Disputes among corporate management can create significant challenges for any business. In Florida, as in other jurisdictions, these conflicts—whether between board members, executives, or shareholders—can lead to costly litigation, regulatory scrutiny, and reputational damage. When corporate governance issues, breach of fiduciary duty, or executive disputes escalate, litigation may be the only recourse for resolving these conflicts.

This article focuses on how corporate management disputes are litigated in Florida, the common legal issues that arise, and relevant case law that provides guidance on handling these disputes. If you have any questions about disputes between corporate management in Florida, please contract Bernhard Law Firm at www.bernhardlawfirm.com, 786-871-3349, abernhard@bernhardlawfirm.com.

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Common Types of Corporate Management Disputes in Florida

Corporate management disputes can arise in a variety of contexts, including:

1. Board Member Disputes: Disagreements between directors about business strategy, financial decisions, or governance matters.
2. Executive Disputes: Tensions between executives (such as the CEO, CFO, or other senior officers) and the board of directors, often related to authority, compensation, or corporate strategy.
3. Shareholder Disputes: Shareholder activism or conflicts between shareholders and corporate management, particularly over control issues, executive compensation, or business direction.
4. Mergers & Acquisitions: Disputes arising from the sale of a business, acquisition, or merger, particularly when management disagrees over the terms of a transaction.

These disputes can lead to various legal claims, from breach of fiduciary duty to derivative actions brought by shareholders.

Legal Claims in Florida Corporate Management Disputes

Several key legal issues often arise in corporate management disputes in Florida, each of which may lead to litigation:

1. Breach of Fiduciary Duty

In Florida, corporate directors and officers owe fiduciary duties of care, loyalty, and good faith to the company and its shareholders. These duties are outlined in Florida’s Business Corporation Act (Chapter 607, Florida Statutes) and the Florida Limited Liability Company Act (Chapter 605, Florida Statutes).

Directors and officers must act in the best interest of the company and its shareholders, avoid conflicts of interest, and refrain from self-dealing. Claims of breach of fiduciary duty often arise in situations where management has acted in a manner contrary to the interests of the company, such as:

• Self-dealing: Where an executive or director uses their position for personal gain, often at the expense of the company.
• Failure to disclose conflicts of interest: Where management fails to disclose personal or financial interests that affect decision-making.

2. Derivative Actions

A derivative action allows a shareholder to sue on behalf of the corporation if management has harmed the company. In Florida, a derivative action can be filed under Section 607.07401 of the Florida Statutes. Shareholders typically bring derivative suits to address actions that are detrimental to the company, such as breaches of fiduciary duty, fraud, or corporate mismanagement.

The key elements of a derivative action in Florida are:

• The shareholder must first demand that the board address the issue, unless such a demand would be futile (e.g., if the board members are personally implicated in the wrongdoing).
• The claim must be brought in good faith and with the intention to benefit the company, not the individual shareholder.

3. Corporate Governance Disputes

Florida corporate law allows shareholders and directors to challenge decisions related to corporate governance, such as the election or removal of directors, changes in the company’s bylaws, or issues related to shareholder voting rights. These disputes can arise in closely-held corporations or in larger public companies.

For example, a shareholder might challenge a board decision that improperly limits their voting rights or violates the company’s bylaws. Florida law recognizes the enforceability of corporate bylaws and shareholder agreements, which may provide the basis for litigation when management disregards these agreements.

4. Executive Employment Disputes

Disputes over executive compensation, termination, or the enforcement of non-compete and confidentiality agreements are common in Florida. Florida law generally upholds the terms of well-drafted executive contracts, but disputes can arise regarding whether these agreements have been breached or enforced in good faith.

5. Mergers and Acquisitions (M&A) Disputes

M&A-related disputes often occur when management disagrees over the terms or structure of a merger, acquisition, or sale. In Florida, parties to such disputes may seek judicial intervention if they believe that corporate governance processes were violated, or if directors or executives breached their fiduciary duties during the deal-making process.

Florida Case Law on Corporate Management Disputes

Florida courts have addressed a variety of corporate management disputes over the years. Below are some important Florida cases that have shaped the legal landscape regarding corporate governance, fiduciary duties, and derivative actions.

1. Rappaport v. Scherr, 322 So. 3d 138 (Fla. 3d DCA 2021)

The Rappaport case confirms that a shareholder’s failure to comply with the statutory pre-suit demand requirement prior to bringing a derivative action will result in dismissal of the lawsuit. This case underscores the need to follow the statutory steps and conditions precedent to a corporate lawsuit, or show their futility, in order to allow corporate boards to rectify issues without expensive litigation.

2. Taubenfeld v. Lasko, 324 So. 3d 529 (Fla. 4th DCA 2021)

This case dealt with claims of breach of fiduciary duty by corporate directors, specifically against the corporation’s vice president. The court reiterated that corporate officers and directors are liable for damages to the corporation which result from breach of their trust, violation of authority, or neglect of duty–this derives from the common law rule that every agent is responsible to his principal for such acts that will damage the principal.

3. Cohen v. Hattaway, 595 So. 2d 105 (Fla. 5th DCA 1992)

This case involved a shareholder derivative action in which the court considered whether the directors had violated their fiduciary duties in a closely held corporation. The court held that the shareholder of a closed corporation sufficiently alleged breach of fiduciary duties against a director/officer by self-dealing by taking money belonging to the corporation and buying real estate in the officer’s personal name. This case confirms the ability to claw back assets and recover from wasteful expenditure.

4. Rehabilitation Advisors, Inc. v. Floyd, 601 So. 2d 1286 (Fla. 5th DCA 1992)

This case involved a corporate officer’s failure to notify, inform, and disclose her company that it had not been put on an approved list of companies to receive referrals in their business sector. This case underscores the importance of candor and disclosure for officers.

Litigation Procedure for Corporate Management Disputes in Florida

1. Pre-Litigation Considerations

Before initiating litigation, parties in a corporate management dispute should consider whether alternative dispute resolution (ADR) methods such as mediation or arbitration are appropriate. These methods can help resolve issues more efficiently and at lower cost than formal litigation. Many corporate bylaws and executive contracts in Florida include clauses requiring mediation or arbitration for certain disputes.

2. Filing a Lawsuit

Once ADR is deemed unworkable, the next step may be to file a lawsuit. The most common court for corporate governance disputes is Florida state court, although federal courts may have jurisdiction in cases involving federal questions or diversity of citizenship.

3. Discovery and Motions Practice

Discovery is often a contentious phase in corporate disputes. Parties will exchange evidence, including board meeting minutes, internal emails, financial records, and executive contracts. Parties may also file pretrial motions to dismiss the case or seek summary judgment.

4. Trial

If the case proceeds to trial, it will typically be heard before a judge, although certain cases may be heard by a jury, especially those involving claims of fraud or other torts. Corporate governance cases generally involve complex issues of law, and expert testimony on corporate practices and fiduciary duties may be necessary.

5. Appeals

Decisions in corporate management disputes can often be appealed to a higher court. The Florida District Courts of Appeal and the Florida Supreme Court may hear appeals in corporate cases, particularly when legal principles related to fiduciary duty, shareholder rights, or corporate governance are at stake.

Preventing Corporate Management Disputes

To avoid costly litigation, Florida businesses should consider:

• Well-drafted Governance Documents: Clear corporate bylaws and shareholder agreements can help prevent governance disputes.
• Strong Internal Controls: Regular internal audits, clear reporting mechanisms, and frequent board meetings can help detect and address conflicts early.
• Dispute Resolution Clauses: Including mandatory mediation or arbitration clauses in executive contracts and corporate governance documents can provide a roadmap for resolving disputes outside of court.

Conclusion

Corporate management disputes in Florida, like in other jurisdictions, involve complex legal issues related to fiduciary duties, shareholder rights, and corporate governance. By understanding Florida’s corporate laws, including relevant case law, companies can better navigate these disputes, avoid litigation, or resolve conflicts. If you have any questions about disputes between corporate management in Florida, please contract Bernhard Law Firm at www.bernhardlawfirm.com, 786-871-3349, abernhard@bernhardlawfirm.com.