Businesses break up for about as many reasons as personal relationships do. In addition to the negative emotions that surround the fallout of a broken personal relationship, as a business owner, you also have to contend with trying to salvage what you can of your business. If your business is still viable or can be saved, litigation over disputes relating to the business can often have a disastrous effect on your ability to continue operating after a lawsuit.
One way to avoid this fate is to not wait until the dust settles to have the Court decide who controls the business and what happens to business assets. With the right circumstances and experienced legal counsel, a preliminary injunction can give your business the stability it needs to weather the storm of business divorce litigation.
When the Court enters an Injunction Order, it is mandating that something specific happens or stops happening. Injunctive relief is considered an extraordinary remedy and, to be awarded such relief, you must make a very strong and specific showing — most importantly, that without an injunction, irreparable harm will occur. Both the Florida Rules of Civil Procedure and Florida cases set forth these strict requirements.
Rule 1.610, Florida Rules of Civil Procedure set the procedural requirements for an injunction. The Rule states that an injunction can be issued with or without notice. To justify entry of an injunction without notice, the moving party must show that giving notice will accelerate the injury at issue or that the time required to notice a hearing would actually permit the threatened irreparable injury to occur.
Procedurally, an injunction can only be entered on the basis of verified allegations, such as an affidavit. A bond is also required to secure any losses by the other side in the event the injunction is found to have been wrongfully entered. The amount of the bond is determined by the court on a case-by-case basis.
The evidence advanced in support of the injunction must establish the following factors: (1) irreparable harm; (2) absence of an adequate legal remedy; (3) a substantial likelihood of success on the merits; and (4) that considerations of the public interest support the entry of the injunction. A trial court decides whether to issue the temporary injunction based solely on the pleadings and verified allegations presented.
“Irreparable Harm” and having “no remedy at law” essentially mean the same thing: an injury that cannot be fixed by money. When it comes to a business, this can take the form of losing “customer goodwill” – relationships are irreplaceable once lost; you can develop new ones, but not the same ones. Irreparable harm can also come from any number of other ills that lead to the business losing its ability to meaningfully exist and continue to do business. The loss of key employees or of customer relationships are some examples, but anything that could lead to the business folding could potentially qualify.
Cases involving tax irregularities or criminal fraud events are particularly suitable for injunctions. If the bad acts continue, the business may be destroyed based on the legal risks.
Certain Florida Statutes may also provide the specific substantive basis for injunctive relief. For example, Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA), section 501.211(1), Florida Statutes, and Florida's Uniform Trade Secrets Act ('FTUSA'), section 688.003, Florida Statutes, both provide injunctive relief as a specific statutory remedy. You will still have to meet the four-factor test outlined above, and all procedural requirements of Rule 1.610 still apply. However, you can rely on these statutes, as well as Florida cases, to show entitlement to an injunction in the event of a statutory violation.
Finally, common law claims such as tortious interference can also serve as the basis for entry of an injunction. As with the statutory claims for injunctive relief, establishing the likelihood of an actionable common law claim is not enough on its own. You will still have to meet the four-factor test and comply with Rule 1.610.
Entry of a preliminary injunction can be a powerful, even game-changing, event in litigation. In the context of a business divorce, a preliminary injunction can do any number of things, such as prohibiting certain parties from acting on behalf of the business, restricting access to bank accounts and business assets, limiting the sale of business assets and, perhaps most importantly,
designating one party to manage the ongoing affairs of the business.
Two business divorce cases I handled come to mind as great examples. In each case, we sought and obtained preliminary injunctions in favor of our clients. Obtaining the injunctions was a major turning point in each case and put our clients in a strong position. One of these cases settled quickly and very favorably for the client. The other handed complete control of the business to our client, who has been able to make a smooth transition into a new business platform as a result.
With the right legal strategy, you can avoid the major pitfalls of a contentious business divorce and often save on the costs of years of litigation. At the same time, you can salvage your business or, at a minimum, put yourself in a position to transition smoothly into your next venture. As a business person, you want control down to the end. By securing control of the business during the break-up, you have the best chance of steering the business divorce process in your favor.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation. Gabriel "Gabe" Pinilla, Partner at Cotney Construction Law, is a seasoned, results-oriented business and construction law and litigation attorney. Cotney Construction Law is an advocate for the roofing industry and General Counsel of FRSA. For more information, visit www.cotneycl.com or call 866-303-5868.
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