McGlinchey Commercial Law Bulletin
Do I have standing to bring a declaratory judgment action?Read Time: 5 mins
McGlinchey’s Commercial Law Bulletin is a biweekly update of recent, unique, and impactful cases in state and federal courts in the area of commercial litigation.
Unambiguous Contract Language
Lake Breeze Condo. Homeowner’s Ass’n v. Eastlake Ohio Developers, LLC, 11th Dist. Lake No. 2022-Ohio-3002.
In this case the Eleventh Appellate District affirmed in part and reversed in part a trial court’s decision granting judgment to a Home Owner’s Association on its complaint for damages. Regarding a claim for interim road contribution fees, the court found the plain language of a temporary easement did not permit recovery of such fees.
The Bullet Point: In a breach of contract action, the parties are bound by the express terms of a contract. “In construing a written instrument, the primary and paramount objective is to ascertain the intent of the parties to give effect to that intent.” “When the terms of a contract are unambiguous, courts will not, in effect, create a new contract by finding an intent not expressed in the clear language employed by the parties.” “If a contract is clear and unambiguous, the court need not go beyond the plain language of the agreement to determine the parties’ rights and obligations; instead, the court must give effect to the agreement’s express terms.”
Barnosky v. Barnosky, 11th Dist. Portage, No. 2022-Ohio-2928.
The Eleventh Appellate District affirmed the trial court’s judgment in favor of the plaintiff on its conversion claim.
The Bullet Point: Conversion is defined as “the wrongful exercise of dominion over property to the exclusion of the rights of the owner, or withholding it from his possession under a claim inconsistent with his rights.” The elements of conversion are commonly stated as: “(1) the plaintiff’s ownership and right to possess the property at the time of the conversion; (2) the defendant’s conversion by wrongful act of plaintiff’s property rights; and (3) damages.” Moreover, a plaintiff does not have to demand return of the property to state a claim for conversion. Instead, “[a]ny wrongful exercise of dominion over chattels in exclusion of the rights of the owner, or withholding of them from his possession under a claim inconsistent with his rights, constitutes a conversion”.
Honeywell Int’l Inc. v. Vanderlande Industries, Inc., 12th Dist. Warren No. 2022-Ohio-2986
In this appeal, the Twelfth Appellate District affirmed a trial court’s decision to dismiss a declaratory judgment claim for lack of standing.
The Bullet Point: Standing is a jurisdictional requirement that a party has a sufficient stake in an otherwise justiciable controversy to obtain judicial resolution of that controversy. Standing is defined as” ‘[a] party’s right to make a legal claim or seek judicial enforcement of a duty or right.'” R.C. 2721.03 specifically provides that “any person interested” under a written contract “may have determined any question of construction or validity arising under the * * * contract, * * * and obtain a declaration of rights, status, or other legal relations under it.” “[A] declaratory-judgment action may be filed only for the purpose of deciding an ‘actual controversy, the resolution of which will confer certain rights or status upon the litigants.'” A plaintiff lacks standing if he or she is not a party to a written agreement to bring a declaratory judgment claim related to the written agreements.
Fiduciary Capacity Exception
Spring Valley Produce, Inc., et al v. Nathan Aaron Forrest, et al, No. 21-12133 (11th Cir. August 31, 2022)
The Eleventh Circuit adopted a three-part test for determining whether a debtor is acting in a fiduciary capacity under 11 U.S.C. § 523(a)(4) in relation to a creditor.
The Bullet Point: Section 523 of the Bankruptcy Code lists various exceptions to the general rule that an individual debtor’s pre-bankruptcy debts are dischargeable in a Chapter 7 bankruptcy case. The “Fiduciary Capacity Exception” codified in 11 U.S.C. § 523(a)(4) provides that debts “for fraud or defalcation while acting in a fiduciary capacity” cannot be discharged. In this opinion, the Eleventh Circuit adopted the following three-part test for a court to analyze when determining whether a debtor is acting in a “fiduciary capacity” under the Fiduciary Capacity Exception in relation to a creditor: (1) the fiduciary relationship must have a trustee who holds an identifiable trust res for the benefit of an identifiable beneficiary or beneficiaries; (2) the fiduciary relationship must define sufficient trust-like duties imposed on the trustee with respect to the trust res and beneficiaries to create a technical trust, with the strongest indicia of a technical trust being the duty to segregate trust assets and the duty to refrain from using trust assets for a non-trust purpose; and (3) the debtor must be acting in a fiduciary capacity before the act of fraud or defalcation creating the debt.
The Eleventh Circuit confirmed this analysis should apply equally to statutory trusts, trusts created by contract, or express trusts. Additionally, it cautioned that courts should be wary of parties using labels like “trust” or “beneficiary” in contracts and, just like a statute, should ensure that the contract meets all the requirements of a technical trust before applying the exception.
Concerted Action Under the Sherman Act
Jarvis Arrington, et al v. Burger King Worldwide, Inc., et al, No. 20-13561 (11th Cir. August 31, 2022)
The Eleventh Circuit concluded that a complaint plausibly alleged that a “No-Hire Agreement” between a corporation and its franchisees qualified as concerted activity under Section 1 of the Sherman Act.
The Bullet Point: Section 1 of the Sherman Act prohibits any “contract, combination in the form of trust or otherwise, or conspiracy” that restrains trade or commerce. A plaintiff raising a Section 1 challenge must sufficiently allege concerted action taken by the defendant. In determining whether an arrangement rises to the level of concerted action, a court must consider whether there is a contract, combination, or conspiracy among separate economic actors pursuing separate economic interests that deprive the marketplace of independent decision-making centers.
At issue in this appeal was whether Burger King and its franchisees’ “No-Hire Agreement” arrangement constituted concerted action under Section 1. The Eleventh Circuit concluded that it did, reasoning that the No-Hire Agreement at issue deprives the marketplace of independent decision-making about hiring because it prohibits Burger King and its franchisees from enticing current employees to leave one Burger King restaurant and join another, as well as from hiring any Burger King employee within six months after leaving another Burger King restaurant. The Eleventh Circuit elaborated that this is because Burger King and its franchisees compete against each other and have separate and different economic interests. This independence expressly extends to hiring decisions. Accordingly, the Eleventh Circuit reversed the district court’s order dismissing the complaint to the extent it was based on the concerted action element for a Section 1 violation.
Safe Harbor Exception for Financing Statements
1944 Beach Boulevard, LLC v. Live Oak Banking Co., No. SC21-1717 (Fla. August 25, 2022)
The Florida Supreme Court concluded that the Florida Secured Transaction Registry’s failure to employ a “standard search logic” precludes the application of the safe harbor exception to financing statements that fail to name the debtor correctly.
The Bullet Point: The safe harbor exception codified in section 679.5061(3), Florida Statutes, provides that a financing statement with errors or omissions in naming the debtor will still be adequate to perfect a security interest so long as “a search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic, if any, would disclose” the financing statement. In this opinion, the Florida Supreme Court determined that the filing office’s use of a standard search logic is necessary to trigger the safe harbor protection and concluded the Florida Secured Transaction Registry’s failure to employ a “standard search logic” precludes the safe harbor from applying in the first instance. In reaching this conclusion, the Court adopted the definition of “standard search logic” accepted in the secured transactions industry, which requires a search procedure that identifies the specific set of financing statements on file that constitutes hits for the search. Under that definition, the Court found the Florida Secured Transaction Registry does not employ a “standard search logic” because a search of the Registry returns an index of all the financing statements in the Registry rather than a finite list of hits.
Accordingly, because this case was before the Florida Supreme Court on review of questions certified by the Eleventh Circuit concerning the proper scope of the “search,”
the Court held that it was unnecessary to reach the Eleventh Circuit’s certified questions. The Court further stated that unless and until the Registry employs a standard search logic, any financing statement that fails to name the debtor correctly is “seriously misleading” and, therefore, ineffective.