When you enter into a commercial contract, you may have some very specific expectations, including an expectation that the party with which you’ve contracted will be the one directly responsible for performing the work covered by the agreement. If you have such an expectation, your agreement may have a clause prohibiting any assignment of interests under the contract. But how far does that anti-assignment clause go? According to a recent federal case ruled upon by the U.S. District Court for the Southern District of Florida, such clauses only apply during the contract’s performance period, and once all sides have performed under the contract, parties are free to assign legal rights, such as the right to recover damages for a breach of the contract, to others.
This recent South Florida case featured two entities involved in a roadway improvement project in Broward County. The county hired Edwards & Kelcey to design the project, including the project’s drainage. Jacobs Engineering Group, Inc. bought Edwards and took over all of its business, including the Broward road project. The county contracted with H&J Contracting, Inc. to perform the construction work in accordance with Jacobs’ designs. According to H&J, there were certain flaws within Jacobs’ drainage designs, and these problems caused both H&J and the county to incur monetary damages. H&J sued the county and settled that case out of court. As part of that deal, the county assigned H&J all its rights to recovery from Jacobs.
H&J sued Jacobs for breach of contract on behalf of itself and the county. Jacobs asked the trial court to dismiss H&J’s case, arguing that the contractor lacked legal standing to sue Jacobs. When Jacobs and the county entered into their contract for the design of the project, they included a clause in the agreement that stated that neither side could assign its rights to another entity. That anti-assignment clause, Jacobs argued, prevented H&J from suing on behalf of the county for any alleged harm Jacobs may have caused the county.
The court disagreed. Florida law generally allows parties to a contract to assign any or all rights under that agreement to another person or entity, unless the assignment would violate public policy, the obligations under the agreement are personal to the contracting party, or the parties expressly state in the agreement that assignments are prohibited. The Broward County-Jacobs agreement specifically stated that no interest under the agreement was assignable. This prohibition did not block H&J’s lawsuit because the prohibition clause pertained only to performance under the contract, not recovery rights in court based upon one side’s breach of the contract.
The court reached its conclusion after considering similar cases from Washington and Tennessee. In those cases, the courts determined that an anti-assignment clause in a contract existed to protect against the performance of contractual obligations by entities other than those with whom they contracted, and therefore it applied only until such time as the performance of the contractual obligations was finished. Once both sides had performed as required under the terms of the contract, the clause did nothing to bar a party from assigning its right to recovery in court in a breach-of-contract action.
For wise advice and determined advocacy, both in negotiating your commercial contract and in litigating disputes related to your contract, contact the Florida commercial litigation attorneys at Stok Folk + Kon. Our attorneys have the skills and experience you need to protect your interests to the greatest extent possible.
Contact us online or by calling (305) 935-4440 to schedule your consultation.
More blog posts:
Offers of Judgment and Commercial Litigation in Florida, Florida Business Lawyers Blog, Dec. 4, 2015
Protecting Your Company’s Sensitive Information and Relationships During a Florida Commercial Litigation Case, Florida Business Lawyers Blog, Aug. 7, 2015