Category: Business Litigation

Purchasers of Businesses Should Not Rely On the Representations of the Sellers

Prospective business purchasers should diligently verify the accuracy of a sellers representations because misrepresentations made by sellers sometimes are inactionable under Florida law. Florida courts routinely apply the doctrine of caveat emptor, otherwise known as the buyer beware doctrine, to preclude misrepresentation claims that arise out of commercial transactions. See Transcapital Bank v. Shadowbrook at Vero, LLC, 2017 WL 3169271, at *4 (Fla. 4th DCA July 26, 2017) (citing Wasser v. Sasoni, 652 So.2d 411, 412 (Fla. 3d DCA 1995) (“[T]he doctrine of caveat emptor, or ‘buyer beware,’ is still the common law rule applied to purchasers” in commercial transactions)). The buyer beware doctrine places the burden of diligence on consumers. Prospective business owners must, at a minimum, try to make an assessment of a seller’s representations concerning the business before purchasing the business. Courts are generally not sympathetic to seemingly imprudent would-be plaintiffs. The Fort Lauderdale office of the Mavrick Law Firm advises businesses sellers and prospective purchasers on issues concerning the sales of businesses.

Exceptions to the buyer beware doctrine exist. Purchasers may be able to prevail in misrepresentation claims if they can prove that: 1) a trick was employed to prevent the purchaser from making independent inquiry; 2) the purchaser did not have an equal opportunity to become apprised of the misrepresented fact; and, 3) the seller disclosed some facts but failed to disclose the whole truth. Transcapital Bank, 2017 WL 3169271, at *5.  However, the exceptions do not apply to commercial transactions between sophisticated parties. See Wasser v. Sasoni, 652 So. 2d at 413 (“where the parties are equally sophisticated, and have an equal opportunity to discover a defect…a negligent purchaser is not justified in relying upon a misrepresentation which is obviously false, and ‘which would be patent to him if he had utilized his opportunity to make a cursory examination or investigation’”). Courts expect relatively sophisticated buyers to use their acumen to screen out deceptive tactics.

If prospective purchasers have any doubt regarding the viability of the buyer beware doctrine, the Fourth District Court of Appeal’s recent decision in Transcapital Bank v. Shadowbrook at Vero, LLC, is instructive. The court found that the buyer beware doctrine entitled the defendants to a judgment as a matter of law on the plaintiffs’ fraudulent misrepresentation claim. See 2017 WL 3169271, at *5 (“Even if … defendants … misrepresented the property’s appraised value, such a misrepresentation would not be actionable under the doctrine of [buyer beware] in the absence of … fraudulent means in preventing a prospective purchaser from making an examination of the property under consideration”).  Therefore, prospective purchasers have a duty to protect themselves when evaluating the representations of the seller of a business.  Moreover, if purchasers have doubts about the validity of a seller’s claims, they may want to protect their interests by avoiding certain contractual terms that could prevent a misrepresentation claim. See Wasser v. Sasoni, 652 So. 2d at 413 (holding that contractual provisions such as “integration clauses … are recognized as valid defenses to claims of fraud [ and misrepresentation]” when there is no evidence that the contract induced by fraud.) Moreover, fraud can be difficult to prove as “there must be evidence of ‘the [speaker’s] knowledge that the representation is false.” MDVIP, Inc. v. Beber, 42 Fla. L. Weekly D1248 (Fla. 4th DCA May 31, 2017). In sum, purchasers who do not make best efforts to evaluate a business do so at their own peril.

Peter T. Mavrick has successfully represented many buyers and sellers of businesses in commercial disputes. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.

 

FLORIDA DECEPTIVE AND UNFAIR TRADE PRACTICES ACT: DEFENSE AGAINST LAWSUIT USING NOERR-PENNINGTON DOCTRINE

The Florida Deceptive and Unfair Trade Practices Act (FDUTPA), § 501.201 et seq., Florida Statutes, is a remedial statute intended “to protect the consuming public and legitimate business enterprises from those who engage in unfair methods of competition, or unconscionable, deceptive, or unfair acts or practices in the conduct of any trade or commerce.” § 501.202(2), Fla. Stat.  Rollins, Inc. v. Butland, 951 So. 2d 860 (Fla. 2d DCA 2006), defines a deceptive practice as “one that is likely to mislead” and an unfair practice as “one that offends established public policy” and/or “is immoral, unethical, oppressive, unscrupulous or substantially injurious.”  The explicit wording of FDUTPA and its interpretations by Florida courts are purposefully broad and intended to help protect consumers and businesses against a wide range of deceitful or unfair trade practices.  However, the broad wording and interpretations of FDUTPA could also be harmful to businesses, as they provide an avenue for customers and/or competitors adversely affected by lawful trade practices to bring meritless lawsuits.  A perfect example is when a party brings a FDUTPA claim against a business based on pre-suit communications threatening potential litigation, such as a demand letter or a cease and desist letter.  It is common practice for businesses to send such pre-suit communications as an attempt to curb another party from further engaging in conduct that is either violating the law or some other obligation the party owes to the business without the need for costly litigation.  This is useful in situations that include, inter alia, when a former employee is violating a non-compete agreement, when a party to a contract fails to fulfill his or her contractual obligations, or when a party is infringing on a business’s trademark or interfering with advantageous business relationships.  Despite the practicality of using these pre-suit communications, the recipients typically view it as harassing and threatening conduct forming the basis of FDUTPA claims.

One way businesses can defend against and dismiss these meritless FDUTPA claims is by invoking immunity under the Noerr-Pennington doctrine.  The foundation of Noerr-Pennington immunity arises from the First Amendment’s right to petition and it is traditionally utilized to shield a defendant from antitrust liability for resorting to litigation to obtain an anticompetitive result from the court.  Nevertheless, McGuire Oil Co. v. Mapco, Inc., 958 F.2d 1552 (11th Cir. 1992), extended the doctrine to protect “pre-litigative and litigative activities” from claims for unfair trade practices.

Based on the Eleventh Circuit’s reasoning in McGuire Oil Co., Florida federal courts have consistently applied Noerr-Pennington immunity to dismiss actions based on pre-suit communications.  PODS Enterprises, Inc. v. ABF Freight Sys., Inc., 100 U.S.P.Q.2d 1708 (M.D. Fla. 2011), and Atico Intern. USA, Inc. v. LUV N’ Care, Ltd., 2009 WL 2589148 (S.D. Fla. Aug. 19, 2009), both dismissed FDUTPA claims based on pre-litigation letters, holding that pre-suit demand and cease and desist letters are “immunized” under Noerr-Pennington.  Similarly, Rolex Watch U.S.A., Inc. v. Rainbow Jewelry, Inc., 2012 WL 4138028 (S.D. Fla. Sept. 19, 2012), applied Noerr-Pennington to dismiss a defendant’s FDUTPA counterclaim based on pre-suit threats of litigation and alleged injuries it sustained in having to defend against the plaintiff’s trademark infringement suit.  Another example, Marco Island Cable, Inc. v. Comcast Cablevision of S., Inc., 2006 WL 1814333 (M.D. Fla. July 3, 2006), granted partial summary judgment to the defendant for a FDUTPA claim based on pre-suit letters threatening to sue to enforce defendant’s exclusivity contracts.  These cases are just a few examples of how courts have applied the Noerr-Pennington doctrine to help business defend against meritless FDUTPA lawsuits.

The Mavrick Law Firm has extensive experience dealing with the Florida Deceptive and Unfair Trade Practices Act and has successfully defended businesses against FDUTPA lawsuits.  This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.

Members of LLC’s Should Be Prepared To Prove Discrete Harms Before Bringing A Lawsuit Against A Fellow LLC Member

Under Florida law, if a member of an LLC wishes to individually sue another member for damages arising out of the membership, the plaintiff-member must prove: “(1) a direct harm to the … member such that the alleged injury does not flow subsequently from an initial harm to the company and (2) a special injury to the … member that is separate and distinct from those sustained by the other … members.” Dinuro Investments, LLC v. Camacho, 141 So. 3d 731, 739-740 (Fla. 3d DCA 2014). Alternatively, a plaintiff-member may prove that the defendant-member owes a separate duty to the plaintiff member that is distinct from the duties owed by the members to the LLC. See Dinuro Investments, LLC v. Camacho at 740. The Mavrick Law Firm regularly represents businesses and their owners in business litigation in Miami, Fort Lauderdale, and Palm Beach.

To initiate a lawsuit, a plaintiff must have standing, otherwise described as the right to sue. Accordingly, the right to sue varies depending on the particular context of the plaintiff’s alleged harm. § 605.0802, Fla. Stat. allows for a member to “maintain a derivative action to enforce a right of a limited liability company,” but the statute does not provide the right to sue individually. A derivative action seeks to “enforce a corporate right or to prevent or remedy a wrong to the corporation,” when “the corporation, because it is controlled by the wrongdoers or for other reasons, fails and refuses to take appropriate action for its own protection.” Salit v. Ruden, McClosky, Smith, Schuster & Russell, P.A., 742 So. 2d 381, 388 (Fla. 4th DCA 1999). Whereas, an individual suit seeks to recover damages that the plaintiff suffered as a result of a wrong done to the corporation. Thus, the right to sue individually as a member of an LLC presents special considerations that were confusing and opaque in Florida until recently.

In Dinuro Investments, LLC v. Camacho, the Third District Court of Appeal used a two-prong test that has been adopted throughout Florida to resolve the issue of individual standing in actions for individual damages in LLC disputes. See Strazzulla v. Riverside Banking Co., 175 So. 3d 879, 884 (Fla. 4th DCA 2015) (“we agree with the Third District[‘s decision in Dinuro Investments,  LLC v. Camacho] and adopt a two-prong test”). The South Florida offices of The Mavrick Law Firm represents plaintiff-members and defendant-members in disputes throughout the judicial circuits that are bound by Third and Fourth DCA decisions. In Dinuro Investments, LLC v. Camacho, the court thoroughly examined the three tests routinely are routinely applied to resolve the direct versus derivative claim question: The Direct Harm Test, The Special Injury Test, and The Duty Owed Test. After addressing the pros and cons of each of the tests, and in an attempt to “reconcile nearly fifty years of apparently divergent case law” the court reasoned that a two-prong test was appropriate. See 141 So. 3d at 740.

As mentioned earlier, a member can only individually sue another member for damages if the two-prong test is met, or if the member can prove the existence of a separate duty owed by the defendant-member(s) to the individual plaintiff-member that is based on a contractual or statutory mandate. Dinuro Investments, LLC v. Camacho, 141 So. 3d at 740. Concerning the first prong, direct harm, a member can only bring a direct suit if the damages are unrelated to the damages that are suffered by the LLC, and if the LLC would have no right to recover in its own action. Strazzulla v. Riverside Banking Co., 175 So. 3d 879, 885–86 (Fla. 4th DCA 2015). Regarding the second prong, the plaintiff-member’s injuries must be separate and distinct from the other members. Id.  Moreover, unless explicitly stated, an LLC’s operating agreement will not function to impose individual rights and liabilities to individual members. See Dinuro Investments, LLC v. Camacho, 141 So. 3d at 741 (“[w]hen analyzing a claim for breach of an operating agreement, the precise terms of the agreement are critical”). Therefore, potential plaintiff-members should assess the nature of their harm and any individual contractual rights before suing another member of an LLC. A failure to make a thoughtful and reasoned assessment of the factors discussed in this article will likely result in a waste of resources.

Peter T. Mavrick has successfully represented many businesses in non-competition covenant litigation. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.

Fraud Claims Cannot Be Based on Puffery

            Most businesses that sell products or services encourage their salesmen to do whatever it takes to make a sale.  This leads to the salesmen exaggerating regarding the quality of the product or service they are selling.  Although exaggerations or statements promoting the quality of a product or service can lead to increased sales, it could also be problematic for businesses.  Customers who rely on such statements when purchasing a product or service can be severely disappointed if the product or service does not live up to salesman’s exaggerations, and this often leads to lawsuits for fraudulent misrepresentations or fraud in the inducement.  Fortunately, Florida law provides a useful avenue to defend against these types of fraud lawsuits.  To allege a claim for fraud, a person must demonstrate that a seller made a “misrepresentation of material fact.” Florida courts have consistently held that a seller’s exaggerations or statements of opinion, otherwise known as puffery, cannot constitute a misrepresentation of material fact.  The leading case on this issue in Florida is Wasser v. Sassoni, 652 So. 2d 411 (Fla. 3d DCA 1995).

            In Wasser, the purchaser of a 67-year-old apartment building sued the seller for, inter alia, fraudulent misrepresentation based on the seller’s statements that the building was “a very good building” requiring “normal type of maintenance,” and “an excellent deal.” The Third District Court of Appeal found that such statements were merely “puffing” or statements of opinion that could not constitute fraudulent misrepresentations.  Based on the foregoing, the court affirmed summary judgment in favor of the seller.

            More recently, the Fourth District Court of Appeal was confronted with a fraud claim based on puffery in MDVIP, Inc. v. Beber, 2017 WL 2364729 (Fla. 4th DCA May 31, 2017).  The plaintiff brought suit against a personalized healthcare program after a doctor employed by the program failed to diagnose and misdiagnosed the plaintiff’s leg pain, forcing the plaintiff to undergo an above-the-knee amputation. The plaintiff’s fraud claim was based on the defendant’s statements that it would provide “exceptional doctors, exceptional care, and exceptional results.” The plaintiff also alleged the defendant made promises that the plaintiff “would be seen by the finest national specialists with advanced treatment” and defendants claimed to be “a network fraternity of some of the nation’s finest physicians,” among other things.  In making its decision, the court relied in part on Wasser and determined that the plaintiff’s fraud claims could not be maintained to the extent they depended on defendant’s alleged statements, as such statements constituted non-actionable puffery or statements of opinion.

            Although fraud claims based on puffery will usually be disposed of by the court, businesses still must be cautious when using puffery or statements of opinion to make sales.  In Mejia v. Jurich, 781 So.2d 1175 (Fla. 3d DCA 2001), the court provided an exception to the general rule that fraud claims cannot be based on statements of opinion.  Mejia states:

Where the person expressing the opinion is one having superior knowledge of the subject of the statement and the plaintiff can show that said person knew or should have known from facts in his or her possession that the statement was false, then the opinion may be treated as a statement of fact.

            The Mavrick Law Firm has successfully represented many businesses in fraud cases as well as other business litigation cases throughout the Miami-Dade, Broward, and Palm Beach County areas encompassed by the Third and Fourth District Courts of Appeal, as well as Hillsborough, Sarasota, and other counties encompassed by the Second Circuit Court of Appeals.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.

BUSINESS LITIGATION DEFENSE: FLORIDA LAW CLAIMS FOR FRAUD IN THE INDUCEMENT

Fraud in the inducement is a common cause of action in business litigation.  It typically involves a plaintiff alleging a contract he or she entered into with a defendant is not enforceable due to some misrepresentation or omission made by the defendant, which the plaintiff relied upon, inducing him or her to enter into the contract to the plaintiff’s detriment.  In such cases, the main remedy sought is to have the contract rescinded, effectively voiding the contract and returning the parties to the position they were in prior to entering into the contract.  Common examples of fraud in the inducement are when a business seller misrepresents the company’s financial state to induce a potential buyer into purchasing the business or when a seller of real property fails to disclose a construction defect to a potential buyer.  While these types of fraud claims are legitimate, it is not unusual for a party to a contract to allege fraud in the inducement against the other contractual party merely because the first party is unhappy with the result of the binding contract he or she legally entered into.  In these situations, it is important to know how to defend against these meritless fraud claims.

One way to defend against such claims is by applying the principle first stated by the Florida Supreme Court in Canell v. Arcola Housing Corp., 65 So.2d 849 (Fla. 1953) that a party cannot reasonably rely to its detriment on an unenforceable promise.  In Canell, a plaintiff brought suit against a seller of subdivision lots who allegedly promised purchasers that they would have the right to use a bathing beach that the developer promised to build.  However, the Court held that the plaintiff’s fraud in the inducement claim failed as a matter of law because it relied on an unenforceable promise that violated the statute of frauds. The statute of frauds, § 725.01, Florida Statutes, requires certain contracts to be in a writing signed by the party to be charged to be enforceable, such as inter alia contracts for the sale of real property.  The Florida Supreme Court explained in pertinent part that:

The plaintiffs are relying upon a mere oral promise to create the easement, which is clearly within the terms of the statute of frauds and thus cannot be enforced directly or indirectly…While it is contended by plaintiffs that they are suing for damages for fraud and deceit, such an action under the circumstances of this case is simply an attempt in an indirect manner to obtain damages for breach of the contract.  Since the provision in the statute prohibiting any action to be brought on an oral contract within the statute includes actions based indirectly on the contract, an action for damages cannot be maintained on the ground of fraud in refusing to perform the contract, even though the defendant at the time of the making of the oral contract may have had no intention of performing it.

Over 50 years later in Puff’n Stuff of Winter Park v. Bell, 683 So. 2d 1176 (Fla. 5th DCA 2007), the Fifth District Court of Appeal reinforced Canell, affirming a trial court’s summary dismissal of a fraud in the inducement claim against a lender bank based on oral promises to extend credit to appellant borrowers.  The court found that the promises relied upon were unenforceable because the statute governing credit agreements requires a written agreement signed by both the creditor and debtor.  The concept that a party cannot reasonably rely to its detriment on an unenforceable promise was best explained in Judge Griffin’s dissent (restating the majority opinion):

It certainly is true, as the majority says, that a promise or agreement unenforceable for failure to comply with the statute of frauds, cannot be sustained by recasting it as fraud. In other words, a false promise to do “x,” which induces a party to enter into a contract for “y,” cannot be actionable fraud where the “x” promise requires compliance with the statute of frauds. One cannot reasonably rely to his detriment on an unenforceable promise.

In addition to the examples in the cases supra, there are various promises that are required to be in a signed writing under Florida law, including inter alia promises to pay another person’s debt, agreements not to be performed within the space of one year, and non-competition covenants under § 542.335, Florida Statutes.  These cases provide a very useful avenue for defendants to dismiss meritless claims for fraud in the inducement based on alleged representations that were required to be in writing under Florida law.

The Mavrick Law Firm has successfully defended businesses against fraud claims and in non-competition covenant litigation.  This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.

Are there alternatives to going to court to resolve business disputes?

There are several alternatives to going to court. The most common sense way is to either directly try to resolve it with the other party, or have the party’s attorneys discuss it with each other. Other means of resolution are mediation, that’s a very common method, and also, arbitration. Both are alternatives that have some favorable aspects, as opposed to going to court. Mediation involves voluntarily discussing the dispute with a neutral third party, and whatever they agree upon is mutually agreeable. Arbitration is the party’s hire a third party, another lawyer, and the lawyer will decide the case in sitting as a private judge. The parties will split the expense of this private judge deciding the case. …

Are handshake agreements binding?

An oral agreement is usually binding but not always. Florida has a statute of frauds so certain types of contracts are not binding unless they’re in writing and signed by the party against whom it’s charged. For example, selling a house or a piece of real property requires a written agreement. It has to be signed by the other party. Commercial leases exceeding a year’s length will need to be in writing. There’s a witness requirement of 2 witnesses to the execution of the lease. Many other contracts can be enforced simply because they’re oral contracts where one part has agreed and as somebody has often said, its simply a handshake where they’ve mutually agreed orally as to what the contract is.

How are business disputes handled?

Business disputes are handled as any other kind of lawsuit. It’s either going to be handled through negotiation, through a court process and litigation or through arbitration. Typically, business disputes should always have efforts to try to settle the cases and reach some kind of common ground. Sometimes a lawsuit will need to be filed or defended, but then it will lead to a negotiated resolution. The earlier that you can have some discussion to determine what the other side wants and what you want the better it is. Some cases have to go farther, and the court will have to decide it.