JOE SAMUEL BAILEY v. JAMES S. ST. LOUIS ( 2018 )

NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING
MOTION AND, IF FILED, DETERMINED
IN THE DISTRICT COURT OF APPEAL
OF FLORIDA
SECOND DISTRICT
JOE SAMUEL BAILEY, )
LASERSCOPIC SPINAL CENTERS OF )
AMERICA, INC.; LASERSCOPIC )
MEDICAL CLINIC LLC; )
LASERSCOPIC DIAGNOSTIC )
IMAGING AND PHYSICAL THERAPY )
LLC; LASERSCOPIC SPINAL )
CENTER OF FLORIDA, LLC; and )
LASERSCOPIC SURGERY CENTER )
OF FLORIDA, )
)
Appellants/Cross-Appellees, )
)
v. ) Case No. 2D17-895
)
JAMES S. ST. LOUIS, D.O.; )
MICHAEL W. PERRY, M.D.; EFO )
HOLDINGS L.P.; EFO GENPAR, INC.; )
EFO LASER SPINE INSTITUTE, LTD.; )
LASER SPINE INSTITUTE, LLC; )
LASER SPINE MEDICAL CLINIC, LLC; )
LASER SPINE PHYSICAL THERAPY, )
LLC; and LASER SPINE SURGICAL )
CENTER, LLC, )
)
Appellees/Cross-Appellants. )
)
Opinion filed December 28, 2018.
Appeal from the Circuit Court for
Hillsborough County; Richard A. Nielsen,
Judge.
William J. Schifino of Burr & Forman LLP
Tampa; Stuart C. Markman, Kristin A.
Norse, and Robert W. Ritsch of Kynes,
Markman & Felman, P.A., Tampa;
Jennifer G. Altman and Shani Rivaux of
Pillsbury Winthrop Shaw, Pittman LLP,
Miami, for Appellants/Cross-Appellees.
Stacey D. Blank and Joseph H.
Varner, III of Holland & Knight LLP, Tampa,
for Appellees/Cross-Appellants.
KELLY, Judge.
This is the second appeal from a final judgment entered in favor of the
appellants/cross-appellees in an action against the appellees/cross-appellants for
breach of fiduciary duty, conspiracy, defamation, slander per se, tortious interference,
and violation of the Florida Deceptive and Unfair Trade Practices Act (FDUTPA). The
factual background underlying this litigation is fully set forth in Bailey v. St. Louis, 196
So. 3d 375 (Fla. 2d DCA 2016) (Bailey I), and repeating it here is unnecessary. In
Bailey I, we affirmed the final judgment but reversed the damages awarded by the trial
court. On remand, with the exception of adding an award for punitive damages, the trial
court awarded the same damages this court had previously reversed. Again, we
reverse those awards. As to the remaining issues raised in the appeal and in the cross-
appeal, we affirm without further comment.
In Bailey I, the appellants had prevailed on claims for breach of fiduciary
duty, conspiracy, slander per se, tortious interference, and violation of FDUTPA. We
reversed the damages awarded for everything but slander per se because, as explained
in our opinion, we could not square the awards with the evidence or the trial court's
findings, which were quite limited with respect to damages. See 196 So. 3d at 377. We
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also reversed the trial court's decision not to award monetary damages for the
appellees' FDUTPA violations and not to award punitive damages. See id. We
determined that the trial court incorrectly ruled that it could not award monetary
damages under FDUTPA and that it also erroneously found that the facts did not
support an award of punitive damages. See id.
There were two components to the total damage award of $1,600,000 at
issue in Bailey I. The first was an award of $300,000 to Laserscopic Spine Centers of
America, Inc. (Spine), for out-of-pocket damages for tortious inference. With respect to
this award we stated, "In its order, the trial court accepted the calculations of only one of
the experts 'as to out of pocket losses,' and it found that the expert testified that the
Appellants suffered out-of-pocket damages of $6,831,172." 196 So. 3d at 377 (footnote
omitted). Yet, the total award of damages was only $1,600,000. The trial court offered
no explanation as to how it ended up entering a total award that was less than one-
fourth of the amount it cited for out-of-pocket damages alone, and the record provided
no insight into the basis for the award.1
On remand, the trial court again awarded $300,000. By way of
explanation, the court stated that it had rejected the appellants' expert's testimony as to
out-of-pocket losses. However, as explained in Bailey I, the trial court had expressly
accepted the expert's calculation regarding out-of-pocket losses. The court purports to
1The appellees' argument to the trial court was not helpful in terms of
understanding the award. Their approach to damages had been to simply argue that
the appellants had not proved they suffered any damages as a result of the appellees'
conduct. They did not challenge the appellants' out-of-pocket figure, nor did they offer
any alternative theory upon which the trial court might have based its award of
$300,000.
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explain how it determined that $300,000 was the proper award. Its reasoning, however,
is nearly a verbatim repeat of the arguments the appellees unsuccessfully urged us to
accept in Bailey I. Moreover, the court's explanation rests on the flawed premise that it
had rejected the expert's calculations. Accordingly, we again reverse the trial court's
award to Spine and remand for entry of an award in the amount of $6,831,172, which is
the amount the trial court found was established by the appellants' expert's testimony.
The remaining $1,050,000 of the damage award was the second
component at issue in Bailey I. Appellant Laserscopic Spinal Centers of America, Inc.
(Spinal), was awarded damages for breach of fiduciary duty, conspiracy, and tortious
interference, while appellant Laserscopic Medical Clinic, LLC (LMC), received an award
on a claim for breach of fiduciary duty. The appellants had sought damages under
various theories, including disgorgement. On appeal, the appellants argued that the
trial court had awarded no disgorgement damages, while the appellees argued that the
entire $1,050,000 was an award of "lost profits measured by the yardstick of [Laser
Spine Institute's] allegedly ill-gotten profits, which [it] was similarly required to disgorge."
Because of the way the trial court had prepared its order, it was not possible to
determine with certainty whether all or a portion of the award was for disgorgement.
What we could determine, however, was that if it was for disgorgement, it was "grossly
insufficient." Id. at 378.
The appellants had sought disgorgement of approximately $264,000,000.
This figure represented the value of Laser Spine Institute (LSI) in 2009 plus $77.5
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million in distributions paid to the owners between 2005 and 2009.2 In their argument to
the trial court, the appellees had taken the position that even if the court found some
wrongdoing, any profits LSI earned were attributable solely to the efforts of
management and not to any wrongdoing; therefore, the court should not award anything
to the appellants.3 Because it was their position that the appellants were not entitled to
any damages, the appellees did not put on any evidence as to what amount of LSI's
profits short of $264,000,000 could be attributed to their wrongful conduct.
On appeal, and without explaining how the court might have arrived at
$1,050,000 rather than $264,000,000, the appellees argued the award reflected the trial
court's conclusion that only this portion of LSI's profits was attributable to the appellees'
wrongdoing. In support of this, the appellees pointed to the "Damages" section of the
trial court's order and specifically to the trial court's citation to Pidcock v. Sunnyland
America, Inc., 854 F.2d 443, 447-48 (11th Cir.1988). The trial court cited Pidcock for
the proposition that a plaintiff may only recover profits attributable to the underlying
2While the parties have referred to the recovery the appellants sought as
disgorgement of profits, it would be more accurate to describe it as disgorgement of the
appellees' wrongful gain. See Restatement (Third) of Restitution and Unjust Enrichment
§ 3 (Am. Law. Inst. 2011). A conscious wrongdoer is liable for the "net profit attributable
to the underlying wrong." Restatement (Third) of Restitution and Unjust Enrichment §
51(4). As used in section 51(4), "[p]rofit includes any form of use value, proceeds, or
consequential gains." Restatement (Third) of Restitution and Unjust Enrichment §
51(5)(a). The appellees have not challenged, nor have we considered, the use of these
particular elements to calculate "profit" for the purposes of disgorgement. Nor have
they challenged the accuracy of the amounts testified to by the appellants' expert. At
trial they offered no alternative method by which to calculate the amount of profits
subject to disgorgement because it was their position that none of the profits LSI earned
were subject to disgorgement.
3In Bailey I we discussed at length the trial court's findings regarding the
appellees' wrongful conduct. 196 So. 3d at 377-78. When we reference "wrongdoing"
in this opinion we are referring to the conduct we detailed in Bailey I.
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wrong and not profits attributable to a defendant's "special or unique efforts" and that
"aggressive or enterprising" management activities "may break the causal chain"
between the wrongdoing and the defendant's profits. This, according to the appellees,
was the reason the trial court limited the award. We will not repeat our discussion of
Pidcock here. Suffice it to say that we thoroughly analyzed its applicability to the facts
as found by the trial court, and we concluded that the limiting principles Pidcock
discusses were inapplicable. See Bailey I, 196 So. 3d at 378. Thus, we held that if the
award was for disgorgement, it was "grossly insufficient." See id.
Although we did not address it in our opinion, the appellees also argued
that "in cases involving the misappropriation of proprietary information, a court will limit
the disgorgement of a defendant's profits 'to the amount of time it would have taken the
defendant to independently develop its product without the benefit of the plaintiff's trade
secrets—in other words, the "head start" period.' " Thus, they argued that the trial court
awarded "lost profits/disgorgement damages in an amount equal to the profits LSI
derived from this head start." However, the trial court had found the appellants'
misappropriation claims were barred by the statute of limitations. Further, at trial the
appellants' did not seek to recover lost profits, instead focusing on disgorgement,
business destruction damages, and out-of-pocket damages. Accordingly, we rejected
this argument as well.
On remand, the trial court confirmed it was awarding disgorgement
damages but then entered the same award we had reversed as "grossly inadequate."
This appears to have happened because the appellees convinced the trial court that we
had not actually found the award to be inadequate, we had simply found it to be
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inadequately explained. And as was the case with the out-of-pocket award, the
appellees apparently convinced the trial court it could explain its award by adopting the
arguments the appellees had made and we had rejected in Bailey I.
In explaining the award on remand, the trial court's overarching focus is on
why it believed Spinal was not successful, which as we explain below, is not part of the
equation for determining the degree to which a wrongdoer's profits are attributable to its
wrongful conduct. First, the trial court points to the appellants' "lack of business skills"
and states that because of their lack of skill and poor business decisions they "should
not be awarded disgorgement damages beyond the amounts in the final judgment." It
also states it is rejecting the appellants' demand for disgorgement damages equal to all
the profits earned by LSI because there is no causal relationship between the appellees'
tortious conduct and all the profits. The court elaborates, stating that the appellees
succeeded because of a "unique combination of individual, skilled medical doctors;
highly effective and inventive executives, managers and administrators; creative
marketing and advertising programs; and the availability and use of proper capital" and
that even though Spinal "followed the same business model, it was not able to
succeed."
The trial court's focus on the appellants' supposed lack of business skills
as a basis to limit disgorgement shows a complete misapprehension of the principles
applicable to disgorgement. Disgorgement is a remedy designed to deter wrongdoers
by making it unprofitable to engage in the wrongful behavior. See Duty Free World, Inc.
v. Miami Perfume Junction, Inc., 253 So. 3d 689, 698 (Fla. 3d DCA 2018)
(" 'Disgorgement is an equitable remedy intended to prevent unjust enrichment.' "
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(quoting S.E.C. v. Monterosso, 757 F.3d 1326, 1337 (11th Cir. 2014))); Restatement
(Third) of Restitution and Unjust Enrichment § 1 (Am. Law Inst. 2011) ("A person who is
unjustly enriched at the expense of another is subject to liability in restitution.");
Restatement (Third) of Restitution and Unjust Enrichment § 3 ("A person is not
permitted to profit by his own wrong."). The point of disgorgement is to deter
wrongdoers by stripping them of the gains from their conduct:
Restitution requires full disgorgement of profit by a
conscious wrongdoer, not just because of the moral
judgment implicit in the rule of this section, but because any
lesser liability would provide an inadequate incentive to
lawful behavior. If A anticipates (accurately) that
unauthorized interference with B's entitlement may yield
profits exceeding any damages B could prove, A has a
dangerous incentive to take without asking—since the
nonconsensual transaction promises to be more profitable
than the forgone negotiation with B. The objective of that
part of the law of restitution summarized by the rule of § 3 is
to frustrate any such calculation.
Id. § 3 cmt. c; see also § 51 cmt. e ("The object of the disgorgement remedy—to
eliminate the possibility of profit from conscious wrongdoing—is one of the cornerstones
of the law of restitution and unjust enrichment.").
This case is a classic example of what this comment from the
Restatement describes. As we detailed in Bailey I, when the appellants did not accept
the appellees' offer to invest in Spinal, the appellees told them "you're going to accept
this offer or we're going to take your doctors and we're going to take your company.
And we're going to go up the street and we're going to do it ourselves." 196 So. 3d at
380. When threatened with litigation, the appellees said they were not concerned
because the business would make ten times whatever damages they might have to pay
in a lawsuit. See id. at 380-81.
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Had the appellants been limited to recovering under a lost profits theory,
that prediction would unquestionably be accurate. However, the measure of damages
for disgorgement is not the profits the appellants might have made absent the
wrongdoing—the measure of damages for conscious wrongdoing is the appellees' "net
profit attributable to the underlying wrong." Restatement (Third) of Restitution and
Unjust Enrichment § 51(4); see also Duty Free, 253 So. 3d at 698 ("The equitable
remedy of disgorgement is measured by the defendant's ill-gotten profits or gains rather
than the plaintiff's losses."). "When the defendant has acted in conscious disregard of
the claimant's rights, the whole of the resulting gain is treated as unjust enrichment,
even though the defendant's gain may exceed" the claimant's loss. Restatement (Third)
of Restitution and Unjust Enrichment § 3 cmt. c. In fact, disgorgement may be awarded
even if the claimant has not sustained any loss. Restatement (Third) of Restitution and
Unjust Enrichment § 3, reporter's note a. ("[I]t is clear not only that there can be
restitution of wrongful gain exceeding the plaintiff's loss, but that there can be restitution
of wrongful gain in cases where the plaintiff has suffered an interference with protected
interests but no measurable loss whatsoever."). The trial court's comments regarding
the appellants' business acumen are misplaced in determining a disgorgement award.
To the extent the trial court's order can be read to rely on the limiting
principles articulated in Pidcock, we specifically considered and rejected the applicability
of those principles in Bailey I. See 196 So. 3d at 378-79. Our rejection of this as a
basis to limit the award of disgorgement was the law of the case, and the trial court was
bound by our determination. See Specialty Rests. Corp. v. Elliott, 924 So. 2d 834, 837
(Fla. 2d DCA 2005) ("[Q]uestions of law that have actually been decided on appeal must
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govern the case in the same court and in the trial court through all subsequent stages of
the proceedings."). Moreover, the "business model" to which the court attributes the
appellees' success is the one it stole from the appellants along with its doctors, key
employees, and everything else. In other words, what the trial court said amounts to a
finding that the appellees' success was in fact attributable to their wrongdoing.
Lastly, the trial court sets out the reasoning it used to arrive at the figure of
$1,050,000. However, it relies on the "head start" formula the appellees unsuccessfully
argued in support of the award in Bailey I. As explained above, we rejected that
argument as inapposite. Further, the trial court took this "head start" concept and more
or less turned it on its head. The trial court reasoned that Spinal's operations were
interrupted for approximately six months; therefore, the appellants were only entitled to
six months of LSI's profits. Again, the trial court misapprehends the nature of the
disgorgement remedy by measuring the award based on what the appellants lost—six
months of profits—not what the appellees gained. See Guyana Tel. & Tel. Co., Ltd. v.
Melbourne Int'l Commc'ns, Ltd., 329 F.3d 1241, 1249 (11th Cir. 2003) (reversing where
a jury was instructed to measure the plaintiff's right to restitution in terms of its loss
rather than the benefit conferred on the defendants because "[r]estitution is a remedy
that is often available to victims of a wrong. Restitution measures a plaintiff's recovery
according to the defendant's, rather than the plaintiff's, rightful position").
Accordingly, we again reverse the awards for breach of fiduciary duty,
conspiracy, and tortious interference and remand for the court to enter an award of
disgorgement. Because the only testimony regarding the manner in which the
disgorgement award should be measured came from the appellants' expert, the award
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should be calculated according to the formula he proposed. Specifically, the court
should enter an award based on the total value of LSI in 2009 combined with the total of
the distributions to the owners of LSI between 2005 and 2009.4 We also reverse the
award for out-of-pocket damages and remand for entry of an award of $6,831,172.
Reversed and remanded for entry of a judgment in accordance with this
opinion.
CASANUEVA and CRENSHAW, JJ., Concur.
4Itappears from the evidence in the record that the proper amount of the
award at a minimum falls between $264,000,000 and $265,000,000.
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