Business Litigation Perspectives - Insights & Commentary on Business Legal Issues

A recent decision from the Third District Court of Appeals in Florida highlights some of the pitfalls involving an “Offer of Judgment” that can arise in a commercial litigation case.

In Portuondo-Tarajano International Corp. v. Farm Stores Grocery Inc., et al., No. 3D10-2785 (Fla. 3d DCA October 5, 2011), an individual named Manuel Portuondo originally filed a lawsuit against the defendants alleging breach of a written stock option agreement and an oral “business generation” agreement. He later moved to amend the complaint to add his corporation (PTI) as an additional plaintiff. The court permitted the amendment. 

The defendants subsequently served separate offers of judgments on PTI ($1,000) and Portuondo ($40,000) under Florida Rule of Civil Procedure 1.442 and section 768.79, Florida Statutes.  Neither offer was accepted.

More than a year later, the defendants made another offer of judgment to Portuondo, offering him $70,000 to settle.  However, this offer specifically provided that it “does not include or cover any claims by and/or against the other Plaintiff [PTI].” Portuondo accepted the defendants' offer of judgment.

Next, the defendants moved to dismiss the entire case due to the settlement, asserting that all claims asserted by the plaintiffs were settled and released.  At a hearing held on the first day of trial, PTI argued that the offer applied only to Portuondo and it specifically excluded PTI’s claims. The trial court inquired as to whether PTI is separate and distinct from Portuondo, and stated, “I don’t see any separate and distinct claim for damages.” The trial court entered an order postponing the scheduled trial and requiring PTI to file an amended complaint due to Portuondo’s acceptance of the defendants’ offer. Subsequently, the court dismissed the amended complaint with prejudice.

The Third DCA reversed, concluding that Portuondo’s acceptance of the defendants’ Offer of Judgment did not bar PTI’s separate and distinct claims. Therefore, it was error for the trial court to dismiss PTI’s amended complaint.

There are a few lessons to be learned from this decision. First, offers of judgment need to be carefully scrutinized in all cases, especially where multiple parties are involved. Second, an offer of judgment made pursuant to section 768.79 must:

(a) Be in writing and state that it is being made pursuant to this section;

(b) Name the party making it and the party to whom it is being made;

(c) State with particularity the amount offered to settle a claim for punitive damages, if any; and

(d) State its total amount.

Those of you like me who play golf and also closely follow the evolution of the body of law surrounding Proposals for Settlement in the State of Florida (Proposals), will be able to identify with this analogy.  The crafting, evaluation and enforcement of Proposals are much like the game of golf.  One day you are hitting it “pure” and think you have the swing all figured out.  The next day you are hitting it sideways off the tee.  That is the feeling one gets when reading the recent decision, Jones v. Publix Supermarkets, Inc. 36 Fla. L. Weekly D1966. Okay, maybe hitting a drive sideways off the tee is an exaggeration.Perhaps a low boring duck hook would be more accurate.

In Jones, the court had before it a trial court decision declining to award attorneys’ fees pursuant to a Proposal. Jones made the Proposal to Publix. The trial court would not enforce the Proposal because the release Jones intended to give Publix was not attached to or properly summarized in the Proposal. As you have guessed by now, the outcome of the underlying proceeding was such that it triggered a claim for fees.

The Proposal summarized the contemplated release thusly: “[Jones] will execute a full release of liability in favor of Publix Supermarket Inc., a Florida Corporation and it’s [sic] affiliated insurance company, and a Stipulation for Voluntary Dismissal.” The trial court felt that was not a sufficient summary.

Reversing the trial court, the Fourth District acknowledged prior decisions seemingly requiring an affirmance. The first was Papouras v. BellSouth Telecommunications, 940 So. 2d 479 (Fla. 4th DCA 2006).  There, on the subject of a release, the Proposal provided, “Plaintiff PETER PAPOURAS, shall execute a full release.” No copy of the release was attached and no further summary of its terms was given. 

Papouras held that the Proposal was not enforceable because the "proposed release lacks sufficient detail to eliminate any reasonable ambiguity about its scope. It failed to indicate which party was required to draft the release, and more importantly, failed to indicate whether BellSouth’s employee, the driver of the other vehicle, will be released in exchange for the payment."

The Papouras decision was based upon a Florida Supreme Court’s decision in State Farm Mutual Automobile Insurance Company v. Nichols, 932 So. 2 1067 (Fla. 2006). 

In State Farm, the Proposal (made by State Farm) required the execution of “a general release in favor of State Farm which would be expressly limited to all claims, causes of action, etc., that accrued through the date of Nichol’s acceptance of this Proposal.”  The proposed release was not attached.  At that time, Nichols was also maintaining a separate uninsured motorist claim arising out of the same accident.  The Florida Supreme Court determined that the Proposal was ambiguous in that it was not clear how the release would impact the pending UM claim.                     

Are you with me?  In the place of Publix, can’t you hear yourself saying, “What happened?” as that duck hook off the tee crashes into the deep woods. Like Hank Haney trying to fix the hitch in Charles Barkley’s golf swing – but different – the Jones court explained its decision this way.  

First, it distinguished Papouras and State Farm by noting that in those cases (and others) where Proposals having been found ambiguous because of inadequately summarized release provisions, there were either additional claims between the parties or other related parties who remained potentially liable.  The Jones court observed that in the instant case, there were no other claims or other potentially liable related parties.  Under the specific facts of the case, the court concluded the release provisions of the Proposal were sufficiently clear.

The Jones opinion closes with the court acknowledging it is the preferred practice for a Proposal to set forth the terms of a release particularly either within the Proposal or by attaching the proposed release.  Nevertheless, on the Jones facts, the Proposal was found enforceable.

The time has come to amend the Proposal rule to eliminate this type of uncertainty.  Clearly, it is the best practice to attach to the Proposal all documents that are to be signed if the Proposal is accepted. So let’s put that in the rule. And while we’re in the rule amending mode, let’s work on those folks who write the golf rules and see if we can get an amendment that allows for one Mulligan per round in the case of a screaming duck hook.

In the recent case of Patel v. Boers, the Fifth District Court of Appeal was called upon to address whether a successor in interest could enforce a noncompete agreement.  Boers was a dentist in Ocoee, Florida practicing on his own.  He decided to expand his practice and brought on another dentist, Cheng to work for him.  Cheng entered into the noncompete agreement with Boers.

After several years successfully working together, Boers decided to sell his practice to a third dentist, Patel.  Patel and Cheng apparently did not get along and Cheng left a year after Patel purchased the practice.  Cheng then went out and started his own dental practice at which point Patel filed suit against Cheng alleging that Cheng was violating the noncompete agreement.

Fla. Stat. s. 542.335provides that a noncompete can only be enforced by an assignee or successor if the noncompete "expressly authorized enforcement" by an assignee or successor. At issue on appeal is whether Patel could enforce the noncompete that was entered into by Boers and Cheng. The noncompete contained the following clause, which Patel argued met the statutory requirements: "the mutual and reciprocal covenants and agreements, rights and obligations contained in the [noncompete] are assignable only by [Boers]."

But Cheng argued that the agreement he signed with Boers did not mirror the statutory language.  The Court sided with Patel and found that the wording within the statute did not have to be quoted in the noncompete. The language within the noncompete was sufficient to establish that the parties intended to allow for the assignment of the agreement to a third party.

Do you think Patel thought about this issue when he purchased the dental practice? This case is a great example of how difficult the enforcement of noncompete agreements can be. 

When does a negligent misrepresentation cross the line from a gratuitous, curbstone opinion, which cannot support a lawsuit, to a statement in which the speaker has a sufficient pecuniary interest to justify the imposition of tort liability? That’s the question asked recently by Florida’s Fourth District Court of Appeals in an interesting case involving baseball memorabilia [PDF] pledged as collateral for a business loan. 

Here’s the story. In October 2006, Athanasios Karahalios approached Jeffrey Phillips for a $203,000 loan. As collateral, Karahalios offered a collection of baseball memorabilia. Before Phillips would make the loan, he required that the collection be appraised as having a value of at least $300,000. That same month, the men travelled to Sports Immortals’ place of business in order to have the memorabilia “appraised.”

A representative of Sports Immortals, Joel Platt, met with the group, which disclosed that the appraisal was being done for the specific purpose of Phillips relying on it to make a loan against the memorabilia. Accordingly, the court noted, Sports Immortals and Platt “knew” that Phillips was relying upon the appraisal/evaluation to make a loan to Karahalios. Shortly thereafter, “Platt issued an appraisal/evaluation, indicating that the memorabilia was worth between $350,000.00 and $400,000.00.”

Attached to the complaint as an exhibit, this document lists its “subject” as the “Evaluation of Hall of Fame Baseball Montage of the original inductees in Baseball’s Hall of Fame.” The document described the piece to be evaluated: "We have examined a beautiful 58 x 43 montage of the first inductees in the Baseball Hall of Fame. The assemblage contains photos, baseball cards and signatures of Babe Ruth, Grover Alexander, Connie Mack, Tris Speaker, George Sisler, Walter Johnson, Ty Cobb, Nap Lajoie, Honus Wagner, Cy Young & Eddie Collins."

According to the opinion, Sports Immortals went further and opined that “The subject matter is a unique one of a kind baseball montage that could not be duplicated. If sold at auction we would estimate a possible sales price between $350,000.00 and $400,000.00."

Relying upon the appraisal, Phillips made the loan to Karahalios, who defaulted on it in October 2007. At that time, “Phillips met with another appraiser to ascertain the current value of the memorabilia with the intent of selling it to recoup his money. The second appraiser told him that the Sports Immortals' valuation was incorrect because the autographs on the montage “were not authentic.” Phillips returned to Sports Immortals for a reevaluation in February 2009. After reexamining the collection, the appraiser switched gears, admitted that the signatures were not authentic and assigned no value to the montage, but offered to buy other items for $2,750.

The trial court dismissed Phillips’ complaint, but the 4th DCA reversed, finding that Sports Immortals owed Phillips a duty of care to conduct the appraisal/evaluation in a reasonable manner consistent with the requirements of a “memorabilia appraiser/evaluator/authenticator in the community.” The court found that the complaint stated a claim for negligent misrepresentation.

The key issue in the case was whether the defendants had a “sufficient pecuniary interest” in their dealings with their customer to support a negligent misrepresentation cause of action. The 4th DCA concluded that, indeed they did: “They were in the business of appraising sports memorabilia and Phillips travelled to their place of business to obtain an opinion, after fully disclosing the reason for the inquiry." The transaction was an opportunity for the defendants to establish a relationship with Phillips that might have led to future business.

Last week, 3M, known for its Post-It Notes, masking tape, waterproof sandpaper, and Scotch brand tapes settled a claim brought by several hundred former employees who accused the company of age discrimination.

The claim alleged that 3M terminated many highly paid older employees and directed leadership training to younger employees.

The U.S. Equal Employment Opportunity Commission said its investigation found an e-mail which describes then-CEO Jim McNernery's "vision for leadership development as "we should be developing 30 year olds with General Manager potential."

The consent decree, that still requires judicial approval, said 3M will pay $3 million to about 290 former employees and must also provide training on how to prevent age bias and establish a new process for termination decisions.

For employers who make decisions to terminate in a similar situation, they should consider whether there was a legitimate business reason for the decision to terminate, whether they have treated similarly-situated younger employees in the same manner, and if they haven't, whether there is a good explanation for the difference in treatment.

If an employer can't affirmatively answer those questions, they may find themselves in a similar situation as 3M.

A federal trial between the nation's two largest wiener manufacturers got underway on Monday in Chicago.  The Court will decide whether the hot dog makers broke false advertising laws in their respective efforts to become the biggest dog in the pound.  The controversy pits Sara Lee Corp., which makes Ball Park franks, against Kraft Foods Inc.'s Oscar Mayer, in a proceeding that could define how much companies can boast about their products. 

The war between the parties started in 2009, when Sara Lee filed suit after Oscar Mayer advertised that its dogs beat Ball Park franks in national taste tests.  Kraft argued that the tests were flawed and countersued, alleging that Sara Lee ran false and deceptive ads, which tagged Ball Park as "America's Best Franks."  The Sara Lee ads also assert that the "other hot dogs aren't even in the same league."           

At the trial's opening day, the parties argued over such minutiae as the difference between beef and meat and whether taste tests that exclude buns and condiments are valid.  Another focus of the trial will be Kraft's claim that its jumbo franks are made of beef.  Not surprisingly, Sara Lee contends that the claim is untrue and further asserts that Kraft's "100 Percent Pure Beef" campaign has damaged the sale of Ball Park franks.  

At stake in the legal battle is a $1.76 billion hot dog market and whether either company's boasts crossed a line into the world of 'false advertising.'  The trial is expected to last two weeks.  Stay tuned for the 'top dog' finale.                               

Last week, a federal judge in Orlando declared Florida's Drug Abuse Prevention and Control law unconstitutional.  The nine year old law was challenged on the grounds that it does not include an "intent" requirement, meaning that a defendant can be convicted of a drug offense, even if he or she unknowingly possesses, transports, or delivers a controlled substance.  The case involved a Florida man, Mackle Shelton, who was sentenced to 18 years in prison on a cocaine offense.

The jury that convicted Shelton in 2005 was instructed that to prove the crime of delivery, two elements must be shown: that Mackle Shelton delivered a certain substance; and that the substance was cocaine.  The jury was further instructed that the state did not have to prove that Shelton knew he was carrying or distributing a controlled substance.             

According to U.S. District Judge Mary S. Scriven, the law's fatal flaw is the lack of criminal intent requirement, which Florida's legislature purposely removed from the books in 2002.  The Judge  noted that Florida is the only state in the nation to have expressly eliminated intent as an element of drug offenses.  Scriven concluded that Florida's drug law is unconstitutional "on its face." 

Judge Scriven cited the example of a student who hides cocaine in a friend's backpack without telling him.  The friend, having no idea it is there, would, under the subject drug law, be guilty of possession.  Scriven struck down Shelton's drug conviction.  

Judge Scriven's ruling could potentially throw thousands of criminal cases into jeopardy.  The ruling's implication is being praised as "monumental" and "courageous."  However, its impact on past convictions and people now charged under Florida's drug law won't be clear until an appellate court weighs into the decision.  Florida is expected to appeal the ruling.       

Have you seen the Old Navy commericals for the "Super C-U-T-E" campaign and thought the actress in the commercial was either Kim Kardashian or resembled her? Well, that's what Ms. Kardashian thinks and she has filed a lawsuit in a California federal court against Gap claiming that it structured its ad to take advantage of Kim's persona and profit themselves and not her.

The lawsuit asserts that Kim Kardashian "has invested substantial time, energy, finances and entrepreneurial effort in developing her considerable professional and commercial achievements and success, as well as in developing her popularity, fame, and prominence in the public eye."  The lawsuit further suggests that somehow the Old Navy campaign undermines that.

Well, I have seen the ad, and can tell you that the actress in the ad, Melissa Molinaro does kind of look like Kim Kardashian.  But, what I find perhaps the most intriguing is that Molinaro is dating Kim Kardashian's ex-boyfriend, Reggie Bush and that she is flattered that people think she resembles Kim.  Ironically, I think Molinaro will stand to benefit the most from all this publicity.

In October 2005, then governor, Arnold Schwarzenegger, signed the video game law which slapped anyone who sold or rented a "violent video game" to a minor with a $1,000.00 fine.  While still permitting parents to buy these games for their children, it specifically targeted any game in which the player had an option to "kill, maim, dismember, or sexually assault an image of a human being."

A few months later, a federal judge blocked the law from taking effect.  The Ninth Circuit Court of Appeals upheld the decision, which was then appealed to the U.S. Supreme Court.  The Supreme Court has now ruled and it's the law, video games are entitled to free speech too under the First Amendment.

In reaching that decision, Justice Scalia noted that books which are suitable for high school students are full of violent material.  "Certainly the books we give children to read--or read to them when they are younger--contain no shortage of gore: Grimm's Fairy Tales, for example, are grim indeed.  As her just deserts for trying to poison Snow White, the wicked queen is made to dance in red hot slippers 'till she fell dead on the floor, a sad example of envy and jealousy."

Of course the ruling is welcome news to the Entertainment Software Association, which represents the U.S. computer and video game industry.  Other states have tried to enact similar laws, but each has been rejected by lower courts.

While it may not seem obvious that these video games are just another form of expression to some, they are entitled to the same protection as other books, movies, and music.  The video game industry, similar to the movie and music industries, polices itself and has its own rating system that advises whether the content of the video game is appropriate for young children.  The rating system may not be perfect, but it's going to have to be enough.

While the Wal-Mart decision will undoubtedly have a profound impact on class actions, so too will the Smith v. Bayer decision, also recently decided by the U.S. Supreme Court.  Once again, the issue is class certification.  However, this time, there is no real victory for businesses.

In Smith v. Bayer, our nation’s highest court unanimously ruled that a federal district court, which rejected certification of a proposed class action, could not take the additional step of enjoining a state court from entertaining a motion to certify the same class.  The case involves Bayer’s cholesterol lowering drug Baycor.  In 2001, George McCollins sued Bayer in state court alleging that its drug Baycor was defective.  The case was removed to federal court, and there, the federal judge issued a decision denying class certification.

While the McCollins' case was pending, Smith filed a separate action in a West Virginia state court, also alleging that Baycor was defective.  Bayer sought an injunction in federal court arguing that the district court’s rejection in McCollins should bar Smith’s relitigation of the same issue.  The district court agreed with Bayer and granted an injunction prohibiting the certification of the class, which was affirmed by the circuit court.

The Supreme Court overturned the injunction and ruled the federal court exceeded its authority when it enjoined Smith from seeking class certification under the Anti-Injunction Act. 

The Anti-Injunction Act provides that state courts shall remain free from interference by federal courts, subject to certain and specific defined exceptions.  The relitigation exception to the Act authorizes an injunction to prevent state litigation of an issue previously decided by the federal court.  Pursuant to well-settled case law, a federal court considering application of this exception should examine whether state law parallels its federal counterpart and further resolve any uncertainty in favor of permitting the state court to proceed.         

The Supreme Court noted that the Smith case did not fall into the relitigation exception allowed by the Anti-Injunction Act, finding in part, that the issue presented by the state action was not identical to the issue decided by the federal court.  What does this all mean?  For businesses, it means that there is no certainty in past decisions and that you cannot always rely on one victory to forge another.

In a much-awaited decision, the U.S. Supreme Court has thrown out a huge discrimination lawsuit against Wal-Mart that had been filed as a class action by female workers.

The U.S. Supreme Court ruled that a massive lawsuit filed on behalf of 1.5 million female workers against Wal-Mart that alleged the retail giant had systematically discriminated against them in pay and promotions could not go forward as a class-action, and the decision could have far-reaching effects in employment cases.

The Court, in a closely divided 5-4 vote, held that the plaintiffs could not show that Wal-Mart had a common policy of discriminating against women. Instead, because the company allowed individual store managers to decide on pay levels and promotions, the plaintiffs could pursue individual claims if they believed they were discriminated against, but Wal-Mart could not be forced to defend against a class action.

The ruling is a huge victory for Wal-Mart, which spent millions of dollars defending the case, and it may also protect other large employers from similar claims that rely on statistics (rather than hard evidence) that may suggest discrimination based on the race or gender of employees. Had the plaintiffs’ lawyers prevailed against Wal-Mart, other large employers who allegedly relegate women or minorities to lower-paying jobs were seen as likely targets of similar class actions.

While the Court’s majority found it “quite unbelievable” that Wal-Mart managers would exercise their discretion re: pay and promotions in a common way without some common direction, dissenting Justices felt there was enough evidence of systematic sex discrimination by Wal-Mart to allow the suit to go forward. "Women fill 70% of the hourly jobs in the retailer's stores, but make up only 33% of the management employees," Justice Ruth Bader Ginsburg wrote. "The higher one looks in the organization, the lower the percentage of women."

Well, at least for now Warner Brothers is winning the battle against Charlie Sheen.  In a ruling this week, the judge presiding over the Sheen case ruled that Charlie Sheen will not get his day in court after all.  The judge ruled that he will have to have his case heard in arbitration.

In March of this year, Charlie Sheen filed suit against Warner Brothers for $100 million claiming that he was wrongfully terminated in violation of his contract after making statements about Chuck Lorre, the producer of Two and Half Men.  Sheen's contract apparently contains a provision requiring certain disputes to be arbitrated rather than litigated in court.

Sheen, of course, wanted to have the proceedings held before the public, but that's not going to happen.  Arbitration provisions in employment contracts are nothing new.  In fact, they are quite common.  While some have tried to argue that they are unenforceable because of the employee's lack of bargaining power, most courts have upheld such provisions.  Arbitration is typically preferred by employers because it is cheaper and faster than traditional litigation.

This victory while significant for Warner Brothers in the short term, may not mean that Warner Brothers is going to win the war.  In fact, I think Warner Brothers is going to have a tough time overcoming the fact that it didn't terminate Sheen's contract after he held his ex-wife at knife-point, threatened to kill her, and was arrested for domestic violence.

In any event, it will be interesting to see how it all plays out.  After all, "(CBS) picked a fight with a warlock."

The Texas Supreme Court reversed and remanded to the court of appeal a decision vacating a $25 million jury verdict in favor of third party beneficiaries of a loan commitment. The Supreme Court held that real estate investment trusts were third party beneficiaries of a commitment agreement between a lender and the company that managed the investment trusts, even though the commitment did not state that the trusts were third party beneficiaries. The Supreme Court also held that the lender could be liable for lost profits damages where the borrower was unable to obtain replacement financing because of a change in market conditions.Basic Capital Management, Inc. v. Dynex Commercial, Inc., 2011 WL 1206376 (Tex.), 54 Tex. Sup. Ct. J. 781.

In opposition to the plaintiff’s motion for summary judgment, defendants submitted an affidavit stating that they believed, with discovery, they could establish counterclaims for the lender’s wrongful use of confidential information. The court held that, under these circumstances, summary judgment was inappropriate and gave the defendant 45 days to take discovery. Courtesy Outdoor Finance, LLC v. Bass Ltd., 2011 WL 933957 (W.D. La.).

Electronic discovery (aka e-discovery) refers to discovery in civil litigation that deals with information in electronic format, also referred to as “Electronically Stored Information” (ESI).

Lawyers (and their clients) know that e-discovery can be a very tricky area, with lots of traps and land-mines for the unwary.  But the patience of judges with lawyers who don’t follow the rules seems to be waning big-time. 

“Imagine a stand-up comic who delivers the punch-lines of his jokes first, a plane with landing gear that deploys just after touchdown, or a stick of dynamite with a unique fuse that ignites only after it explodes.” That’s Chief U.S. District Court Judge Royce Lamberth from the District of Columbia in a recent opinion, bench-slapping defense counsel in a pending class action lawsuit (DL v. District of Columbia)[PDF]

Judge Lamberth was furious over the conduct of the attorneys for the District of Columbia in producing thousands of emails just days before trial, as well as their plans to continue their late e-discovery production up to and during the trial itself!  Here is how the Judge described the mess:

“Whether the District made a good-faith effort to produce all responsive e-mails before the trial is irrelevant. … [I]t was not sanctioned for failing to make a good-faith effort. It was sanctioned for openly, continuously, and repeatedly violating multiple Court orders, failing to adhere to or even acknowledge the existence of the Federal Rules’ discovery framework, and committing a discovery abuse so extreme as to be literally unheard of in this Court.”

Ouch!  No lawyer ever wants to be on the receiving end of that, so better brush up on your e-discovery know-how (or make sure your firm and client have an IT department that knows how to handle e-discovery).

I for one am a peanut lover and what's not to love - they are crunchy, salty, and just plain tasty.  But not everyone feels the same about this nut.  From school bans to airplane bans, peanuts have obtained a pretty bad reputation over the last few years.

Now, it appears that peanuts are receiving some much needed protection, at least for now from the Department of Transportation.  In a story reported by CNN, the Department of Transportation (DOT) said that it will not take on the peanut issue because of a 12 -year-old law which blocks the agency from tampering with the peanut policy without more scientific study.  Apparently, no such peer-reviewed study has been conducted on this issue.

The statement and the final ruling on the peanut issue, came after the DOT solicited comments last year from the public about a possible peanut ban on plans due to severe allergies suffered by some fliers.  In response, over 2,100 comments were received.

So, at least for now, peanuts will continue to be a flight staple.  Yum.