Florida Supreme Court Addresses Bilingualism and Arbitration Agreements

According to the U.S. Census Bureau, about one in five Florida residents speak Spanish. The percentage is even higher in South Florida, where the Census estimates upwards of 40% of the population speaks Spanish. Many South Floridians only have a basic grasp of English and that’s an important consideration for retailers and other small businesses that cater to Spanish-language populations.

The Florida Supreme Court recently decided a case that involved a conflict between Spanish-speaking customers and a South Florida car dealer. The justices reinstated a trial court’s decision to void an English-only arbitration agreement that was not properly explained to the customers. The Supreme Court also clarified the test for declaring an arbitration agreement “unconscionable” as a matter of law.

Basulto v. Hialeah Automotive

In 2004 a married couple, Robert Basulto and Raquel Gonzalez, purchased a new Dodge Caravan from a dealer in Miami Lakes. Like many South Floridians, Basulto and Gonzalez originally emigrated to the U.S. from Cuba. According to court records, the couple was “only able to communicate in Spanish.”

Basulto and Gonzalez traded their previous vehicle to the dealer in exchange for an allowance against the purchase price of the Caravan. The dealer drafted contracts, in English, to complete the sale. These contracts contained mandatory arbitration provisions in the event of a disagreement. Basulto and Gonzalez signed the contracts—which they claimed contained a number of blanks later completed by the dealer—and drove their new car off the lot.

Subsequently, the couple discovered the trade-in allowance specified in the contract was lower than the amount they had orally agreed to with the dealer. But the dealer refused to honor the oral commitment. The couple then tried to return the new vehicle and reclaim their old car, but it had already been sold.

Basulto and Gonzalez then sued the dealer under Florida law governing unfair trade practices. The dealer asked the trial judge to enforce the arbitration agreement. The judge refused, finding the agreement was “unconscionable” and unenforceable. An intermediate appeals court sided with the dealer, but the Florida Supreme Court, by a vote of 5-2, reinstated the trial judge’s original decision.

The Supreme Court supported the trial judge’s finding that no valid arbitration agreement existed between the couple and the dealer. An arbitration agreement is a contract. A contract requires a “meeting of the minds.” In this case, there was no such meeting due to the couple’s inability to communicate in English as well as their lack of understanding about arbitration clauses.

Because there was no valid contract, it was unnecessary to address the trial court’s finding the arbitration agreement was also “unconscionable.” The Supreme Court addressed the subject anyway. “When analyzing unconscionability,” the Court observed, “courts must bear in mind the bargaining power of the parties involved and the interplay between procedural and substantive unconscionability.” In other words, there’s a difference between two “sophisticated commercial enterprises” negotiating a contract with one another versus an uneducated individual purchasing a car from a dealer.

Protecting Your Business

It is essential to draft any business contract so that it will withstand judicial scrutiny. There is little point in negotiating an agreement that cannot be enforced. Whatever issues may arise, including the native languages of the parties involved, you should always work with an experienced South Florida business attorney who can advise you on the best contracting practices. Contact John S. Sarrett in Naples today if you have any questions.

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Commercial Leases May Restrict Retail Competition

Florida retailers who operate in shopping centers must be aware of restrictive covenants that can affect their businesses. Landlords may give one retailer exclusivity within a shopping center. Recently, a federal appeals court addressed a complex case involving dozens of Florida stores that allegedly ran afoul of restrictive covenants favoring the well-known supermarket chain Winn-Dixie.

Winn-Dixie Stores v. Dolgencorp, LLC

Winn-Dixie operates 500 supermarkets throughout the Southeast. When negotiating commercial leases, Winn-Dixie usually insists on a restrictive covenant that prevents another tenant in the same shopping center from operating grocery stores or dedicating more than a limited amount of retail space towards the sale of groceries. In 2011, Winn-Dixie sued three competing retailers—the parent companies of Dollar General, Dollar Tree and Big Lots stores—for violating these covenants at various locations. Altogether, Winn-Dixie said 97 of its competitor’s stores illegally sold groceries in shopping centers where Winn-Dixie had exclusive rights. Seventy-five of those stores were in Florida.

In 2012, a federal judge in Miami tried Winn-Dixie’s case. The judge awarded Winn-Dixie no monetary damages, but he did issue an injunction against some of the defendant stores. Both sides appealed to the 11th U.S. Circuit Court of Appeals. A key issue on appeal was the trial judge’s decision with respect to 41 of the defendant stores located in Florida. For these stores, the judge read the restrictive covenant narrowly.

The covenants restrict competitors’ sales of “any staple or fancy groceries, meats, fish, vegetables, fruits, bakery goods, dairy products or frozen foods.” The question is how to define “groceries.” The district judge agreed with the defendants that “groceries” only applied to food items, as illustrated by the multiple examples of food that follow the word in the above definition. Winn-Dixie argued groceries included many non-food items, such as household supplies and spices.

The 11th Circuit agreed with Winn-Dixie. More precisely, the 11th Circuit said it was bound by the Florida courts’ interpretation of restrictive covenants, and in a 2002 case that also involved Winn-Dixie, a Florida appeals panel expressly defined “groceries” to include non-food items. The 2002 decision noted that according to the dictionary, “The commonly recognized definition of the term groceries includes more than just food,” and that Winn-Dixie was entitled to restrict its competitors’ sales of items like soap and napkins as well as food.

Protecting Your Business

Restrictive covenants are just one issue a small business owner might deal with in negotiating a commercial lease. As the Winn-Dixie case demonstrates, it is important to understand the precise meaning of every term in a lease or restrictive covenant as defined in Florida law. Lease restrictions may vary from state-to-state. (Indeed, in the Winn-Dixie case, the 11th Circuit declined to enforce restrictive covenants in two states where they are not permitted.) That is why you should never negotiate any commercial lease without the assistance of a qualified Florida commercial real estate attorney. Contact Naples attorney John S. Sarrett today if you have any questions.

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Three Lessons for Small Businesses from the Miami Dolphins Bullying Report

On February 14, New York attorney Ted Wells issued a 148-page report on “issues of workplace conduct at the Miami Dolphins.” The National Football League retained Wells to investigate workplace bullying allegations made last November by Dolphins player Jonathan Martin. Wells concluded, “Martin was subjected to persistent harassing language” consistent with workplace bullying, which also targeted other Dolphins employees. In response to the Wells report, the Dolphins fired their head trainer and an assistant coach.

The Dolphins scandal brought national attention to the subject of workplace bullying. While the Wells report acknowledged, “We did not approach this assignment expecting to discover behavior that society might anticipate in, say, an accounting firm or a law office,” even a professional locker room must enforce certain well-defined limits. No business can afford to have employees mentally or verbally abusing one another.

Small businesses can learn a number of important lessons from the Dolphins scandal. While the NFL is not a typical office or retail store, all business owners must deal with conflicts between employees. The Dolphins handling—or mishandling—of its employees illustrates a number of issues.

1. You Can’t Always Pass the Buck

The NFL is a large nationwide bureaucracy with multiple layers of management. The Wells report was a byproduct of this. Rather than deal directly with Martin’s allegations, the Dolphins shifted responsibility to the league office in New York, which in turn hired Wells to do the heavy lifting.

A small business owner cannot turn to a “commissioner” or pay an expensive outside attorney to deal with an internal workplace conflict. Nor can they hide behind bureaucracy. The Wells report largely exonerated senior Dolphins management, while shifting the blame to lower-level employees. In a small business, the owner does not have the luxury of scapegoats. An owner who fails to address workplace bullying allegations may face lawsuits under federal and Florida civil rights laws, and not just an internal investigation and some bad press.

2. Don’t Look for the Union Label

Like many large employers, the NFL has a unionized workforce. This actually benefits the employer, as workplace conduct rules may be negotiated with a single entity with the legal power to bind all employees. The NFL commissioner, for example, has the authority to arbitrate most internal workplace disputes.

In a small business with at-will employees, the employer has no such protection. As noted above, if an employee feels mistreated or abused, he or she may seek a remedy in the courts. That is why small business owners must be proactive in preventing and addressing workplace bullying claims.

3. It’s Not Enough to Have a Policy

Even before the Wells report, the NFL maintained detailed workplace conduct policies that defined workplace bullying and harassment. But Jonathan Martin felt he could not bring his concerns to management for fear of retaliation. There is no point in having a policy if management creates an environment that discourages enforcement.

Small business owners must establish clear workplace conduct policies for all employees. These policies must enable employees to feel safe in reporting any harmful or potentially illegal conduct. That is the best way for a small business to preempt potential lawsuits.

Most South Florida employers cannot afford NFL-style damage control once an employee conflict goes too far. That’s why every small business owner should work with an experienced Florida business attorney who can advise them on the best practices for dealing with workplace bullying. Contact John S. Sarrett in Naples today if you have any questions.

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Three Things to Consider When Selecting a Form for Your Small Business

One of the first major decisions a small business owner needs to make is selecting a legal form. Individuals may operate as sole proprietors, while two or more individuals can create a partnership. Both forms are relatively simply and generally involve minimal paperwork, but they also provide little in the way of tax or liability protections. This is why many small businesses opt for a more structured form, such as a corporation or limited liability company (LLC). Selecting the best form for your small business will depend on a number of factors.

1. The Type of Business

If you’re a one-person operation that provides a service, such as a work-at-home freelance writer, then a sole proprietorship may be all you need. Such providers rarely face complex legal liability issues. But if your business involves employees, leased storefronts, or inventory, then an LLC or corporation provides important liability protection. Such entities allow you to separate business and personal assets, which is not the case with a sole proprietorship or a general partnership.

2. The Number of People Involved

As the name implies, a sole proprietor means that one person owns the business (even if he or she has employees). One person can also own a corporation or a limited liability company, as well. Additionally, if there are two or more owners, they could either form a partnership, corporation or LLC.

If multiple owners each plan to take an active role in the business, then an LLC may be the best form of organization. Each “member” of an LLC participates in running the business according to an operating agreement signed by all of the owners. If the small business includes a number of people who simply wish to be silent partners, though—investing but not participating—then a corporation may be the better option. A corporation has shareholders, and it’s not necessary for any one shareholder to materially participate in the business.

3. Your Tax Needs

A sole proprietor is considered self-employed for federal income tax purposes. This means that a sole proprietor is taxed on 100% of the profits he or she reports in a given year. The same is true of a limited liability company; the IRS “disregards” the LLC, and instead taxes the profits earned by each member according to their share of the business.

A corporation, by contrast, is considered a wholly separate entity from its shareholders. This can be a disadvantage in that corporate profits are essentially taxed twice—once on the profits reported by the corporation, then again on any dividends distributed to individual shareholders. On the other hand, a one-person business might benefit from a corporation, as some of his or her profits can be paid as salary, which can, in some situations, lower the overall tax burden.

It’s also important to consider state tax issues. Florida imposes state income taxes on corporations but not individuals. A sole proprietor therefore pays no state income tax in Florida. But a one-person business organized as a corporation would pay a 5.5% tax on profits.

Getting the Right Advice

Every small business is different, and the selection of an organization type will depend on unique facts and circumstances. As with all important legal decisions, it’s important to work with an experienced Florida small business attorney who can advise you on the best option for your situation. Contact John S. Sarrett in Naples today if you have any questions.

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Federal Appeals Court Rejects Copyright on Retail Lighting Designs

Florida retailers need to be mindful of how intellectual property affects their business. Intellectual property encompasses trademarks—the brand names used to identify retailers and merchandise—as well as patents and copyrights. You might think copyrights are only an issue when dealing with books or audiovisual materials, but U.S. copyright law extends its protections to many types of artistic works.

That does not mean, however, that any seemingly unique design element may be copyrighted. For example, most fashion designs are not protected by copyright. In general, any “utilitarian” item falls outside copyright unless there are extraneous design elements that can exist separate from the item. A recent decision by the U.S. 11th Circuit Court of Appeals—which has jurisdiction over federal courts in Florida—helps illustrate the limits of design copyrights.

Progressive Lighting, Inc. v. Lowe’s Home Centers, Inc.

Karyl Pierce Paxton, a New Orleans-based interior designer, designed a series of light fixtures for sale by Georgia-based Progressive Lighting. At issue in this case is a set of designs known as the “Cumberland Series” that Paxton submitted to Progressive in 2004. The series included several chandeliers.

In early 2006, Progressive learned that a competitor, Lowe’s, was selling chandeliers “strongly resembling” Paxton’s Cumberland designs. Later that year, Paxton applied to the U.S. Copyright Office to register copyrights for all of her Cumberland designs. The Copyright Office initially rejected the registration, but subsequently granted recognition in April 2007. Paxton then assigned her copyrights to Progressive, which in turn sent Lowe’s a cease-and-desist letter in May 2007.

Litigation followed. A federal judge in Georgia rejected Progressive’s copyrights on the Cumberland designs. The 11th Circuit affirmed that decision in an unsigned opinion dated December 16, 2013.

The 11th Circuit initially noted that Copyright Office registration does not, in and of itself, prove the existence of a valid copyright. (Indeed, under U.S. law, any work subject to copyright need not be registered at all with the government.) The registration merely creates a “rebuttable presumption” of a valid copyright. And in this case, the 11th Circuit said Lowe’s rebutted the presumption by showing “that the works whose copyrightability is at issue were useful articles that did not contain separable copyrightable elements.”

Light fixtures are a “useful article” that cannot be copyrighted. However, if Progressive could show that the design elements contributed by Paxton were conceptually or physically separate from the fixture itself, then there could be a valid copyright claim. The 11th Circuit agreed with the district court that Progressive could prove neither.

Progressive argued that “the overall shapes and appearances of the light fixtures reflect artistic, nonfunctional considerations.” The 11th Circuit said that wasn’t enough. There had to be distinct design elements that could be separated from the rest of the chandeliers.

Using Intellectual Property to Your Advantage

Imitation is the essence of retail. Stores compete by offering customers products that are similar, yet distinctive, to those sold by their competitors. Intellectual property can aid this competition in some respects and hinder it in others. That’s why it’s important for any retailer to work with an experienced Florida business attorney who can advise them on the ins-and-outs of copyright and other intellectual property laws. Contact John S. Sarrett in Naples today if you have any questions.

 

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Enforcing Employee “Non-Compete” Agreements In Florida

Florida law permits employment contracts that contain “non-compete” or similar restrictive covenants in order to protect the employer’s “legitimate business interests.” A non-compete agreement might, for example, restrict an employee from leaving and working for a direct competitor for a limited period of time thereafter. Restrictive covenants may also prevent an employee from leaving and taking clients or confidential business information to a new employer.

A recent decision by a federal judge in Orlando helps illustrate the application of Florida law on this subject. The case involves a woman who left her job as an executive at one company for a similar position with its closest competitor. Her former employer sued to enforce a non-compete agreement after accusing her of improperly trying to solicit its customers.

Technomedia Solutions, LLC v. Scopetto

Technomedia sells audio-visual and other media content to retailers and other clients. In 2008, Technomedia hired Morgan Scopetto as a sales account manager for its Orlando office. Scopetto signed a non-compete agreement as a condition of her employment.

Scopetto briefly left Technomedia in 2011 for another company but returned later that year as a vice president. Upon her rehiring, Scopetto signed a new, broader non-compete agreement that required her not to disclose or use Technomedia’s “various trade secrets and other confidential information” outside the scope of her employment.

In 2013, Technomedia learned that its principal competitor, Electrosonic, Inc., was trying to hire Scopetto. Scopetto confirmed this was the case and resigned her position with Technomedia. She subsequently sent a mass email to her “friends and colleagues” informing them of her new position with Electrosonic and promoting her new employer’s strengths. The email recipients included at least eight existing Technomedia clients.

Technomedia filed suit in Orlando federal court against Scopetto. The company claimed Scopetto’s email was a “solicitation of business from some of Technomedia’s existing and prospective clients in breach of Scopetto’s Non-Compete Agreement.” Technomedia asked the court to issue an injunction against Scopetto to prevent any future violations of her non-compete agreement.

On December 13, 2013, U.S. District Judge Charlene Edwards Honeywell issued a preliminary injunction against Scopetto and simultaneously rejected her motion to dismiss Technomedia’s complaint. Judge Honeywell said Technomedia had established a likelihood of proving its case on the merits. Technomedia “is entitled to protect the goodwill that it has established with its customers,” Judge Honeywell said, and that Florida law allowed for enforcement of non-compete agreements to protect the “significant amounts of time and money” Technomedia expended on “creating commercial goodwill and cultivating prospective business relationships with potential clients.”

Judge Honeywell further noted that Florida law only enforces non-compete agreements that “are reasonable in time, area, and line of business.” Scopetto’s non-compete agreement prohibited her from soliciting Technomedia’s customers for two years after ending her employment. Judge Honeywell said this period of time was “reasonable on its face” based on previous Florida court decisions. The judge rejected Scopetto’s argument that the prohibition was “overbroad.”

Should I Have My Employees Sign Non-Compete Agreements?

Non-compete agreements are not a necessity for every Florida business. But if your business relies heavily on proprietary or confidential information, it might make sense to enter into non-compete agreements with key employees. As with all such decisions, it’s best to work with an experienced Florida business attorney who can advise you on the best approach. Contact John S. Sarrett in Naples today if you have any questions.

 

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What Constitutes a “Serious Health Condition” Under the Family and Medical Leave Act?

In 1993, Congress adopted the Family and Medical Leave Act (FMLA). This law requires retailers and other businesses with 50 or more employees to grant certain employees up to 12 weeks of unpaid leave during a 12-month period in order to care for a new child or deal with a “serious health condition.” It is against the law for any employer to interfere with these unpaid leave rights.

As noted above, an employer must grant leave for a “serious health condition.” The U.S. Department of Labor, which administers the FMLA, defines “serious” as a condition that requires hospitalization or “continuing treatment” that incapacitates a person—meaning they are unable to perform normal work functions—for more than three days. An employee who has such a condition and wishes to take unpaid leave under the FMLA must give his or her employee at least 30 days notice (when practical).

Green v. U.S. Steel

Not every illness qualifies a person for leave under the FMLA. A recent decision by the U.S. 11th Circuit Court of Appeals helps illustrate this point. Although this case involves an employer in Alabama, the 11th Circuit’s decisions regarding the FMLA apply to all states within the court’s jurisdiction, including Florida.

Crystal Green worked for U.S. Steel. In early 2008 she suffered from influenza, causing her to miss work. Green had a history of absenteeism, and she previously signed an agreement with her employer to provide a physician’s note in the event of any future health-related absences. When she failed to provide such a note related to her influenza, U.S. Steel fired her.

Green sued in federal court, claiming illegal retaliation under the FMLA. The case went before a jury. The court gave the jury model instructions approved by the 11th Circuit for use in FMLA cases. For each of Green’s claims, the jury first had to decide whether she suffered from a “serious health condition.” The jury ultimately found that Green’s influenza was not a serious health condition and returned a verdict for U.S. Steel on all counts.

The 11th Circuit reviewed the verdict and found no reversible error. Green argued that she’d presented evidence—in the form of a doctor’s note—that her influenza was serious. The appeals court said the jury was still well within its right to reject that evidence and make its own factual determination whether Green’s condition was “serious” as defined by the FMLA.

Applying the FMLA to Your Business

It’s important for all Florida businesses covered by the FMLA to understand the law and its application. As the 11th Circuit noted in another FMLA case, it’s irrelevant whether an employer intentionally denies leave benefits to an employee; the employer is still liable for any violations. Therefore, the burden is on you, as the employer, to make sure employees receive any mandatory leave benefits.

The best way to avoid FMLA disputes is to work with an experienced Florida business attorney who can help you develop a set of guidelines for implementing the law in your workplace. Contact John S. Sarrett in Naples today if you have any questions.

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Appeals Court Rejects Overtime Lawsuit by “Outside Sales Employee”

The federal Fair Labor Standards Act (FLSA) generally requires Florida retailers and other employers to pay overtime wages to any “employee” who works more than 40 hours per week. There are several exemptions to this overtime rule, including one for any “outside sales employee.” Once referred to as traveling salesmen, the U.S. Department of Labor defines an outside sales employee as someone “whose primary duty” is “making sales” or “obtaining orders or contracts” away from the “employer’s place or places of business.”

It may not always be clear whether a person’s “primary duty” qualifies him or her as an outside sales employee. The Department of Labor and the courts will look to all the facts regarding a person’s employment in making that determination. A recent federal appeals court decisions helps provide some clarity in the matter.

Reyes v. Goya Foods, Inc.

Florida-based Goya Foods employed Jerry Robin Reyes as a “sales broker.” After firing Reyes, he sued Goya under the FLSA for back overtime pay. He claimed he was a covered employee under the FLSA not subject to the outside sales employee exemption.

Reyes said his primary duties consisted of “merchandising,” that is stocking and maintaining shelves at retail stores that carry Goya products. He said that any sales activity he conducted was incidental, primarily placing orders to replenish existing stocks. However, two fellow sales brokers and Reyes’ former supervisor testified in court that “a sales broker’s primary duty is to sell Goya products.” Any shelf maintenance or restocking was incidental to sales, not vice versa as Reyes claimed. These other witnesses added that sales brokers, including Reyes, worked with little supervision and set their own hours. The Goya office only required they meet certain sales targets.

Based on this testimony, a federal judge entered a directed verdict in favor of Goya. Reyes appealed to the U.S. Eleventh Circuit Court of Appeals, which hears all appeals from federal courts in Florida. A three-judge panel reviewed the trial judge’s decision and found no error. “Viewed in the light most favorable to Reyes,” the panel said in a written opinion “the evidence demonstrates that — although Reyes may have personally spent little time promoting Goya products — his position as a sales broker at Goya qualified him as an ‘outside salesman’ under the FLSA.

It’s Not About Nomenclature

A Florida retailer cannot subvert the FLSA by simply declaring an employee is an outside salesman. As the Reyes case demonstrates, a court will look at all available evidence of the employee’s primary duty in deciding whether that employee qualifies for the exemption. If your business uses, or plans to use, outside sales employees, it’s important you develop a detailed job description that leaves no room for misunderstanding later. It’s also critical you work with an experienced Florida business attorney who can advise you on the current state of the law on this subject. Contact John S. Sarrett in Naples today if you have any questions or concerns.

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Woman Injured in Bar Brawl Wins New Trial Against Restaurant Owner

According to the Florida Supreme Court, a bar or restaurant owner must make a “reasonable effort to maintain order among his patrons, employees, or those who come upon the premises.” The owner may be liable for any on-premises injuries suffered if there is a “foreseeable” risk of harm. Recently, a Florida appeals court addressed the requirements for determining such foreseeability.

Bellevue v. Frenchy’s South Beach Café

Jennifer Bellevue went to Frenchy’s in Clearwater one night to give her roommate, a bartender at the restaurant, a ride home. When she arrived there was a family of Irish tourists “who had been drinking heavily and were rowdy and disorderly” in the restaurant. The manager left Bellevue’s roommate—described as a “petite woman”–to deal with the Irish family. A verbal altercation between the Irish family and another individual escalated into a physical confrontation. Bellevue was “severely beaten” in the fight.

Bellevue later sued Frenchy’s over her injuries. (The Irish tourists were arrested and criminally charged but jumped bail and returned to Ireland.) Bellevue said the restaurant failed to maintain safe conditions for its patrons.

Bellevue attempted to introduce evidence related to 60 prior incidents—dating back more than four years—in and around Frenchy’s in order to prove there was a “foreseeable” risk of violence at the restaurant. Among the incidents Bellevue cited were numerous cases of patrons ejected for excessive drinking, fighting and other threatening behavior. Bellevue argued the 60 incidents showed a “likelihood of disorderly conduct by third persons in general” that management should have taken greater care to protect patrons from.

Frenchy’s objected to the introduction of this evidence. The trial judge largely agreed and excluded all but 12 of the incidents. The jury ultimately delivered a verdict in favor of Frenchy’s.

The Florida Second District Court of Appeal vacated the jury’s decision and ordered a new trial. The three-judge appeals panel said the trial judge incorrectly applied the law in excluding 48 of the 60 incidents Bellevue wanted the jury to hear about. The Florida Supreme Court and other state appeals courts have previously held that a restaurant owner’s “actual or constructive knowledge, based upon past experiences” of disorderly conduct is relevant when trying to establish “foreseeability” risk of harm to patrons. In contrast, both Frenchy’s and the trial court maintained only evidence of “similar criminal acts” was relevant to Bellevue’s case. The appeals court said that was inconsistent with the Supreme Court’s decisions.

Although the appeals court ordered a new trial, it did not order the lower court to admit all 60 incidents into evidence. Rather, the trial court must individually consider each incident’s relevance in establishing whether it put Frenchy’s “on notice” that the fight leading to Bellevue’s injuries was foreseeable. One appeals judge wrote separately to note Bellevue could prove a number of theories of liability, including “a specific standard of care to provide additional security whenever the restaurant was open.”

Headline

All Florida businesses, including retailers, restaurants and taverns, must maintain their premises in a reasonably safe condition. As this case demonstrates, the standard for deciding what is safe may include not just what happens within the walls of your business but also the surrounding area. If you have questions or concerns about your own business’s potential liability, it’s important you speak with an experienced Florida business attorney. Contact John S. Sarrett in Naples today.

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Florida Appeals Court Upholds $800,000 Award to Miami Deli Destroyed by Landlord Negligence

Commercial leasing is a critical issue for Florida retailers. When commercial landlords fail to fulfill their obligations under a lease, the leasing business may lose thousands of dollars in sales or even go out of business. That’s why it’s always important to work with a Florida real estate attorney when negotiating—and enforcing—a commercial lease.

Katz Deli of Aventura, Inc. v. Waterways Plaza, LLC

A recent Florida appeals court decision helps illustrate the importance of commercial leases. The Haibi family operated Katz Deli of New York in Broward County for many years. The family then decided to add a second location in Miami-Dade County at the Waterways Plaza of Aventura.

The Waterways location opened in 2002. Katz’s lease with the landlord would initially run for five years. Katz could then opt to renew the lease in five-year increments up to the end of 2022. Katz’s monthly rent, according to court records, was “well below market value.”

About six months into the lease, Waterways Plaza was sold. The new owner was aware of defects in Katz’s roof. Indeed, the new owner’s own study of the property described the roof as “beyond repair.” The landlord was obliged under the lease with Katz to make and pay for any roof or other structural repairs.

Katz began to experience roof leaks at some point in 2002. The leaks drove away business, and by May 2003, Katz was forced to closed the Aventura location. Katz then sued Waterways for breach of contract and “constructive eviction.”

Waterways didn’t mourn the loss of its tenant. It quickly re-roofed the property and found new tenants willing to pay significantly higher rent than Katz. By October 2003, the property was thriving under the new tenants.

Lost Profits or Lost Value of Business?

A Florida trial court eventually held Waterways liable for “gross negligence” and ruled for Katz on its breach of contract and constructive eviction claims. That left the issue of damages. Waterways argued damages should be based on the value of Katz’s business. Katz argued it should be awarded its prospective lost profits. The trial court, and later the Fourth District Court of Appeals, agreed with Katz.

As the appeals court noted, basing damages on the value of Katz’s business would be inequitable in this case because Waterways’ negligence actually destroyed the business in its entirety. This was not akin to a fire where the business was destroyed in an instant. Rather, there was a slow decline in business arising from the landlord’s failure to repair a known structural defect.

To compound its own negligence, Waterways signed its new tenants less than a month after Katz’s closed. This meant Katz’s could not even attempt to rebuild its business once Waterways fulfilled its contractual obligation to repair the roof. And because “Katz had suffered substantial losses in its business reputation due to the leaky and moldy interior for the last year it was in business,” it couldn’t simply reopen at a new location.

Accordingly, the appeals court agreed with the trial judge that Katz was entitled to its anticipated lost profits. The trial court calculated these damages at around $800,000, which covered expected losses through the end of the initial five-year lease term in 2007. Katz argued it was entitled to expected losses through the end of the maximum renewal term of the lease, which was 2022. The trial court rejected that claim as “too speculative.” The appeals court declined to second-guess the trial judge on this question.

Protecting Your Business

As this case demonstrates, commercial leases are a complex business transaction that no small business owner should deal with alone. If you are looking to lease a property—or are faced with a landlord not doing its duty under an existing lease—it’s important you work with a qualified commercial real estate attorney. Contact John S. Sarrett in Naples today if you have any questions.

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