Florida corporations, partnerships, businesses and individuals engaged in commerce often face federal court lawsuits asserting breach of contract and related claims. These actions, generally characterized as commercial litigation, can be costly, disruptive and even fatal to your business or livelihood. Commercial litigation involves legal controversies stemming from a variety of business relationships that result in the initiation, prosecution and defense of a lawsuit, arbitration or other formal dispute resolution mechanism.
Federal court litigation practice is multifaceted, intricate and challenging. U.S. District Court Judges, Magistrates and their staff are some of the top jurists in the United States and demand a high degree of professionalism and lawyering in cases before the court. ELP Global knows that federal court breach of contract and commercial litigation matters can be intensive and complicated.
This update summarizes common claims and defenses arising in federal court breach of contract lawsuits and identifies strategies to defend these actions. ELP Global represents business owners, corporations, partnerships and their members, officers and directors in breach of contract and related matters filed in federal court.We strive to provide our clients current and effective strategies for preventing, defending and countering federal court breach of contract and associated claims.
Federal Court Breach of Contract Based Lawsuits
Although breach of contract disputes are predominately governed by state law, many breach of contract and commercial litigation lawsuits are originally filed in federal court or are removed (transferred) from state court to federal court based upon federal subject matter jurisdiction.The most common basis of federal court jurisdiction over these cases is known as “diversity jurisdiction”—where the plaintiff(s) and defendant(s) are residents of different states and the “amount in controversy” exceeds $75,000.00, exclusive of interest, costs and attorney’s fees.See 28 U.S.C. § 1332; Yarcheski v. Keiser School, Inc.,2013 WL 425567 (11th Cir. 2013)(where subject matter jurisdiction is predicated on the diversity of citizenship of the parties under 28 U.S.C. § 1332(a)(1), the substantive law of the forum(Florida) applies). Jurisdiction may also be based upon “federal question jurisdiction,” regardless of the amount in controversy, “where a plaintiff’s well-pleaded complaint alleges a cause of action arising under federal law.” Lobo v. Celebrity Cruises, Inc., 704 F.3d 882, 891 (11th Cir. 2013); 28 U.S.C.§ 1331.
In 2012, over 1,000 breach of contract based cases were filed in federal court in Florida. See www.pacer.gov (Nature of Suit “NOS” Code 190). In January of 2013,eighty-two breach of contract cases were filed in the Middle, Southern and Northern District federal courts of Florida.See www.pacer.gov. And, in February, ninety additional breach of contract cases were filed in Florida federal courts.
Defending aFederal Court Breach of Contract Lawsuit
ELP Global analyzes each federal commercial litigation case for our clients independently and creatively based upon the particular facts present. Federal court commercial litigation Complaints can present a plethora of contract law claims such as breach of an oral or written agreement, rescission, specific performance, or injunctive and declaratory relief. These Complaints also often contain related statutory, tort and common law claims such as fraudulent transfer, misappropriation of trade secrets, unfair competition, fraud in the inducement, non-competition, intentional interference with contractual relations or even quasi-contract claims (implied in fact or law causes of action including unjust enrichment and quantum meruit).
At the outset, defendants to a federal court breach of contract lawsuit must address each claim asserted andanalyze other preliminary issues including personal and subject matter jurisdiction, service of process, choice of law, choice of forum and venue. Defendants must also identify and assert all viable affirmative defenses, detect any basis to support a motion to dismiss and determine whether any counterclaims exist that may be brought against the plaintiff. An understanding of third-party claims, joinder of necessary and indispensable parties and remedies is also important to federal court litigation practice.
If the applicable written contract contains a mandatory alternative dispute provision, such as a requirement to arbitrate all disputes between the parties, the defendant can file a motion to dismiss the complaint and compel arbitration. SeeCrown Auto Dealerships v. Nissan North America, Inc., 2013 WL 593835 (M.D.Fla. Feb. 15, 2013)(any doubts concerning the scope of an arbitration agreement should be resolved in favor of arbitration). Prevailing on a motion to dismiss early in a case, including one based upon a binding arbitration provision, can provide valuable leverage to a defendant and give rise to a claim for breach of the contract at issue entitling the defendant to damages and possibly attorney’s fees from the plaintiff.
Some of the defenses to a breach of contract based complaint include: failure to state a claim; prior material breach of the plaintiff; statute of limitations; statute of frauds; failure to satisfy conditions precedent; lack of consideration; economic loss doctrine; parol evidence rule; waiver; estoppel; unclean hands; failure to mitigate and set-off.Most defenses must be stated in the defendant’s answer to the plaintiff’s complaint or brought by way of a motion to dismiss or they can be waived. Edwards v. Fulton County, Ga., 2013 WL 563157 (11th Cir. 2013)(if the defendant intends to assert an affirmative defense it must be raised in a responsive pleading; failure to do so typically results in a waiver of the defense)
A claim for breach of an oral contract must be filed within four years of the alleged breach under Florida law or it is barred by the statute of limitations. Florida law provides a five-year statute of limitations on a claim for breach of a written contract. Abecassis v. Eugene M. Cummings, P.C., 2012 WL 470135 (11th Cir. 2012).
Many contracts contain a default clause requiring notice of a breach and an opportunity to cure the same, also known as a condition precedent to the filing of a claim for breach of contract.If the plaintiff failed to give the defendant notice and an opportunity to cure, as required by the contract, the complaint may be dismissed.Abecassis v. Eugene M. Cummings, P.C., 2012 WL 470135 (11th Cir. 2012).
The statute of frauds bars claims based upon certain alleged oral contracts including those that cannot be completed within one year. Saeme v. Levine, 2012 WL 6631270 (11th Cir. 2012)(contract was unenforceable under Florida’s statute of frauds where agreement contemplated operation of profitable business venture for which performance would take longer than one year). The statute of frauds may also preclude tort or quasi-contract claims related to a breach of contract action that are based upon the same oral representations to an unenforceable contract.
The economic loss rule is a court-created doctrine that prohibits tort based claims or recovery for losses or damages that are economic in nature, where a contract exists between the parties. Indemnity Ins. Co. of North America v. American Aviation, Inc., 344 F.3d 1136, 1139 (11th Cir. 2003).The economic loss rule “is designed to prevent parties to a contract from circumventing the allocation of losses set forth in the contract by bringing an action for economic loss in tort.” Tiara Condominium Ass’n, Inc. v. Marsh & McLennan Companies, Inc., 607 F.3d 742, 748 (11th Cir. 2010). Therefore, certain tort based claims brought in connection with a breach of contract action may be subject to dismissal.
The parol evidence rule holds that evidence of a prior or contemporaneous oral agreement is inadmissible to vary or contradict the unambiguous language of a valid contract. This rule applies when the parties intend that a written contract incorporate their final and complete agreement. Ungerleider v. Gordon, 214 F.3d 1279, 1282 (11th Cir. 2000).
“Set-off” is a claim by a defendant in a lawsuit that the plaintiff owes the defendant money which should be subtracted from the amount of damages claimed by plaintiff.In contract actions, set-off is an affirmative defense that must be pleaded or it is waived. KMS Restaurant Corp. v. Wendy’s Intern. Inc., 2006 WL 2271009 (11th Cir. 2006). Sometimes, the best defense to a breach of contract lawsuit is a good or total set-off. Thus, defendants to a federal court breach of contract action should carefully evaluate all economic rights or claims they have against the plaintiff and specifically assert those in their affirmative defenses as a set-off.