Real Property and Business Litigation Report

Volume IV, Issue 22

May 28, 2011

Conti v. B&E Holdings, LLC, — So.3d —-, 2011 WL 2091139 (Fla. 1^st DCA 2011).

Appeal from promissory note judgment is premature if parallel mortgage foreclosure count has yet to be determined by trial court.

Lewis v. Thunderbird Manor, Inc., — So.3d —-, 2011 WL 2029624 (Fla. 2d DCA 2011).

Copy costs and postage are generally considered overhead costs which are not recoverable as taxable costs. Costs for copies may be recovered if they are filed with the court and “reasonably necessary” for determination by the court.

Boca Concepts, Inc. v. Metal Shield Corp., — So.3d —-, 2011 WL 2031328 (Fla. 4^th DCA 2011).

An offer to purchase a co-owner’s interest under a business entity “put call” agreement need not specifically mention the “put call” or the correct article of the agreement so long as the intent of the parties is clear.

Nitv, L.L.C. v. Baker, — So.3d —-, 2011 WL 2031339 (Fla. 4^th DCA 2011).

A communication which impugns a business by calling the business a scam is defamatory, and will entitle a party to damages for defamation. However, business loss damages which are “vague and ill defined” will not be awarded despite the defamation.

Maynoldi v. Archibishop Coleman F. Carroll High School, Inc., — So.3d —-, 2011 WL 2031340 (Fla. 3d DCA 2011).

A party may be denied Rule 1.380 (c) costs, i.e., costs for proving up a denied Request for Admission, when the request asks admission of a hotly contested issue in the case. Additionally, awarding attorneys’ fees under Rule 1.380 (c) is discretionary with the trial court.

Nardella Chong, P.A. v. Medmarc Casualty Ins. Co., — F.3d —-, 2011 WL 2083941 (11^th Cir. 2011).

Improper disbursement of trust account funds due to attorney falling for a banking scam is a negligent act that is covered by the attorneys’ malpractice insurer as maintenance of the trust account is a “professional service” covered by the policy.

Florida Business and Real Estate Law Update for May 28, 2011 (Volume IV, Issue 28)
Manuel Farach

 All of us have received emails from a Nigerian prince who promises a huge windfall if we deposit their check into our trust account in order to recover funds due the prince. And we’ve heard stories of what happens: attorney cuts a check from her own trust account for the prince’s percentage of the recovery and sends it overseas only to learn the check deposited into the trust account is N.S.F. The check cut from the attorney’s trust account, however, is good (because funds from other clients cover it) and is cashed almost immediately. The Nigerian prince has mysteriously disappeared, and the attorney is left to pick up the pieces. It is certainly not wise to participate in this scam, but is it malpractice, or more precisely, is the loss covered by the attorneys’ malpractice insurer? The Eleventh Circuit Court of Appeals held in a recent case that doing so is indeed malpractice and covered by the attorneys’ malpractice policy. Nardella Chong, P.A. v. Medmarc Casualty Ins. Co., — F.3d —-, 2011 WL 2083941 (11th Cir. 2011).
 The facts follow the pattern set forth above, with the minor detail of the overseas “client” being a company that asked the Florida lawyer to set up a Florida subsidiary of the overseas company. The result was the same: the check deposited into the trust account bounced, and of course, the check cut from the trust account as “refund” was cashed. The law firm’s response was unique: it filed a claim under its malpractice policy. The carrier denied the claim stating that disbursement from the trust account was a ministerial act, not a professional service, and that the real clients’ claims against the law firm were in the nature of restitution and not for (malpractice) damages. The law firm wisely negotiated with the insurance company the right to resolve client claims while preserving its rights to seek declaratory relief for the coverage question, and the insurance company won on summary judgment. On appeal, however, the Eleventh Circuit rejected the insurer’s arguments and found for the insured.
 Looking first at the policy definitions, the court found that “professional services” are services performed as a “’trustee … or … in any similar fiduciary capacity’ as long as ‘those services [are] typically and customarily performed by an attorney.’” Looking to the Rules Regulating the Bar, the court found that management of a trust account is considered a “professional service” by The Florida Bar. A fiduciary relationship was formed between the law firm and the clients whose funds were deposited in the trust account, thus creating another “professional service.” Finally, those clients whose funds were improperly distributed to the putative client to cover the trust account check would have claims against the law firm for professional malpractice as well as restitution, another basis for coverage under the policy. In its conclusion, the court held that erroneous distribution of trust account funds was an error or omission in the law firm’s conduct of its professional duties and covered by the malpractice policy.
 There are two important things to note with regard to this case. First, the insured was smart in negotiating a right to continue to claim coverage for a loss while resolving client claims (presumably so that the attorney would not be disbarred). Second, the court considered the affected “client” not to be the putative overseas client, but all the other clients whose funds covered the erroneous distribution to the prince.  Thus, “malpractice” was committed against the other clients and not the putative client.
 An interesting case; it remains to be seen whether this decision signals an expansion of malpractice coverage for trust account errors or whether it is merely a case that is dependent on its facts for its outcome. Hopefully no more attorneys will participate in these types of scams, but there may be malpractice coverage for those who do.

This week’s Case Law Update can be found here: Issue 22

In Piccolo v. Paterson , a Bucks County Common Pleas Court judge issued a one-paragraph order denying an insurance company’s motion to compel a car accident victim to accept a friend request providing full access to her Facebook page, Law.com reports.  

After testifying in her deposition that she had a Facebook account, the insurance company asked permission to send a “neutral friend request” to review her Facebook postings and photographs.  When counsel denied her request, the insurance company moved to compel access to her online information by asking the Court to require the plaintiff to provide access to her Facebook page.

In response to the motion, plaintiff argued that she had already provided sufficient information and photographs from before, during, and after the accident:

Defendant [ ] has not made a prima facie showing of need for access to the non-public pages of [plaintiff's] Facebook account. . .  She has all the photographs she can reasonably use from every different period before and after the accident and she has not asserted that there is likely to be any text in the non-public postings that is material or will likely lead to the discovery of material evidence.

The Court agreed, and denied the insurance companies’ motion to compel without providing an opinion setting forth the reasoning behind the decision.

Social media research is the new reality for trial attorneys, the American Bar Association (ABA) opines. Christine Martin of the ABA’s Section of Litigation recognizes that “risks and liabilities covered by the rules of professional ethics, confidentiality, defamation, copyright, and trademark, not to mention legitimate concerns over privacy and safety” are inherent in online social media sites.  She makes the following recommendations in the article linked above:

• Legal professionals need to become more knowledgeable about the best use of social media research—not just for their own sake but also to better serve their clients, including reputation monitoring and opinion mining of themselves, their firms, and their clients.

• Social media is a critical tool is for trial research including information on witnesses and potential jurors:

“Attorneys must assume that jurors could look up key definitions on Wikipedia, use Google to research trial participants, including the lawyers, and search for geographical locations and the history of the case. Part of the trial team’s new due diligence is being informed about what is available online.”

Florida Business and Real Estate Law Update for May 21, 2011 (Volume IV, Issue 21)

Manuel Farach

            Business practitioners are very familiar with contractual prevailing party attorney’s fees and litigators are very familiar with the application of the Florida Proposal for Settlement statute, Fla. Stat. § 768.79. Each method of obtaining fees has its own nuances and details, but the question remained unanswered for a good deal of time was whether a party who successfully put forth a proposal for settlement was able to cut off the attorneys’ fees that are awardable under a prevailing party contractual provision. In a case of first impression under the current Proposal for Settlement statute, the First District has answered the question in the negative. Tierra Holdings, Ltd. v. Mercantile Bank, 2011 WL 1879200 (Fla. 1^st DCA 2011).

            Tierra and Mercantile entered into a contract regarding sale of property wherein Tierra agreed that the real estate under contract could not be used for a bank or banking purposes. The contract contained a prevailing party attorneys’ fees provision.  A dispute arose between the parties, and Mercantile sued Tierra and the case proceeded to trial and verdict in favor of Mercantile. However, Mercantile did not beat the proposal for settlement Tierra filed during the litigation. Both sides filed for an award of attorneys’ fees, and Tierra argued that Mercantile’s fees were cut off after the Proposal for Settlement since it did not beat the Proposal. Mercantile, on the other hand, argued it was improper for the court to cut off its fees when the Proposal for Settlement statute does not contain a provision cutting off contractual fees. The trial court agreed with Mercantile, awarded both sides their respective fees, and offset the fees awards against each other to provide for a net fee award to Mercantile. Tierra appealed.

            Judge Nortwick examined the history of the Proposal for Settlement statute, and how various forms of the statute and the enabling rule, Florida Rule of Civil Procedure 1.442, attempted to balance the interests between substantive law set forth in the statute and the procedure for producing and enforcing a proposal for settlement under the rule, ending with the Florida Supreme Court’s holding in In re Amendments to Florida Rules of Civil Procedure, 682 So. 2d 105 (Fla. 1996), that it would not accept proposals to change the rule that affected substantive law because it was the “legislative prerogative to enact substantive law.” Ibid at 106. The stage was set and the rules were clear: law in derogation of the common law on fees was strictly construed and only the legislature could amend the statute.

            Using this analysis, Judge Van Nortwick examined previous cases interpreting the prior rule which held a proposal for settlement would cut off contractual attorneys’ fees. The cases relying on the prior rule are distinguishable because the cases were decided on an old, no longer viable rule. The cases holding the statute cut off the contractual fees award were also distinguished because they involved rules of statutory construction between two competing statutes; no such dispute occurred in this case because the dispute was between a statute and a contractual provision, i.e., two “separate and distinct grounds” for which rules of statutory interpretation did not work.

            Applying these rules to each other, the trial court found and the appellate court adopted the reasoning that the statute was to be narrowly interpreted and since, it did not contain a provision that cut off fees, one would not be inserted by the court. Nonetheless, the court ruled the purpose behind the statute, encouraging settlements, is still valid because allowing a proposal for settlement to offset an award of fees encourages parties to settle cases. Indeed, the trial court award for attorney’s fees in this case to the contractually prevailing party was reduced by approximately $210,000 by application of the losing party’s Proposal for Settlement. So apparently the incentive put forth by the Proposal for Settlement statute still applies.

            This opinion clarifies a good deal of confusion in Florida law regarding competing attorneys’ fees demands, and allows both contract lawyers and litigators to better understand the possible risks and rewards for their clients.

            The full Case Law Update for this week can be found here: Issue 21

Lawyers cited Facebook and Twitter as grounds to strike prospective jurors in the Casey Anthony murder trial, reports the Palm Beach Post. Lawyers instantly compared prospective juror’s answers during  jury selection with information posted on the jurors online social media websites. 

Prosecutors used a preemptory challenge to prevent the seating of one individual who they said had tweeted after a fender-bender, “Cops in Florida are idiots and completely useless.”  Based on this tweet, prosecutors could opine that the juror would carry a bias against the testimony or trustiworthiness of police officers.

Lawyers excused another juror “for cause”  after he reportedly posted the jury instructions on his Facebook page and joked online that there was a “book coming soon. lol.” 

Anthony is charged with killing her two-year-old daughter Caylee in 2008 and for providing false information to law enforcement. She has pleaded not guilty and told police that a babysitter kidnapped her daughter.  Jury selection had been moved out of Orlando in the hope of seating an unbiased jury.

A federal judge dismissed a wiretap and computer fraud class action lawsuit filed against Facebook for allegedly leaking Facebook users’ personal information to advertisers. The federal lawsuit accused Facebook of sharing two California men’s real names and other sensitive information with advertisers in violation of the social network’s own privacy policy and various federal and state laws.

The United States District Court in San Jose California dismissed the lawsuit on the grounds that the plaintiffs did not allege they suffered specific injuries, and the alleged information leak did not run afoul of wiretap and computer fraud statutes:

“[I]n regard to damages, plaintiffs allege only that as a result of the alleged breach of contract, plaintiffs ‘suffered injury. . . [h]owever, plaintiffs fail to allege any actual damages in their complaint. Thus, under California law plaintiffs fail to state a claim for breach of contract.”

In an eighteen page Order, Judge Ware granted Facebook’s motion to dismiss the complaint in its entirety, although he granted leave to amend on certain counts while expressing skepticism about the overall merits of the case.

Florida Business and Real Estate Law Update for May 14, 2011 (Volume IV, Issue 20)

Manuel Farach

 The Fourth District Court of Appeal has taken another shot at explaining when parties can be awarded lost profit damages and when the damages are considered too speculative. Devon Medical, Inc. v. Ryvmed Medical, Inc., — So.3d —-, 2011 WL 1775770 (Fla. 4^th DCA 2011).

A previous post discussed the Fourth District’s view of damages in various cases: Morgan Stanley & Co. Inc. v. Coleman (Parent) Holdings Inc., 955 So. 2d 1124 (Fla. 4^th DCA 2007), held that a party seeking damages for stock sales occasioned by fraud required a plaintiff prove the “fraud free” price of the stock, River Bridge Corp. v. American Somax Ventures ex rel. American Home Development Corp., 18 So. 3d 648 (Fla. 4^th DCA 2009), set forth the difference between the “before and after” and the “yardstick” methods of determining damages, and E. Qualcom Corp. v. Global Commerce Center Ass’n, Inc., — So.3d —-, 2011 WL 1563005 (Fla. 4^th DCA 2011), distinguished the quantum of proof necessary to oppose summary judgment. These decisions clarify what a plaintiff must prove when seeking lost profit damages when there is no track record and the plaintiff is seeking lost profit damages utilizing the “yardstick” method. Devon Medical explains the “yardstick” method further.

            In many ways, Devon Medical mirrors River Bridge: a new company without a history of profits contended that a defendant breached a contract and kept it from a profitable business venture. In both cases, a jury agreed and the appellate court reversed, holding the lost profits evidence was too speculative. What lessons can we draw from the two cases? Devon Medical gives us further explanation of what is necessary to prove lost profit damages by its rejection of the two expert witnesses.

            One expert witness made a blanket statement that the plaintiff was similar to the comparable company, but failed to provide evidence the plaintiff was similar to the plaintiff in size, location, profits and market position. The other expert witness failed to examine the profits, costs and expenses of a similar company; he merely examined publicly available information of the similar company. The court said neither was satisfactory. So what does a plaintiff need to prove? Every case is different, of course, but some ideas come to mind.

            First, a plaintiff’s expert must prove the comparable company actually made a profit. Next, the plaintiff must prove the similarity between the two companies, especially the size, location and market position of the similar company and the amount of time the similar company has been in business. Finally, the evidence must establish the inner details of the similar company in order to avoid the label of a  “speculative” comparison. What happens when there is no similar company? The opinions don’t disclose how to deal with this problem, but presumably some variation of  the adjustment process used by real estate appraisers is necessary in such a situation. Then the battle becomes, in effect, whether the adjustments are fair, logical and reasonable. But presumably not speculative.

            This area of law is evolving, but these recent decisions demonstrate lost profits for a new business need not be speculative.

A complete summary of this week’s Update can be found here: Issue 20

Florida Business and Real Estate Law Update for May 7, 2011 (Volume IV, Issue 19)

Manuel Farach

The Mutuality of Obligation Principle has been misunderstood for a great while. Many consider the requirements for Mutuality of Obligation and Obligation of Remedy to be the same, but they are not. Mutuality of Obligation is necessary for an enforceable contract; Mutuality of Remedy is not. Terex Trailer Corp. v. McIlwain, 579 so.2d 237 (Fla. 1^st DCA 1991).

The Fourth District Court of Appeal recently dealt with this issue in Amquip Crane Rental, LLC v. Vercon Const. Management, Inc., — So.3d —-, 2011 WL 1661443 (Fla. 4^th DCA 2011), and held the doctrine of mutuality of obligation in contracts does not require that in all cases each party have the same remedy. The key to the analysis is whether the two parties are obligated to each other, not that remedies are the same. It is hard to pinpoint where the confusion began, but the cases on specific performance and liquidated damages seem to be prime suspects. For example, Lefemine v. Baron, 573 So. 2d 326 (Fla. 1991), contains the following quotation at footnote 3: “We recognize that a lack of mutuality of remedies between the parties may be a separate reason why a court may refuse to enforce a default provision of a contract” and cited to the Fourth District case of Blue Lake Apartments, Ltd. v. George Gowing, Inc., 464 So. 2d 705 (Fla. 4^th DCA 1985).

This sounds like a great argument for a requirement of Mutuality of Remedy in contracts, but a closer analysis reveals it isn’t. Specifically, Lefemine and Blue Lake discussed situations where the remedy was so unfair a party could breach with impunity. At that point, there is no pain if one party breaches but plenty of pain if the other party breaches. This is the situation where we have a lack of Mutuality of Remedy.

So what happened in Amquip that brought out this analysis? The contract in question, a lease, had a provision which stated the lessee waived trial by jury but the lessor did not. That seems unfair at first blush, but the Fourth District held that is merely a choice the parties made in the contract and meets the test. How so? After the provision is enforced, both parties are subject to legal risk, what I call the “Pain Principle” because both parties have a potential of pain if they breach. The method of bringing the pain is different, but not sufficiently different in the minds of the Fourth District so as to invoke cancellation by remedy of Lack of Mutuality of Remedy.

The full list of this week’s Update can be found here: Issue 19

Florida Business and Real Estate Law Update for April 30, 2011 (Volume IV, Issue 18)

Manuel Farach

The Fourth District has clarified its view of what constitutes sufficient certainty of lost profits in E. Qualcom Corp. v. Global Commerce Center Ass’n, Inc., — So.3d —-, 2011 WL 1563005 (Fla. 4^th DCA 2011). When juxtaposed against its earlier rulings in River Bridge Corp. v. American Somax Ventures ex rel. American Home Development Corp., 18 So. 3d 648 (Fla. 4^th DCA 2009.) and Morgan Stanley & Co. Inc. v. Coleman (Parent) Holdings Inc., 955 So. 2d 1124 (Fla. 4^th DCA 2007), its reasoning starts to become clear. The analysis starts with review of the court’s decision in Morgan Stanley.

            Somewhat lost in the discussion of the enormous damage award that was reversed in Morgan Stanley was the court’s discussion of speculation when awarding damages. As Judge Taylor stated: “[Claimant Coleman] was not entitled to have the jury speculate as to the value of the stock on the date of sale. Rather, it was required to prove the stock’s value on that date.” Morgan Stanley, 955 So. 2d at 1131. Morgan Stanley was preceded by Whitby v. Infinity Radio, Inc., 951 So. 2d 890 (Fla. 4^th DCA 2007), and Judge May’s statement that there must be substantial competent evidence “directly linking” damages to the defendant’s activities. Whitby, 951 So. 2d at 900. The Fourth District followed this opinion with River Bridge where the court stated “reasonable certainty” is necessary in establishing lost profits for a new business without a track record of profits. To most observers, it seemed the Fourth District had adopted a very narrow view of damages, especially when the damaged entity did not a track record of damages. But then came Qualcom.

            It seemed Qualcom was another River Bridge: a new company without a track record of profits that claimed damages from the actions of the other party. It seemed that way to the trial judge also: she granted summary judgment against Qualcom despite Qualcom producing pictures and evidence that the landlord’s actions damaged its computer equipment and business. The defendant failed to produce countervailing evidence, but merely argued Qualcomm had not proved its damages to a reasonable degree of certainty. The trial judge agreed, and entered summary judgment against Qualcom both on claims of the Plaintiff and Qualcom’s counterclaim. The Fourth District overruled the trial court, however, and held that a “reasonable degree of certainty” is not needed in order to oppose a summary judgment. Moreover, the “yardstick test” used to test the certainty of lost profits is a flexible concept that depends on whether the party with lost profits is seeking damages at trial or at summary judgment.

            Where does that leave us? It appears that parties seeking recovery for lost profits must first examine the stage of the proceedings to determine the quantum of proof necessary: small if at summary judgment and more extensive if at trial. To prove damages at trial, a lost profits claimant must prove every element of damage, leave nothing to the jury’s speculation, and “directly link” the damages to the defendant’s actions. If the claimant does not have a track record of profits, it must also establish its yardstick of lost profits with “reasonable certainty.” And while it seems the Fourth District’s treatment of damages is still evolving, the proof it requires in certain situations is now more clear.

A link to this week’s Update can be found here: Issue 18