Monthly Archives: September 2013

3 Common Summary Judgment Mistakes Made By Lenders in Florida Foreclosures

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Imagine you are a defendant in a mortgage foreclosure lawsuit in Florida. You borrowed money, signed a promissory note and a mortgage, and defaulted on the loan. You have been sued by the lender (or an assignee of the lender), who is the plaintiff in the lawsuit. You have filed an answer and affirmative defenses. The plaintiff now moves for summary judgment, claiming there are no genuine issues of material fact and they are entitled to judgment, without a trial, as a matter of law. How do you respond to this?

In defending against summary judgment motions in foreclosure cases, I have seen many mistakes made by plaintiff’s counsel. This article describes the three most common mistakes I have seen. Sometimes all three mistakes are made in the same summary judgment motion, and sometimes only one of them. Any one of these mistakes can be fatal to the success of a summary judgment motion. These mistakes are especially prevalent in cases filed by foreclosure mill law firms seeking to foreclose on residential property. But I have seen the same mistakes made in commercial foreclosures where the lenders are represented by prestigious law firms.

Mistake #1: Authenticated Promissory Note Missing from Summary Judgment Evidence

In a mortgage foreclosure action, introduction into evidence of the original promissory note is central to the ability of the plaintiff to maintain the action and prove a defendant’s liability. See, e.g., State Street Bank and Trust Co. v. Lord, 851 So. 2d 790 (Fla. 4th DCA 2003). To establish liability on a motion for summary judgment, the promissory note is one of the most important items of summary judgment evidence that must be served. The Florida court rules require that all summary judgment evidence on which the movant relies must be served at least 20 days before the time fixed for the hearing.

Surprising as it may seem, plaintiffs sometimes fail, in their summary judgment evidence, to include the promissory note. This failure makes the summary judgment motion dead on arrival.

Even if the plaintiff includes the promissory note in their summary judgment evidence, they sometimes fail to include evidence as to the authenticity of the promissory note. § 673.4011, Florida Statutes, provides that a person is not liable on an instrument unless the person signed the instrument. (A promissory note is a type of instrument.) In order to establish the borrower’s liability on a promissory note, the summary judgment evidence must include evidence that the borrower actually signed the note.

Unless the borrower has admitted they signed the note, this is a fact that must be proved by the lender in order to obtain a summary judgment. In many cases where the borrower has not admitted they signed the note, I have been surprised by the plaintiff’s failure to include this crucial evidence. The failure to include this evidence can destroy a summary judgment motion in a foreclosure case.

Mistake #2: Failure to Include Admissible Evidence of the Amount Owed

The plaintiff’s summary judgment evidence will usually include an affidavit from a representative of the lender in which they state the amount that is owed on the loan based on their review of the lender’s books and records. Sometimes, however, the affidavit and summary judgment evidence fail to include the documentation that was reviewed in order to determine the amount they are claiming is owed.

The problem is that, unless the documents on which the statements as to amount owed are based are also included in the affidavit or otherwise in the summary judgment evidence, the statement in the lender’s affidavit as to the amount owed violates the “best evidence rule,” and is inadmissible hearsay. The “best evidence rule” is embodied in § 90.952, Florida Statutes. When a party is trying to prove the contents of a writing, only the original or duplicate of the writing is admissible. See, e.g., Garcia v. Lopez, 483 So. 2d 470 (Fla. 3d DCA 1986).

The documents the lender’s representative reviewed may be admissible under the business records exception to the hearsay rule, but only if the plaintiff, though its affidavit, establishes the proper predicate for their admission, including their proper authentication. However, it would be the documents themselves that would be made admissible thereby, not the representative’s opinion or summary of what he or she thinks the records show.

The representative’s statements as to the amount owed, standing alone, are merely his or her opinion of what is contained in unverified out-of-court writings, and are offered for the purpose of establishing the truth of the matters asserted, making them hearsay, which is inadmissible in evidence. The documents themselves are hearsay, but could be made admissible under an exception to the hearsay rule. Without the documents being in evidence, the representative’s statements about what the documents say become hearsay about hearsay, i.e., double hearsay. I have been shocked at how many times I have seen this mistake made by plaintiffs in foreclosure lawsuits.

Mistake #3: Failure to Disprove All Affirmative Defenses

When a plaintiff moves for summary judgment, the plaintiff has the burden of disproving all of the defendant’s affirmative defenses. See Haven Fed. Sav. & Loan Ass’n v. Kirian, 579 So. 2d 730, 733 (Fla. 1991)(“A court cannot grant summary judgment where a defendant asserts legally sufficient affirmative defenses that have not been rebutted”). In other words, in order to have a chance to obtain summary judgment, the plaintiff must either present admissible evidence to disprove the defendant’s affirmative defenses, or show that the defenses are legally insufficient, meaning they are not valid defenses even if the alleged facts supporting them are proven.

Especially in residential foreclosures, the lender moving for summary judgment often completely ignores the defendant’s affirmative defenses. This omission eviscerates the lender’s ability to obtain summary judgment. Even if the lender disproves some but not all of the affirmative defenses, the summary judgment motion must be denied. All affirmative defenses must be addressed and disproved in the summary judgment motion in order for the motion to have a chance of success.

Conclusion

These mistakes are most often made in residential foreclosures. To be effective, objections must be properly and timely raised in opposition to a summary judgment motion. For borrowers who need time to work out a loan modification or short sale, competent legal representation can be a worthwhile expenditure.

© 2013 Stephen Verbit. All rights reserved.

Covenants Not to Compete in Florida Employment Contracts: An Overview

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 Employees sometimes get information about an employer’s business that would be useful to the employer’s market competitors. Such information could include trade secrets, proprietary processes, or specialized training that would be useful in a competing business. In addition, employees may learn about the employer’s present customers, future sales prospects, and business plans. In some instances, an employee could get enough knowledge to set up his or her own competing business.

In industries or trades where employers feel vulnerable to such competition, employers often seek to limit employees’ rights to work for or start a competing business within specified geographical areas for a long time after their employment ends. This is typically done through an agreement requiring employees, as a condition of their employment, to limit their post-employment activities. The employer’s intention is to prevent former employees from working in or starting a competing business for as long as possible and to keep them as far away as possible if they do. Such an agreement is known as a “covenant not to compete” or a “restrictive covenant.” The word “covenant” sounds very imposing, but it means the same thing as a promise. Nevertheless, such promises can be legally binding and have significant potential to impair former employees’ ability to work in future.

Florida law has balanced the interests of employers and employees so that covenants not to compete are legally enforceable under certain circumstances. The remainder of this article will summarize the requirements for enforcement of covenants not to compete.

First, in order to qualify for enforcement, the agreement must be in writing and signed by the employee.

Second, the agreement must be justified by one or more “legitimate business interests.” These can include, but are not limited to:

  • Trade secrets;

  • Valuable confidential business or professional information that otherwise does not qualify as trade secrets;

  • Substantial relationships with specific prospective or existing customers, patients, or clients;

  • Customer, patient, or client goodwill associated with an ongoing business or professional practice, by way of trade name, trademark, service mark, or “trade dress,” a specific geographic location; or a specific marketing or trade area; or

  • Extraordinary or specialized training.

In other words, employers must have some reasonable, competition-based justification for limiting former employees’ ability to work. Absent such justification, the agreement is unenforceable.

Third, the restriction on post-employment activity must be reasonably necessary to protect the employer’s interest. However, overreaching restrictions do not necessarily invalidate the entire agreement. If a contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect legitimate business interest or interests, courts have the power to modify the restraint and grant only the relief reasonably necessary to protect such interest or interests. In other words, if the issue goes to court, the judge can tailor the agreement to fit the circumstances.

Florida law specifies some guidelines for determining what restrictions are reasonable. If the restriction is not predicated on trade secret protection, which is most cases, a restriction that lasts six months or less is presumed reasonable. A restriction that lasts more than two years is presumed to be unreasonable. A restriction predicated on trade secret protection that lasts five years or less is presumed reasonable and more than ten years is presumed unreasonable. All these presumptions are rebuttable. For example, a former employee could try to prove that a six month restriction is unreasonable, or an employer could try to prove why more than a two year restriction is reasonable.

Assuming the employer can establish an otherwise enforceable restrictive covenant, there are some defenses available to the former employee. Unfortunately, the individualized economic or other hardship that might be caused to the former employee from enforcement of the restrictive covenant is not among the available defenses. A defense that is available to the former employee is that the employer no longer continues in business in the area or line of business that the restrictive covenant was intended to protect. However, this defense is not available if the former employee’s violation of the restrictive covenant is the reason for the employer’s discontinuance of the business. Another defense for the former employee  is that the employer violated the employment agreement before the former employee did. This defense is known as “prior breach” but detailed discussion of that defense is beyond the scope of this article.

Market competition at all levels of the economy is fierce. Business owners arguably have a legitimate interest in protecting their business from competition from employees in whom trust has been placed, with whom valuable knowledge has been shared. and to whom training has been given. However, the law does not provide such protection forever. Restrictive covenants must be drafted with care to ensure they are enforceable. People need jobs and often need little coercion to sign any agreement requested by their employer that they believe will secure their employment. Employees should ensure they are not signing away their ability to earn a living at the hands of an overreaching employer. Although Florida law in this area is arguably stacked against the employee, there are limits to the employer’s power. In the case of an employer seeking to enforce a restrictive covenant, the employer does not automatically win and most judges will attempt to strike a reasonable balance between the competing interests.

 

Source: Section 542.335, Florida Statutes (2013).

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