Florida Business Litigation Lawyer Blog

Published on: September 7, 2023

FORT LAUDERDALE BUSINESS LITIGATION: COMPELLING AND RESISTING ARBITRATION

This article discusses the circumstances obligating parties in business litigation to arbitrate and when they can avoid arbitration. “Arbitration is a preferred method of dispute resolution.” Obolensky v. Chatsworth as Wellington Green, 240 So. 3d 6 (quoting BallenIsles Country Club, Inc. v. Dexter Realty, 24 So. 3d 649, 652 (Fla. 4th DCA 2009)). Precedent from the Supreme Court of Florida, in Jackson v. Shakespeare Found., Inc., 108 So. 3d 587 (Fla. 2013), explained that “[c]ourts generally favor [arbitration] provisions, and [ ] try to resolve ambiguity… in favor of arbitration.” But this favorability does not always force unwilling participants to arbitrate. Courts can, and do, refuse to mandate arbitration despite the existence of an contractual provision seemingly requiring arbitration. For example, Florida’s Third District Court of Appeal, in Apartment Inv. & Mgmt. Co. v. Flamingo/S. Beach 1 Condo. Ass’n, Inc., 84 So. 3d 1090 (Fla. 3d DCA 2012), upheld the trial court’s denial of a motion to compel arbitration because the parties had amended their contract to exclude certain legal issues from arbitration. 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.

Florida courts must consider three elements when faced with a motion to compel arbitration: “(1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived.” Seifert v. U.S. Home Corp., 750 So. 2d 633 (Fla. 1999). The first two steps rest on contract interpretation, thereby requiring courts to construe the contracting parties’ intent.

The first factor requires a careful framing of the issue for consideration because it will dictate the presiding tribunal. Challenges to contract validity are resolved by arbitrators, while challenges to contract formation or the existence of a contract are resolved by courts. HHH Motors, LLP v. Holt, 152 So. 3d 745, 747 (Fla. 1st DCA 2014) (citing Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287 (2010)). Sometimes, it is easy to determine when a party challenges validity rather than contract formation. See, e.g., Airbnb, Inc. v. Doe, 336 So. 3d 698 (Fla. 2022) (explaining that “because Airbnb’s Terms of Service incorporate by reference the AAA Rules that expressly delegate arbitrability determinations to an arbitrator, the agreement clearly and unmistakably evidences the parties’ intent to empower an arbitrator, rather than a court, to resolve questions of arbitrability.”). Other times it is less obvious. See, e.g., Duval Motors Co. v. Rogers, 73 So. 3d 261 (Fla. 1st DCA 2011) (the court considered the issue of arbitrability because it had to determine whether a contract containing an arbitration provision was superseded by another contract entered contemporaneously that contained a merger clause negating all prior writings).

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Published on: September 2, 2023

MIAMI BUSINESS LITIGATION: FLORIDA AND FEDERAL CLAIMS FOR UNAUTHORIZED ACCESS TO COMPUTERS

By Mavrick Law Firm

Federal law and Florida law provide private causes of action for unauthorized access to computers. The federal law is called the Computer Fraud and Abuse Act (CFAA), and imposes civil liability on those who “intentionally access[ ] a computer without authorization or exceed[ ] authorized access.” 18 U.S.C. § 1030(a)(2). Florida’s statute is the Computer Abuse and Data Recovery Act (CADRA), and imposes liability on persons who knowingly obtain “information from a protected computer without authorization.” Fla. Stat. § 668.803. Peter Mavrick 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.

At first blush, the wording in both statutes appears self-explanatory. When someone accesses a computer without authorization, he or she is liable for damages. But this begs the question – what is authorization? Does an individual violate CFAA or CADRA by accessing part of another’s computer system he or she was never authorized to access? Or does that individual violate CFAA or CADRA by accessing information he or she was authorized to access but for purposes exceeding the authorization? In business litigation over the statutes, courts struggled to answer these questions and this led to divergent legal interpretations by various courts. See United States v. Valle, 807 F.3d 508 (2d Cir. 2015) (recognizing the circuit split and noting that this sharp division means that the statute is readily susceptible to different interpretations). In 2021, the United States Supreme Court addressed CFAA in Van Buren v. United States, 141 S. Ct. 1648 (2021), to settle how CFAA should be interpreted. In Van Buren, a law enforcement officer was charged with criminally violating CFAA because he used a patrol car computer to access license plate information for a friend. Id. The law enforcement officer was convicted because he “exceed[ed] his authorized access.” An appeal ensued, and the case was ultimately decided by the United States Supreme Court. The court initially noted both parties agreed the law enforcement officer was given the right to acquire license-plate information from the law enforcement computer database. Therefore, the question was whether the law enforcement office was “entitled so to obtain” the license-plate information, as required by CFAA. The Supreme Court held that “the phrase ‘is not entitled so to obtain’ is best read to refer to information that a person is not entitled to obtain by using a computer that he is authorized to access.” For example, if a person has access to information stored in a computer—e.g., in ‘Folder Y,’ from which the person could permissibly pull information—then he does not violate the CFAA by obtaining such information, regardless of whether he pulled the information for a prohibited purpose. But if the information is instead located in prohibited ‘Folder X,’ to which the person lacks access, he violates the CFAA by obtaining such information. See also Armor Corr. Health Services, Inc. v. Teal, 2021 WL 5834245 (S.D. Fla. Dec. 8, 2021) (the former employee did not lack authorization to downloaded documents from his employer’s server for the improper purpose competing against the employer because the employee was authorized to access those files).

Courts construing the “authorization” wording in CADRA seem to apply a similar analysis. See Grow Fin. Fed. Credit Union v. GTE Fed. Credit Union, 2017 WL 3492707 (M.D. Fla. Aug. 15, 2017) (finding “that no such liability could exist because ‘exceeds authorized access’ simply means that, while an employee’s initial access was permitted, the employee accessed information for which the employer had not provided permission”); see also Maintenx Mgmt., Inc. v. Lenkowski, 2015 WL 310543 (M.D. Fla. Jan. 26, 2015) (“To the extent Maintenx attempts to derive support for its allegation by maintaining that Lenkowski’s use of the data was improper, ‘exceeds authorized access’ should not be confused with exceeds authorized use”). However, it is difficult to determine whether the application of CADRA will continue running parallel to CFAA because (1) the two statutes define “without authorization” differently and (2) CADRA has not been sufficiently tested in the court system. Contrast 18 U.S.C.A. § 1030 (defining “exceeds authorized access” under CFAA) with Fla. Stat. § 668.802 (defining “without authorization).

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Published on: August 31, 2023

FORT LAUDERDALE BUSINESS LITIGATION: SUCCESSFUL DEFENSE AGAINST A TRADE SECRETS CLAIM AND RECOVERY OF LEGAL FEES

By Mavrick Law Firm

The Defend Trade Secrets Act (commonly called “DTSA”) is a federal law that prohibits trade secret misappropriation. DTSA states, at 18 U.S.C. section 1836(a), that “[a]n owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” DTSA allows a party to recover “reasonable attorney’s fees the prevailing party” if a claim of misappropriation is “made in bad faith.” DTSA, however, does not define the term “bad faith.” A body of federal case law has evolved to determine what will trigger a determination of “bad faith” for recovery of attorney’s fees to the prevailing party. One of the predominant tests is the so-called “Stilwell test,” based on the decision from the United States District Court for the Central District of California in Stilwell Dev., Inc. v. Chen, 1989 WL 418783 (C.D. Cal. Apr. 25, 1989). 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.

The Stilwell test is a two-pronged analysis that has been frequently adopted to evaluate claims of bad faith in the context of trade secret misappropriation. Under Stilwell, “[t]he party seeking an award of attorney’s fees must show (2) the objective speciousness of [an] opposing party’s claim, and (2) the subjective bad faith of the opposing party in bringing or maintaining the action for an improper purpose.” In Kipu Sys. LLC v. Zencharts LLC, 2021 WL 1891710 (S.D. Fla. Apr. 6, 2021), the United States District Court for the Southern District of Florida essentially used the Stilwell test. Kipu explained that “objective speciousness” means “generally shown with a demonstration that there was no misappropriation or threatened misappropriation or that the opposing party could not have suffered any economic harm…’Objective speciousness exists where there is a complete lack of evidence supporting Plaintiff’s claims.’” The second prong, requiring subjective bad faith, is satisfied when it may be inferred from the evidence that a party “intended to cause unnecessary delay, filed the action to harass [the opposing party], or harbored an improper motive.” Relying on California appellate court precedent, Kipu explained that “[s]ubjective bad faith means the action was commenced or continued for an improper purpose, such as harassment, delay, or to thwart competition…That question ‘involves a factual inquiry into the plaintiff’s subjective state of mind: Did he or she believe the action was valid? What was his or her intent or purpose in pursuing it?’” Kipu relied, in part, on case law from the United States Court of Appeals for the Sixth Circuit, in Degussa Admixtures, Inc. v. Burnett, 27 F.App’x 530 (6^th Cir. 2008), concerning an award of attorneys’ fees in a trade secret case governed by Michigan law. Degussa awarded attorneys’ fees under Michigan law when the evidence showed, not that the plaintiff had an objectively supportable and good-faith claim that the defendant was using trade secrets to gain new customers, but that the plaintiff’s “own product-quality, employee-retention and marketing shortcomings led it to file this action in an attempt to slow the bleeding from those self-inflicted wounds—to avoid losing additional market share and salespeople to [the competitor] and to convert [the defendant’s] confidentiality agreement into a noncompete agreement.” The Degussa decision summarized its holding that, “[f]iling a trade-secret action to restrain legitimate competition and job mobility, needless to say, is not proper.”

Federal courts do not generally look at the failure to properly state a claim, by itself, as enough to warrant an inference of bad faith for an award of attorney’s fees. The United States Court of Appeals for the Eleventh Circuit, in Mar. Mgmt., Inc. v. United States, 242 F.3d 1326 (11th Cir. 2001), explained that “[i]n determining the propriety of a bad faith award, ‘the inquiry will focus primarily on the conduct and motive of a party, rather on the validity of the case.'”

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Published on: August 26, 2023

MIAMI BUSINESS LITIGATION: CONTRACTUAL DISCLAIMERS OF FRAUDULENT INDUCEMENT

By Mavrick Law Firm

Sellers and buyers have competing interests when negotiating a contract. One term sellers and buyers should consider when negotiating their purchase agreement is the fraudulent inducement disclaimer provision. These provisions can help sellers avoid or defeat lawsuits if the buyer develops “buyer’s remorse” after entering the agreement because the buyer cannot claim the seller’s representations tricked him or her into entering the purchase agreement. However, fraudulent inducement disclaimer provisions may harm buyers by preventing them from asserting an otherwise legitimate fraudulent inducement claim against the seller. Peter Mavrick 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 general rule of contracts prohibits parties from disclaiming fraudulent inducement because contracting parties are entitled to rely on each other’s representations before entering a contract. The Supreme Court of Florida explained in Oceanic Villas Inc. v. Godson, 4 So. 2d 689 (Fla. 1941), that “[i]t is well settled that a party can not [sic] contract against liability for his own fraud.” Florida’s appellate courts have generally reiterated this legal principle concerning exculpatory clauses concerning fraud. Mankap Enters., Inc. v. Wells Fargo Alarm Servs., a Div. of Baker Protective Servs., Inc., 427 So. 2d 332 (Fla. 3d DCA 1983) (“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.”); Zuckerman-Vernon Corp. v. Rosen, 361 So. 2d 804 (Fla. 4th DCA 1978) (“A party cannot contract against liability for his own fraud in order to exempt him from liability for an intentional tort.”); see also HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So. 2d 1238 (Fla. 1996) (“The interest protected by fraud is a plaintiff’s right to justifiably rely on the truth of a defendant’s factual representation.”) However, disclaimer is permitted in limited circumstances when contracting parties “expressly state that [the contract] is incontestable on the ground of fraud.” Global Quest, LLC v. Horizon Yachts, Inc., 849 F. 3d 1022 (11th Cir. 2017) (summarizing the holding in Oceanic Villas). The enforceability of a fraudulent inducement disclaimer depends on the provision’s specificity because it is so draconian. Bank of Am., N.A. v. GREC Homes IX, LLC, 2014 WL 351962, at *6 (S.D. Fla. Jan. 23, 2014) (“‘A party cannot contract against liability for his own fraud[,]’ absent specific contractual language to the contrary.”).

Courts allow disclaimers of fraudulent inducement for several reasons. Courts presume contracting parties read the contract before agreeing to its terms. In Billington v. Ginn-La Pine Island, Ltd., 192 So.3d 77 (Fla. 5th DCA 2016), Florida Fifth District Court of Appeal explained that the “law necessarily presumes that parties to a contract have read and understood [the contract’s] contents.” The Billington appellate decision added that prohibiting fraudulent inducement disclaimers would prevent parties from protecting “themselves against those who would fabricate claims of fraud to avoid the consequences of a contractual obligation.” The appellate court also referenced that the sanctity of a contract and predictability of an outcome, together, take precedence over claim waiver when the parties clearly manifest their intent to avoid fraudulent inducement claims

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Published on: August 24, 2023

FORT LAUDERDALE BUSINESS LITIGATION: EQUITABLE TOLLING OF STATUTE OF LIMITATIONS FOR NON-COMPETE AGREEMENTS

By Mavrick Law Firm

The expiration of a non-compete period does not necessarily mean the covenant is unenforceable. A former employer may be able to enforce a non-compete against a former employee if the non-compete period expired and the non-compete period was tolled by the former employee’s violation of his restrictive covenant. Restrictive covenants, like non-compete agreements and non-solicitation agreements, must be reasonable in time as a general matter. Non-compete statutes often contain durational periods a restrictive covenant is considered reasonable and unreadable. The enforceable durations are usually based on the relationship between the obligor and obligee. In Florida, courts presume a restraint that is six months or less reasonable if the obligor is an employee and the obligee is an employer. Fla. Stat. § 542.335. The same statute dictates that a restrictive covenant between an employee and employer is presumptively unreasonable after two years. The presumptive enforceable duration increases if the obligor sold his business to the obligee. In that case, a court presumes a restrictive to be reasonable if is three years or less and unreasonable it if is more than seven years. Therefore, restrictive covenants usually contain a provision expressly stating their enforceable duration to ensure compliance with the reasonableness standard and statutory corresponding presumptions. 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.

But what happens when a former employer discovers his or her former employee breached the restrictive covenant (during the restrictive period) after the covenant lapses? Can the covenant still be enforced? The answer is – probably if your state applies the equitable tolling doctrine to restrictive covenants. This doctrine allows the obligor to enforce a restrictive covenant against the obligee after the restrictive period lapses if the obligee breached the covenant during the restrictive period. For example, precedent from Florida’s Fourth District Court of Appeal in Orkin Exterminating Co., Inc. v. Bailey, 550 So. 2d 563 (Fla. 4th DCA 1989), held that “Appellant is entitled to the full duration of the two-year restriction.” The rationale supporting equitable tolling is fairness. In this vein, Florida’s Fourth District Court of Appeal, in Anakarli Boutique, Inc. v. Ortiz, 152 So. 3d 107, 109 (Fla. 4th DCA 2014, explained that “[i]t would be stunningly unfair if the law held that a valid non-compete clause could be nullified because the non-compete period was devoured by the time it took to appeal an erroneous ruling on the interpretation of the clause.” The obligor is entitled to the benefit of what he or she bargained for under the contract, i.e., a prohibition against certain competitive conduct for a limited duration. Capelouto v. Orkin Exterminating Co. of Fla., Inc., 183 So. 2d 532, 534 (Fla. 1966) (“Inasmuch as the appellant had been in competition with the appellee continuously since his resignation, the chancellor must have determined that this was the only way to give the appellee its two competition-free years.”).

All states do not permit equitable tolling because courts are generally prohibited from rewriting private contracts. See Coffee Sys. of Atlanta v. Fox, 227 Ga. 602, 602, 182 S.E.2d 109 (1971) (“The litigation did not toll the one year period so as to provide additional time for enjoining the employe [sic] [because s]uch an extension would in effect rewrite the one year feature of the agreement. Courts do not make contracts for the parties.”). In these states, it is important to include a tolling provision inside the contract. Including this provision could allow a former employer to toll a restrictive covenant post violation even if the state’s common law does not allow for equitable tolling because the parties expressly bargained for tolling. See Gaylord Broad. Co. v. Cosmos Broad. Corp., 746 F.2d 251 (5th Cir. 1984) (“The parties may contractually provide for the tolling of the noncompetition period, if an employee breaches a covenant not to compete and the resulting civil proceedings to enforce the covenant consume more time than the period of the covenant itself.”).

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Published on: August 17, 2023

FORT LAUDERDALE BUSINESS LITIGATION: FLORIDA TRADE SECRETS CLAIMS PREEMPTION

By Mavrick Law Firm

Florida employers who have non-compete agreements may enforce the restrictive covenants based on the legitimate business interest of trade secrets under Florida Statutes Section 542.335(1)(b)(1). Employers may also sue for misappropriation of trade secrets. However, employers sometimes sue former employees for common law claims that are related to misappropriation of company trade secrets. Such common law claims have sometimes faced roadblocks because many state law trade secret statutes preempt or displace all other non-contract claims arising from the trade secret misappropriation. Florida’s trade secret statute, like many others, preempts all potential claims arising from the unauthorized use of a trade secret unless the claim sounds in contract. Fla. Stat. § 688.008 (The Uniform Trade Secrets Act “displace[s] conflicting tort, restitutory, and other law of this state providing civil remedies for misappropriation of a trade secret [except]… contractual remedies”). 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.

Florida’s Third District Court of Appeal in Digiport, Inc. v. Foram Dev. BFC, LLC, 314 So. 3d 550 (Fla. 3d DCA 2020), provided an analysis of Florida law trade secret preemption. Digiport explained that Florida courts look to the facts alleged in the complaint to determine whether “there are material distinctions between the allegations comprising the additional torts and the allegations supporting the [trade secret claim].” The appellate court determined the plaintiff’s claims were preempted because they were premised on the same allegations and elements as its trade secret claims, stating “[b]oth the trade secret misappropriation claim and the misappropriation of a business idea count are premised upon allegations that [the plaintiff] invested substantial time in creating a novel business idea, the idea was disclosed to [the defendant] in confidence, reasonable measures to protect the secrecy were undertaken, and [the defendant] misappropriated the idea by disclosing its plans to other companies for its own benefit.” Conversely, courts allow claims affiliated with trade secrets to proceed if trade secret misappropriation does not alone comprise the underlying wrong. For example, in Mortgage Now, Inc. v. Stone, 2009 WL 4262877 (N.D. Fla. Nov. 24, 2009), the United States District Court for the Northern District of Florida allowed a claim of civil conspiracy to proceed because the defendant’s acts were unrelated to the misappropriation of trade secrets.

Preemption is a powerful tool that may apply to claims involving the use of information that does not qualify as a trade secret. K3 Enterprises, Inc. Saspwski, 2021 WL 8363506 *9 (S.D. Fla. Nov. 19, 2021), explained that, “[a]ccording to the majority view, non-FUTSA, non-contractual civil misappropriation claims do constitute conflicting law under Florida Statute § 688.008(1) and are preempted at the motion to dismiss stage.”) (internal quotations omitted). Similarly, another federal district court in American Registry, LLC v. Hanaw, 2014 WL 12606501, *6 (M.D. Fla. July 16, 2014), stated in pertinent part that, “[t]he Court finds that the FUTSA preempts all non-contract claims based on the misappropriation of confidential and/or commercially valuable information even if the information does not constitute a trade secret under the FUTSA.”

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Published on: August 13, 2023

MIAMI BUSINESS LITIGATION: CORPORATE LAW FIDUCIARY DUTIES OF CARE AND LOYALTY

By Mavrick Law Firm

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. Florida courts often look to Delaware courts due to the well developed body of Delaware corporate law. Corporate law recognizes two fundamental fiduciary duties by directors and officers: the duty of care and the duty of loyalty. The Delaware Court of Chancery in In re Walt Disney Co. Derivative Litig., 907 A.2d 793 (Del. Ch. 2005), explained that the duty of care is the requirement to “use that amount of care which ordinarily careful and prudent men would use in similar circumstances, and consider all material information reasonably available in making business decisions,” with alleged breaches giving rise to liability only if the actions are grossly negligent. In Zirn v. VLI Corp., 681 A.2d 1050 (Del. 1996), the Supreme Court of Delaware explained that “[a] good faith erroneous judgment…implicates the duty of care rather than the duty of loyalty.” By contrast, the duty of loyalty “mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders directly.” Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (De. 1993). Peter Mavrick 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.

Claims for breach of either the corporate duties of care or loyalty are asserted as claims for breach of fiduciary duty. The Supreme Court of Florida, in Gracey v. Eaker, 837 So.2d 348 (Fla. 2002), explained that “[t]he elements of a claim for breach of fiduciary duty are: the existence of a fiduciary duty, and the breach of that duty such that it is a proximate cause of the plaintiff’s damages.” The Florida Supreme Court further explained, in Flight Equip & Eng’g Corp. v. Shelton, 103 So.2d 615 (Fla. 1958), that “[o]fficers and directors of a corporation are liable for damages to the corporation which result from a breach of their trust, a violation of their authority or neglect of duty.” This liability arises from the common law rule that “every agent is responsible to his principal for such acts which result in damage to the principal.”

In Cohen v. Hattaway, 595 So.2d 105 (Fla. 5th DCA 1992), Florida’s Fifth District Court of Appeal stated that “[c]orporate directors and officers owe a fiduciary obligation to the corporation and its shareholders and must act in good faith and in the best interests of the corporation.” In practice, this means that fiduciary obligors may not “either directly or indirectly, in their dealings on behalf of the fiduciary beneficiary [i.e., the corporation] …, make any profit or acquire any other personal benefit or advantage, not also enjoyed by the fiduciary beneficiary, and if they do, they may be compelled to account to the beneficiary in an appropriate action.” The Hattaway decision added that “‘[i]f a fiduciary obligor acquires ‘in opposition to the corporation, property in which the corporation has an interest or tangible expectancy or which is essential to its existence[,]’ he violates the doctrine of corporate opportunity.” Fundamentally, corporate officers and directors stand in a position of trust, requiring them to subordinate their personal interests in favor of the corporation. Their positions require they act with care in their business decisions and loyalty to the best interests of the corporation.

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Published on: August 10, 2023

FORT LAUDERDALE BUSINESS LITIGATION: TRADE SECRET COMPILATIONS AND CUSTOMER LISTS

By Mavrick Law Firm

The first rule of the law of trade secrets is that they must be secret. Obviously, the word “secret” is contained within the term “trade secret.” And the definition of trade secret dictates that it must be information that “derives independent economic value… from not being generally known to… other persons.” Fla. Stat. 688.002(4)(a); see also 18 U.S.C.A. § 1839 (same). The holder of the trade secret must take reasonable measures to protect the secrecy of his information. Id. at (4)(b). But is one-hundred percent secrecy always required? Can some or all portions of a trade secret be public and still derive trade secret status? The answers to both questions are examined below. 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.

Florida’s Third District Court of Appeal, in Digiport, Inc. v. Foram Development BFC, LLC, 314 So. 3d 550 (Fla. 3d DCA 2020), explained that a unique compilation of public information can qualify as a trade secret so long as the compilation adds value. The unique compilation warrants trade secret protections because it provides a competitive advantage in the marketplace (and corresponding value). The Digiport decision stated in pertinent part that, “‘A trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process, design and operation of which in unique combination, affords a competitive advantage and is a protectable secret.’” (citing In re TXCO Res., Inc., 475 B.R. 781 (Bankr. W.D. Tex. 2012) (quoting Metallurgical Indus. Inc. v. Fourtek, Inc., 790 F.2d 1195 (5th Cir. 1986)). Therefore, amalgamated information can qualify as a trade secret even if its individual parts do not qualify as trade secrets. Similarly, the United States Court of Appeals for the Eleventh Circuit, in Compulife Software Inc. v. Newman, 959 F.3d 1288 (11th Cir. 2020), discussed trade secrets based on compilations, and explained that, “[e]ven if [insurance] quotes aren’t trade secrets, taking enough of them must amount to misappropriation of the underlying secret at some point. Otherwise, there would be no substance to trade-secret protections for ‘compilations,’ which the law clearly provides”).

Establishing a trade secret customer list usually presents a question of fact as to whether the list is a unique compilation justifying trade secret protections. Poet Theatricals Marine, LLC v. Celebrity Cruises, Inc., 307 So. 3d 927, 929 (Fla. 3d DCA 2020), stated that “[w]hether a particular type of information constitutes a trade secret is a question of fact.” “Under Florida law, customer lists are generally considered trade secrets [if] (1) the list was acquired or compiled through the industry of the owner of the list and is not just a compilation of information commonly available to the public; and (2) the owner shows that it has taken reasonable efforts to maintain the secrecy of the information.” Digital Assurance Certification, LLC v. Pendolino, 2017 WL 320830 (M.D. Fla. Jan. 23, 2017). The trade secret proponent must demonstrate it spent significant time, effort, and expense compiling the list. In Sentry Data Sys., Inc. v. CVS Health, 361 F. Supp. 3d 1279, 1294 (S.D. Fla. 2018), the United States District Court for the Southern District of Florida allowed the plaintiff’s trade secret claim to proceed because the plaintiff alleged it took considerable effort, knowledge, time, and expense to identify clients interested in participating in the program along with understanding the clients’ capabilities and needs. For example, in Bridge Fin., Inc. v. J. Fischer & Associates, Inc., 310 So. 3d 45 (Fla. 4th DCA 2020), the appellate court determined a client list was a trade secret even though the trade secret proponent purchased its list from another company. The appellate court concluded that the trade secret proponent “spent a significant amount of time, effort, and money developing the client list, which was kept on [the proponent]’s password protected server.” Therefore, the possessor of a client list must be prepared to demonstrate the substantial efforts taken to create that list if he wants to protect it as a trade secret.

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Published on: August 6, 2023

MIAMI BUSINESS LITIGATION: WHERE VIOLATIONS OF NON-COMPETE AGREEMENTS CAUSE DEMISE OF A BUSINESS

By Mavrick Law Firm

A former employee cannot avoid non-compete obligations by causing the demise of the business to whom he or she owes the obligation. Florida law requires the business that intends to enforce the restrictive covenant to establish a legitimate business interest justifying the restriction. Florida Statutes Section 542.335(c) states in pertinent part that, “[a] person seeking enforcement of a restrictive covenant…shall plead and prove that the contractually specified restraint is reasonably necessary to protect the legitimate business interest or interests justifying the restriction.” Peter Mavrick 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.

These “legitimate interests” include trade secrets; valuable confidential business or professional information that otherwise does not qualify as trade secrets; substantial relationships with specific prospective or existing customers; extraordinary or specialized training; and customer goodwill associated with an ongoing business, trade name, trademark, service mark, “trade dress,” a specific geographic location, or a specific marketing area. Once a former employer satisfies his burden of establishing that the covenant is supported by the existence of one or more legitimate business interests, the party refusing to comply has the burden of demonstrating the restraint is “overbroad, overlong, or otherwise not reasonably necessary to protect the established legitimate business interest or interests.”

Some former employees caught red-handed violating their non-compete agreements have tried to justify their actions by contending the court should not enforce a non-compete when the former employer’s business is no longer operational. See USI Ins. Services of Florida Inc. v. Pettineo, 987 So. 2d 763, 766 (Fla. 4th DCA 2008) (“Section 542.335, however, allows an enforcing party to establish prima facie the enforceability of the agreement itself, after which the party opposing enforcement can raise “as a defense the fact that the person seeking enforcement no longer continues in business in the area or line of business that is the subject of the action to enforce the restrictive covenant”). This argument can be effective when the business ended for reasons having nothing to do with the violations of the non-compete covenant. For example, the United States District Court for the Southern District of Florida, in Chen v. Cayman Arts, Inc., 2011 WL 3903158 (S.D. Fla. Sept. 6, 2011), refused to enforce a restrictive covenant because the plaintiff employer “has not suggested any reason that its purported trade secrets remain a legitimate business interest following [the plaintiff’s] dissolution.”). Similarly, in Wolf v. James G. Barrie, P.A., 858 So. 2d 1083 (Fla. 2d DCA 2003), Florida’s Second District Court of Appeal stated explained that enforcement of a restrictive covenant “requires that the employer must be engaged in the business that the covenant seeks to protect.”

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Published on: August 3, 2023

FORT LAUDERDALE BUSINESS LITIGATION: COMPANY TRADE SECRETS ACCESSED VIA EMPLOYEES’ SMARTPHONES

By Mavrick Law Firm

Employers beware: it is possible to invalidate trade secret protections if employees access your trade secrets using personal smartphones and other similar devices. The erosion of trade secret protections can occur even if the employer undertakes other, reasonable measures to protect those very same trade secrets. Most, if not all, trade secret statutes require the trade secret proponent to take reasonable measures to protect its trade secrets. See, e.g., 18 U.S.C.A. § 1839 (defining trade secret as information “the owner thereof has taken reasonable measures to keep such information secret”); Fla. Stat. § 688.002 (2) (requiring that a trade secret be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy”); Cal. Civ. Code § 3426.1 (mandating that trade secrets be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”). Employers commonly protect trade secrets by limiting access to essential employees and storing the secrets in password protected computer systems. See, e.g., Yellowfin Yachts, Inc. v. Barker Boatworks, LLC, 898 F.3d 1279 (11th Cir. 2018). These safeguards are usually sufficient to protect the information’s secrecy and preserve the trade secret. See Bridge Fin., Inc. v. J. Fischer & Associates, Inc., 310 So. 3d 45, 49 (Fla. 4th DCA 2020) (storing trade secrets on password protected server constituted reasonable protections); but see Physiotherapy Associates, Inc. v. ATI Holdings, LLC, 592 F. Supp. 3d 1032, 1042 (N.D. Ala. 2022) (holding that the utilization of password protections alone does not sufficiently protect trade secrets).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.

However, employers can nullify trade secret protections by allowing employees to access trade secrets on their personal smartphones. For example, in Yellowfin Yachts, Inc. v. Barker Boatworks, LLC, 898 F.3d 1279 (11th Cir. 2018), the former employer took normal precautionary measures to protect the secrecy of its trade secrets. The former employer limited employee access to trade secrets and maintained the trade secrets on a password-protected computer system. However, the federal appellate court refused to find the existence of a trade secret because the employer “encouraged [the former employee] to store the information on a personal laptop and phone.” As a result, the court determined that the former employer “compromised the efficacy of these [security] measures by encouraging [the former employee] to keep the Customer Information on his cellphone and personal laptop.”

It is important to point out that employees do not automatically destroy trade secret protections by accessing information using personal devices. As a general matter, trade secrets protections are vitiated when the employer approves or knowingly permits the employee to access the trade secret using a personal device. Therefore, unauthorized access or access unbeknownst to the employer may not terminate trade secret protections concerning the information. For example, the United States District Court for the Northern District of California, in WeRide Corp. v. Kun Huang, 379 F.Supp.3d 834, 848 (N.D. Cal. 2019), determined the employer was likely to succeed on the merits under the federal Defend Trade Secrets Act where the employee copied company files to his personal devices during the same period when he was actively seeking alternative employment.

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