaluating whether it was proper for the trial court to compel a 50% owner of a business to enter into a contract. The parties in Lugassy were two brothers which were each 50% owners of an apparel company. The parties were in corporate shareholder deadlock concerning the operation of the business. One brother, Yuval, insisted that the corporation borrow funds to invest in inventory. Yuval contended that the apparel manufacturers would not develop the inventory necessary for the company’s continued operation unless a letter of credit was issued. Furthermore, a shipment would soon be arriving requiring the company to make a payment or else it could not pick up the inventory and would incur storage fees of $500.00 per day. According to Yuval, unless the company had an immediate cash infusion, the company would lose its value of a going concern, essentially making the company valueless. Yuval asserted that his brother and co-owner of the company, Shay, refused to cooperate in getting this necessary financing. Yuval filed an emergency motion with the trial court to force Shay to cooperate in procuring the necessary financing.
Shay’s opposition claimed that Yuval’s credit concerns were overblown. The trial court disagreed and intervened in this business litigation dispute by taking one brother’s side on what would be best for the business. The Judge ordered Shay “to sign all the documents provided by [Yuval] […] and provide all required documentation requested by the lender(s) to cooperate in all respects with [the company’s] immediate funding needs […].” Some of these documents that Shay was required to execute included a personal guarantee. Such a personal guarantee could have resulted in Shay becoming personally obligated to the third-party lender should the company fail to repay the loan. Lugassy found that the trial court’s order was improper because Shay “has demonstrated irreparable harm in the loss of freedom to contract. Not only was he forced to sign contracts and personally guarantee the loans, but the orders amount to an ongoing deprivation of freedom of contract because they require the dissenting brother to cooperate by signing other documents in the future necessary to secure funding.” In other words, the trial judge cannot become a third-party to the business relationship in an effort to resolve the business litigation.
The holding in Lugassy affirms the constitutional right to contract. The court cannot require a party to enter into a business contract, even if that contract would save a company from financial harm. Peter Mavrick is a Miami business litigation lawyer. This article does not serve as a substitute for legal advice tailored to a particular situation.