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South Florida Judge Allowed to Use Two-Part Sanction Process for Contempt in Commercial Contract Lawsuit

Miles_Ehrlich,_judgeA software development and licensing company, who violated court orders protecting the confidentiality provisions of a commercial contract the company had signed, paid a hefty sum for its action. The 4th District Court of Appeals concluded that the law allowed the trial court to impose a two-part contempt sanction, with one part compensatory and one part coercive. The law did not permit the court to impose a deadline for paying the first sanction, so the appeals court threw out that part of the lower court’s order.

The origin of the two sides’ interaction began when LADS Network Solutions, Inc., a GPS software development and licensing company, consummated a software development agreement with West Palm Beach-based Disaster Solutions, LLC, a disaster relief service company. Disaster was working on a technology that would allow cell phones to exchange information through their Bluetooth devices even when cellular towers and the Internet were not functioning. A confidentiality provision in the agreement required LADS, if it were ever ordered (as part of litigation) to disclose confidential information to a third party, to give immediate notice to Disaster so that Disaster could go to court and seek a protective order.

Eventually, deadlines were missed, and the relationship between the two companies deteriorated. Disaster sued LADS in Palm Beach County. During the course of this legal action, Disaster found out that LADS was part of a lawsuit in another state involving one of Disaster’s competitors. To make matters worse for Disaster, LADS complied with all discovery requests in that out-of-state case, including turning over information about Disaster that it considered confidential. LADS never provided Disaster with any notice of the disclosure.

The trial judge in the LADS-Disaster lawsuit found LADS in civil contempt for violating court orders related to upholding the confidentiality provisions in the parties’ contract. The court ordered LADS to pay two monetary sanctions. LADS would not have to pay the second sanction, set in the amount of $100,000, if it met several conditions that the court laid out. One of those was that LADS would pay the first sanction to Disaster by a deadline set by the court.

LADS appealed but lost. The appeals court dedicated its analysis to whether the law allowed the trial court to construct the sort of two-step contempt sanction that it created. The law recognizes two types of monetary contempt sanctions — compensatory and coercive. Compensatory sanctions may, as the name suggests, compensate another party in the case who is harmed as a result of the conduct that led to the contempt finding. Coercive sanctions are meant to produce future obedience with the court’s orders. In some cases, some contempt sanctions may be both compensatory and coercive.

The court pointed out that Florida law gives judges extensive discretion to use flexibility and creativity to arrive at an appropriate sanction for a party’s contempt. However, that discretion is not unlimited. In Disaster’s case, the court ordered to pay the compensatory sanction within 10 days of the court’s setting the amount of that sanction. The appeals court concluded that there was no statute, rule, or case decision that allowed for the imposition of a deadline for paying the compensatory sanction in a case like this. That power had only been used in a narrow range of family law issues, and the court decided not to extend that concept to this commercial dispute. As a result, each of the two sanctions survived the appeal, but the appeals court struck down the 10-day deadline for paying the compensatory sanction.

Business relationships often carry with them complex commercial contracts. Violating those agreements, or court orders intended to uphold the terms of the agreements, can carry significant risks. For reliable advice and representation regarding your business contract and legal dispute issues, reach out to the Florida commercial litigation attorneys at Stok Folk + Kon. Our attorneys have the in-depth knowledge and experience you need to protect your business interest.

Contact us online or by calling (305) 935-4440 to schedule your consultation.

More blog posts:

Default Judgment Blocks Arguments About Liability in Florida Contract Dispute Case, Florida Business Lawyers Blog, Nov. 11, 2015

Protecting Your Company’s Sensitive Information and Relationships During a Florida Commercial Litigation Case, Florida Business Lawyers Blog, Aug. 7, 2015

Photo: Judge Miles Ehrlich talking to a lawyer, by maveric2003 at Wikimedia Commons.