Enforcement of FDUTPA by Competitors: Did the Florida Legislature Create a Right Without A Remedy?
Since the 2001 amendment to the Florida Deceptive and Unfair Trade Practices Act (FDUTPA),1 which gave the green light to competitors’ claims for “actual damages” for unfair competition, employers have attempted to use the statute to seek relief against former employees who form competing businesses. Prior to the 2001 amendment, FDUTPA had long been used by consumers to “get their money back” from unscrupulous sellers. This makes sense because consumers buy products, so their “actual damage” is the money they spent on the product. To date, however, neither the Florida Supreme Court nor the Florida Legislature has weighed in on what “actual damages” means for recovery of damages in nonconsumer cases. Although the lower courts and federal courts in Florida have begun to look at the issue, they are divided in their statutory interpretation, creating uncertainty as to whether, if at all, business competitors may ever recover anything beyond injunctive relief considering the inapplicable standard for “actual damages” of “return of purchase price” long recognized in consumer cases under FDUTPA.
FDUTPA Purports to Deliver Relief to Business Competitors
Known as FDUTPA, F.S. §501.202 purports “[t]o protect the consuming public and legitimate business enterprises from those who engage in unfair methods of competition, or unconscionable, deceptive, or unfair acts or practices in the conduct of any trade or commerce.”2 As enacted in 1973, FDUTPA was narrow in scope and intended to protect only “consumers from suppliers who commit deceptive and unfair trade practices.”3 In 1993, §501.202(2) expanded protections to “legitimate business enterprises,” besides consumers, and further clarified the types of acts and practices from which consumers and business enterprises could receive protection.4 In 2001, FDUTPA underwent further transformation, this time with respect to §501.211, concerning individual remedies. The legislature amended §501.211(2), which, prior to 2001, allowed recovery of “actual” damages to consumers only, by replacing references to a “consumer” with the term “person.”5 At least on its face, the amended subsection contemplated the possibility of a business competitor’s recovery of its “actual damages” in a FDUTPA suit. What that meant in reality, however, is unclear.
To state a claim for money damages under FDUTPA, a plaintiff must establish that 1) he or she was subjected to a deceptive act or unfair practice; 2) there was causation between such act or practice and the plaintiff’s damages; and 3) the plaintiff suffered “actual damages.”6 In consumer cases, courts have historically measured “actual damages” (undefined by the statute) by the difference in the market value between the product or service that a consumer received and the product or service that he or she should have received, although a full purchase price would be appropriate when the product or service has become valueless.7 The “difference in market value” measure, however, could no longer apply universally following the 2001 amendment because, as a matter of commercial reality, a business, unlike an ordinary consumer, does not purchase a defective product or service from a competitor and does not receive something of lower value (or valueless) as a result.8 Rather than the diminished value, a competitor’s damages manifest as decreased sales, lost profits or opportunities, a loss of reputation or customer goodwill, and other similar losses attributable to the defendant’s unfair acts.
Some Florida courts have held that such lost profits-type damages are unrecoverable under FDUTPA as “quintessential” consequential damages; others have recognized that so holding controverts the express language of FDUTPA, renders the 2001 amendment useless, and simply ignores the commercial reality.
Substantive Change of a Statute Is Presumed to Achieve a Specific Objective
Clearly, the 2001 amendment to §501.211 intended to reach a new class of plaintiffs, business-competitors. Indeed, shortly after the amendment took effect, the Southern District of Florida in Niles Audio Corp. v. OEM Systems Co, 174 F. Supp. 2d 1315 (S.D. Fla. 2001), denied defendants’ motion to dismiss a FDUTPA count based on the argument that Niles was the defendants’ competitor — not a consumer.9 Despite that any other interpretation left plaintiffs without a remedy, FDUTPA defendants have continued to rehash the same arguments decided in Niles Audio Corp., based on the plaintiffs’ nonconsumer status.10 Recently, in Bailey v. St. Louis, 196 So. 3d 375 (Fla. 2d DCA 2016), Florida’s Second District Court of Appeal seemingly put a stop to that argument, by criticizing the trial court for awarding only injunctive relief11 against two defendant entities based on the reasoning that the plaintiff “was a competitor and not a consumer.”12 Bailey looked to the post-2001 FDUTPA, concluding that the legislature’s decision to replace the word “person” with “consumer” signaled the intent that the remedy of damages expanded beyond consumer-plaintiffs: “When the [l]egislature makes a substantial and material change in the language of a statute, it is presumed to have intended some specific objective or alteration of law, unless a contrary indication is clear.”13 Bailey reversed the final judgment with the instruction that the trial court determine the amount of damages for the multiple FDUTPA violations proven at trial.14 Although the Second District Court of Appeal in Bailey indicated that competitors can recover damagesin a FDUTPA suit, it did not go as far as expressly holding exactly what damages competitors can recover, or how they should go about recovering those damages. Bailey could have resolved, but did not, what has become a serious hurdle for FDUTPA nonconsumer plaintiffs seeking to recover their lost profits in suit.
When Business Competitors State a Claim Based on “Actual” Damages: The Better Approach
Although lost profits are often labeled as prototypical consequential damages (and, thus, unrecoverable due to §501.211(2)’s requirement that the plaintiff sustain “actual damages”15), Florida district courts have recently pioneered a more commercially reasonable view, by distinguishing recoverable actual, or past, lost profits from unrecoverable lost profits to be incurred in the future. Those courts have recognized that the Florida Legislature’s amendment to FDUTPA would be without effect if business competitors could not recover their past lost profits as damages. (Given the chance, Bailey would have likely held the same.)
The Northern District of Florida decision in Factory Direct Tires Inc. v. Cooper Tire & Rubber Co., No. 3:11-CV-255-RV/EMT, 2011 WL 13117118 (N.D. Fla. Oct. 24, 2011), is one of the early examples.In Factory Direct, defendant Cooper manufactured tires, and Factory Direct distributed and sold them through the U.S. military base exchanges.16 In 2001, the parties entered into an agreement, subject to an automatic renewal every five years, under which Cooper agreed to provide competitive pricing and sales support to Factory Direct in exchange for Factory Direct’s “best and sincere efforts” to accelerate the tire sales.17 Notwithstanding the venture’s success during the renewal term, Cooper demanded that Factory Direct truncate the five-year renewal term in half, and when it refused to do so, Cooper offered competitive pricing to other distributors, thereby diverting opportunities away from Factory Direct and causing its tire sales to drop.18 After the sales dropped, Cooper claimed that Factory Direct had breached the agreement.19 After Factory Direct sued, Cooper moved to dismiss the FDUTPA claim, arguing that lost profits were unrecoverable consequential damages.20 The Northern District disagreed, finding that Cooper’s reliance on the cases concerning future lost profits21 was misplaced because Factory Direct was “not seeking future lost profits, but rather the lost profits that it ha[d] already suffered.”22 Those types of damages, the court held, constituted recoverable actual damages under FDUTPA.23
Two years later, the Southern District issued an opinion along the lines of Factory Direct in ADT LLC v. Alarm Protection Technology Florida, LLC, No. 12-80898-CIV, 2013 WL 11276119 (S.D. Fla. Apr. 18, 2013). In ADT, a provider of electronic security services and equipment sued its industry competitor, APT Florida, for engaging in efforts to confuse the market by using practices intended to deceive customers into believing they were dealing with ADT and by misleadingly inducing customers to replace their ostensibly outdated ADT security systems with upgraded APT alarms.24 As a result of APT Florida’s practices, ADT had to “send technicians to the deceived customers’ houses to reinstall the removed ADT equipment, at considerable expense to ADT and…some customers retained their APT systems and terminated their contracts” with ADT.25 APT Florida moved to dismiss ADT’s FDUTPA count, arguing ADT could not recover consequential, as compared to actual, damages.26 The Southern District ruled that ADT had sustained actual lost profits resulting from having to undo APT Florida’s unfair acts, explaining:
“In a consumer’s FDUTPA claim, ‘actual damages’ is the difference between the product as advertised, and its value as received — or, if the product is worthless, the purchase price. This accepted definition of damages recoverable in a consumer’s FDUTPA claim, however, is meaningless in the context of a competitor’s claim. The competitor has not purchased a worthless product, the competitor has lost business and profits. A competitor’s actual damages in a FDUTPA case are its “actual lost profits” suffered by reason of the unfair trade practices.”27
Accordingly, the court allowed the FDUTPA count to move forward.28
Most recently, Global Tech Led, LLC v. HiLumz International Corp., No. 2:15-CV-553-FTM-29CM, 2017 WL 588669 (M.D. Fla. Feb. 14, 2017), involved litigation between Global Tech LED and HiLumz — “two business partners-turned-competitors in the retrofit LED lighting industry.”29 After Global Tech sued for patent infringement, HiLumz counterclaimed under FDUTPA, alleging that Global Tech had targeted HiLumz with several false and misleading statements, such as an announcement on Global Tech’s website asserting that it had a permanent injunction against HiLumz USA for patent infringement and accusing HiLumz of stealing and copying Global Tech’s product ideas; inaccurate statement in the press release; Global Tech’s managing member’s warning to HiLumz distributors that they should “be careful what products [they] sell” and promising that “HiLumz will be out of business soon”; and various other statements made to HiLumz’ customers, sales representatives, and competitors regarding HiLumz’ alleged wrongful acts.30 Global Tech moved to dismiss the FDUTPA counterclaim, arguing that HiLumz had failed to sufficiently plead “actual damages.”31
First, the Middle District dispelled Global Tech’s argument that as a competitor of Global Tech, HiLumz fell “outside of the purview of FDUTPA,” by citing the 2001 legislative amendment to F.S. §501.211.32 Next, the court addressed Global Tech’s argument that HiLumz had not stated a plausible claim for actual FDUTPA damages. Having reviewed the opinions precluding recovery of purely consequential damages — i.e., future lost profits — the court pointed out that Global Tech’s actions had already diverted sales away from HiLumz (especially since some of its existing customers had ceased doing business with HiLumz based on those statements).33 “In other words,” the Middle District concluded, “[d]efendants’ claim for damages seems to be based, at least in part, on past lost profits. Past lost profits, in turn, appear to be a proper form of ‘actual damages.’”34 For that reason, the Global Tech court denied Global Tech’s motion to dismiss defendant’s counterclaim for failure to plead recoverable damages.35
Factory Direct, ADT, and Global Tech allowed business competitors’ FDUTPA damages claims to proceed by tying them to 1) expenses connected with having to “undo” the harm (e.g., removal and re-installment of the alarm system equipment); 2) a loss of existing customers/contracts; 3) a loss of a contractual benefit (e.g., “more competitive pricing”); and 4) diversion of potential future sales to existing customers. In those cases, in other words, FDUTPA litigants could recover for the loss of something valuable that — but for the competitors’ wrongful acts — they would have expected certainly more or less to receive. The 11th Circuit in Marco Island Cable v. Comcast Cablevision of S., Inc., 312 F. App’x 211 (11th Cir. 2009), arguably went even further, affirming damages for the loss of anticipated sales to the community as a whole.
In Marco Island, Marco IslandCable (MIC) sued Comcast,a competitor provider of cable services to Marco Island’s Multiple Dwelling Units (MDUs), alleging that Comcast engaged in anti-competitive behavior that harmed MIC’s business.36 At trial, the evidence focused on MIC’s allegation that Comcast violated FDUTPA by asserting ownership rights in the cable wiring within Marco Island MDUs, and the jury awarded over $3.2 million to MIC.37 After the court remitted the judgment to $800,000, Comcast appealed, arguing that the denial of its renewed motion for judgment as a matter of law was an error.38
The 11th Circuit held that MIC’s loss of anticipated sales supported the awarded judgment. Comcast’s actions, such as intimidating customers into contracting with Comcast by omitting key language from quotes, seeking to overcharge the MDUs and their occupants, misleading customers about their access to the wiring should they choose another cable provider, and invoking inapplicable FCC regulations to support its asserted rights to the wiring, were intended to affect the Marco Island MDU community’s purchasing decisions and affected the Marco Island cable market as a whole — not only those MDUs with which Comcast had direct dealings.39 The trial testimony established that Comcast intended to make the MDU community aware of its new policies, and Comcast’s representatives communicated with the community in an effort to inform that it would not relinquish the asserted wiring ownership rights.40 Comcast’s actions caused recognizable harm under FDUTPA:
“Marco’s owner testified that Comcast’s actions did, in fact, affect his business….[G]iven the historical performance of his business and what he knew of the Marco Island market, he would have expected to receive invitations to bid on eight to ten MDU contracts per year but, after Comcast took the actions it did…, he received no such requests. Marco’s damages expert testified that Marco’s business stopped expanding in 2003 ‘because of the necessity to deal with the business tactics and methodologies of the new Comcast that had come into the area.’ And, Comcast itself admits that Marco’s damages expert testified that Marco’s business diminished in value ‘as a result of Comcast practices.’”41
The 11th Circuit affirmed the trial court.42 Marco Island stands for the proposition that a business enterprise competing for the same market as the unfair competitor may recover for the loss of anticipated, i.e., future, profits, based on its historical performance data. For FDUTPA plaintiffs that could not otherwise establish some type of a pre-existing relationship with the competitor or customers that would entitle them to anticipate profits, Marco Island is important.
Cases Precluding Recovery of “Actual” Damages: A Seemingly Flawed Approach to FDUTPA
Despite the cases permitting competitors’ FDUTPA cases based on actual lost profits to defeat dismissal, some courts continue to liken lost profits to unrecoverable consequential damages. The Southern District of Florida’s recent decision in Diversified Management Solutions, Inc. v. Control Sys. Research, Inc., No. 15-81062-CIV, 2016 WL 4256916 (S.D. Fla. May 16, 2016),43 is one example. In Diversified, plaintiff DMS and defendant CSR provided contract services to the FAA, which awarded contracts on a five-year cycle, at the end of which it solicited bids for renewal.44 For the 2012 renewal, the FAA limited contract opportunities to small businesses.45 DMS was an eligible small business, while CSR was a large business that could not bid directly but could participate as a subcontractor to a small business bidder.46 Allegedly, CSR conspired with its affiliates to form “shell” small businesses, which then bid on and obtained seven FAA contracts for CSR’s benefit.47 After the FAA did not award DMS any contracts, and DMS complained about the “shell” entities, the FAA investigated and, finding that the winning contract bidders were illegitimate small businesses, revoked their awards.48 Although the FAA eventually awarded DMS two contracts, DMS sued CSR and its affiliates, alleging that CSR generated revenue due to interference with the renewal process and that all defendant-affiliates caused DMS delay in receiving the FAA contracts.49 Defendants moved to dismiss, arguing DMS failed to state a cause of action under FDUTPA.50
The Southern District noted that actual damages were calculated as the difference in the market value, and lost profits were a quintessential example of consequential damages.51 The court disagreed that DMS’ lost profits constituted actual damages after 2001.52 In the court’s view, DMS overlooked post-2001 cases that found lost profits to be unrecoverable consequential damages.53 The court criticized DMS’ citation to Tracfone Wireless, Inc. v. Access Telecom, Inc., 642 F. Supp. 2d 1354 (S.D. Fla. 2009), because Tracfone allowed the FDUTPA claim for lost profits to proceed without the analysis of actual damages or a citation to relevant authority.54 The Diversified court decided that DMS’ argument “boil[ed] down to a policy argument that lost profits should be recoverable in the unfair competition context because lost profits are the only type of damages that business competitors will have when a FDUTPA violation occurs,” ultimately rejecting that argument.55Finally, the Southern District ostensibly turned to Florida law to hold that “lost profits are consequential damages, and, thus, not recoverable under FDUTPA.”56
While Diversified dismissed DMS’ FDUTPA count for failure to plead actual damages, the court’s reasoning is subject to attack. The Southern District relied solely on the consumer-case measure of actual damages without weighing the significance of FDUTPA’s 2001 amendment. The court cited several post-2001 cases, which aligned with its ultimate conclusion (but differed from the case before it57), although did not cite a single case holding to the contrary.58 While DMS’ reliance on Tracfone was indeed miscalculated (considering itwas a trademark infringement case that did not cite authority or analyze actual damages in nonconsumer cases), there existed other authorities on point that expressly held actual lost profits recoverable. Ultimately, the Southern District did notcite any Florida state court case (except the inapposite Rollins, Inc. v. Butland, 951 So. 2d 860, 869 (Fla. 2d DCA 2006)) that would have denied recovery to DMS under the circumstances. Nor could it. The Florida Supreme Court had not yet had an opportunity to decide exactly what types of actual damages are available to a nonconsumer after 2001, although Bailey had made a strong circumstantial case for a business competitor’s entitlement to money damages for the past lost profits attributable to the competitor’s unfair acts.
The 2001 amendment to FDUTPA was intended to provide meaningful relief to business competitors, including relief in the form of actual damages. To be meaningful, actual damages can never mean purchase price in a nonconsumer case. Factory Direct, ADT, Global Tech, and Marco Island (but not Diversified) have correctly noted that this is a common-sense interpretation of the statute. Under their holdings, an employer could recover its past lost profits, resulting from a former employee’s post-resignation or post-termination unfair competition. However, whether a business competitor can proceed beyond dismissal should not be left uncertain or to the particular reading of FDUTPA of the presiding court without guidance from the Florida Supreme Court or the Florida Legislature. While the Florida Supreme Court has not weighed in on the meaning of actual damages under §501.211(2), courts should not deviate from the strong trend set by the Factory Direct, ADT, Global Tech, Marco Island, the Florida’s Second District Court’s opinion in Bailey, and similar cases, else the Florida Legislature amendment created a right without a remedy.
1 Fla. Stat. §§501.201-501.23 (2016).
2 Fla. Stat. §501.202(2). “Trade or commerce” is defined as “advertising, soliciting, providing, offering, or distributing, whether by sale, rental, or otherwise, of any good or service, or any property, whether tangible or intangible, or any other article, commodity, or thing of value, wherever situated.” Fla. Stat. §501.203(8).
3 Fla. Stat. §501.202(2) (1973).
4 Fla. Stat. §501.202(2) (1993).
5 Fla. Stat. §501.211(2). “Person” meant “any person” affected by a violation of FDUTPA.Fla. Stat. §501.203(6).
6 Rollins, Inc. v. Butland, 951 So. 2d 860, 869 (Fla. 2d DCA 2006).
8 See generally David J. Federbush, Damages Under FDUTPA, 78 Fla. B. J. 20 (May 2004) (discussing damages available under FDUTPA after the 2001 statutory amendment and stating that “the difference in market value measure cannot be the exclusive measure of damages under FDUTPA for deceptive, unfair, or unconscionable acts or practices”).
9 Niles Audio Corp., 174 F. Supp. 2d at 1319.
10 Compare, e.g., Cannova v. Breckenridge Pharm., Inc., No. 08-81145-CIV, 2009 WL 64337, at *3 (S.D. Fla. Jan. 9, 2009) (“While the statute has been amended to expand protection to corporate entities acting as consumers, Florida case law since the 1993 amendments still requires the plaintiff to act in some manner as a consumer in the conduct of trade or commerce….Plaintiff does not plead any allegations that he acted as a consumer in the conduct of trade or commerce.”), with Caribbean Cruise Line, Inc. v. Better Business Bureau of Palm Bch. Cnty., 169 So. 3d 164, 169 (Fla. 4th DCA 2015) (“[T]he legislative change regarding the claimant able to recover under FDUTPA from a ‘consumer’ to a ‘person’…indicates that the legislature no longer intended FDUTPA to apply to only consumers….”).
11 FDUTPA allows “anyone aggrieved by a violation…[to] bring an action to obtain a declaratory judgment that an act or practice violates this part and to enjoin a person who has violated, is violating, or is otherwise likely to violate this part.” Fla. Stat. §501.211(1). Failure to state or prove actual damages does not affect a plaintiff’s entitlement to equitable relief under the statute. Wyndham Vacation Resorts, Inc. v. Timeshares Direct, Inc., 123 So. 3d 1149, 1152 (Fla. 5th DCA 2012). See also XTec, Inc. v. Hembree Consulting Servs., Inc., 183 F. Supp. 3d 1265 (S.D. Fla. 2016) (appeal pending).
12 Bailey, 196 So. 3d at 382.
13 Id. at 383.
15 E.g., Britt Green Trucking, Inc. v. FedEx Nat., LTL, Inc., No. 8:09-CV-445-T-33TBM, 2014 WL 3417569, at *12 (M.D. Fla. July 14, 2014); 2P Commercial Agency S.R.O. v. SRT USA, Inc., No. 2:11-CV-652-FTM-29, 2012 WL 3264551, at *4 (M.D. Fla. Aug. 10, 2012).
16 Factory Direct, No. 3:11-CV-255-RV/EMT, 2011 WL 13117118,at *1.
20 Id. at *7.
21 Siever v. BWGaskets, Inc., 669 F. Supp. 2d 1286, 1294 (M.D. Fla. 2009); Eclipse Medical, Inc. v. American Hydro-Surgical Instruments, Inc., 262 F. Supp. 2d 1334, 1357 (S.D. Fla. 1999).
22 Factory Direct, 2011 WL 13117118 at *7.
24 ADT, No. 12-80898-CIV, 2013 WL 11276119, at *1.
25 Id. at *5 (internal quotations omitted).
27 Id. (citations omitted) (citing, e.g., Sun Protection Factory, Inc. v. Tender Corp., No. 604 CV 732 ORL 19 KRS, 2005 WL 2484710, at *14 (M.D. Fla. 2005) (commenting that “‘lost business and lost profits constitute a loss’ recoverable by competitor under FDUTPA”)).
28 Id. at *6.
29 Global Tech, No. 2:15-CV-553-FTM-29CM, 2017 WL 588669at *1.
30 Id. at *1-2.
31 Id. at *2.
32 Id. at *8.
33 Id. at *9 (emphases in the original).
36 Marco Island, 312 F. App’x at 212.
39 Id. at 213-14.
40 Id. at 214.
41 Id. (citations omitted).
43 Dismissing a business competitor’s FDUTPA claim for lost profits.
44 Diversified, No. 15-81062-CIV, 2016 WL 4256916 at *1.
47 Id. at *2.
51 Id. at *5.
53 Id. at *6 (citing Five for Entertainment S.A. v. Rodriguez, 877 F. Supp. 2d 1321, 1331 (S.D. Fla. 2012); QSGI, Inc. v. IBM Global Financing, Case No. 11-80880, 2012 WL 1150402, at *5 (S.D. Fla. 2012); Rollins, 951 So. 2d at 869.
54 Diversified, 2016 WL 4256916 at *6.
55 Id. (emphasis in the original).
57 Five for Entertainment heldthat lost profits were unrecoverable consequential damages, but neither discussed the 2001 amendment to Fla. Stat. §501.211 nor analyzed the issue of “actual damages” for business competitors after 2001. See Five for Entertainment, 877 F. Supp. 2d at 1330-31. Five for Entertainment was not even truly a business-competitor case because the plaintiff — a concert promoter — was more akin to a consumer when it advanced additional monies to a musician’s booking agent under the threat of concert cancellations, despite an agreement to the contrary. See id. at 1323-25. QSGI, Inc. held that the plaintiff could not recover “consequential damages in the form of ‘lost profits’ and ‘lost business,’” but like Five for Entertainment, did not acknowledge the 2001 amendment or discuss actual damages after 2001, and relied entirely on the market value/consumer-case measure of actual damages. QSGI, 2012 WL 1150402 at *5. Moreover, because the QSGI court found no violation of FDUTPA, see id., any discussion of damages was merely hypothetical. Finally, in Rollins, Inc. v. Butland, which dealt with a class certification review, the court found that some putative class members had sustained an actual loss (termite damage to their homes) while others had not; thus, the individual issues on the actual damages prong of FDUTPA liability predominated over common questions, making the class certification inappropriate. Rollins, 951 So. 2d at 865, 873. Importantly, the Rollins plaintiffs (not business competitors but consumers) did not seek to recover lost profits in that class-action suit. As in Five for Entertainment and QSGI, Rollins did not discuss §501.211 2001 amendment or the actual damages in the nonconsumer context. See id. at 870-73.
58 the time Diversified was decided, the district courts had already decided Factory Direct and ADT, and the 11th Circuit had decided Marco Island Cable (which were more akin to DMS’ dispute with CSR than any of the cases cited in Diversified).
Tracey K. Jaensch is the regional managing partner of FordHarrison LLP’s seven offices in Florida and is the managing partner of its Tampa office.
Viktoryia Johnson is an associate with FordHarrison LLP. She graduated magna cum laude from Stetson University College of Law in 2016.
This column is submitted on behalf of the Labor and Employment Law Section, Zascha Blanco Abbott, chair, and Robert Eschenfelder, editor.