Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA)

Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA), requires a deceptive act or unfair practice, causation and actual damages.  The purpose of the Act is to “protect the consuming public and legitimate business enterprises from those who engage in unfair methods of competition, or unconscionable, deceptive, or unfair acts or practices in the conduct of any trade or commerce.  A deceptive practice is one that is likely to mislead consumers, whereas an unfair practice is one that “offends established public policy” and is “immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.”

Remedies under FDUTPA include declaratory relief, injunctive relief, and damages, including attorney fees.  With respect to damages, the Act provides that:

“In any action brought by a person who has suffered a loss as a result of a violation of this part, such person may recover actual damages, plus attorney’s fees and court costs as provided in s. 501.2105. However, damages, fees, or costs are not recoverable under this section against a retailer who has, in good faith, engaged in the dissemination of claims of a manufacturer or wholesaler without actual knowledge that it violated this section.” § 501.211(2)

“[T]he measure of actual damages is the difference in the market value of the product or service in the condition in which it was delivered and its market value in the condition in which it should have been delivered according to the contract of the parties. [ … ] A notable exception to the rule may exist when the product is rendered valueless as a result of the defect-then the purchase price is the appropriate measure of actual damages.” Rollins, Inc. v. Heller, 454 So.2d 580, 585 (Fla. 3d DCA 1984) (quoting from Raye v. Fred Oakley Motors, Inc., 646 S.W.2d 288, 290 (Tex.App.1983)).

FDUTPA is based the Federal Trade Commission Act 15 U.S.C. § 45, and is often referred to as the “Little FTC Act”.  In creating the Act, the Florida Legislature intended “to afford due consideration and great weight to interpretations by federal courts and the Federal Trade Commission regarding definitions of unfair and deceptive practice.” The Florida Senate, Interim Project Report, 1 (2004).  Business Litigation in Florida §  20.1 (2014).

Protection under the Act applies to the “consumer”, which includes “individuals; children; business; firm; association; joint venture; partnership; estate; trust; business trust; syndicate; fiduciary; corporation; any commercial entity; or any other group or combination.”  Fla. Stat. § 501.203(7).

FDUTPA defines “trade or commerce” to include: advertising, soliciting, providing, offering, or distributing, whether by sale, rental, or otherwise, of any good or service, or any property, whether tangible or intangible, or any other article, commodity, or thing of value, wherever situated.  Fla. Stat. § 501.203(8).

In order to state a FDUTPA claim for damages, “a plaintiff must show not only that the conduct complained of was unfair, unconscionable, or deceptive, but also that it has suffered actual damages proximately caused by the unlawful conduct.”  Rollins, Inc. v. Butland, 951 So. 860, 869 (Fla. 2d DCA 2006).

Further, “when addressing a deceptive or unfair trade practice claim, the issue is not whether the plaintiff actually relied on the alleged practice, but whether the practice was likely to deceive a consumer acting reasonably in the same circumstances.”  Office of the AG, Dep’t of Legal Affairs v. Wyndham Int’l, 869 So. 2d 592 (Fla. 1st DCA 2004).

The Downfalls of Forming an LLC

A Limited Liability Partnership or LLC, is meant to be a simple, easy to form structure for a business.  It is a blend between a corporation and a partnership.  One of the largest benefits of an LLC is its ability to pass through income or losses to its owners.  This prevents what is called the double taxation of corporations – taxation at the corporate level and at the individual level upon distribution.  The owner(s) of the LLC can choose to be taxed as a sole proprietor, partnership, S corporation or a C corporation.  This structure also provides individual protection from the LLCs debts – i.e. the owner(s) are not liable for the LLCs debts.  There are exceptions to this, however.  If the owners of the LLC treat the LLC money like their own personal bank accounts, and use any income for non-LLC purposes, in a lawsuit the plaintiffs can attempt to “pierce the corporate veil” and go after the individual owners of the LLC personally.  Further, in Florida, a one-member LLC does not provide protection from individual liability to the owner.  That is why it is necessary to have more than a one-member LLC.

Issues arise, however, when bringing on partners and deciding how the LLC will be run.  How profits and losses will be distributed, and taxed, to the individual owners is a prime consideration.

Further, for start-up companies looking for venture capital, there is an even larger issue with the LLC format.  Any equity granted to workers, such as stock options, makes them technical partners in the LLC for tax purposes.  This means that they must be issued Schedule K-1 tax forms that disclose information about the LLC’s finances, which many employers would not want their employees to know.  The employee/partners would also be responsible under IRS rules for withholding their own quarterly taxes.

A further difficulty with an LLC that will be seeking venture capital is that venture capitalists (VCs) do not like this form of structure and will refuse to invest.  The reason is that VCs are structured as pass-through entities also, and they do not want the LLC’s income or losses passed on to their own limited partners, who could be taxed on this income when they would not otherwise have to pay.

While a corporation might have higher renewal fees, more paperwork, and double taxation, a business seeking venture capital might be wiser to start as a corporation.