Salit v. RUDEN, McCLOSKY, SMITH, SCHUSTER

• Citation: 742 So.2d 381
• Decision Date: 25 August 1999
• Docket Number: No. 97-4198.,97-4198.
• Parties: Michael H. SALIT, Donna Salit, David Lobel, and Lola Lobel, Appellants, v. RUDEN, McCLOSKY, SMITH, SCHUSTER & RUSSELL, P.A., Elliott B. Barnett, Paul B. Kravitz, and Modami Services, Inc., Appellees.
• Court: Court of Appeal of Florida (US)

742 So.2d 381

Michael H. SALIT, Donna Salit, David Lobel, and Lola Lobel, Appellants, v. RUDEN, McCLOSKY, SMITH, SCHUSTER & RUSSELL, P.A., Elliott B. Barnett, Paul B. Kravitz, and Modami Services, Inc., Appellees.

No. 97-4198.

District Court of Appeal of Florida, Fourth District.

August 25, 1999.

Marshall J. Osofsky of Lewis, Vegosen, Rosenbach, Silber & Dunkel, P.A., withdrawn as counsel after filing brief, West Palm Beach, for appellants.

Jane Kreusler-Walsh of Jane Kreusler-Walsh, P.A., West Palm Beach, and Sidney A. Stubbs, Jr., of Jones, Foster, Johnston

& Stubbs, P.A., West Palm Beach, for appellees.

GROSS, J.

Appellants Michael and Donna Salit, and David and Lola Lobel appeal a trial court order granting a motion to dismiss with prejudice for failure to state a cause of action pursuant to Florida Rule of Civil Procedure 1.140(b)(6).

Review of this case requires close examination of the amended complaint. A motion to dismiss under Rule 1.140(b)(6) admits all well pleaded facts as true, as well as reasonable inferences arising from those facts; the allegations must be construed in the light most favorable to the plaintiffs. E.g., Vienneau v. Metropolitan Life Ins. Co., 548 So.2d 856, 858 (Fla. 4th DCA 1989)

.

The amended complaint tells the following story.¹ In 1985, Michael Salit ("Salit") and David Lobel ("Lobel") acquired patent rights to dehydrated yogurt products from an affiliate of an Israeli university. They began working with Serodan Food Industries, Inc., Ltd. ("Serodan"), an Israeli company, to develop and manufacture the yogurt products. Salit and Lobel formed Instant Yogurt Products, Inc. ("Instant Yogurt") in 1985 to sell yogurt products in the United States. In 1988, Salit and Lobel formed a Florida corporation, Modami Services, Inc. ("Modami Florida") to export products from the United States to Israel. At the time of its formation, Modami Florida was not connected to the yogurt products business conducted by Instant Yogurt.

In 1990, Salit and Lobel asked Paul Kravitz to assist them in obtaining financing for the yogurt products business. They decided to use Modami Florida to obtain the financing. They agreed that Michael and Donna Salit would own 45% of the company, that Lola Lobel would own 45% of the company, and that Kravitz would own 10% of the company. Salit and Lobel assigned all of their patent and other rights to the yogurt products to Modami Florida and Instant Yogurt ceased to operate.

In December, 1991, the corporation Modami Delaware ("Modami") was formed and previous incarnations of the corporation were merged into it in 1992. In August, 1992, Modami completed a public offering of 1,253,000 shares of common stock. After the offering, there were 2,959,296 shares outstanding; the Salits and Lola Lobel each owned 19% of the common stock, Kravitz owned 4%, and the balance of the shares were owned by the general public. The board of directors consisted of Salit, Lobel, and Kravitz. Salit was chairman of the board, Kravitz was president, and Lobel was the secretary, treasurer, and chief financial officer.

Modami contracted with Nutrix, Ltd., an Israeli corporation to produce yogurt products. Nutrix was formed as the successor to Serodan, the company with which Salit and Lobel had originally done business.

In 1993, Kravitz hired lawyer Elliott Barnett to represent Modami. At the time, Barnett was a senior partner in the law firm Ruden, McCloskey, Smith, Schuster and Russell ("the Ruden firm" or "the law firm"). The amended complaint alleges:

Unknown at the time to Salit and Lobel, but known to Kravitz, Barnett ... was under great pressure from his law firm to produce business, and was experiencing substantial personal financial problems. Barnett and Kravitz devised a scheme to wrest control of Modami from Salit and Lobel for the personal benefit of Barnett and Kravitz (the "Barnett-Kravitz Scheme"). All subsequent actions of Barnett and Kravitz described herein were in furtherance of this Scheme. All actions of Barnett alleged herein through September 30, 1995² were in his capacity as a partner of the Ruden Firm.

As part of a plan to take over Modami, Kravitz "fostered animosity" between the principal officers of the corporation, such that Lobel resigned all of his positions with Modami.

On March 10, 1994, Barnett, in his capacity as "outside General Counsel" to Modami wrote on the Ruden firm's letterhead to Salit and advised him that the board of directors had determined that Salit should "step aside" as chief executive officer, that his offices had been locked, and that he should stay away from the corporate offices until the next board meeting.

The Modami board met on March 11, 1994 at the offices of the Ruden firm. Present were Barnett, Kravitz, and two other directors. The meeting was transcribed by a court reporter. Kravitz reported that the company had a "`serious problem' that our counsel, [the Ruden firm], has discovered that relates to Michael Salit's improprieties." Barnett presented a resolution to the directors to temporarily relieve Salit of his corporate duties and to elect Kravitz as chief executive officer of the company. The directors adopted the resolution.

Barnett and Kravitz went to Israel on March 12 or 13, 1994. There they met with the principals of Nutrix and

falsely accused Salit and Lobel of having secret conflicts of interest, misappropriating funds, and making material misrepresentations and omissions in the Public Offering (the "Accusations").... The Israelis ... were offered $500,000 to testify against Salit and Lobel. Otherwise, Kravitz and Barnett told the Israelis that if they did not testify as Kravitz and Barnett wished them to, they would be subject to accusations of collusion and then their company [Nutrix] would go into bankruptcy. Therefore, the Israelis orally corroborated some of the Accusations concocted by Barnett and Kravitz.

At a Modami board meeting held on March 17, 1994, at the offices of the Ruden firm, the board terminated all of Salit's positions with the company, based on the investigation conducted by Barnett. The board elected Kravitz chief executive officer and authorized the Ruden firm to file lawsuits against Salit, Lobel, and "any other parties the Ruden Firm deemed appropriate."

The Ruden firm filed a lawsuit against the Salits and the Lobels based on allegations of conflicts of interest, of misappropriating funds, and of making material misrepresentations and omissions concerning the public offering. Barnett and Kravitz caused Modami to issue press releases and to make filings with the Securities and Exchange Commission that repeated such allegations. As a result, the market price of Modami stock declined significantly. After the filing of the suit, the Israelis disclosed Barnett's role in extorting them to give false testimony.

As a result of the successful implementation of the "scheme" to take over Modami, both Kravitz and the Ruden firm received financial benefits. The Ruden firm collected more than $3 million in legal fees from Modami in 1994 and 1995 "as a result of the Barnett-Kravitz" scheme. The firm expelled Barnett in September, 1995 and he went to work for Modami.

Barnett and Kravitz caused Modami to abandon the yogurt products business and "embark on a spree of acquisitions of new businesses in exchange for common stock." By 1996, there were 62,000,000 shares of Modami outstanding. The company sustained large losses. The Salits' and Lobels' ownership interest in Modami was greatly diluted. The value of their holdings declined from $1.9 million each in August, 1993 to about $25,000 each in May, 1996.

The trial court dismissed all counts of the amended complaint against the Ruden firm with prejudice for reasons which are unclear, and appellants timely appealed. This case concerns the viability of various causes of action against the law firm.

As to all counts, the Ruden firm argues that the trial court correctly dismissed the complaint because there is a repugnancy between the allegations of the complaint which compels the conclusion that, as a matter of law, Barnett's participation in the Modami scheme was "outside the scope of his agency" with the law firm, so that his actions cannot be attributed to it. The firm points to paragraph 25 of the amended complaint which states that Barnett and Kravitz "devised a scheme to wrest control of Modami ... for the personal benefit of Barnett and Kravitz."

The law firm's liability in this case turns on the plaintiffs' ability to attribute Barnett's actions to the firm. An employer is responsible for the wrongful acts of its employee if the conduct of the employee is within the scope of his employment, which includes acts "of the kind he is employed to perform" and that conduct "occurs substantially within authorized time and space limits and ... is activated at least in part by a purpose to serve the [employer]." Whetzel v. Metropolitan Life Ins. Co., 266 So.2d 89, 91 (Fla. 4th DCA 1972); Kane Furniture Corp. v. Miranda, 506 So.2d 1061, 1067 (Fla. 2d DCA 1987); Gates v. Utsey, 177 So.2d 486, 488 (Fla. 1st DCA 1965).

Although paragraph 25 of the amended complaint does assert that Barnett and Kravitz devised the Modami scheme for their personal benefit, that paragraph also asserts "Barnett at that time was under great pressure from his law firm to produce business" and that "[a]ll actions of Barnett alleged herein through September 30, 1995 were in his capacity as a partner of the Ruden Firm." The pleading claims that the Ruden firm reaped more that $3 million in legal fees as a result of the Barnett-Kravitz scheme.

It is not a fatal repugnancy in pleading to say that an employee realizes personal benefit from his conduct, while at the same time benefitting, at least in part, his employer. That the employee personally profits from his actions does not negate, in all circumstances, the vicarious liability of the employer for the acts of the...