Florida Business Litigation Lawyer Blog

Published on: May 15, 2024

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

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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Published on: May 8, 2024

FORT LAUDERDALE BUSINESS LITIGATION: EXTRAORDINARY OR SPECIALIZED TRAINING

By Mavrick Law Firm

Restrictive covenants like non-compete agreements and non-solicit agreements are valid if supported by one or more legitimate business interests. Fla. Stat. § 542.335. Those legitimate business interests often include the protection of trade secrets, valuable information that does not qualify as trade secret, existing customers, or future prospective customers. Id. However, legitimate business interests can also include extraordinary or specialized training. Id. This type of legitimate business interest is often pleaded by a former employer seeking to enforce its restrictive covenant against a former employee, but commonly rejected by the fact-finder. Below we identify the facts needed to successfully assert an extraordinary or specialized training legitimate business interest claim and provide some examples demonstrating why claims for extraordinary or specialized training frequently fail. 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.

All training does not qualify as extraordinary or specialized training. “To constitute a protectible interest,… the provi[sion] of training or education must be extraordinary.” Hapney v. Cent. Garage, Inc., 579 So. 2d 127 (Fla. 2d DCA 1991), reh’g denied and opinion modified, (Fla. 2d DCA May 15, 1991). Therefore, the training must go “beyond what is usual, regular, common, or customary in the industry in which the employee is employed. Id. Courts reason that extraordinary training allows employees to gain unique skills or an enhanced sophistication that makes it unfair for those employees to use the new skills to compete. Id.

It is difficult to precisely distinguish between training that does and does not qualify as a legitimate business interest because it is a fact-based inquiry that varies industry to industry. Id. Notwithstanding, the case law provides some guidance by demonstrating that routine training does not meet the extraordinary standard. In IDMWORKS, LLC v. Pophaly, 192 F. Supp. 3d 1335 (S.D. Fla. 2016), the court ruled the plaintiff’s training was not a legitimate business interest for three reasons. First, the training provided by the former employer to the former employee was typical of most industries because the plaintiff failed to produce evidence demonstrating the training went beyond industry norms. Id. (“The only testimony about training within the industry came from the Defendant, who testified that the training he received was not different from training he would expect to receive at other companies in the industry.”). Second, the former employer’s provision of a database containing training materials did not create a legitimate business interest because the evidence established that many other companies can access the same database for those same training materials. Id. Third, the evidence revealed that the training materials provided by the employer were optional. Id; see also Autonation, Inc. v. O’Brien, 347 F. Supp. 2d 1299 (S.D. Fla. 2004) (“O’Brien testified that he was not required to attend the various training seminars and only ‘popped in and out’ of the meetings. Accordingly, AutoNation has not demonstrated any specialized training exceeding what would be common or typical in the industry.”).

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Published on: May 4, 2024

MIAMI BUSINESS LITIGATION: COURT-APPOINTED RECEIVER ASSERTING CORPORATE CLAIMS

By Mavrick Law Firm

The United States Court of Appeals for the Eleventh Circuit, in Wiand v. ATC Brokers Ltd., 96 F.4th 1303 (11th Cir. 2024), recently issued an opinion regarding a receiver’s standing to assert fraudulent transfer claims and other torts on behalf of the entity it is overseeing. To understand this new appellate decision, it is necessary to know why a receiver may be appointed and the powers a receiver has. Receivership is usually created to protect the rights of creditors. Freeman v. Dean Witter Reynolds, Inc., 865 So. 2d 543 (Fla. Dist. Ct. App. 2003). A receiver has the rights and remedies possessed by the person or corporation in receivership and can bring claims that were previously owned by the person or corporation in receivership. However, a receiver is not a class representative for all creditors. A receiver cannot therefore pursue claims owned directly by the creditors. 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.

In the Wiand decision, the Eleventh Circuit distinguished between certain claims a receiver has standing to sue for on behalf of the company in receivership and other claims the receiver cannot sue for due to a lack of standing. Standing requires an individual have “a sufficient stake in an otherwise justiciable controversy” so that he or she can “obtain judicial resolution of that controversy.” Jamlynn Invs. Corp. v. San Marco Residences of Marco Condo. Ass’n, 544 So. 2d 1080 (Fla. 2d DCA 1989). A plaintiff must prove it suffered an injury that is concrete and particularized, the injury is fairly traceable to the defendant’s conduct, and it is likely the plaintiff’s injury will be redressed by a favorable decision. Fla. Wildlife Fed’n, Inc. v. S. Fla. Water Mgmt. Dist., 647 F. 3d 1296 (11th Cir. 2011). Receivers of a corporation have standing to bring fraudulent transfer claims against the company’s principals or transfer recipients to claw-back fraudulently transferred funds. Wiand v. Lee, 753 F.3d 1194 (11th Cir. 2014) (“A receiver of entities used to perpetrate a Ponzi scheme does not have standing to sue on behalf of the defrauded investors but does have standing to sue on behalf of the corporations that were injured by the Ponzi scheme operator.”). Receivers possess standing to sue because they effectively remove the company’s “evil zombies” thereby freeing the company from the zombies’ “evil spell.” Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995) (“The appointment of the receiver removed the wrongdoer from the scene. The corporations were no more Douglas’s evil zombies. Freed from his spell they became entitled to the return of the moneys…”).

By contrast, receivers generally lack standing to pursue other tort claims because the company’s torts are imputed to the receiver. See Perlman v. PNC Bank, N.A., 38 F.4th 899 (11th Cir. 2022) (affirming dismissal of aiding and abetting claims for lack of subject matter jurisdiction because the receiver lacked standing). This is because the receiver does not have the same cleansing effect as fraudulent transfer claims. Wiand v. ATC Brokers Ltd., 96 F.4th 1303 (11th Cir. 2024) (“[F]raudulent-transfer claims must be treated differently for standing purposes: fraudulent transfers are “cleansed through receivership” as a matter of course, but common-law torts by third parties are not.”). However, the receiver can overcome imputation of the company’s bad acts and gain standing to sue for other torts if the receiver proves the receivership entity was separate and distinct from the tort. ATC Brokers Ltd., 96 F.4th 1303. To do this, the company in receivership must have at least one honest board member or stockholder. Isaiah v. JP Morgan Chase Bank, 960 F.3d 1296 (“[U]nless the corporation in receivership has at least one honest member of the board of directors or an innocent stockholder, the fraud and intentional torts of the insiders cannot be separated from those of the corporation itself and the corporation cannot be said to be an entity separate and distinct from the individual tortfeasors.”). The honest actor is required because a company in receivership cannot suffer injury and is considered a sham if created to perpetrate a fraud. ATC Brokers Ltd, 96 F.4th 1303. The honest actor ensures the company in receivership had some legitimate purposes.

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Published on: May 1, 2024

FORT LAUDERDALE BUSINESS LITIGATION: TRADE SECRET DAMAGE OPTIONS

By Mavrick Law Firm

A trade secret plaintiff usually will consider potential damages to be recovered from the defendant, and how you will present evidence to a jury establishing those damages. This aspect of a trade secret lawsuit is not always straight-forward because a trade secret plaintiff is entitled to different damage categories depending on the facts and circumstances of the lawsuit. A trade secret plaintiff can obtain damages for actual use or disclosure of the trade secret, unjust enrichment damages, exemplary damages, or a royalty. See 18 U.S.C.A. § 1836; Fla. Stat. § 688.004. Non-monetary relief is also available like an injunction, but such relief is beyond the scope of this article. 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.

A trade secret plaintiff seeking actual loss damages should consider the diminished use value of the trade secret and how the diminished use saved operational costs. Trade secret plaintiffs usually argue they sold less widgets because the defendants stole the trade secret and used it to unlawfully compete. See Premier Lab Supply, Inc. v. Chemplex Indus., Inc., 94 So. 3d 640 (Fla. 4th DCA 2012) (confirming an appropriate definition of actual losses is “loss of profits, lost customers or lost market share to the owner of the trade secret caused by the misappropriation.”). The trade secret plaintiff is normally eager to present historical revenues demonstrating all the money he or she would have generated but for the defendant’s unlawful conduct. E.g., Fin. Info. Techs., LLC v. iControl Sys., USA, LLC, 21 F. 4th 1267 (11th Cir. 2021). However, pure revenue evidence is usually rejected or subject to intense scrutiny because it is does not account for variable costs the plaintiff saved by producing less widgets due to the newfound competition and resulting diminished demand. See Kutner Buick, Inc. v. Am. Motors Corp., 868 F.2d 614 (3d Cir. 1989) (“The effect on net income must be measured by revenue lost less costs avoided. This translates into lost revenue less the variable cost of producing this lost revenue.”). A trade secret plaintiff should be prepared to disclose a large portion of its operational revenues and expenses to demonstrate the value of his or her actual losses.

Unjust enrichment damages are determined from the perspective of the defendants. How much profit did the defendants generate by stealing the plaintiff’s trade secrets or what was the value of costs defendants avoided by using the plaintiff’s trade secrets? See KW Plastics v. U.S. Can Co., 131 F. Supp. 2d 1289 (M.D. Ala. 2001) (“unjust enrichment damages measure the benefits, profits, or advantages gained by the defendant in its use of a trade secret.”) (citing the Illinois Trade Secrets Act); Healthplan Services, Inc. v. Dixit, 2021 WL 4927434, at *6 (M.D. Fla. May 27, 2021), report and recommendation adopted, 2021 WL 4926752 (M.D. Fla. July 22, 2021) (calculating unjust enrichment damages by “determining the developmental costs the Dixit defendants avoided by using HealthPlan’s trade secrets”). Establishing these damages therefore requires evidence of the plaintiff to obtain documentation from the defendant’s establishing its revenues, expenses, and profits.

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Published on: April 27, 2024

MIAMI BUSINESS LITIGATION: JOINT AND SEVERAL LIABILITY FOR BUSINESS TORTS

By Mavrick Law Firm

Under an earlier version of Florida law concerning negligence claims, the doctrine of “joint and several liability” held that all tortfeasors were responsible for the total amount of the plaintiff’s injury regardless of the defendant’s individual fault giving rise to the accident. Gouty v. Schnepel, 795 So.2d 959 (Fla. 2001) (“All negligent defendants [are] held responsible for the total of the plaintiff’s damages regardless of the extent of each defendant’s fault in causing the accident” under the doctrine of joint and several liability.). This earlier version of the joint and several liability rule required codefendants to obtain contribution amongst themselves if any particular defendant wanted to decrease the amount he or she ultimately contribute to satisfy the judgment. Walt Disney World Co. v. Wood, 489 So. 2d 61 (Fla. 4th DCA 1986), approved, 515 So. 2d 198 (Fla. 1987) (“A codefendant must resort to contribution among joint tortfeasors under section 768.31, Florida Statutes, in order to obtain relief.”). This rule could be onerous for solvent judgment debtors when his or her codefendants were insolvent because the solvent judgment debtor had to satisfy the entire judgment amount. Id. (“If the codefendant is judgment proof, then under existing law the solvent defendant must pay it all.”). For example, in the case of Walt Disney World Co. v. Wood, 489 So.2d 61, the jury determined that defendant Walt Disney World was only 1 % at fault, Walt Disney World’s codefendant was 85% at fault, and the plaintiff was 14% at fault. However, the court entered judgment against defendant Walt Disney World for 86% of the total damages, and not merely 1% of the total damages. The Florida Legislature eventually changed the law of “joint and several liability” because it was obviously unjust. 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.

Florida’s Legislature partially remedied the problem by enacting a statute that replaced “joint and several liability” with “comparative fault” the law governing the State of Florida. Fla. Stat. § 768.81. The statute limits liability to the percentage of fault attributable to each defendant. Compulife Software, Inc. v. Rutstein, 2021 WL 3713173 (S.D. Fla. July 12, 2021) (“Florida is a comparative fault state, meaning that ‘[i]n a negligence action, the court shall enter judgment against each party liable on the basis of such party’s percentage of fault and not on the basis of the doctrine of joint and several liability’”). However, the comparative fault statute does not apply to intentional torts. Fla. Stat. § 768.81.

Most business torts are intentional. Therefore, Florida’s comparative fault statute will not prevent the imposition of joint and several liability. See Powerhouse, Inc. v. Walton, 557 So.2d 186 (Fla. 1st DCA 1990) (“Individual officers and agents of a corporation are personally liable for torts committed within the scope of their employment, and joint and several liability may apply to both the individual who perpetrated the tort and the company for whom he worked.”). The federal court case, Compulife Software, Inc. v. Rutstein, 2021 WL 3713173 (S.D. Fla. 7/12/2021), illustrates the potential for codefendants in a business dispute to be jointly and severally liable. There the evidence demonstrated all four defendants were involved in the misappropriation of the plaintiff’s trade secret. One defendant was involved in acquiring the plaintiff’s database through misrepresentation and deceit, two defendants were involved in acquiring the plaintiff’s database through scraping attacks, and a fourth defendant implemented the stolen trade secret to generate profit. The court determined that all four defendants were jointly and severally liable.

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Published on: April 24, 2024

FORT LAUDERDALE BUSINESS LITIGATION: GOODWILL AS BASIS FOR A NON-COMPETE AGREEMENT

By Mavrick Law Firm

A party seeking to enforce a restrictive covenant must plead and prove the existence of one or more legitimate business interests. Fla. Stat. § 542.335. The proponent typically claims to have a legitimate business interest in its trade secrets, valuable confidential information that otherwise does not qualify as a trade secret, substantial relationships with specific prospective or existing customers, or specialized training. Id. However, a lesser-known category of legitimate business interest called customer goodwill is also available. Id. The goodwill legitimate business interest usually has to be associated with an ongoing business, a trade name, a trademark, trade dress, a specific geographic location, or a specific marketing area. Id. However, this is not always the case. In this article, we explore the courts’ willingness to expanded the goodwill legitimate business interest to franchisor/franchisee relationships even though these relationships are not specifically defined as goodwill. 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 goodwill legitimate business interest can be used to protect a franchise from unlawful competition. The franchisor assets a claim against its franchisee for violating a non-compete provision and, in turn, the franchisee attempts to defend the claim by asserting the franchisor has no legitimate business interest in protecting the goodwill of a franchise. E.g., Pirtek USA, LLC v. Layer, 2005 WL 8159764 (M.D. Fla. Sept. 23, 2005) (acknowledging that “goodwill associated with a company’s franchise system is not specifically listed in the Florida statute’s non-exclusive list of legitimate business interests.”). However, the franchisee’s argument is usually rejected because courts liken franchise goodwill to trademark goodwill. Id. (While “goodwill associated with a company’s franchise system is not specifically listed in the Florida statute’s non-exclusive list of legitimate business interests, it is akin to (and somewhat overlapping with) trademark-related goodwill.”). The rationale for expanding goodwill to franchises is that the franchisor “developed a system for operating [the business]… thereby develop[ing] good will in its trademarks” and the franchisor “recognized the value of this good will when he purchased the [ ] franchise.” Quizno’s Corp. v. Kampendahl, 2002 WL 1012997 (N.D. Ill. May 20, 2002); see also Economou v. Physicians Weight Loss Ctrs. of Am., 756 F. Supp. 1024 (N.D. Ohio 1991) (“The franchisee has gained knowledge and experience from the franchisor, and to allow the franchisee to use this knowledge and experience to serve former or potential customers of the franchisor would work a hardship and prejudice to the latter.”). As a result, the franchisee should not be permitted to benefit from the franchise it is prohibited from competing against. Servicemaster Residential/Commercial Servs., L.P. v. Westchester Cleaning Servs., Inc., 2001 WL 396520 (S.D. N.Y. Apr. 19, 2001) (“There is a recognized danger that former franchisees will use the knowledge that they have gained from the franchisor to serve its former customers, and that continued operation under a different name may confuse customers and thereby damage the good will of the franchisor.”).

Courts look to several unenumerated factors to determine whether the franchisor has a protectable legitimate business interest in the franchise’s goodwill. One factor is the amount of time and money the franchisor invested in creating the franchise. See Winmark Corp. v. Brenoby Sports, Inc., 32 F. Supp. 3d 1206 (S.D. Fla. 2014). Another factor is the extent to which the franchisor developed operational methods and practices employed by the franchisees that are designed to attract clients. U.S. Lawns, Inc. v. Landscape Concepts of CT, LLC, 2016 WL 9526340 (M.D. Fla. Oct. 31, 2016). And a third factor is the degree to which the franchisor created tools and resources for its franchisees to access and utilize in the operation of the franchisee’s business. Id.

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Published on: April 20, 2024

MIAMI BUSINESS LITIGATION: LIABILITY TO BUSINESSES FOR ACTS OF AGENTS

By Mavrick Law Firm

Agents are empowered to bind their principals to certain actions taken by the agents. 2 Fla. Jur. 2d Agency & Employment § 54 (2015). Agency relationships can form by written consent, oral consent, or implication from the parties’ conduct. Osorio v. State Farm Bank, F.S.B. 746 F. 3d 1242 (11th Cir. 2014). Principals empower their agents by providing them actual authority, implied authority, or apparent authority. D&M Carriers, LLC, v. M/V Thor Spirit, 586 Fed. App’x 564 (S.D. Fla. 2014). Actual authority is provided when (1) the principal informs the agent that he or she has the power to act on the principal’s behalf within certain parameters and (2) the agent understands that he or she has the power to act on behalf of the principal within the limitations imposed. 2 Fla. Jur. 2d Agency & Employment § 25 (1977). Implied authority is provided when the principal provides the agent discretionary power to do what is reasonably necessary to accomplish the particular purpose delegated to the agent. See 2 Fla. Jur. 2d Agency & Employment § 62 (2015). Apparent authority is provided to an agent by the principal’s communications to third-parties. Taco Bell of California v. Zappone, 324 So. 2d 121 (Fla. 2d DCA 1975). The principal “allows or causes others to believe the agent possesses [apparent] authority” even if the principal does not directly inform the agent about his or her empowerment. Id. 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 principal agent relationship is consequential because it extends a principal’s liability to those actions undertaken by his or her agent assuming the agent acted within the scope of empowerment. Trevarthen v. Wilson, 219 So. 3d 69 (Fla. 4th DCA 2017) (“General principles of vicarious liability establish that a principal is responsible for the wrongful acts of its agent if the agent was either acting (1) within the scope of [its authority], or (2) during the course of [the agency] and to further a purpose or interest of the [principal].”). An agent’s actions can bind the principal to a contract and all terms within that contract. Fi-Evergreen Woods, LLC v. Estate of Robinson, 172 So. 3d 493, 497 (Fla. 5th DCA 2015) (holding that the defendant was obligated to comply with the contract’s arbitration provision because the defendant’s agent entered the contract on the defendant’s behalf.”). An agent can also make a principal liable to a plaintiff for the negligent acts of the agent. Town of Largo v. L & S Bait Co. of Fla., 256 So. 2d 412, 413 (Fla. 2d DCA 1972) (A principal “is liable for its negligence under the doctrine of respondeat superior when such negligence is committed by its agent… in the performance or non-performance of a duty….”). Whether the in tort or contract, the agent’s actions can have far reaching effect for the principal.

The liabilities an agent imputes to his or her principal are not necessarily enforceable against the agent. Consider the two scenarios described above. In the first scenario, the agent entered a contract on behalf of the principal obligating the principal to pay certain sums to a third-party. Although the principal is obligated to pay the contractual debt, the agent is not liable for that debt. Sussman v. First Fin. Title Co. of Fla., 793 So.2d 1066 (Fla. 4th DCA 2001) (“[A]n agent acting within the course and scope of its agency relationship with a disclosed principal is not liable for the debts or obligations of the principal arising from contracts which the agent may negotiate or execute on behalf of such disclosed principal.”). In the second scenario, the agent committed a negligent act against a third-party that imposed liability on the principal. The agent will remain liable for his or her own negligence in addition to the principal’s liability. See White-Wilson Med. Ctr. v. Dayta Consultants, Inc., 486 So. 2d 659 (Fla. 1st DCA 1986) (“Individual officers and agents of a corporation are personally liable where they have committed a tort even if such acts are performed within the scope of their employment or as corporate officers or agents.”).

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Published on: April 17, 2024

FORT LAUDERDALE BUSINESS LITIGATION: EMPLOYEES’ FIDUCIARY DUTIES TO CORPORATE EMPLOYER

By Mavrick Law Firm

A fiduciary relationship exists when an individual must act in the interests of another. Watkins v. NCNB Nat’l Bank of Fla., N.A., 622 So.2d 1063 (Fla. 3rd DCA 1993) (“To establish a fiduciary relationship, a party must allege some degree of dependency on one side and some degree of undertaking on the other side to advise, counsel, and protect the weaker party.”). The relationship can form expressly through contract or implicitly based on specific facts and circumstances surrounding the parties’ relationship. First Nat’l Bank & Trust Co. v. Pack, 789 So.2d 411 (Fla. 4th DCA 2001). Although some case-law suggests an employer/employee relationship does not result in the formation of a fiduciary relationship, many authorities stand for the opposite proposition. See Renpak, Inc. v. Oppenheimer, 104 So. 2d 642, 644 (Fla. 2d DCA 1958) (“A mere employee of a corporation generally does not occupy a position of trust and owe a fiduciary duty unless he also serves as its agent.”); infra. In this article, we explore two scenarios where a fiduciary duty is commonly imposed upon employees. 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.

Employees owe their employer a fiduciary duty of loyalty. Valiant Services Group, LLC v. Commercial Works, Inc., 2022 WL 738471, at *2 (M.D. Fla. Jan. 24, 2022) (“The duty of loyalty is part of a fiduciary duty, and a breach of a duty of loyalty gives rise to a breach of fiduciary duty claim.”). This duty requires the employee to refrain from engaging in disloyal acts of competition with the employer. OPS Int’l, Inc. v. Ekeanyanwu, 672 F. Supp. 3d 1228 (M.D. Fla. 2023) (An employee cannot “engage in disloyal acts in anticipation of his future competition.”). An employee cannot therefore use confidential information acquired during the course of employment to compete against the employer, solicit the employer’s customers, or solicit the employer’s employees. Id. Notwithstanding, employees may make preparations to complete and take with him or her a customer list developed by the employee without violating their duty of loyalty. Fish v. Adams, 401 So. 2d 843 (Fla. 5th DCA 1981) (The “planning of a competing business is not ipso facto a breach of an employee’s duty of loyalty.”); Id. (An “employee may take with him a customer list that he himself has developed.”).

Employees who are also company officers owe their employers additional fiduciary duties. Renpak, Inc., 104 So. 2d 642 (“[C]orporate officers or directors are not precluded, because of the fiduciary nature of their position, from entering into and engaging in another business enterprise similar to but separate from the corporation if they act in good faith and refrain from interference with the business of the corporation.”). The corporate officer owes a duty of loyalty to the company he or she works for as well as a duty of care. McCoy v. Durden, 155 So. 3d 399 (Fla. 1st DCA 2014) (“In short, Florida courts have recognized that corporate officers and directors owe both a duty of loyalty and a duty of care to the corporation that they serve.”). These duties require the officer to act in the best interests of the corporation. Taubenfeld v. Lasko, 324 So. 3d 529 (Fla. 4th DCA 2021). The company’s “shareholders take[ ] precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally.” Id.; see also Cohen v. Hattaway, 595 So. 2d 105 (Fla. 5th DCA 1992) (“Corporate directors and officers owe a fiduciary obligation to the corporation and its shareholders and must act in good faith and in the best interest of the corporation.”). Therefore, an employee who is also a company officer advance company interests even to the detriment of himself or herself.

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Published on: April 14, 2024

MIAMI BUSINESS LITIGATION: REMEDIES FOR TRADE SECRET MISAPPROPRIATION

By Mavrick Law Firm

The federal Defend Trade Secrets Act, at 18 U.S.C. sections 1829(3) and (5), broadly defines trade secret misappropriation to include cases of improper use, disclosure, or acquisition of a trade secret. Under the federal trade secret statute, at 18 U.S.C. section 1839(3)(B), states that trade secret information “derives [its] independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by improper means by, another person who can obtain economic value from [that information’s] disclosure or use[.]” The United States Court of Appeals for the Third Circuit, in Oakwood Laboratories LLC v. Thanoo, 999 F.3d 892 (3d Cir. 2021), explained that “[t]he trade secret’s economic value depreciates or is eliminated altogether upon its loss of secrecy when a competitor obtains and uses that information without the owner’s consent.” Similarly, in Storagecraft Tech. Corp v. Kirby, 744 F.3d 1183 (10th Cir. 2014), the federal appellate court discussed damage remedies in a trade secret misappropriation decision and stated in pertinent part: “When someone steals a trade secret an discloses it to a competitor he effectively assumes for himself an unrestricted license in the trade secret. And that bears its cost. After all, what value does a trade secret hold when it’s no longer a secret from the trade?” Federal and state appellate decisions frequently rely on the legal principles that exclusive use of a trade secret confers economic value and misappropriation of the trade secret will destroy the competitive advantage of the trade secret owner. In this regard, precedent from the United States Supreme Court, in Ruckelhaus v. Monsanto Co., 467 U.S. 986 ( 1984), explained that, “[t]he economic value of that property right lies in the competitive advantage over others that [the plaintiff] enjoys by virtue of its exclusive access to the data, and disclosure or use by others of the data would destroy that competitive edge.” 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 Defend Trade Secrets Act provides a variety of remedies, at 18 U.S.C. section 1836(b)(3)(B), including damages for actual loss, unjust enrichment caused by the misappropriation, or damages measured by the imposition of liability for a reasonably royalty for the misappropriator’s unauthorized disclosure or use of the trade secret. The Supreme Court’s Ruckelhaus precedent explained that, “[w]ith respect to a trade secret, the right to exclude others is central to the very definition of the property interest. Once the data that constitute a trade secret are disclosed to others, or others are allowed to use those data, the holder of the trade secret has lost his property interest in the data.”

The Defend Trade Secrets Act provides legal and equitable remedies beyond only the plaintiff trade secret owner’s “loss of exclusivity” in the trade secret. The federal statute and case law recognize that there can be other, if not fully realized, injuries. For example, the Oakwood Laboratories LLC decision stated in pertinent part: “Aurobindo’s rapid market entry into a sector of the pharmaceutical industry with few competitors may well deprive Oakwood of market share. Utilizing Oakwood’s trade secrets provides Aurobindo a jumpstart in an industry it would otherwise not have competitively joined for another decade. Aurobindo will avoid substantial research and development costs that Oakwood has already invested in its own product development. Those are competitive harms recognized in” the federal statute. Because the federal statute followed many years after the state-law enacted Uniform Trade Secrets Act (which has been adopted my most states in the U.S.) federal courts often find persuasive state law on the issue of damages. For example, in Rohm & Haas Co. v. Adco Chem. Co., 689 F.2d 424 (3d Cir. 1982), the federal appellate court explained that: “New Jersey law states that a company misappropriating a trade secret may lose the benefits of future independent experiments because of the difficulty of determining how much of the improvement is attributable to those independent efforts and how much to the information gained by the wrongdoing…In trying to segregate honest efforts and ill-acquired knowledge, [e]very doubt must be resolved against the parties to a fraudulent act.” Similarly, the United States Court of Appeals for the Fifth Circuit in Bohnsack. v. Varco, L.P., 668 F.3d 262 (5th Cir. 2012), interpreted state trade secret law and explained that: “Damages in misappropriation cases can take several forms: the value that a reasonably prudent investor would have paid for the trade secret; the development costs the defendant avoided incurring through the misappropriation; and a reasonable royalty. This variety of approaches demonstrates the ‘flexible’ approach used to calculate damages for claims of misappropriation of trade secrets.”

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