A Bad Deal does NOT Make It an Unlawful Deal
Florida Statute s. 542.335 (combined with Florida Statute s. 542.18) provides, in a nutshell, that restraints on trade or commerce are unlawful unless “they protect one or more legitimate business interest and are reasonable in geographic and temporal scope.” Capital Wealth Advisors, LLC v. Capital Wealth Advisors, Inc., 46 Fla. L. Weekly D2303a (Fla. 2d DCA 2021). (Check out the statute to understand Florida law on restraints on trade or commerce.). But what is important is that s. 542.335 applies to restraints on trade or commerce and not restraints on other types of agreements such as commissions, as shown in Capital Wealth Advisors, LLC, which reinforces that a bad deal does not make it an unlawful deal!!
In this case, an Agent and a Company entered into a commission agreement where “the Company would pay the Agent a percentage of insurance commissions when the Company sold insurance products through a network of referral sources cultivated by the Agent. The Agent received one hundred percent of the commission for the sale of any products that were originated and sold by the Agent. It received seventy-five percent of the commission for the sale of products (depending on the total amount of the commission) that the Agent originated but the Company sold.” Capital Wealth Advisors, LLC, supra. The agreement contained an exhibit with a list of 25 referral sources.
A dispute arose as to commission sharing and the Company moved for summary judgment that the agreement was an unlawful restraint on trade or commerce pursuant to s. 542.335. The Company essentially argued this was a good agreement for the Agent and a bad agreement for the Company.
“The Agreement might very well have been – or became, in light of circumstances developed after its execution—quite advantageous to the Agent and disadvantageous to the Company and Individuals. This does not make it a restraint of trade or commerce.” Capital Wealth Advisors, LLC, supra. In finding that the agreement does NOT constitute a restraint on trade or commerce (i.e., it does not stifle competition), the Court maintained:
And just as the focus on the lopsidedness or open-endedness of the particular deal into which the [Company] entered gets the cart before the horse, so does a premature examination of the geographical or durational scope of the Agreement elide the threshold determination of whether it is a restraint on trade to begin with. While the Agreement might now be financially unfavorable to the [Company] due to the size of the list of referral sources and the enduring obligation to share commissions earned from prior introductions, that is the deal that was struck and under which the [Company] operated for some time. And it does not restrain trade or commerce in the insurance sales market. The Agreement merely requires the Company to split commissions; it does not even operate as a barrier to the Agent’s ability to sell its own insurance products to potential buyers, including to clients of the referral sources listed on Exhibit B. The Agreement does not negatively affect consumers’ ability to procure insurance products since both the Company and Agent can freely compete for the same business.
Capital Wealth Advisors, LLC, supra.
Please contact David Adelstein at [email protected] or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.