Griffin v. ARX Holding Corporation

NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING
MOTION AND, IF FILED, DETERMINED
IN THE DISTRICT COURT OF APPEAL
OF FLORIDA
SECOND DISTRICT
NICHOLAS GRIFFIN, )
)
Appellant, )
)
v. ) Case No. 2D15-1616
)
ARX HOLDING CORPORATION, )
)
Appellee. )
)
Opinion filed October 14, 2016.
Appeal from the Circuit Court for Pinellas
County; Anthony Rondolino, Judge.
S. Douglas Knox, Paul E. Parrish, and
Kelli A. Edson of Quarles & Brady LLP,
Tampa, for Appellant.
Sylvia H. Walbolt, Steven C. Dupré, Kevin
P. McCoy, and Nicholas A. Brown of Carlton
Fields Jorden Burt, P.A., Tampa, for
Appellee.
LaROSE, Judge.
Nicholas Griffin appeals a final summary judgment, a judgment entered
after jury trial, and several post-trial orders entered in favor of his former employer, ARX
Holding Corporation, a company that operated several insurance businesses in Florida.
We have jurisdiction. Fla. R. App. P. 9.030(b)(1)(A).
Mr. Griffin sued ARX for compensation due under the terms of an
employment contract. ARX contended that the contract was void, illegal, and
unenforceable. ARX counterclaimed for payment due on a promissory note executed
and delivered by Mr. Griffin. The trial court entered a final summary judgment on Mr.
Griffin's compensation claim. A jury found for ARX on its counterclaim. After careful
review of the record, and with the benefit of oral argument, we affirm on all issues raised
by Mr. Griffin.
Background
Mr. Griffin is the former chief financial officer of United Insurance Holdings
Corp. Sometime in 2009, he began discussions with John Auer, ARX's chief executive
officer. Mr. Auer wanted to hire Mr. Griffin as ARX's CFO. During their discussions, Mr.
Griffin told Mr. Auer that he had a felony conviction. 1 As we will see, that conviction
hampered Mr. Griffin's ability to serve as the CFO of insurance-related businesses
under federal and state law. Nevertheless, Mr. Griffin advised Mr. Auer that the
conviction would not prevent him from serving as ARX's CFO. As further assurance,
Mr. Griffin told Mr. Auer that he would seek a waiver from Florida insurance regulators
of any statutory disqualification caused by his conviction. Apparently minimizing any
concern that the conviction would impact his employment, Mr. Griffin told Mr. Auer that
the Florida Office of Insurance Regulation (FOIR), aware of his conviction, allowed him
1In 1998, Mr. Griffin pleaded guilty to and was convicted of extortion. See
18 U.S.C. § 1952(a)(3). "Extortion is generically defined as 'obtaining something of
value from another with his consent induced by the wrongful use of force, fear, or
threats.' " Cintas Corp. v. Unite Here, 601 F. Supp. 2d 571, 578 (S.D.N.Y. 2009)
(quoting Scheidler v. Nat'l Org. for Women, Inc., 537 U.S. 393, 410 (2003)).
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to serve as United's CFO; he expected no objection from FOIR to his employment by
ARX. Reality proved less rosy.
In 2002, while Mr. Griffin worked for United, FOIR notified United that Mr.
Griffin's conviction barred him from serving as an officer of a United subsidiary engaged
in the insurance business. In an effort to cure FOIR's concern, United maintained Mr.
Griffin as the CFO of only the holding company; it appointed him controller of the related
insurance companies. Apparently, the controller was not an officer level position within
United's group of companies.
Sometime in 2008, United sought FOIR approval to merge with another
company. Under the terms of a 2009 consent order with the insurance regulator, United
agreed to replace Mr. Griffin as CFO. FOIR's Deputy Insurance Chief, Belinda Miller,
testified that the consent order barred Mr. Griffin from being an officer of United or of its
insurance subsidiaries. Mr. Griffin testified at the trial on ARX's counterclaim that United
and FOIR reached an accommodation that would allow Mr. Griffin to continue as
United's CFO. Our record belies that assertion. Indeed, after further discussions
between FOIR and United, FOIR formally denied a waiver that would have allowed Mr.
Griffin to work as an officer of an insurance business. Apparently, Mr. Griffin continued
to serve as an officer of United's nonpublicly traded holding company. Mr. Auer was
unaware of the extent of Mr. Griffin's problems with FOIR, specifically the consent order
requiring United to remove Mr. Griffin as CFO.
By early June 2009, ARX extended, and Mr. Griffin accepted, an offer of
employment as ARX's CFO. Because ARX was a holding company and not an
insurance company, Mr. Griffin assumed that FOIR would not object to this new
employment. The distinction, however, has little meaning. First, Mr. Griffin conceded in
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the trial court that his position with ARX involved the business of insurance. 2 Second,
ARX's Board of Directors appointed Mr. Griffin as the Vice President and CFO of ARX
and of its subsidiary insurance businesses.
Mr. Griffin's compensation package provided for an annual salary of
$150,000. He would also "participate as an officer in the employee bonus plan . . .
subject to a monthly minimum of $12,000 for 24 months." ARX also offered Mr. Griffin
stock and stock options that would vest over several years, contingent upon his
continued employment. No one disputes that Mr. Griffin was an at-will employee.
The stock and stock option components of Mr. Griffin's compensation
terms presented potential tax liabilities for Mr. Griffin. Against the recommendation of
his accountant, Mr. Griffin filed an election under section 83(b) 3 of the Internal Revenue
2[B]usiness of insurance means—
(A) the writing of insurance, or
(B) the reinsuring of risks,
by an insurer, including all acts necessary or incidental to
such writing or reinsuring and the activities of persons who
act as, or are, officers, directors, agents, or employees of
insurers or who are other persons authorized to act on
behalf of such persons . . . .
18 U.S.C. § 1033(f)(1).
3Election to include in gross income in year of transfer.—
(1) In general.--Any person who performs services in connection
with which property is transferred to any person may elect to
include in his gross income, for the taxable year in which such
property is transferred, the excess of--
(A) the fair market value of such property at the time of transfer . . . , over
(B) the amount (if any) paid for such property.
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Code. By doing so, Mr. Griffin incurred an immediate $182,000 tax liability, although he
had not acquired any stock or exercised any of the stock options.
Mr. Griffin explained to Mr. Auer that he could not pay the tax liability. Mr.
Griffin claims that Mr. Auer told him that ARX would loan him the money and later
forgive the debt. Mr. Auer claimed otherwise. Nevertheless, again, against the advice
of his accountant, Mr. Griffin drafted, signed, and delivered a promissory note in favor or
ARX in order to get the funds needed to satisfy his tax debt. The promissory note
allowed ARX to demand payment upon written notice. Seemingly consistent with Mr.
Auer's recollection of events, the note did not obligate ARX to forgive the debt.
Mr. Auer attempted to help Mr. Griffin in his efforts to obtain a waiver from
FOIR so that he could serve as ARX's CFO. He contacted several regulators on Mr.
Griffin's behalf. Ultimately, FOIR would not yield; it would not grant Mr. Griffin a waiver.
As the waiver story unfolded, however, it does not appear that ARX's Board of Directors
knew about Mr. Griffin's conviction or any statutory restrictions on his position until
sometime in March 2010. In the meantime, Mr. Griffin performed his duties for ARX.
As a result, he received his salary and employee bonuses. On March 1, 2010, the
Board approved an additional $215,000 bonus for Mr. Griffin, based on his 2009 job
performance. The bonus was payable immediately. Mr. Auer, however, withheld the
bonus pending a final decision from FOIR concerning a waiver. Mr. Griffin never got his
bonus. He never got the waiver. As a result, Mr. Auer terminated Mr. Griffin's
employment.
26 U.S.C. § 83(b).
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Summary Judgment and Trial
To summarize a lengthy procedural history in the trial court, we note that
the trial court granted ARX a summary judgment on the compensation issue. The trial
court found the employment contract illegal and unenforceable. Consequently, Mr.
Griffin could not collect his $215,000 bonus.
ARX's counterclaim on the promissory note went to jury trial. The jury
found in favor of ARX. The jury found that Mr. Griffin owed ARX $200,150.13. Ample
evidence supports the jury's verdict and the trial court's subsequent judgment on this
claim. We need say nothing more on this issue.
Mr. Griffin's claim for the unpaid bonus is more problematic. We review
the grant of summary judgment de novo. See Volusia Cty. v. Aberdeen at Ormond
Beach, L.P., 760 So. 2d 126, 130 (Fla. 2000). "Summary judgment is proper only if
there is no genuine issue of material fact and the moving party is entitled to a judgment
as a matter of law." Dewar v. Dough Boy Pizza, Inc., 184 So. 3d 1169, 1170 (Fla. 2d
DCA 2015) (citation omitted).
Statutes Restricting Mr. Griffin's Employment
Under federal law, "[a]ny individual who has been convicted of any
criminal felony involving dishonesty or a breach of trust, . . . and who willfully engages in
the business of insurance whose activities affect interstate commerce or participates in
such business" shall be punished by fine or imprisonment of up to five years, or both.
18 U.S.C. § 1033(e)(1)(A). 4 The federal statute continues: "Any individual who is
4Although Florida has not specifically ruled on this issue, many states
consider extortion to be a crime of dishonesty. See Com v. Cascardo, 981 A.2d 245,
254 (Pa. Super. Ct. 2009) ("Given that theft by unlawful taking, retail theft, receiving
stolen property, theft by extortion, and robbery are crimes involving dishonesty . . . .")
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engaged in the business of insurance whose activities affect interstate commerce and
who willfully permits the participation described in subparagraph (A) shall be fined as
provided in this title or imprisoned not more than 5 years, or both." 18 U.S.C. §
1033(e)(1)(B). The parties have pointed us to nothing in § 1033(e) that would impose
criminal liability on a corporate entity that hires someone like Mr. Griffin. Regardless, on
its face, § 1033(e) exposes Mr. Griffin to criminal prosecution for serving as CFO of
ARX or its insurance subsidiaries. Of course, a person like Mr. Griffin "may engage in
the business of insurance or participate in such business if such person has the written
consent of any insurance regulatory official authorized to regulate the insurer, which
consent specifically refers to this subsection." 18 U.S.C. § 1033(e)(2). Reading (e)(1)
and (e)(2) together, we find it obvious that criminal exposure continues until the
convicted felon "has"—obtains—a waiver from the appropriate insurance regulator.
Anticipation is not enough.
Florida law imposes a similar statutory disqualification for some felons.
[FOIR] may deny, suspend, or revoke the authority to
transact insurance in this state of any insurer if any person . .
. who exercises or has the ability to exercise effective control
over the insurer, or who influences or has the ability to
(citations omitted); Wilcher v. State, 697 So. 2d 1087, 1117 (Miss. 1997) (Sullivan, J.,
dissenting) ("Extortion is a dishonest crime . . . ."); State v. Brodene, 493 N.W.2d 793,
796 (Iowa 1992) ("[W]e think extortion is clearly an example of dishonesty."); State v.
Prutting, 669 A.2d 1228, 1236 n.6 (Conn. App. Ct. 1996) (holding that extortion is a form
of larceny and noting that "crimes involving larcenous intent imply a general disposition
toward dishonesty"); State v. Musto, 454 A.2d 449, 454 (N.J. Super. Ct. Law Div. 1982)
("The crimes of extortion and bribery are clearly crimes which involve dishonesty.");
Lawyer Disciplinary Bd. v. Moore, 591 S.E.2d 338, 355 (W. Va. 2003) (Starcher, C.J.,
concurring) (explaining that extortion involved dishonesty). "In common human
experience acts of deceit, fraud, cheating, or stealing, for example, are universally
regarded as conduct which reflects adversely on a man's honesty and integrity."
Gordon v. U.S., 383 F.2d 936, 940 (D.C. Cir. 1967). We see no reason to think that
Florida would not follow this prevalent view.
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influence the transaction of the business of the insurer, has
been found guilty of, or has pleaded guilty . . . to, any felony
or crime punishable by imprisonment of 1 year or more
under the law of the United States or any state thereof or
under the law of any other country which involves moral
turpitude, 5 without regard to whether a judgment of
conviction has been entered by the court having jurisdiction
in such case. However, in the case of an insurer operating
under a subsisting certificate of authority, the insurer shall
remove any such person immediately upon discovery of the
conditions set forth in this paragraph when applicable to
such person or upon the order of the office, and the failure to
so act by said insurer shall be grounds for revocation or
suspension of the insurer's certificate of authority.
§ 624.404(3)(c), Fla. Stat. (2009). Section 624.15, Florida Statutes makes "each willful
violation of this code or rule of the department, office, or commission . . . a
misdemeanor of the second degree." The statute does not identify a waiver
contemplated by 18 U.S.C. § 1033(e)(2). However, the testimony of FOIR witnesses
demonstrated that such a waiver process was available in Florida.
As a matter of law, Mr. Griffin was statutorily barred from serving as CFO.
He never obtained the waiver contemplated by 18 U.S.C. § 1033(e)(2). On this basis,
alone, ARX was within its right to fire Mr. Griffin and end any right to compensation
going forward. The more puzzling question is whether Mr. Griffin was entitled to an
earned bonus. The answer to that question hinges on whether his statutory
disqualification stripped him of the right to enforce the employment contract.
5See note 4, supra. Extortion is a crime of moral turpitude. Pearl v. Fla.
Bd. of Real Estate, 394 So. 2d 189, 191 (Fla. 3d DCA 1981) ("[Moral turpitude] has also
been defined as anything done contrary to justice, honesty, principle, or good morals . .
. ." (quoting State ex rel. Tullidge v. Hollingsworth, 146 So. 660, 661 (Fla. 1933))). The
trial court ruled that the employment contract between ARX and Mr. Griffin was illegal
and unenforceable. Implicitly, the trial court had to conclude that Mr. Griffin's prior
conviction was for (1) a crime of dishonesty or breach of trust, (2) a crime punishable for
more than one year involving moral turpitude, or (3) both.
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The Employment Contract Was Illegal as Against
Public Policy; Mr. Griffin Could Not Enforce Its Terms
Mr. Griffin argues that ARX breached its implied covenant of good faith
and fair dealing by failing to pay his bonus. He also argues that federal and state law
did not automatically prohibit him from serving as an ARX officer. The law seems clear,
however, that his conviction fell within the ambit of 18 U.S.C. § 1033(e)(1) and section
624.404(3)(c). Although Mr. Griffin argues that he was the CFO of only the holding
company, the record reflects that he served as CFO of ARX's insurance subsidiaries, as
well. He also conceded that he was involved in the insurance business. Thus, absent a
waiver from an insurance regulator, Mr. Griffin was in violation of the law by serving as
ARX's CFO. See Beamer v. Netco, Inc., 411 F. Supp. 2d 882 (S.D. Ohio 2005).
The result may seem harsh, but we are persuaded by ARX's argument
that the employment contract was void ab initio. Thus, Mr. Griffin was unable to enforce
its terms. Our record discloses that Mr. Auer would not have employed Mr. Griffin had
he known the seriousness of the conviction and its bar to Mr. Griffin's employment. 6
To determine whether a contract is voidable or void, courts
typically ask whether the contract has been made under
conditions that would justify giving one of the parties a
choice as to validity, making it voidable, e.g., a contract with
an infant; or whether enforcement of the contract would
violate the law or public policy irrespective of the conditions
in which the contract was formed, making it void, e.g., a
contract to commit murder.
Oubre v. Entergy Operations, Inc., 522 U.S. 422, 431 (1998) (Breyer, J., concurring).
"For a contract to be deemed unenforceable as illegal or contrary to public policy, its
6An employment contract may be void as so "abhorrent to public policy"
where "the worker had been guilty of making a material, false and fraudulent
representation without which he would not have been employed." Still v. Norfolk & W.
Ry. Co., 368 U.S. 35, 40-41 (1961).
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purpose or object must be contrary to a law or policy of the state." Alliance Metals, Inc.,
of Atlanta v. Hinely Indus., Inc., 222 F.3d 895, 899 (11th Cir. 2000); see also Beamer,
411 F. Supp. 2d 882.
"[A] contract is not void, as against public policy, unless it is injurious to
the interests of the public or contravenes some established interest of society." Atl.
Coast Line RR. Co. v. Beazley, 45 So. 761, 785 (Fla. 1907) (quotations omitted). "The
public policy of a state or nation should be determined by its Constitution, laws, and
judicial decisions . . . ." Id. at 786 (quotations omitted). A contract of this nature may be
against public policy and be rendered void. That is what the trial court concluded in our
case.
Beamer, 411 F. Supp. 2d 882, is most on point. The district court applied
Florida law to resolve a case with facts quite similar to those before us. Mr. Beamer
was engaged in the business of insurance but had a qualifying felony conviction under
18 U.S.C. § 1033(e)(1)(A). Beamer, 411 F. Supp. 2d at 889. It does not appear that
Mr. Beamer held a high-ranking financial position like Mr. Griffin. Yet, relying on Florida
law, the district court observed that "a contract is against public policy when it cannot be
performed without violating a statutory or other legal provision." Id. (citing Local No. 234
v. Henley & Beckwith, 66 So. 2d 818, 821 (Fla. 1953)). The district court held that Mr.
Beamer's employment contract was void under 18 U.S.C. § 1033(e)(1)(A). Id. As a
result, Mr. Beamer could not pursue a claim for tortious interference with contract.
Mr. Griffin argues that Beamer is inapposite because the district court did
not consider 18 U.S.C. § 1033(e)(2), the waiver provision. Nothing in Beamer, however,
indicates that Mr. Beamer held a waiver from an insurance regulator. Here, there can
be no dispute that Mr. Griffin had none. Beamer is undeniably similar to our case. Like
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Mr. Beamer, Mr. Griffin could not be an officer of ARX or its insurance subsidiaries
"without violating a statutory or other legal provision." See id. at 889 (citing Local No.
234, 66 So. 2d 818, 821 (Fla. 1953)).
Gamble v. Mills, 483 So. 2d 826, 827 (Fla. 4th DCA 1986), too, is
instructive. There, the Fourth District affirmed a final order of the School Board
declaring a teacher's employment contract to be null and void. Id. The contract
provided that it "shall be null and void . . . if, at the beginning of the school fiscal year,
the teacher does not hold a valid regular Teacher's certificate . . . which shall continue in
force and effect through the school term." Id. Mr. Gamble argued that the lapse of his
regular certificate did not prevent him from fulfilling his teaching duties. However,
pursuant to section 231.36, Florida Statutes (1983), the teacher "must hold a regular
certificate." Similarly, at no time during his employment with ARX did Mr. Griffin hold
the "written consent" required by 18 U.S.C. § 1033(e)(2). He was in violation of the law.
In Umbel v. Foodtrader.com, Inc., 820 So. 2d 372 (Fla. 3d DCA 2002), the
Third District held that a partnership agreement violated Florida securities law and was
unenforceable. The partners formed the partnership to "obtain[] investors for
companies, in exchange for a fee or commission." Id. at 374. The partners were not
registered securities dealers; therefore, the partnership violated securities law. Id.
Although the partners argued that several statutory exemptions potentially rendered
performance of the contract legal, the "exemptions would [not] redeem the partnership
agreement from the illegality realm." Id. The court concluded that "[i]t [was] of no
moment that [the partners] could have obtained registration before consummating the
contemplated transactions" because they had already violated the law and securing the
registrations after would not have cured this. Id. at 375.
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Mr. Griffin advances an equally unpersuasive position. He argues that
because 18 U.S.C. § 1033(e)(2) provides for a waiver, his employment contract is not
illegal. He ignores the fact, however, that despite the efforts of Mr. Auer as well as his
own, he never received a waiver from FOIR. Absent the waiver, Mr. Griffin could not
engage in the business of insurance.
Section 489.128(l), Florida Statutes (2016), is also helpful by analogy.
Under that statute, a "contract [] entered into . . . by an unlicensed contractor shall be
unenforceable in law or in equity by the unlicensed contractor." Id. The other party to
the contract, however, retains its rights to enforce the contract against the contractor.
See Earth Trades, Inc. v. T & G Corp., 42 So. 3d 929, 930 (Fla. 5th DCA 2010). Like an
unlicensed contractor, Mr. Griffin, lacking a waiver, lacked the ability to enforce the
terms of his employment contract against ARX.
We are mindful that our decision may seem unjust to Mr. Griffin. After all,
he now foregoes any right to the bonus approved by ARX's Board. But, Mr. Griffin took
the position with ARX, without a waiver, and, thus, as a matter of law, was in violation of
the applicable statutes. Despite his history at United, Mr. Griffin assumed the risk that
FOIR would not grant him a waiver. Without a waiver in hand, Mr. Griffin, in violation of
18 U.S.C. § 1033, began serving as the CFO of ARX and its subsidiary insurance
businesses. We cannot ignore the fact that "an agreement that is violative of a
provision of a constitution or a valid statute, or an agreement which cannot be
performed without violating such a constitutional or statutory provision, is illegal and
void." Local No. 234, 66 So. 2d at 821 (citing Lassiter & Co. v. Taylor, 128 So. 14 (Fla.
1930)). Congress and our Florida legislature have set limits on those who may engage
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in the insurance business. Those terms seem designed to protect the public welfare.
We cannot lightly ignore these legislative dictates.
Conclusion
We affirm the grant of summary judgment as to Mr. Griffin's compensation
claim as it relates to his bonus. We also affirm the final judgment entered on ARX's
counterclaim to enforce the promissory note signed by Mr. Griffin. As to all other issues
raised by Mr. Griffin, we affirm without further comment.
Affirmed.
CASANUEVA and MORRIS, JJ., Concur.
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