The material difference in Florida contract law.
So, until the end of the last millennium, the materiality of a breach of contract was not a proper element of a damages claim in any jurisdiction within the United States. (4) Now, however, four of Florida's district courts of appeal have charted a new course --one requiring proof of a "material" breach, thereby setting Florida adrift from the other 49 states in the country.
The federal judiciary has noticed this novelty of Florida contract law: In a national breach of contract class action, Mazzei v. Money Store, 288 F.R.D. 45 (S.D.N.Y. 2012), the Southern District of New York was required to address Florida's "unusual ... 'materiality' requirement," (5) and in a 2010 decision, Hostway Services v. HWAY FTL, 2010 WL 3604671 (S.D. Fla. 2010), federal Judge Cohn carefully dissected the genesis of Florida's "materiality requirement." In reviewing the Florida intermediate appellate courts' break from traditional contract law, he traced back what had actually happened, focusing on the Fifth District's 2000 decision in Abbott Labs v. GE Capital, 765 So. 2d 737, 740 (Fla. 5th DCA 2000):
Nonetheless, many Florida courts have included "material breach" as one of the elements of a breach of contract claim. Notably, in Abbott Labs, the Florida district court injected the materiality requirement without explanation. Moreover, the cases cited by Abbott Labs do not list "material breach" as an element of a breach of contract action. See [Abbott Labs] (citing Mettler, Inc. v. Ellen Tracy, Inc., 648 So. 2d 253, 255 (Fla. 2d DCA 1994); Abruzzo v. Haller, 603 So. 2d 1338 (Fla. 1st DCA 1992). Furthermore, many of the Florida courts that have listed "material breach" as one of the elements in a breach of contract action can be traced back to Abbott Laboratories. (6)
Federal courts often cite Abruzzo when setting forth the materiality requirement for a breach of contract action under Florida law. Abruzzo, however, does not mention materiality as an element of a breach of contract action. (7)
Having examined the jurisprudential history of Florida's materiality requirement, Judge Cohn concluded that it "appear[ed] to be the result of spontaneous generation." (8)
He was right. Indeed, from the time of Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854), until its third-millennium "spontaneous generation" in Abbott Laboratories, materiality had never been a required element of a breach of contract damages action in any state court. (9) The Fifth District just "injected the materiality requirement without explanation" in Abbott Laboratories. (10) After that decision, the Fourth District in J.J. Gumberg Co. v. Janis Services, 847 So. 2d 1048, 1049 (Fla. 4th DCA 2003), and the Third District in Murciano v. Garcia, 958 So. 2d 423, 423 (Fla. 3d DCA 2007), added the same, novel element.
Judge Cohn was unable to locate a single case "where the Supreme Court of Florida ha[d] held that a party must prove a material breach to prevail in a breach of contract action." (11) To the contrary, in Found Health v. Westside EKG Associates, 944 So. 2d 188 (Fla. 2006), issued after the Fourth and Fifth districts had already adopted the materiality requirement, the supreme court listed the elements of a third-party breach-of-contract damages claim, but as Sherlock Holmes surely would have noticed, the dog did not bark: (12) The Florida Supreme Court did not add the new "materiality" element. (13)
Like the Florida Supreme Court, the First District has never included materiality as an element for a breach of contract damages claim. The court's decisions simply list the same elements that the Florida Supreme Court and the other 49 states require: 1) a valid contract; 2) a breach; and 3) damages caused by that breach. (14)
Until recently, the Second District had also never included a materiality element for breach of contract damages claims. (15) In June 2013, however, the court announced that the elements of a breach of contract claim were "(1) a valid contract, (2) a material breach, and (3) damages" in Havens v. Coast Florida, P.A., 117 So. 3d 1179 (Fla. 2d DCA 2013). (16) The Havens decision is intriguing because it actually substituted materiality for causation--an even more radical break from traditional notions of contract law. In support, the decision cited one case, Rollins, Inc. v. Butland, 951 So. 2d 860 (Fla. 2d DCA 2006), a decision of the same court that did not include materiality as an element.
The difference between the elements of causation and materiality is (let's just say it) material: Causation requires that a loss "ordinarily follows the breach of such a contract in the usual course of events, or that reasonable men in the position of the parties would have foreseen as a probable result of breach." (17) Materiality requires proof that the breach goes "to the essence of the contract." (18) Justified by this higher burden, materiality properly plays a role in contract law that loss causation alone cannot: A material breach excuses the other party from all future performance. (19) Mere loss causation--termed a "partial breach"--permits only the recovery of damages. (20)
Florida's district courts of appeal that have embraced the "materiality" element appear not only to be in conflict with the Florida Supreme Court, but also to be the only appellate courts in the U.S. that require a breach be material in order to recover damages in a breach of contract case. (21) Nonetheless, in 2013, the Florida Supreme Court adopted Standard Jury Instruction 416.4, "Breach of Contract--Essential Factual Elements." The instruction tells jurors that a breach of contract plaintiff seeking damages must prove that the defendant failed to do something "essential" to the contract (or did something that the contract prohibited as an essential feature of the contract). (22) As a separate element, the plaintiff must also prove causation--that it was "harmed by the breach." (23)
The ensuing Sources and Authorities section states: "An adequately pled breach of contract action requires three elements: (1) a valid contract; (2) a material breach; and (3) damages. This general rule was enunciated by various Florida district courts of appeal." (24) In support, the instructions cite decisions from each of the five district courts of appeal, but those citations provide a dubious foundation.
Two of the decisions--Knowles v. C.I.T. Corp., 346 So. 2d 1042, 1043 (Fla. 1st DCA 1977), and Mettler, Inc. v. Ellen Tracy, Inc, 648 So. 2d 253 (Fla. 2d DCA 1994)--do not even colorably impose a materiality requirement. The entirety of the contract law discussion in Knowles consists of the following sentence: "It is elementary that in order to recover on a claim for breach of contract the burden is upon the claimant to prove by a preponderance of the evidence the existence of a contract, a breach thereof and damages flowing from the breach." (25) Similarly, the discussion in Mettler (which was also cited in Abbott Laboratories) is no more supportive: "All the elements for breach of contract are sufficiently pled to state this cause of action. [The plaintiff] alleged an offer, acceptance, consideration, a contract, breach of the contract and damages." (26) The other three decisions are Abbott Laboratories (27) and two district court decisions that rely on that decision. (28)
Jury instructions are not substantive law, of course. That is why the Florida Supreme Court typically cautions --as it did when it adopted the standard instructions for contract and business cases--that "it would be inappropriate for this [c]ourt, at this time, and without a case or controversy before us, to adjudicate all legal principles embodied in these recommended instructions as correctly setting forth the substantive law applicable in any particular case." (29)
When the opportunity presents itself, however, the Florida Supreme Court should resolve whether materiality is a required element of a breach of contract claim for damages. The issue is important because adding materiality as an element is more than a major policy shift from over 150 years of jurisprudence; it makes Florida a significantly different legal environment for businesses, including those considering where to locate. Only in Florida do contracting parties lack the ability to recover damages that partial breaches of their contracts cause--an inability that fundamentally undermines their reasonable economic expectations.
(1) 17B C.J.S. Contracts [section]824 (2013).
(2) Restatement (Second) Contracts [section]236, comment a.
(3) Id. at [section]241, comment a. "Even if not material, the failure may be a breach and give rise to a claim for damages for partial breach ([section][section]236, 243))." Id. at [section]241, comment (1981). See also id. at [section]235, comment b. ("When performance is due, however, anything short of full performance is a breach, even if the party who does not fully perform was not at fault and even if the defect in his performance was not substantial."); see also ("[I]f the breach is not material, the damages may be recovered, but are limited to those recoverable for a partial breach."); accord 3 E. Farnsworth, Contracts [section]12.8 (1990).
(4) See, e.g., Reynolds Metals v. Hill, 825 So. 2d 100, 105 (Ala. 2002); Alaska Energy Auth. v. Fairmont Ins., 845 P.2d 420, 424 n.3 (Alaska 1993); City of Tucson v. Super. Ct. (Dong), 569 P.2d 264, 266 (App. 1977); Smith v. Eisen, 245 S.W.3d 160, 168 (Ark. Ct. App. 2006); Oasis West Realty v. Goldman, 250 P.3d 1115, 1121 (Cal. 2011); W. Distrib. Co. v. Diodosio, 841 P.2d 1053, 1058 (Colo. 1992); Sullivan v. Thorndike, 934 A.2d 827, 833 (Conn. App. Ct. 2007); H-M Wexford, LLC v. Encorp., 832 A.2d 129, 140 (Del. Ch. 2003); Tsintolas Realty Co. v. Mendez, 984 A.2d 181, 187 (D.C. 2009); Norton v. Budget Rent A Car, 705 5.E.2d 305, 306 (Ga. Ct. App. 2010); 808 Dev., LLC v. Murakami, 141 P.3d 996, 1013 (2006); Franklin Bldg. Supply v. Hymas, 339 P.3d 357 (Idaho 2014); Allstate Ins. v. Winnebago County Fair, 475 N.E.2d 230, 236 (Ill. App. 2d Dist. 1985); W.S.K. v. M.H.S.B., 922 N.E.2d 671, 694 (Ind. Ct. App. 2010); Iowa Mortgage Ctr. v. Baccam, 841 N.W.2d 107, 111 (Iowa 2013); Stechschulte v. Jennings, 298 P.3d 1083, 1098 (2013); Fannin v. Commercial Credit Corp., 249 S.W.2d 826, 827 (Ky. 1952); Favrot v. Favrot, 68 So. 3d 1099, 1108 (La. Ct. App. 2011); Advanced Const. Corp. v. Pilecki, 901 A.2d 189, 196 (Me. 2006); Down E. Energy Corp. v. RMR, Inc., 697 A.2d 417, 421 (Me. 1997); Traylor v. Grafton, 332 A.2d 651, 674 (1975); Lease-It v. Massachusetts Port Auth., 600 N.E.2d 599, 602 (Mass. App. Ct. 1992); Miller-Davis Co. v. Ahrens Const., 848 N.W.2d 95, 104 (2014); Lyon Fin. Svc. v. Illinois Paper & Copier, 848 N.W.2d 539, 543 (Minn. 2014); Bus. Communications v. Banks, 90 So. 3d 1221, 1225 (Miss. 2012); Premier Golf Missouri v. Staley Land Co., 282 S.W.3d 866, 873 (Mo. Ct. App. 2009); Union Interchange v. Allen, 370 P.2d 492, 496 (1962); Kotrous v. Zerbe, 846 N.W.2d 122, 126 (2014); Calloway v. City of Reno, 993 P.2d 1259, 1265 (Nev. 2000); LeTarte v. W. Side Dev., LLC, 855 A.2d 505, 508 (2004), EnviroFinance Group v. Envtl. Barrier Co., 113 A.3d 775, 787 (App. Div. 2015); McCasland v. Prather, 585 P.2d 33 6, 338 (N.M. Ct. App. 1978); Agway, Inc. v. Curtin, 557 N.Y.S.2d 605 (1990); Furia v. Furia, 498 N.Y.S.2d 12 (N.Y. 1986); Poor v. Hill, 530 S.E.2d 838, 843 (N.C. Ct. App. 2000); Barrett v. Gilbertson, 2013 ND 35, 827 N.W.2d 831, 835; Jarupan v. Hanna, 878 N.E.2d 66, 73 (Ohio Ct. App. 2007); Coen v. SemGroup Energy Partners, 310 P.3d 657, 666 (Okla. Civ. App. 2013); Slover v. Oregon State Bd. of Clinical Soc. Workers, 927 P.2d 1098, 1101 (Or. Ct. App. 1996); Orbisonia-Rockhill Joint Mun. Auth. v. Cromwell Tp., Huntingdon County, 978 A.2d 425, 428 (Pa. Commw. Ct. 2009); Petrarca v. Fid. & Cas. Ins. Co., 884 A.2d 406, 410 (R.I. 2005); S. Glass & Plastics Co., Inc. v. Kemper, 732 S.E.2d 205, 209 (S.C. Ct. App. 2012); Morris, Inc. v. State, ex rel. State Dept. of Transp., 2011 S.D. 85, fl 34, 806 N.W.2d 894, 903 (S.D. 2011); BancorpSouth Bank v. Hatchel, 223 S.W.3d 223, 227 (Tenn. Ct. App. 2006); McAfee, Inc. v. Agilysys, Inc., 316 S.W.3d 820, 825 (Tex. App. 2010); Tooele Assoc. v. Tooele City, 2012 284 P.3d 709, 714 (Utah 2012); Bair v. Axiom Design, 20 P.3d 388, 392 (Utah 2001); Reynolds v. Chynoweth, 68 Vt. 104; (1895) Ramos v. Wells Fargo, 770 S.E.2d 491, 493 (Va. 2015); Nw. Indep. Forest Mfrs. v. Dep't of Labor & Indus., 899 P.2d 6, 9 (Wash. Ct. App. 1995); Sneberger v. Morrison, 776 S.E.2d 156, 171 (W. Va. 2015); Brew City Redevelopment Group, LLC v. The Ferchill Group, 714 N.W.2d 582, 588 (Wis. Ct. App. 2006) aff'd sub nom. Brew City Redevelopment Group, LLC v. Ferchill Group, 2006 WI 128, fl11, 724 N.W.2d 879; Schlinger v. McGhee, 2012 WY 7, fl12, 268 P.3d 264, 268 (Wyo. 2012); Morris v. U.S., 33 Fed. Cl. 733, 751 (Fed. Cl. 1995).
(5) Mazzei, 288 F.R.D. at 67.
(6) Hostway Services, 2010 WL3604671 at *8-9 (S.D. Fla. 2010) (citing J.J. Gumberg Co. v. Janis Servs., 847 So. 2d 1048, 1049 (Fla. 4th DCA 2003); Friedman v. N.Y. Life Ins., 985 So. 2d 56, 58 (Fla. 4th DCA 2008) (citing J.J. Grumberg); Merin Hunter Codman, Inc. v. Wackenhut Corrs. Corp., 941 So. 2d 396, 398 (Fla. 4th DCA 2006) (citing J.J. Grumberg).
(7) Id. (citing Beck v. Lazard Freres & Co, 175 F.3d 913, 914 (11th Cir. 1999)); Trowell v. S. Fin. Group, Inc., 315 Fed. Appx. 163, 165 (11th Cir. 2008)).
(8) Id. at *9.
(9) See note 4 (breach of contract decisions from the other 49 states--none of which included materiality as an element required for recovery of damages in partial breach of contract cases).
(10) Hostway, 2010 WL 3604671 at *8.
(11) Nonetheless, Judge Cohn felt compelled to include the materiality requirement because the 11th Circuit had listed it as an element under Florida law. Hostway, 2010 WL 3604671 at *8-9 (citing Vega v. T-Mobile USA, 564 F.3d 1256, 1272 (11th Cir. 2009); Beck, 175 F.3d at 914).
(12) Sir Arthur Conan Doyle, Silver Blaze, The Memoirs of Sherlock Holmes (1892).
(13) Found Health, 944 So. 2d at 194-95.
(14) See Knowles v. C.I.T., 346 So. 2d 1042, 1043 (Fla. 1st DCA 1977) ("It is elementary that in order to recover on a claim for breach of contract the burden is upon the claimant to prove by a preponderance of the evidence the existence of a contract, a breach thereof and damages flowing from the breach."); see also A.R. Holland, Inc. v. Wendco Corp., 884 So. 2d 1006, 1008 (Fla. 1st DCA 2004) ("In the proceeding below, it was Holland's burden to prove that (1) a contract existed, (2) the contract was breached, and (3) damages flowed from that breach."); Capitol Envtl. Services v. Earth Tech, 25 So. 3d 593, 596 (Fla. 1st DCA 2009) ("The injured party is entitled to recover all damages that are causally related to the breach so long as the damages were reasonably foreseeable at the time the parties entered into the contract.").
(15) Rollins, Inc. v. Butland, 951 So. 2d 860, 876 (Fla. 2d DCA 2006); Mettler, Inc. v. Ellen Tracy, Inc., 648 So. 2d 253, 255 (Fla. 2d DCA 1994); Cerniglia v. Davison Chem., 145 So. 2d 254, 255 (Fla. 2d DCA 1962).
(16) Havens, 117 So. 3d at 1181 (citing Rollins, 951 So. 2d at 876) (emphasis added).
(17) Natural Kitchen v. Am. Transworld, 449 So. 2d 855, 860 (Fla. 2d DCA 1984) (quoting 5 A. Corbin, Corbin on Contracts [section]1010 at 79 (1964)).
(18) Sublime, Inc. v. Boardman's Inc., 849 So. 2d 470, 471 (Fla. 4th DCA 2003).
(19) See, e.g., Indem. Ins. v. Caylao, 130 So. 3d 783, 786 (Fla. 1st DCA 2014) (quoting 14 Steven Plitt, et al., Couch on Insurance [section]199.81 (3d ed. 2012) (discussing "'the fundamental principle of contract law that a material breach by one contracting party excuses the performance by the other party and that an immaterial breach does not'").
(20) Restatement (Second) of Contracts [section]236(2) (1981).
(21) See note 4.
(22) In re Standard Jury Instructions--Contract & Bus. Cases, 116 So. 3d 284, 306 (Fla. 2013) ("[Defendant] failed to do something essential which the contract required [him][her][it] to do. [Defendant] did something which the contract prohibited [him][her][it] from doing and that prohibition was essential to the contract.").
(24) Id. (emphasis added).
(25) Knowles, 346 So. 2d at 1043.
(26) Metter, 648 So. 2d at 255 (citing Perry v. Cosgrove, 464 So. 2d 664, 667 (Fla. 2d DCA 1985)).
(27) Abbott Laboratories, 765 So. 2d at 740.
(28) Murciano, 958 So. 2d at 423-24, from the Third District and Friedman, 985 So. 2d at 58, from the Fourth District. Murciano relies solely on Abbott Laboratories. Friedman relies solely on J.J. Grumberg, 847 So. 2d at 1049, but that decision, too, relies solely on Abbott Laboratories.
(29) In re Standard Jury Instructions--Contract & Bus. Cases, 116 So. 3d 284, 287 (Fla. 2013).
John Crabtree chairs The Florida Bar's Appellate Certification Committee and has argued before all of Florida's state and federal appellate courts--including the U.S. Supreme Court. He previously chaired the Appellate Practice Section and served two terms as chair of Florida's Appellate Court Rules Committee.
This column is submitted on behalf of the Business Law Section, Alan Howard, chair, and Stephanie C. Lieb, editor.
|Printer friendly Cite/link Email Feedback|
|Author:||Crabtree, John G.|
|Publication:||Florida Bar Journal|
|Date:||Mar 1, 2016|
|Previous Article:||Florida should permit parties to modify article 4A's notice period by agreement.|
|Next Article:||The chameleon is too big (and cannot be subdivided).|