Florida Supreme Court Issues Two Opinions Clarifying Corporate Indemnification Statute

By
Andrew J. Marchese

Florida – Commercial Litigation

Key Points:

  • The Florida Supreme Court held that F.S. 607.0850 provides for indemnification of directors of a condominium association when sued by the association itself.
  • Provisions in an arbitration agreement which serve to limit the liability of the long-term care provider should be avoided since they typically will not be upheld in Florida courts.
  • The Florida Supreme Court held that an employer/corporation is not subject to regulation by the Florida Business Corporation Act, ch. 607, Fla. Stat., in matters of its internal affairs, such as corporate indemnification of an employee.

 

Wendt v. La Costa Beach Resort Condominium Association, Inc., 64 So.3d 1228 (Fla. 2011)

In July 2003, Costa Beach Resort Condominium Association, Inc. (La Costa) brought suit against three directors of the timeshare condominium for breach of fiduciary duty. After the verdict, the directors moved for a new trial and brought a separate indemnification action, pursuant to F.S. § 607.0850, against La Costa for expenses incurred in defending La Costa's suit. The trial court dismissed the directors' indemnification action with prejudice on various grounds.

On appeal, the 4th District Court of Appeal (DCA) affirmed the trial court, holding that, because there is no statutory right to indemnification in actions between a corporation and its own directors, the directors did not state a cause of action. At the same time, the appellate court certified conflict with the 1st DCA's decision in Turkey Creek Master Ass'n v. Hope, 766 So.2d 1245 (Fla. 1st DCA 2000), which stated that F.S. 607.0850 provides for indemnification in cases in which a corporation has sued its own agent.

The Florida Supreme Court noted that indemnity is generally defined as the "duty to make good any loss, damage, or liability incurred by another" or the "right of an injured party to claim reimbursement for its loss, damage, or liability from a person who has such a duty." Black's Law Dictionary, 837 (9th Ed. 2009). The Court examined F.S. § 607.0850, Florida's corporate indemnification statute, which sets forth the conditions under which corporate directors, officers, employees and agents are entitled to indemnification. The Court stated that the plain language of F.S. § 607.0850 permits indemnification of directors when the underlying action is between the corporation and its directors.

The Court observed that district courts applying F.S. § 607.0850 have routinely held that the statute provides for indemnification when the underlying lawsuit is between the corporation and its director, officer, employee or agent. See O'Brien v. Precision Response Corp., 942 So.2d 1030 (Fla. 4th DCA 2006)(holding that a corporate officer successfully defending claims brought against him by the corporation is statutorily entitled to seek indemnification for attorneys fees under 607.0850); Turtle Creek, 766 So.2d at 1247 (however, 607.0850 also provides for indemnification in a case where a corporation has sued its own agent); Nat'l Portland Cement Co. v. Goudie, 718 So.2d 274 (Fla. 2d DCA 1998); Myakka Valley Ranches Improvement Ass'n v. Bieschke, 610 So.2d 3 (Fla. 2d DCA 1992); and Alternative Dev., Inc. v. St. Lucie Club & Apartment Homes Condo. Ass'n, 608 So.2d 822 (Fla. 4th DCA 1992). The Court also found that the 4th DCA's reasoning and conclusion in Wendt were at odds, not only with these decisions, but with the plain language of the statute, which does not exclude all lawsuits between a corporation and its director.

Consequently, the Court concluded that F.S. § 607.0850 authorizes corporate directors to seek indemnification from a corporation for actions brought against the directors by the corporation itself. It quashed the 4th DCA's decision in Wendt and approved the 1st DCA's reasoning in Turkey Creek on the conflict issue.

Banco Industrial de Venezuela C.A., Miami Agency v. Esperanza de Saad, et al., 68 So.3d 895 (Fla. 2011)

Esperanza de Saad (employee) was the former vice president and general manager of Banco Industrial de Venezuela's Miami agency, BIV (employer). As part of an undercover sting operation involving a U.S. Customs confidential informant, de Saad was alleged to have facilitated the deposit of approximately $4 million in drug proceeds into BIV accounts. In May 1998, the U.S. charged de Saad with ten counts of money laundering and one count of conspiracy to launder money while acting in her capacity as the vice president of BIV. Ms. de Saad retained the services of counsel (Beeler) to represent her in the criminal proceedings. As part of their fee agreement, de Saad assigned Beeler her right to seek indemnification for attorney's fees and costs under F.S. § 607.0850(1) and (3). After a lengthy trial, during which the jury found her guilty on all counts, the trial judge granted de Saad's motion for judgment of acquittal as to all counts, finding the U.S. failed to prove all of the necessary elements of the alleged crimes. The U.S. filed an appeal of the trial court's acquittal. Seven months after the acquittal, de Saad was charged and pled guilty to one count of money structuring on the condition the government drop the appeal of the judgment of acquittal on the money laundering and conspiracy charges. The government dropped the appeal.

Ms. de Saad then sought from BIV her past wages, pursuant to the contract of employment, and indemnification for attorney's fees incurred in the defense of the money laundering and conspiracy charges. BIV denied both claims. As a result, de Saad filed a state court action against BIV seeking statutory indemnification pursuant to F.S. § 607.0850 to recover the costs and attorney's fees in defending the money laundering charges and claimed past wages based on breach of her employment contract with BIV. The parties moved for summary judgment on the indemnification claims. The trial court entered summary judgment on liability in favor of de Saad and her counsel on the statutory indemnification counts. The trial court held a bench trial on the indemnification damages and awarded de Saad $2,895,096.41 and her counsel, Beeler, $1,636,168.12. On appeal, BIV contended the summary judgment was improper because a question remained as to whether the statutory requirements for indemnification were satisfied. However, applying a Delaware case interpreting a Delaware indemnification statute, the 3rd District Court of Appeal (DCA) affirmed the trial court, Banco Industrial de Venezuela, C.A., Miami Agency v. Ms. de Saad, 21 So.3d 46 (Fla. 3d DCA 2009), explaining that "de Saad was prosecuted 'by reason of the fact' that she was [a] director, officer, employee, or agent of the corporation and was acquitted because she was 'successful on the merits or otherwise.'" BIV appealed the appellate court's ruling.

The Supreme Court held the 3rd DCA erred in its interpretation of the statutory indemnification provisions. First, summary judgment in favor of de Saad on the statutory indemnification claim was improper because Florida's indemnification statute is not applicable to foreign corporations, such as Banco Industrial de Venezuela, a Venezuelan bank authorized to conduct business in Florida. Second, even if the indemnification statute was applicable to the foreign bank, or its Florida subsidiary, BIV Investments, de Saad was not entitled to statutory indemnification because she could not satisfy the requirements of F.S. § 607.0850. That is, de Saad did not meet the requirements for indemnification under subsection (1) because she was not prosecuted "by reason of the fact" that she was a corporate officer. See F.S. § 607.0850(1). Although de Saad may have had access to the laundered funds due to her position as a corporate officer, she was prosecuted because of her conduct, not on account of her position. This conduct was not required by her position as a corporate officer and was, in fact, contrary to corporate policy.

In sum, the court held that BIV, the employer, was not subject to regulation by the Florida Business Corporation Act, ch. 607, Fla. Stat., in matters of its internal affairs and corporate indemnification was one such matter. Next, the choice-of-law clause in the parties' employment contract simply made the employer subject to Florida law, and under Florida law, the employer was a foreign corporation not subject to regulation of its internal affairs. Accordingly, the court quashed the 3rd DCA's contrary decision, and the case was remanded with instructions for entry of final judgment in BIV's favor and against de Saad and her counsel's, Beeler, claims.

*Andrew, a shareholder in our Fort Lauderdale, Florida, office, can be reached at 954.847.4934 or ajmarchese@mdwcg.com.

Defense Digest, Vol. 18, No. 2, June 2012