Florida Officer-Director Liability for Business Torts
Generally, a director or officer of a corporation does not incur personal liability for [the corporation’s] torts merely by reason of his official character; he is not liable for torts committed by or for the corporation unless he has participated in the wrong. Indeed, Florida courts have found that it is well established that an officer of a corporation who commits or participates in a tort, whether or not it is in furtherance of corporate business and whether or not it is by authority of the corporation, is liable to the injured party whether or not the corporation is also liable. Courts have rationalized this finding by noting that a contrary rule would enable a director or officer of a corporation to perpetrate flagrant injuries and escape liability behind the shield of his representative character, even though the corporation might be insolvent or irresponsible. Florida courts have additionally found that a corporate officer is potentially individually liable for his tortious acts even though such acts were committed in the scope of his employment by the corporation.
Corporate officers can also be held individually liable for corporate acts where there is actual wrongdoing in the form of fraud, self-dealing or unjust enrichment. Although the corporate shield doctrine is applicable to jurisdictional issues, a corporate officer may be joined in the lawsuit given that the corporate shield doctrine has no application when the corporate officer commits an intentional tort. In that regard, courts are generally hesitant to allow corporate officers who commit or participate in wrongful acts, such as intentional torts, to be completely shielded by the corporate form.
Schecter Law’s attorneys have experience with a wide range of business torts disputes. We are equipped to address your most challenging litigation needs with highly skilled legal services and solutions while providing a level of unmatched client commitment combined with reasonable legal fees.
The Relation Back Doctrine
The relation back doctrine set forth in Florida Rule of Civil Procedure 1.190(c) provides that an amended pleading relates back to the date of the original pleading when it arises “out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading…” The rule allows amendments to relate back even though the statute of limitations has run in the interim. Lopez-Loarca v. Cosme, 76 So. 3d 5 (Fla. 4th DCA 2011). The original pleading must give fair notice of the general fact situation out of which the claim or defense arises. Flores v. Riscomp Indus., Inc., 35 So. 3d 146 (Fla. 3d DCA 2010). Two recent district court of appeal opinions discussed the relation back doctrine.
In Kalmanowitz v. Hess, 4D10-4970 (Fla. 4th DCA 2013), the Fourth District Court of Appeal found factual allegations in the original complaint sufficient to give fair notice of the general fact situation out of which a negligent supervision and retention claim arose. Specifically, the original complaint alleged that an employer is responsible for an employee’s fraudulent inducement and that the employer knew or should have known about its agent’s fraudulent scheme. Further, the employer failed to remedy the situation, knowing that investors throughout the state were being defrauded. The amended complaint involved the same conduct set forth in the original. Therefore, the court held that the negligent supervision and retention claims relate back to the date of the original complaint and did not violate the statute of limitations.
Conversely, in Kopel v. Kopel, No.: 3D11-356 (Fla. 3d DCA 2013), the Third District Court of Appeal found no relation back to the original complaint. In order to survive a motion to dismiss after the statute of limitations has passed, an amended complaint must relate back to the original pleading. Here, the fifth amended complaint added a new cause of action that had not been raised until fourteen years after the original pleading. By failing to relate back to the original complaint, the new cause of action in the amended complaint was barred by the statute of limitations. Therefore, the district court reversed and remanded for proceedings consistent with their opinion.
You can read the full opinions here:
(http://www.4dca.org/opinions/April%202013/04-03-13/4D10-4970.op.pdf)
Standing: An Affirmative Defense to Mortgage Foreclosure
To have standing to foreclose, it must be demonstrated that the plaintiff holds the note and mortgage in question. Mazine v. M & I Bank, 67 So. 3d 1129, 1132 (Fla. 1st DCA 2011). The plaintiff must prove that it had standing to foreclose when the complaint was filed. McLean v. JP Morgan Chase Bank Nat’l Ass’n, 79 So. 3d 170, 173 (Fla. 4th DCA 2012).
In Lindsey v. Wells Fargo Bank, N.A., No. 1D12-2406 (Fla. 1st DCA 2013), Lindsey appealed final summary judgment entered in favor of Wells Fargo for mortgage foreclosure. The First District Court of Appeal reversed and remanded because Wells Fargo failed to establish its standing to foreclose.
In March 2007, Lindsey executed and delivered a promissory note to Option One Mortgage. The note was secured by a mortgage on property owned by Lindsey. In January 2009, Lindsey was given notice that he was in default after he stopped making payments on the note. On April 2, 2009, Wells Fargo filed a complaint to foreclose the mortgage. The copy of the note and mortgage attached to the complaint named Option One as the lender and mortgagee.
Wells Fargo filed the original note with the court along with an Assignment of Mortgage dated April 10, 2009. The Assignment of Mortgage did not purport to transfer the note, and the original note filed with the court did not include a special endorsement to Wells Fargo or a blank endorsement.
Wells Fargo subsequently filed a motion for summary judgment. However, the affidavits filed by Wells Fargo did not prove Wells Fargo’s ownership of the note. Nonetheless, the trial court entered a Final Judgment of Mortgage Foreclosure.
The First District Court of Appeal reversed, and held that Wells Fargo failed to demonstrate that it was the holder of the note and mortgage at the time the foreclosure complaint was filed. Although Wells Fargo filed a document showing that the mortgage was assigned to it by Option One, the document did not, however, assign the note.
The attorneys at Schecter Law have vast experience in all aspects of complex commercial and residential mortgage foreclosures. Schecter Law has represented institutional and individual lenders in connection with foreclosing both commercial and residential properties. Our attorneys’ vast experience in the area of Florida foreclosure law enables us to assist our clients in developing creative and cost-effective solutions to mortgage foreclosure and deficiency related issues.
A Breach of a Fiduciary Duty Claim May be Waived
A dispute arose between Band and Libby regarding the development and construction of a luxury condominium. Band, the managing general partner of the development and an attorney, contacted Libby to invite him to become an investor. Band and his former law firm had previously represented Libby on numerous matters. Libby made an initial investment of about $140,000 in exchange for a ten percent interest in the project. Libby received, signed, and returned conflict waiver/disclosure letters relating to the project from Band’s law firm.
After a few years and several issues with the project, Libby declined to pay his contribution to a capital call and in accordance with the partnership agreement, forfeited his initial investment and subsequent contributions totaling over $1,000,000. In Libby’s suit against Band seeking recovery of all contributions, Libby alleged breach of fiduciary duty. Band raised the affirmative defense of waiver. Although the jury believed Band breached his fiduciary duty to Libby, the jury found that Libby waived his claim for breach of fiduciary duty. Libby did not recover any damages from Band. After the trial, Libby filed a motion for judgment notwithstanding the verdict and motion for new trial. The trial court agreed “that as a matter of law, there can be no waiver of a breach of fiduciary duty” and awarded Libby a new trial limited to the issue of damages on the breach of fiduciary duty claim.
In Band v. Libby, No. 2D11-4942 (Fla. 2d DCA 2013), Band argued that the trial court erred in granting Libby a new trial on the issue of damages on the breach of fiduciary duty count. The trial court based its decision to grant relief because it ruled it had committed legal error in allowing the jury to consider Band’s affirmative defense of waiver with regard to Libby’s claim for breach of fiduciary duty. The Second District Court of Appeal was faced with the issue of whether a claim based on a breach of fiduciary duty may be waived.
Finding that a claim based on a breach of fiduciary duty, like any other claim, may be waived, the Second District Court of Appeal ruled in favor of the appellant. The Second District Court of Appeal further acknowledged that a party has the right to interpose the affirmative defense of waiver to a claim based on a breach of fiduciary duty. The trial court order granting a new trial on the issue of damages on the claim of breach of fiduciary duty was reversed, and the case was remanded for entry of a final judgment in accordance with the jury’s verdict.
Relief from Judgment under Florida Rule of Civil Procedure 1.540
Florida Rule of Civil Procedure 1.500(b) provides that “[w]hen a party against whom affirmative relief is sought has failed to plead or otherwise defend as provided by these rules or any applicable statute or any order of court, the court may enter a default against such party.”
In Yale Mortgage Corporation v. Blot, 3D12-1894 (Fla. 3d DCA 2013), Yale Mortgage filed a mortgage foreclosure complaint against Blot. The complaint was served August 26, 2011. In October 2011, the trial court entered a default against Blot who failed to respond to the complaint. The trial court entered a final judgment of foreclosure against Blot on January 12, 2012. Shortly after the property was sold in May of 2012, Blot filed a motion to vacate the default and default final judgment and requested that the trial court vacate the sale. The trial court granted Blot’s motions.
The Third District Court of Appeal reversed the trial court’s order finding in part that Blot failed to show any excusable neglect for failure to answer the complaint. Blot waited until seventy days after Yale Mortgage served the complaint and over two weeks after the default had been entered. A movant seeking relief from a judgment must show that his failure to respond was the result of excusable neglect, the existence of a meritorious defense, and that the movant acted with due diligence in seeking relief. Fla. R. Civ. P. 1.540(b) (2012).
Treble Damages Not Assessed Against Representative Who Was Not a Party to the Contract
In Home Construction Management, LLC v. Comet, Inc., 4D11-4022 & 4D12-21 (Fla. 4th DCA 2013), Home Construction Management, LLC. (“HCM”) and representative Abraham Omer appealed a final judgment and damage award for claims relating to providing unlicensed contracting services. HCM was contacted by Comet, Inc. (“Comet”) to complete the construction of a single-family residence in Lantana, Florida. The parties entered into a written contract for completion of the project. Omer represented HCM throughout HCM’s relationship with Comet; neither Omer nor HCM was a licensed contractor. Comet sued for disgorgement of overcharges and treble damages under Fla. Stat. §768.0425(2). The trial court entered a final judgment, which trebled damages in the amount of $41,747.58 in overbillings, making Omer and HCM jointly and severally liable up to the damage amount of $125,242.74.
The Fourth District Court of Appeal affirmed all issues except the application of §768.0425 against Omer individually. §768.0425(1) defines “contractor” as “any person who contracts to perform any construction or building service which is regulated by any state or local law, including, but not limited to, chapters 489 and 633.” As the trial court found that Omer was not a party to the written contract between HCM and Comet, the Fourth District Court of Appeal reasoned that Omer did not “contract to perform” any service as required by §768.0425.
Our attorneys have a vast knowledge of Florida law. We are able to assist our clients in developing creative and cost-effective solutions to contractor related issues.
Commercial Lease Dispute and the Integration Clause
In AGBL Enterprises, LLC v. Girlcook, Inc., 96 So. 3d 1058 (Fla. 4th DCA 2012), AGBL Enterprises (“Lessor”) leased a commercial building in a shopping plaza to be used as a full service restaurant to Girlcook (“Lessee”). The lease contained an integration clause that stated, “[T]he entire agreement between the Lessor and Lessee consists solely of the terms in this lease and the accompanying rider. The agreement between the lessor and lessee will not consist of any verbal or implied statements which are not specifically written in this lease or the accompanying rider.” Despite the shopping plaza undergoing major renovations at the time the lease was signed, no provision in the lease required the renovations to be completed by any specific date. Moreover, Lessee agreed to accept the premises, which included the building being leased and the entirety of the plaza, in the current condition at the beginning of the rental period. The lease also required Lessee to make monthly rent payments before the first day of each month. In turn, Lessor was responsible for maintaining the roof, foundation and exterior of the building, and all parking areas in decent repair for their intended use.
After Lessee failed to make rent payments for three months, Lessor brought an action seeking eviction and past due rents for breach of lease. As an affirmative defense, Lessee alleged that it had notified Lessor that Lessor was in breach of lease for failing to maintain the premises, and that Lessee was placing rent payments in escrow. Lessee also filed a counterclaim alleging fraudulent inducement into executing the lease and that Lessor breached the lease: (1) by failing to have the sewage hooked up as required by September 1; (2) by refusing to repair the roof, parking structures, air conditioning, and landscaping; (3) by providing inadequate parking spaces for the businesses in the plaza; and (4) by intentionally removing and destroying the return air unit of the restaurant.
The trial court determined that Lessor had breached the lease because Lessor’s work in the plaza was not completed by September 1, 2007 and because Lessor had failed to maintain the roof of the building, exterior of the plaza, and all parking areas in decent repair. The Fourth District Court of Appeal affirmed the finding that Lessor breached the lease by failing to maintain the premises; however, reversed and remanded with instructions that the trial court reduce damages attributable to Lessor’s failure to timely complete work on the shopping plaza.
In its reasoning, the Fourth District Court of Appeal agreed with Lessor that the trial court erred by considering parol evidence to contradict the terms of the fully integrated written lease agreement. Lessor could not be liable for damages incurred by Lessee as a result of Lessor’s failure to complete work on shopping plaza where building was located because Lessor had no obligation under the lease.
This case demonstrates the importance of understanding the provisions in a commercial lease for both the Lessor and Lessee. Although negotiations prior to signing the lease may have involved a completion date for the plaza’s renovations, the integration clause required any terms to be specifically written in the lease. Commercial transactions can be complex and require meticulous attention to detail and superior negotiation skills. At Schecter Law, our attorneys are equipped to provide representation in the litigation aspect of your case, as well as on the transaction end. To read about Essential Terms in a Commercial Lease, please visit our real estate website at www.schecterrealestatelaw.com.
Class Decertification, Case Law Update – Campbell v. First American Title Insurance Company
A class action is a lawsuit where one or members of a class may sue or be sued as representative parties on behalf of all members. The class action must have the characteristics of commonality, adequacy, numerosity, and typicality. Commonality refers to there being one or more claims common to the entire class. Adequacy refers to the representative parties adequately protecting the interests of the class. Numerosity refers to the class being so large that joinder of all members is impractical. Typicality refers to claims or defenses being typical of the plaintiffs or defendants.
Collecting a large number of individualized claims into one representational lawsuit has advantages. First, a class action effectively and efficiently brings together small claims that would be unlikely or impractical to litigate on their own. Second, the plaintiff has a strengthened position for negotiating settlement when a class is certified. Nevertheless, a class may be decertified at any time prior to final judgment. Class decertification may destroy the incentive to go forward with an individual claim because continuing may not justify the expense of litigation.
In Loef v. First American Title Insurance Company, No. 2:08-cv-311-GZS, (Dec. 10, 2012), the United States District Court for the District of Maine granted a motion to decertify the class provisionally certified in Campbell v. First Am. Title Ins. Co., 269 F.R.D. 68 (D. Me. 2010). The class consisted of homeowners who had refinanced a prior mortgage on residential property in Maine that was issued within two years of the refinancing and who had been overcharged for their title insurance by First American. Although the class had been provisionally set by Judge George Z. Singal, a court remains free to modify a class certification order at any time prior to final judgment. In assessing whether class certification remains viable, the court must consider not only developments of the factual record, but also any newly announced legal precedent.
First American moved for class decertification on two grounds. First, under Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), the class failed to satisfy Rule 23(a)’s commonality requirement. Once a low bar, the Supreme Court’s decision in Dukes changed the class certification standard to a far more searching inquiry. In addition to requiring a common question, class certification now requires common answers. Thus, while even one common question can satisfy Rule 23(a)(2), dissimilar answers to that question among class members may mean that commonality is lacking.
Second, First American asserted that “the central liability question in this case is whether each class member qualified for and was wrongly denied the refinance rate” and there was no common answer to this underlying liability question. Consequently, First American showed the court that there was no common cause for the alleged title insurance overcharges. Each class member offered unique facts as to what was presented in connection with their title insurance purchase and what steps were taken to ascertain whether they qualified for the refinance rate.
In a review of nearly 230 transactions identified as overcharges by Plaintiff’s class certification expert, First American found about one-third had not been overcharged or were not eligible for the refinance rate. Additionally, for another 94 transactions, First American could not locate a copy of a loan policy from a prior mortgage transaction within the two-year look back period making it extremely difficult to determine whether these transactions qualified for but did not receive the discounted rate.
Accordingly, the court agreed with First American’s assertion that liability depended on a file-by-file review of documents from each potential class member’s refinance transaction and prior transaction. File-by-file review defeats commonality and predominance under Rules 23(a) and 23(b)(3). The overcharging was not systematic, but rather the result of errors that are apt to occur in any set of hundreds of thousands of customer transactions. In sum, the stricter class certification standards set in Dukes along with factual developments led the court to find that there was no longer sufficient commonality to justify class certification.
The purpose of title insurance is to protect the purchaser of real estate and the holder of a mortgage against loss from defective titles, liens, and encumbrances. Protecting a buyer against loss is accomplished by the issuance of a title insurance policy. When a dispute arises under a title insurance policy, often a claim will have to be made to the insurer. Schecter Law is prepared to handle all aspects of your title insurance claims, including coverage disputes, closing protection letter disputes and title and closing agent disputes. Call one of our experienced attorneys today at 954-779-7009.
Fiduciary Duty of Majority Stockholders in a Closely Held Corporation – Control of Stock
A question often arises regarding the nature and scope of the duty owed by a majority stockholder or stockholders to a minority stockholder in a closely held corporation. In Biltmore Motor Corp. v. Roque, 291 So. 2d 114 (Fla. 3d DCA1974), the Third District Court of Appeal addressed this issue in the context of manipulation of stock issue by two majority shareholders against one minority shareholder where the majority shareholders made a decision to sell a new stock issue at a price materially less than its market value thus diluting the minority shareholder’s stock.
The minority shareholder brought suit against the majority shareholders to revoke and rescind the recapitalization of the corporation. The two defendants authorized the new stock issue, acting as the Board of Directors; the reason that they advanced for the change in capital structure was the repayment of certain loans that had serious impaired the capital of the corporation, jeopardizing its credit standing and ability to profitably conduct business.
The evidence presented showed that plaintiff had been involved with the company for 11 years, as an employee, vice-president and director. The defendants terminated his employment, and then made efforts to purchase plaintiff’s stock at an amount that was considerably less than the market value of the stock as testified to by an expert witness who estimated the value to be $6,900 per share. Although the defendants offered plaintiff his right to purchase his prorate share of stock, the court found this to be an empty gesture as the defendants knew that plaintiff would not invest any more money in the company having been ousted from the corporate family. In addition, the evidence showed that defendants began withdrawing sums of money for repayment of loans and in payment of undistributed earnings, and also raised their own salaries which was $17,500 in excess of the composite salary paid to all three stockholders prior to the termination of the minority stockholder.
Ultimately, the trial court found that there was no legitimate corporate purpose for the recapitalization of the company; that the only purpose was to dilute the plaintiff’s interest; that by recapitalizing, the defendants breached their fiduciary duty as majority stockholders; and accordingly, the trial court ordered the revocation and rescission of the recapitalization.
The trial court’s decision was affirmed on appeal. The Third District Court of Appeal noted that the defendants entered into a scheme directed against the minority shareholder, and the evidence in the record supported the trial court’s conclusion that no legitimate business purpose was shown for the actions of the majority stockholders.
U.S. Foreign Corrupt Practices Act – Resource Guide released by the SEC and the DOJ
The Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission have released “A Resource Guide to the U.S. Foreign Corrupt Practices Act”, consisting of 130 pages (“Resource Guide”).
The Resource Guide outlines the anti-bribery and accounting provisions of the Foreign Corrupt Practices Act (FCPA), providing demonstrative examples and hypotheticals designed to “provide helpful information to enterprises of all shapes and sizes – from small businesses doing their first transactions abroad to multi-national corporations with subsidiaries around the world.” Resource Guide, Foreword. The Resource Guide further sheds light on definitions of the operative terms utilized in the FCPA; for example, it provides meaningful and succinct explanations for the terms “corruptly”, “willfully”, and “anything of value” set forth in the anti-bribery provisions of the FCPA.
The Resource Guide sets forth a wealth of information regarding the FCPA. The entire Resource Guide can be downloaded here: http://sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf.
