Florida Business Litigation Lawyer Blog

A frequently litigated issue in contractual disputes is whether a non-breaching party can recover its alleged consequential damages arising under a contract. Consequential damages, or special damages, may include monetary losses stemming from lost profits. If a party can establish a breach under the contract, then a party may be able to recover its consequential damages if these damages were a foreseeable outcome of the breach. In breach of contract actions in Florida, “[o]ne of the “most commonly litigated and thus the most often sought after item of consequential damages is lost profits.” Halliburton Co. v. E. Cement Corp., 672 So. 2d 844 (Fla. 4th DCA 1996). Peter Mavrick is a Fort Lauderdale business litigation attorney, 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 law, and other legal disputes in federal and state courts and in arbitration.

In breach of contract claims, there is a distinction between general damages and consequential damages. General damages are “those damages which naturally and necessarily flow or result from the injuries alleged.” Hutchison v. Tompkins, 259 So. 2d 129 (Fla.1972). Stated differently, general damages may be described as those damages “as may fairly and reasonably be considered as arising in the usual course of events from the breach of contract itself.” Fla. E. Coast Ry. v. Beaver St. Fisheries, Inc., 537 So. 2d 1065 (Fla. 1st DCA 1989). By contrast, special damages are not likely to occur in the usual course of events, but “may reasonably be supposed to have been in contemplation of the parties at the time they made the contract.” Fla. E. Coast Ry. v. Beaver St. Fisheries, Inc., 537 So. 2d 1065 (Fla. 1st DCA 1989). Special damages consist of items of loss which are peculiar to the party against whom the breach was committed and would not be expected to occur regularly to others in similar circumstances.

Likewise, consequential damages “do not arise within the scope of the immediate buyer-seller transaction, but rather stem from losses incurred by the non-breaching party in its dealings, often with third parties, which were a proximate result of the breach, and which were reasonably foreseeable by the breaching party at the time of contracting.” Hardwick Properties, Inc. v. Newbern, 711 So. 2d 35, 40 (Fla. 1st DCA 1998) (citations omitted). As one example Florida law, Section 672.715 of Florida’s Uniform Commercial Code defines “consequential damages” resulting from a seller’s breach, as:

Tortious interference claims arise when another business or person unjustly interferes with the business or contractual relationships of another business. However, all interference is not inherently “tortious” under Florida law. For example, certain types of interference may qualify as “privileged” or “justified” when the party acts in its own financial interests and the interference does not involve physical violence, misrepresentations, intimidation, conspiratorial conduct, illegal conduct, or threats of illegal conduct. Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients 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 law, and other legal disputes in federal and state courts and in arbitration.

A business or person for tortious interference when the opposing party unjustifiably interfered with business or contractual relationships. “The tort of tortious interference teeters between two competing values—the desire to protect the reasonable expectations of the parties to a business relationship on the one hand, and the need to avoid excessive restrictions on freedom of competition on the other.” Jay v. Mobley, 783 So. 2d 297 (Fla. 4th DCA 2001). To succeed on a tortious interference claim, a litigant must prove:

• the existence of a business relationship under which the plaintiff has legal rights;

A prevalent issue in business litigation is whether a party’s fraud claims are prohibited by an integration clause in a contract. Contracts typically include integration clauses to prevent contracting parties from later asserting claims based on oral statements that were not also expressed in the contract. Integration clauses or “merger” clauses can therefore effectively limit a party’s ability to rely on prior oral representations that were did not ultimately reduce to writing. However ,integration clauses must contain specific language to disclaim a party’s reliance. If an integration clause does not contain an express anti-reliance provision, then contracting parties typically can still bring fraud claims under Florida law. Peter Mavrick is a Fort Lauderdale business litigation attorney, 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 law, and other legal disputes in federal and state courts and in arbitration.

Integration clauses will typically prohibit fraudulent inducement claims only if a specific reliance disclaimer exists within the contract. Lower Fees, Inc. v. Bankrate, Inc., 74 So. 3d 517 (Fla. 4th DCA 2011). Under Florida law, the mere “existence of an integration clause does not bar a claim for fraudulent misrepresentation.” Rodriguez v. Tombrink Enters., Inc., 870 So. 2d 117 (Fla. 2d DCA 2003). The rationale supporting this rule is steeped in the foundational purpose of fraud: a party cannot assent to an integration clause under false pretenses. Mejia v. Jurich, 781 So. 2d 1175 (Fla. 3d DCA 2002.  Indeed, the “existence of a merger or integration clause, which purports to make oral agreements not incorporated into the written contract unenforceable, does not affect oral representations that are alleged to have fraudulently induced a person to enter into the agreement.” “[O]ral agreements or representations may be introduced into evidence to prove that a contract was procured by fraud notwithstanding such a merger clause.” Nobles v. Citizens Mortgage Corp., 479 So. 2d 822 (Fla. 2d DCA 1985). General integration clauses lacking specific reliance language therefore are not “an impediment to a cause of action for fraud in the inducement.” Noack v. Blue Cross & Blue Shield of Fla., Inc., 742 So. 2d 433 (Fla. 1st DCA 1999).

Absent very specific non-reliance language, integration clauses therefore do not prohibit specific causes of action for fraudulent inducement. Integration clauses cannot immunize a defendant in business litigation from its own fraudulent misrepresentations because standard and often boilerplate provisions would then enable an unbridled propagation of fraud. “If liability for such fraudulent inducements could be negated by the existence of a merger clause—a clause that has become standard in most commercial contracts—then there would be no deterrent to such fraud.” Trafalgar Capital Specialized Inv. Fund, FIS v. Atl. Energy Sols., Inc., 2010 WL 11505575 (S.D. Fla. Nov. 30, 2010). For example, in MeterLogic, Inc. v. Copier Sols., Inc., the Southern District Court of Florida refused to dismiss the plaintiff’s fraud claims based on an integration clause because the clause could not provide the defendants with a right to fraudulently induce the plaintiff into the contract. 126 F. Supp. 2d 1346 (S.D. Fla. 2000). The court determined the integration clause did not render the contract incontestable because the plaintiff claimed it was fraudulently induced into the contract. MeterLogic further held that: “[i]f a party alleges that a contract was procured by fraud or misrepresentation as to a material fact, an integration clause will not make the contract incontestable.” Indeed, under Florida law, the “presence of a merger/integration clause is not fatal to Plaintiffs’ cause of action for rescission because rescission vitiates every part of the contract.” Tigerdirect, Inc. v. Manhattan Assocs., 2006 WL 8430268 (S.D. Fla. Jan. 17, 2006).

Business litigation often involves contractual disputes and related fraud claims arising between parties. In Florida, contracting parties are generally prohibited from using a contract to limit liability for fraudulent acts. This general prohibition exists because contracting parties are entitled to rely on each other’s representations before entering a contract. However, there is an exception to the rule that allows parties to disclaim fraud liability through a contract if the contract expressly prohibits parties from asserting fraud claims against each other.  The inclusion of this express disclaimer language in contracts can significantly alter remedies available to parties in business litigation after signing a contract. Peter Mavrick is a Fort Lauderdale business litigation attorney, 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 law, and other legal disputes in federal and state courts and in arbitration.

Under Florida law, “[i]t is well settled that a party [cannot] contract against liability for his own fraud.” Oceanic Villas Inc. v. Godson, 4 So. 2d 689 (Fla. 1941). “A party cannot contract against liability for his own fraud in order to exempt him from liability for an intentional tort, and any such exculpatory clauses are void as against public policy.” Mankap Enterprises, Inc. v. Wells Fargo Alarm Services, a Div. of Baker Protective Services, Inc., 427 So. 2d 332 (Fla. 3d DCA 1983). “The interest protected by fraud is a plaintiff’s right to justifiably rely on the truth of a defendant’s factual representation.” HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So. 2d 1238 (Fla. 1996). The singular exception to this rule narrowly applies when a party “expressly states that [the contract] is incontestable on the ground of fraud.” Global Quest, LLC v. Horizon Yachts, Inc., 849 F. 3d 1022 (11th Cir. 2017). A contracting party, therefore, cannot disclaim fraud without a clear expressed intention to do so. “Absent such a disclaimer, no matter the context, ‘a party can not contract against liability for [its] own fraud.’” Oceanic Villas Inc. v. Godson, 4 So. 2d 689 (Fla. 1941).

In Oceanic Villas Inc., Florida’s Supreme Court held that contractual provisions disclaiming fraud must be specifically expressed. See Global Quest, LLC v. Horizon Yachts, Inc., 849 F.3d 1022 (11th Cir. 2017). In Oceanic Villas Inc., a lessor fraudulently induced a lessee into a lease by misrepresenting certain facts relating to the rental property’s past income, gross receipts, or profits. 4 So. 2d 689 (Fla. 1941). The lessee sued to rescind the lease after discovering the fraudulent misrepresentations and the lessor argued the claim was barred by the lease’s broad release language. Id. However, the Florida Supreme Court rejected the lessor’s argument because the “clause of the contract . . . relied on does not stipulate that the lease may not be rescinded for fraud.” Id. at 691. In so doing, the court distinguished wavier provisions expressly prohibiting rescission due to fraud with other provisions merely stipulating that no fraud was committed and that neither party relied on the other’s prior representations when executing the contract. Id. (contrasting contractual provisions expressly prohibiting fraud claims with other provisions warranting the non-existence of fraud).

The enforceability of arbitration provisions is a prevalent issue in business litigation involving disputes arising from commercial contracts. Arbitration provisions are not always enforceable under Florida law. Under Florida law, the arbitration provision must provide litigants with the same legal remedies that are otherwise available to them in civil litigation. To enforce an arbitration agreement in Florida, a court must find that the party resisting arbitration entered into an arbitration agreement that is enforceable, and that the subject claims fall within the scope of the agreement. Lambert v. Austin Ind., 544 F.3d 1192 (11th Cir. 2008). If certain terms of the arbitration provision violate Florida law, then a litigant may attempt to sever the unlawful terms from the provision, and pursue arbitration pursuant to the contract’s remaining terms. In commercial litigation, arbitration clauses are not severable if the dispute’s sole cause of action seeks to rescind the entire contract. Peter Mavrick is a Fort Lauderdale business litigation attorney, 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 law, and other legal disputes in federal and state courts and in arbitration.

An arbitration provision is unenforceable if the contract violates public policy or precludes a party from recovering in arbitration what would be otherwise available in civil court. In Shotts v. OP Winter Haven, Inc., 86 So. 3d 456 (Fla. 2011), the Florida Supreme Court explained that “any arbitration agreement that substantially diminishes or circumvents [statutory] remedies stands in violation of the public policy of the State of Florida and is unenforceable.” Shotts found the arbitration agreement at issue violated public policy.  The Supreme Court based its holding on the fact that the agreement eliminated statutory remedies available to the plaintiff under certain Florida statutes. Nonetheless, a party can still seek to compel arbitration if the agreement contains a severability clause whereby the offending terms can be severed without altering the parties’ intent.

As a general rule, contractual provisions are severable when the unlawful portion of the contract does not go to the contract’s essence, and, where the remaining contract provisions are valid and lawful after the unlawful portion is removed.  Gold, Vann & White, P.A. v. Friedenstab, 831 So. 2d 692 (Fla. 4th DCA 2002). “Severability has long been recognized in Florida’s law of contracts and is determined by the intent of the parties.” Gessa v. Manor Care of Fla., Inc., 86 So. 3d 484 (Fla. 2011). However, severability is not available when the entire contract or arbitration is unlawful.  Rescission is one remedy available in business litigation between contracting parties who were fraudulently induced to enter a contract. The effect of rescission is to render the contract abrogated and of no force and effect from the beginning. “If there is no contract, there can be no arbitration clause ‘of the contract.’” Borck v. Holewinski, 459 So. 2d 405 (Fla. 4th DCA 1984).

Florida appellate courts regularly scrutinize the methodology used by financial experts in their calculation of lost profits.  Parties are often incentivized to inflate their calculation of lost profits they seek.  Expert witnesses who specialize in damages calculations sometimes testify at trial using damages methodologies that misconstrue the requirements of Florida law.  For example, in State Dep/t of Transp. v. Manoli, 645 So.2d 1093 (Fla. 4th DCA 2008), Florida’s Fourth District Court of Appeal reversed a judgment for lost profits because the damages expert’s opinion “was … based on a misconception of the law and was therefore not admissible.”  In that case, the damages expert failed to deduct wages for the services the owner was performing for the business before reaching his lost profits calculation.  Because lost profits are established by proving income and expenses, the expert’s exclusion of valid expenses from his calculation had the effect of inflating his conclusion of lost profits.  Whether representing a plaintiff or defendant, it is obviously critical to carefully assess the method used to calculate lost profits.  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 law, and other legal disputes in federal and state courts and in arbitration.

Fundamentally, the concept of lost profits seems simple because it measures the contract price less the expenses involved in performance of the contract.  Florida courts sometimes rely on Black’s Law Dictionary, which defines profits in the following way: “In commerce, it means the advance in the price of good sold beyond the cost of purchase.  In distinction from the wages of labor, it is well understood to imply the net return to the capital of the stock employed, after deducting all the expenses, including not only the wages of those employed by the capitalist, but the wages of the capitalist himself for superintending the employment of his capital or stock.” Florida courts generally require that all costs and expenses needed to perform the contract should be deducted from the balance owing on the contract price.  Indian River Colony Club, Inc. v. Schopke Construction & Engineering, Inc., the appellate court stated in pertinent part: “In arriving at its deductible expenses and costs to determine lost profits, Schopke must deduct the actual supervisory salary paid or, if no salary is paid, the reasonable value of the supervisory services that would have been attributable to performing the contract.  Additionally, Schopke must also deduct any other operating expenses and costs, such as its home office expenses and overhead, which were not reimbursable.”

Florida courts have wrestled with whether fixed costs must be included in the business litigation damages methodology to determine lost profits.  In Boca Developers, Inc. v. Fine Decorators, Inc., 862 So.2d 803 (Fla. 4th DCA 2003), Florida’s Fourth District Court of Appeal held that fixed costs had to be allocated to the lost profits calculation because there was no evidence indicating that the fixed costs were not involved in performance of the contract.  The appellate court, however, explained that fixed costs are not always part of a valid lost profit calculation.  “This is not to say that a party seeking lost profits is precluded from proving that some endeavors are more profitable than others, because, for example they are less labor intensive.  Fine, however, did not have that type of proof.  In the absence of such, our case law requires that overhead be deducted.”  In Boca Developers, the appellate court explained that the trial judge erred by not ruling that overhead had to be deducted.  The appellate court reversed the trial court and explained that: “It appears from the record, however, that if the judge had correctly ruled that overhead had to be deducted, Fine would have been able to establish the amount of that overhead … Fine should be given the opportunity to do so.  We therefore reverse and remand for a new trial on all issues.”