Florida Corporate Law – The Business Judgment Rule
The business judgment rule has been traditionally applied to protect corporate directors from personal liability. However, the presumption of correctness provided to directors under this rule is limited in nature under Florida law.
Florida Business Law – Partnerships by Estoppel
Partnerships
Under Florida Law, a partnership is defined as “an association of two or more persons to carry on as co-owners a business for profit,” other than other types of business entities formed under statute (such as limited liability companies or corporations). Florida does not require any filing to form a partnership; what this means is that it is legally sufficient that two parties intend to “carry on as co-owners a business for profit” for a partnership to be formed.
Under traditional common law principles, a partnership was not considered an entity separate from its owners. The Florida Revised Uniform Partnership Act, however, codified common law principles and clarifies that a partnership is an entity distinct from its owners. This change clarified an issue which arose often under the common law principles – if the partnership was not a separate entity, but was the aggregate of the partners, then a new partnership was formed each time a member left or a new member was added to the partnership. This of course made for confusing and complex legal issues when it came to determining partnership liabilities. Under Florida’s current system, the partnership remains in existence despite a change in the composition of the partners.
Current Florida law continues with the common law tradition of “joint and several liability” among the partners. What this means is that all partners are all fully liable for any debts incurred by the partnership in the course of business, regardless of their proportionate investment or control in the partnership.
The joint and several liability doctrine as applied to partnerships as well as the lack of a filing requirement in Florida in regard to partnership formation create an issue of which any person conducting business in state should be aware. Partnership by estoppel is a doctrine by which a court will consider a person a partner even if there was no partnership agreement (written, verbal, or otherwise) between the parties. What this means is that an individual, though their conduct, could be taking on the full liability for any debts or damages the partnership may owe to a third party.
Common ways for an individual to be held liable as a partner by estoppel include giving a third party the impression that the person is a partner, or if a third party extends credit to an individual believing them to be a member of the partnership. A partnership by estoppel is found by courts when the actions of the parties involved in conducting business fit the definition of two parties intending to “carry on as co-owners a business for profit,” regardless of the subjective intent of the parties.
If you are currently conducting business with another person, whether you have a home-based business with your brother-in-law or starting a restaurant with your friend, you may be acting as a partnership without even knowing it. As discussed above, this type of conduct could potentially expose you to full liability for the actions of another. By calling one of our experienced Florida business lawyers at (954)-779-7009 to discuss your situation, we can determine your risk and work with you to find a solution that minimizes your potential exposure.
Wrongful Act Doctrine (Schwartz v. Bloch)
Independent Expert Testimony Not Required Where Attorneys’ Fees are Claimed an Element of Compensatory Damages pursuant to the Wrongful Act Doctrine
Mayan Schwartz v. Stuart E. Bloch, et al., No. 4D10-742 (Fla. 4th DCA June 6, 2012)
The subject case came up on appeal after plaintiff, Mayan Schwartz, appealed a final judgment entered in favor of the defendants, attorney Stuart Bloch and the law firm of Bloch, Minerley & Fein, P.L. The plaintiff’s underlying action alleged legal malpractice and breach of fiduciary duty claims. The jury returned a verdict finding in favor of plaintiff with respect to certain entities in connection with which damages were claimed, but found in favor of defendants as to other entities. The jury awarded $125,000 in damages for each of the entities (in connection with which plaintiff prevailed), for a total of $500,000. Additionally, the jury awarded $250,000 as reasonable and necessary attorneys’ fees, costs or expenses recoverable under the wrongful act doctrine; this award was based upon fees incurred by plaintiff in prosecuting certain claims against his family and his former accountant which claims arose as a consequence of certain advice provided by the defendants in connection with assignment of plaintiff’s assets to his father for no consideration.
The defendants filed post-trial motions arguing that plaintiff failed to present expert testimony as to the reasonableness of his attorneys’ fees, and that plaintiff failed to prove his damages with respect to the loss of his business interests. The trial court granted relief on these grounds and vacated the damages awards, and entered final judgment in favor of the defendants. Plaintiff appealed.
On appeal, the Fourth District Court of Appeal reversed as to the trial court’s post-trial order that set aside the jury’s award of $250,000 in attorneys’ fees or costs. The Fourth District Court of Appeal held that independent expert testimony was not required for fees which the plaintiff incurred in the litigation with his family and sought as an element of compensatory damages under the wrongful act doctrine.
The wrongful act doctrine provides that where “the wrongful act of the defendant has involved the claimant in litigation with others, and has placed the claimant in such relation with others as makes it necessary to incur expenses to protect its interest, such costs and expenses, including reasonable attorney’s fees upon appropriate proof, may be recovered as an element of damages.” Schwartz citing Martha A. Gottfried, Inc. v. Amster, 511 So. 2d 595, 598 (Fla. 4th DCA 1987). This is an exception to the rule that attorneys’ fees are not recoverable in the absence of a statute, contract, or rule authorizing such award. Id.
The court further explained that although the general rule in Florida is that independent expert testimony is required where a party seeks to have the opposing party in a lawsuit pay for attorneys’ fees in that same action, this rule is not applicable to the wrongful act doctrine where the fees are sought as an element of damages, and thus distinguishable from a situation where there is a first-party fee dispute between an attorney and a former client, or a situation in a fee-shifting case where a party is required by statute or contract to pay the attorneys’ fees of the adverse party. Id.
To read the entire opinion, click here.
