Bailey v. St. Louis

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, individually, and )
on behalf of LASERSCOPIC SPINAL )
CENTERS OF AMERICA, INC.; )
LASERSCOPIC MEDICAL CLINIC LLC; )
LASERSCOPIC DIAGNOSTIC IMAGING )
AND PHYSICAL THERAPY, LLC; )
LASERSCOPIC SPINAL CENTER OF ) Case No. 2D13-612
FLORIDA, LLC; and LASERSCOPIC )
SPINE CENTERS OF AMERICA, INC., )
)
Appellants/Cross-Appellees, )
)
v. )
)
JAMES S. ST. LOUIS, D.O.; MICHAEL W. )
PERRY, M.D.; EFO HOLDINGS L.P.; )
EFO LASER SPINE INSTITUTE, LTD.; )
LASER SPINE INSTITUTE, LLC; LASER )
SPINE MEDICAL CLINIC, LLC; LASER )
SPINE PHYSICAL THERAPY, LLC; )
LASER SPINE SURGICAL CENTER, LLC; )
and EFO GENPAR, LP, )
)
Appellees/Cross-Appellants. )
___________________________________ )
Opinion filed February 3, 2016.
Appeal from the Circuit Court for
Hillsborough County; Richard A. Nielsen,
Judge.
Stephen N. Zack, Jennifer G. Altman, and
Shani Rivaux of Boies, Schiller & Flexner,
LLP, Miami; and Stuart C. Markman and
Kristin A. Norse, and Robert R. Ritsch, of
counsel, of Kynes, Markman & Felman,
P.A., Tampa, for Appellants/Cross-
Appellees.
Stacy D. Blank, Joseph H. Varner, III, and
Bradford D. Kimbro of Holland & Knight LLP,
Tampa, for Appellees/Cross-Appellants.
CASANUEVA, Judge.
The Appellants seek review of a final judgment entered after a bench trial
on their claims against the various Appellees for breach of fiduciary duty, defamation,
slander per se, violation of the Florida Deceptive and Unfair Trade Practices Act
(FDUTPA), conspiracy, and tortious interference as to several individuals and entities.
In this appeal, the Appellants challenge the amount of damages they were awarded for
their breach of fiduciary duty claim, and they challenge the trial court's failure to award
any damages for their FDUTPA claim. They also argue that the trial court erred in
finding that some of their claims were barred by the statute of limitations. We reverse
the award of damages because we cannot determine what evidence the trial court relied
upon to determine the amount, and the amount of damages awarded appears to be a
small percentage of the damages presented at trial. We also reverse the trial court's
finding that the facts did not support an award of punitive damages and the trial court's
finding that Appellants were not entitled to damages for their FDUTPA claim. We do not
find merit in the other arguments raised on appeal and affirm those points without
discussion.
The Appellees filed a cross-appeal arguing that the trial court erred in
awarding damages for conspiracy, that a release signed in a previous lawsuit precluded
two of the Appellants' claims, that the trial court erred in finding the Appellees liable for
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tortious interference with terminated employees, and that the trial court erred in
awarding damages for the slander claim. We do not find merit in any of the Appellees'
arguments in their cross-appeal and do not discuss them further.
DAMAGES
Out-of-Pocket Damages
During trial, the Appellants called two expert witnesses to opine as to the
amount of damages they suffered. 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 $6,831,172.1
Yet, the final judgment awards the Appellants less than one-fourth of this
amount, $1,600,000, and the trial court provides no explanation for its reduced award.
In order to perform appellate review, the trial court's rationale must be made available.
Accordingly, we reverse and remand for further proceedings for the trial court to explain
how it arrived at this amount. If the passage of time has made this impossible, the trial
court should so find and conduct a second trial on the issue of damages.
Disgorgement Damages
The Appellants argue that the trial court erred in denying their request for
disgorgement damages for the claims of breach of fiduciary duty and tortious
interference. The Appellees claim that the trial court's award of $1,600,000 to the
Appellants included disgorgement damages. The Appellees state in their brief that the
1
The order on appeal consists of over 130 pages. In an effort to keep this
opinion as succinct as possible, we will address the facts as they relate to the errors
that require reversal.
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trial court awarded disgorgement damages on the claims for breach of fiduciary duty,
tortious interference, and civil conspiracy based on tortious interference. See
Zippertubing Co. v. Teleflex Inc., 757 F.2d 1401, 1411 (3d Cir. 1985) (holding that the
trial court correctly permitted the plaintiffs to prove as damages the amount of the
defendant's profits in their claim for tortious interference, because this rule was
"consistent with the policy of discouraging tortious conduct by depriving the tortfeasor of
the opportunity to profit from wrongdoing"); see also Colo. Interstate Gas Co. v. Nat.
Gas Pipeline Co. of Am., 661 F. Supp. 1448, 1479 (D. Wyo. 1987) (holding that plaintiff
was entitled to damages relating to the defendant's profits for tortious interference with
contract), reversed on other grounds, 885 F.2d 683 (10th Cir. 1989); King Mountain
Condo. Ass'n v. Gundlach, 425 So. 2d 569, 572 (Fla. 4th DCA 1982) (noting that
disgorgement damages are an equitable remedy). But see Developers Three v.
Nationwide Ins. Co., 582 N.E.2d 1130, 1135 (Ohio Ct. App. 1990) ("[A]n award of
defendant's profits is not the only means of discouraging a tortfeasor from interfering
with a business relationship while calculating that his profits will exceed the injured
party's losses."); Marcus, Stowell & Beye Gov't Sec., Inc. v. Jefferson Inv. Corp., 797
F.2d 227, 232 (5th Cir. 1986) (holding that disgorgement damages were not proper for
claim of tortious interference).
Again, the failure of the trial court order to specifically indicate whether it
was awarding disgorgement damages and, if so, to specify the amount of disgorgement
damages hinders this court's review of the award. Regardless, the evidence presented
at trial suggests that if the trial court intended to award disgorgement damages, the
award was grossly insufficient. The Appellants' expert witness testified that based on
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the profits that the Appellees realized up to the trial date, disgorgement damages would
be approximately $271,000,000.2 See Pidcock v. Sunnyland Am., Inc., 854 F.2d 443,
446 (11th Cir. 1988) ("[O]nce it has been determined that a purchaser acquired property
by fraud, any profit subsequently realized by the defrauding purchaser should be
deemed the proximate consequence of the fraud.").
The Appellees suggest that the trial court limited the amount of
disgorgement damages awarded because the management initiatives of Bill Horne, who
became Laser Spine Institute's chief executive officer in November 2005, were part of
what made Laser Spine Institute successful. We agree that a plaintiff generally may not
recover disgorgement damages if any portion of the profits is attributable to the
defendant's "special or unique efforts . . . other than those for which he is duly
compensated." Siebel v. Scott, 725 F.2d 995, 1002 (5th Cir. 1984) (quoting Nelson v.
Serwold, 576 F.2d 1332, 1338 n. 3 (9th Cir. 1978)). "Aggressive and enterprising
management activities may break the causal chain between the fraud and the profits."
Pidcock, 854 F.2d at 447. However, there is an exception to this rule. Even if gains in a
company's profits are attributable to extraordinary management activities, such profits
are still subject to disgorgement if the activities are performed as part of the
management's regular salaried responsibilities. Id. at 448. "[A]ctions taken by a
corporate officer or director do not qualify as 'extra' efforts unless they go well beyond
the efforts for which the officer or director is duly compensated." Lawton v. Nyman, 357
F. Supp. 2d 428, 443 (D.R.I. 2005).
2
The trial court found that Laser Spine Institute's gross revenue from 2005
to 2009 was approximately $283,000,000.
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In the present case, the trial court noted that Mr. Horne was a "highly-
compensated executive as the CEO of the Laser Spine Institute (LSI), earning $400,000
in salary and $300,000 in bonus" and that his profit distributions from LSI and related
entities provided an additional income of $1,500,000 a year. Considering Mr. Horne's
income from the Appellees' business, the evidence did not support any finding that his
"extra" efforts went well beyond the efforts for which he was duly compensated. The
trial court found that Mr. Horne was at work "every day during the first few years of his
tenure." He would begin his day at 7:00 a.m. by greeting patients before and after
surgery, he would work on sales and marketing during the day, and he would spend his
evenings, until 10:00 p.m., calling patient prospects. Although we do not question Mr.
Horne's ability to successfully manage the Appellees' business or the fact that he
worked long days, it would be difficult to conclude that his efforts in greeting patients in
the morning, working on sales and marketing during the day, and calling patient
prospects during the evening were efforts that went beyond those for which he was
compensated approximately $2,000,000 a year. Therefore, even if the gains in the
Appellees' profits are attributable to his extraordinary management activities, such
profits are still subject to disgorgement because the activities were efforts for which he
was duly compensated. See Pidcock, 854 F.2d at 448.
Punitive Damages
The trial court found that the Appellants did not establish a factual basis
for punitive damages. Section 768.72(2), Florida Statutes (2006), provides that "[a]
defendant may be held liable for punitive damages only if the trier of fact, based on
clear and convincing evidence, finds that the defendant was personally guilty of
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intentional misconduct or gross negligence." The term "intentional misconduct" was
defined by our legislature to mean "that the defendant had actual knowledge of the
wrongfulness of the conduct and the high probability that injury or damage to the
claimant would result and, despite that knowledge, intentionally pursued that course of
conduct, resulting in injury or damage." § 768.72(2)(a). In turn, "gross negligence" was
defined to mean "that the defendant's conduct was so reckless or wanting in care that it
constituted a conscious disregard or indifference to the life, safety, or rights of persons
exposed to such conduct." § 768.72(2)(b).
At trial, a plaintiff is required to establish the entitlement to an award of
punitive damages by clear and convincing evidence. § 768.725.
When claims for punitive damages are made, the respective
provinces of the court and jury are well defined. The court is
to decide at the close of evidence whether there is a legal
basis for recovery of punitive damages shown by any
interpretation of the evidence favorable to the plaintiff. . . .
Once the court permits the issue of punitive damages to go
to the jury, the jury has the discretion whether or not to
award punitive damages and the amount which should be
awarded.
Wackenhut Corp. v. Canty, 359 So. 2d 430, 435-36 (Fla. 1978) (citation omitted).
We note that this case was tried without a jury and, therefore, the trial
court was required to determine, first, whether there was a legal basis for the recovery
of punitive damages and, second, whether to award punitive damages and the amount
which should be awarded. The language of the order clearly shows that the trial court
determined, under the first prong of the test, there was no legal basis for the recovery of
punitive damages.
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The trial court did not explain its reasoning for this ruling. However, it
recognized that "[p]unitive damages are appropriate when a defendant engages in
conduct which is fraudulent, malicious, deliberately violent or oppressive, or committed
with such gross negligence as to indicate a wanton disregard for the rights of others."
W.R. Grace & Co.—Conn. v. Waters, 638 So. 2d 502, 503 (Fla. 1994). We conclude
that the factual findings made by the trial court support an award of punitive damages.
The trial court found that Joe Samuel Bailey, Ted Suhl, Dr. James St.
Louis, and Dr. Michael Perry formed several businesses: Laserscopic Spinal Centers of
America, Inc., and Laserscopic Spine Centers of America, Inc. (the parent holding
companies), as well as Laserscopic Spinal Centers of Florida, LLC, Laserscopic
Surgery Center of Florida, LLC, Laserscopic Medical Clinic, LLC, and Laserscopic
Diagnostic Imaging and Physical Therapy, LLC (collectively referred to as Laserscopic
Spinal). All four directors had an ownership interest in Laserscopic Spinal, which was
organized to provide minimally invasive spinal surgery. Laserscopic Spinal's business
model was unique, and Dr. St. Louis was one of between four and ten surgeons in the
country who specialized in endoscopic minimally invasive spine surgery.
Laserscopic Spinal began providing services to patients in August 2004.
Revenues for the company showed significant growth results between August and
October 2004, and the number of surgical procedures performed increased in each of
the three months. Between $75,000 and $100,000 in revenue was generated in August
2004, $250,000 in September 2004, and $650,000 in October 2004.
Laserscopic Spinal met with William Esping, the managing director of EFO
Holdings L.P., and Robert Grammen, a partner with EFO, about the possibility of EFO
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providing a loan to Laserscopic Spinal. To obtain the loan, Laserscopic Spinal provided
a copy of its business plan to Mr. Esping and Mr. Grammen upon the express and
agreed condition that the materials would be kept confidential. Laserscopic Spinal also
provided its financial information to EFO and allowed EFO to conduct a due diligence
investigation on site. After conducting its due diligence, EFO did not offer a loan to
Laserscopic Spinal but instead offered to invest $3,000,000 in Laserscopic Spinal in
exchange for fifty-five percent interest in the company, permanent control of the board,
and a preferential seven percent return on its invested capital with the agreement that
no distributions could be made to other investors until EFO's invested capital was
repaid. When Mr. Bailey called Mr. Grammen to discuss EFO's unexpected terms, Mr.
Grammen told Bailey that "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." EFO made good on its threat.
In order to make Dr. St. Louis and Dr. Perry angry at and suspicious of Mr.
Bailey, Mr. Grammen and another individual raised concerns regarding Laserscopic
Spinal's expenses, operations, and capitalization without conducting any investigation
into such. The records that were provided to EFO during the due diligence period were
used by EFO to mislead Dr. St. Louis and Dr. Perry to incorrectly believe that Mr. Bailey
was improperly using and misappropriating corporate assets. The trial court found that
EFO "intentionally engaged in activities designed to develop a relationship with St. Louis
and Perry and cause them to question Bailey's integrity. [It] did this in an effort to
leverage [its] position in the negotiations to force a sale of Laserscopic with the support
of St. Louis and Perry."
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When another individual who had an option to purchase an investor's
interest in Laserscopic Spinal refused to sell his option to EFO, Mr. Grammen
threatened that they would lose the company. When the investor stated that he would
sue if Mr. Grammen and EFO interfered with the business, Mr. Grammen was not
concerned and indicated that EFO would make ten times whatever damages they might
have to pay in a lawsuit.
Two days after EFO's offer to invest in Laserscopic Spinal, Dr. St. Louis
and Dr. Perry told Mr. Bailey that they were leaving Laserscopic Spinal to establish a
competing venture with EFO. While Dr. St. Louis and Dr. Perry were owners, officers,
directors, and employees of Laserscopic Spinal, they had numerous phone calls with
and met privately with Mr. Esping and Mr. Grammen. The trial court found that Dr. St.
Louis and Dr. Perry conspired with EFO to establish a competing business. The
incorporation documents for the competing business, Laser Spine Institute, LLC, were
signed twenty-two days after EFO's offer to invest in Laserscopic Spinal.
Notably, taking Laserscopic Spinal's two physician-officers and setting up
a competing business was not all that the Appellees did here.3 The trial court found that
they "made use of Laserscopic's business plan, confidential documents, key personnel
including the entire surgical team and other employees, internal forms and documents,
and patient leads. Defendants obtained the critical head start and benefit of time and
know-how, which gave them a significant advantage in the market." Laser Spine
Institute created a business plan, which EFO admitted was a "cut and paste job" of
3
Dr. Perry had a noncompete agreement with Laserscopic Spinal, but Dr.
St. Louis did not have such an agreement with Laserscopic Spinal.
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Laserscopic Spinal's confidential business plan that EFO had received during due
diligence. Laser Spine Institute then used Laserscopic Spinal's confidential business
plan to seek funding from lenders. Laser Spine Institute never created its own
comprehensive business plan.
Dr. St. Louis and Dr. Perry falsely told Laserscopic Spinal employees that
Mr. Bailey was stealing corporate assets. Dr. St. Louis also told employees that Mr.
Bailey had many aliases, was a wanted felon, and had "possible" sexual offenses. The
trial court specifically found that all of these allegations were false and, furthermore,
"[there was] no evidence that St. Louis and Perry had a good faith belief the statements
about Bailey were accurate at the time that they were made."
But it was not enough to gut Laserscopic Spinal, the Appellees deboned it
with surgical skill. Dr. St. Louis, Dr. Perry, and EFO paid numerous employees to quit
working at Laserscopic Spinal and continued to pay them until Laser Spine Institute was
ready to open. Dr. Perry also incited employees to quit by falsely telling them that Mr.
Bailey was going to fire them. Dr. St. Louis told one employee to stop scheduling
surgeries, which directly affected at least ten patients. Laserscopic Spinal's list of
patient lists and leads, accounts payable information, and operating room supplies were
also misappropriated. As many as thirty to forty patients of Laserscopic Spinal were
scheduled for surgery by Laser Spine Institute. Patients of Laserscopic Spinal were
sent a notice by Laser Spine Institute stating that their clinic had simply moved
locations. Laser Spine Institute created a patient success story advertisement, which
actually featured a patient of Laserscopic Spinal.
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After Dr. St. Louis and Dr. Perry left Laserscopic Spinal, Mr. Bailey sought
to hire another surgeon who specialized in minimally invasive spine surgery. Dr. St.
Louis and Dr. Perry contacted that surgeon and discouraged him from joining
Laserscopic Spinal. Mr. Grammen also contacted the surgeon and stated that he
believed Laserscopic Spinal would fail and offered to pay the surgeon not to work for
Laserscopic Spinal.
In a similar, but less egregious case, this court found that the trial court
erred in finding that the facts did not support an award of punitive damages. In
Mortellite v. American Tower, L.P., 819 So. 2d 928, 931 (Fla. 2d DCA 2002), the
majority shareholder of a company did not disclose to the minority shareholder that
there was an offer to purchase one hundred percent of the company's stock. Instead,
the majority shareholder convinced the minority shareholder to sell him his interest in
the company for a fraction of what it was worth. Id. A week later, the company was
sold to the third party. Id. This court held that punitive damages were appropriate for
the breach of fiduciary duty claim. Id. at 935; see S & S Toyota, Inc. v. Kirby, 649 So.
2d 916, 917 (Fla. 5th DCA 1995) (holding that punitive damages were properly awarded
where Toyota misrepresented the vehicle it sold to Appellee as a one-owner, low-
mileage, used car with 26,000 miles when the vehicle actually had six prior owners and
Toyota was informed that the odometer reading was inaccurate).
In this case, the Appellees' "behavior transcends the level of simple
negligence, and even gross negligence, and enters the realm of wanton intentionality,
exaggerated recklessness, or such an extreme degree of negligence as to parallel an
intentional and reprehensible act." Am. Cyanamid Co. v. Roy, 498 So. 2d 859, 861 (Fla.
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1986) (citation omitted). The factual findings made by the trial court support an award
of punitive damages against Dr. St. Louis, Dr. Perry, EFO Holdings L.P., and EFO
Genpar, LP. We reverse for the trial court to determine the appropriate amount of
punitive damages, if any, to award the Appellants. See Wackenhut Corp., 359 So. 2d at
435-36.
FLORIDA DECEPTIVE AND UNFAIR TRADE PRACTICES ACT
Despite the fact that the trial court found that many actions of EFO
Holdings and EFO Genpar violated the Florida Deceptive and Unfair Trade Practices
Act (FDUTPA), it found that the Appellants were entitled to only injunctive relief against
the two Appellees pursuant to section 501.211(2), Florida Statutes (2006), because it
was a competitor and not a consumer.
One purpose of FDUTPA is to protect "the consuming public and
legitimate business enterprises from those who engage in unfair methods of
competition, or unconscionable, deceptive, or unfair acts or practices in the conduct of
any trade or commerce." § 501.202(2) (emphasis added). This section, by legislative
directive, is to be construed liberally to promote the above policy. § 501.202. The
Appellants' FDUTPA claim is based on section 501.211, which authorizes a private
cause of action for injunctive relief, § 501.211(1), and damages, § 501.211(2).
Prior to 2001, section 501.211 provided as follows:
(1) Without regard to any other remedy or relief to which a
person is entitled, anyone aggrieved by a violation of this
part may bring an action to obtain a declaratory judgment
that an act or practice violates this part and to enjoin a
person who has violated, is violating, or is otherwise likely to
violate this part.
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(2) In any individual action brought by a consumer who has
suffered a loss as a result of a violation of this part, such
consumer may recover actual damages, plus attorney's fees
and court costs as provided in s. 501.2105 . . . .
(Emphasis added.)
Based on the plain language of this version of the statute, courts have
determined that competitors could seek declaratory relief under section 501.211(1), but
that only consumers could seek damages under section 501.211(2). See Del Monte
Fresh Produce Co. v. Dole Food Co., 136 F. Supp. 2d 1271, 1295 (S.D. Fla. 2001); see
also Warren Tech., Inc. v. Hines Interests Ltd. P'ship, 733 So. 2d 1146, 1148 (Fla. 3d
DCA 1999).
However, effective July 1, 2001, the legislature amended section
501.211(2), Florida Statutes (2001), by inserting the word "person" in place of the word
"consumer": "In any action brought by a person who has suffered a loss as a result of a
violation of this part, such person may recover actual damages, plus attorney's fees and
court costs as provided in s. 501.2105."
As noted by Niles Audio Corp. v. OEM System Co., 174 F. Supp. 2d 1315,
1319-20 (S.D. Fla. 2001), "the Florida Legislature's replacement of the word consumer
with the word person, demonstrates an intent to allow a broader base of complainants,
including competitors such as [the appellant], to seek damages." (Emphasis omitted.)
In Niles Audio Corp, the court found that the appellant could bring a claim for both
damages and declaratory relief pursuant to section 501.211. Id. at 1320; see also In re
G-Fees Antitrust Litig., 584 F. Supp. 2d 26, 44 (D.D.C. 2008) (finding that the 2001
amendment allowing a damages action by any "person" eliminated the requirement that
an action for damages had to be brought by a consumer); Furmanite Am., Inc. v. T.D.
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Williamson, Inc., 506 F. Supp. 2d 1134, 1146-47 (M.D. Fla. 2007) (holding that plaintiff
had standing to bring FDUTPA claim for damages against the defendant, a competitor,
for the misappropriation of trade secrets and confidential information).
We agree that section 501.211(2) evinces a legislative directive that the
remedy of damages is not limited to a consumer. "When the Legislature makes a
substantial and material change in the language of a statute, it is presumed to have
intended some specific objective or alteration of law, unless a contrary indication is
clear." Mangold v. Rainforest Golf Sports Ctr., 675 So. 2d 639, 642 (Fla. 1st DCA
1996).
CONCLUSION
We reverse the final judgment as to the award of damages and remand for
the trial court to award either out-of-pocket or disgorgement damages and specifically
note the basis for the amount of such award. The trial court must also revisit the issue
of punitive damages because there is clearly a factual basis for such, and it must
determine the appropriate amount of punitive damages, if any, to award the Appellants.
Finally, the trial court must determine the amount of damages that are appropriate for
the violations by EFO Holdings and EFO Genpar of FDUTPA. The final judgment is
otherwise affirmed.
LaROSE and SALARIO, JJ., Concur.
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