IN THE SUPREME COURT OF FLORIDA CASE NO. SC08-315 LEESBURG COMMUNITY CANCER CENTER LIMITED PARTNERSHIP, d/b/a INTERCOMMUNITY CANCER CENTER, Appellant/Petitioner, vs. LEESBURG REGIONAL MEDICAL CENTER, INC., f/k/a LEESBURG HOSPITAL ASSOCIATION, INC., Appellee/Respondent. ---------------------------------------------------------------------------- On Review From The District Court Of Appeal Fifth District, State Of Florida Case No. 5D-06-2457 --------------------------------------------------------------------------- AMENDED JURISDICTIONAL BRIEF OF PETITIONER Michael J. Bittman Steven L. Brannock Montery Campbell David C. Borucke GRAYROBINSON, P.A. HOLLAND & KNIGHT LLP P.O. Box 3068 P.O. Box 1288 Orlando, FL 32802-3068 Tampa, FL 33601-1288 (407) 843-8880 (813) 227-6611
TABLE OF CONTENTS TABLE OF CONTENTS... I TABLE OF AUTHORITIES... II INTRODUCTION... 1 STATEMENT OF THE CASE AND FACTS... 2 SUMMARY OF THE ARGUMENT... 4 ARGUMENT... 5 CONCLUSION... 10 CERTIFICATE OF SERVICE... 11 CERTIFICATE OF TYPEFACE COMPLIANCE... 12 APPENDIX... Tab "A" i
TABLE OF AUTHORITIES CASES Page(s) C.N.H.F. v. Eagle Crest Development Co., 99 Fla. 1238, 128 So. 844 (1930)... 6, 10 Dade County School Board v. Radio Station WQBA, 731 So.2d 638 (Fla. 1999)... 9 Drawdy v. Leonard, 145 Fla. 562, 1 So. 2d 178 (1941)... 6, 10 Dunn v. Barton, 16 Fla. 765, 1878 WL 2257 (Fla. 1878)... 7, 8, 10 In re O.P.M. Leasing Servs., Inc., 21 B.R. 993 (S.D.N.Y. 1982)... 7 Ottman v. Albert Co., 192 A. 897 (Penn. 1937)... 7 Robertson v. State, 829 So.2d 901 (Fla. 2001)... 9 Rochell v. Morris, 736 So.2d 41 (Fla. 1 st DCA 1999)... 9 Winn-Dixie Stores, Inc. v. Dolgencorp., Inc., 964 So. 2d 261 (Fla. 4 th DCA 2007)... 7, 8 ii
INTRODUCTION Appellant, Leesburg Community Cancer Center (the Cancer Center), seeks to invoke the jurisdiction of this Court to resolve the conflict between the decision below and decisions of this Court and the Fourth District Court of Appeal. In this case, a landlord entered into a lease in which the landlord promised not to compete against the lessee. The lessee then contemporaneously subleased the entire term of the lease to the sublessee, the Cancer Center, the petitioner here. The question presented by this petition is whether the Cancer Center may enforce the Landlord's covenant not to compete. Despite acknowledging that its decision was contrary to the economics of the transaction and the intent of the parties, the district court held that the covenant not to compete was not enforceable by the Cancer Center. As shown below, this conclusion conflicts with decisions of this Court and the Fourth District Court of Appeal on two principles of law. The first principle, articulated by two decisions of this Court, is that a sublease conveying the entire term of the lease is considered an assignment, and the "sublessee" may enforce all of the provisions of the lease against the landlord. The second principle, articulated by this Court and the Fourth District, is that a covenant not to compete runs with the land and automatically is conveyed along with any assignment or sublease, regardless of privity of contract. Thus, such covenants are enforceable by the assignee or sublessee. 1
These legal principles should have been dispositive. As discussed below, this Court should exercise its discretion to review this case and resolve the conflicts created by the district court's failure to follow this important precedent. STATEMENT OF THE CASE AND FACTS On December 31, 1985, respondent, Leesburg Regional Medical Center, Inc. ("Leesburg Regional" or the "Hospital"), entered into a thirty-year lease with an entity known as Leesburg Real Estate Associates, Inc. ("Real Estate Associates") (A. 2). The purpose of the lease was to facilitate the development and operation of an outpatient ambulatory cancer treatment center on the property. To that end, the lease contained a reciprocal non-compete provision that prohibited the Hospital or the lessee from operating or supporting a competing cancer treatment center within the "primary service area" (A. 2). Contemporaneously, Real Estate Associates sublet the property to the Cancer Center (A. 2). There is no suggestion in the record or the Fifth District's opinion that the Hospital was unaware of the simultaneous sublease to the Cancer Center or was unaware that the Cancer Center was the entity making the investment and would develop and operate the Cancer Center. In fact, at substantial cost, the Cancer Center then developed and operated the contemplated cancer treatment center on the property (A. 2). Real Estate Associates continued in existence as a rent pass-through. That is, the Cancer Center paid rent to Real 2
Estate Associates which then forwarded the rent payment required under the original lease to the Hospital (A. 2). There is nothing in the record or the opinion to suggest that Real Estate Associates had any further role in the development or operation of the Cancer Center or any other remaining interest in the lease. In 1998, the Hospital approached Real Estate Associates about waiving the non-compete clause so that it could participate in a cancer treatment center in the primary service area (A. 3). Unable to obtain a waiver, the Hospital purchased Real Estate Associates' remaining leasehold interest (which consisted solely of its right to collect rent from The Cancer Center) in September, 2000 (A. 3). The Hospital then declared that it was no longer bound by the covenant not to compete and that it intended to open a competing outpatient cancer facility in competition with the Cancer Center. The Cancer Center responded with an action for declaratory judgment to determine its rights under the lease and sublease. On summary judgment, the trial court ruled that the Cancer Center had no right to enforce the non-compete (A. 3-4). The Fifth District Affirmed (A. 1). The court held that the sublease did not specifically include the right to enforce the non-compete and that, as a mere sublessee, the Cancer Center had no right to enforce it. Thus, in the absence of a specific assignment of the right to enforce the non-compete clause, the Fifth District ruled that the right to enforce the non-compete remained with Real Estate 3
Associates and that the right was extinguished when the Hospital bought out Real Estate Associates (A. 3, 4-7). The court reached this decision, despite recognizing that its decision might well be contrary to the economics of the transaction and the intent of the parties (A. 6 n.2). Even though the purpose of the non-compete was to encourage and then protect the substantial investment of the Cancer Center in developing the outpatient facility, the district court decided that it was not its role to protect the Cancer Center from "an improvident bargain" if the Cancer Center did not adequately protect its rights in the sublease. Id. SUMMARY OF THE ARGUMENT This Court should grant review and resolve the conflicts created by this case. The district court's determination that the subletting of the entire lease term did not include the right to enforce the non-compete provision was error. As this Court has held, a sublease of the entire term of a lease is treated as an assignment and the sublessee/assignee is entitled to enforce all of the provisions in the lease. Moreover, this Court and the Fourth District have each held that a covenant not to compete, such as the covenant at issue in this case, is a covenant running with the land. Such covenants are enforceable by the transferee regardless whether the lessee assigns the lease or sublets the property. As a covenant running with the land, the Hospital's covenant not to compete was automatically enforceable by the 4
Cancer Center. The district court's failure to apply these two important principles created a conflict worthy of this Court's review. ARGUMENT The legal question before the Court is a simple, but important one. When a lessee sublets the property for the entire term of lease, does the sublessee also obtain the right to enforce a non-compete provision in the lease? The district court said no, and its analysis was simple: Since there was no privity of contract between the Cancer Center and its landlord, the Hospital, the Cancer Center had no right to enforce the covenant absent a specific provision in the sublease expressly transferring the right to enforce the non-compete. 1 This decision is wrong and conflicts with decisions of this Court and the Fourth District on two principals of law, both of which should have been dispositive. First, there is no dispute that, if the transaction between Real Estate Associates and the Cancer Center were treated as an assignment rather than a sublease, the Cancer would have the right to enforce the non-compete. As the district court acknowledged, "following an assignment, the assignee 'stands in the shoes of the assignor' and the 'assignor retains no rights to enforce the contract at 1 Although not relevant to the conflict analysis, the lease and sublease, in fact, expressed the intent that the Cancer Center would succeed to all the rights and obligations under the lease. The district court erroneously interpreted the applicable contract provisions as the Cancer Center will show in briefing on the merits. 5
all.'" A. 4-5 (citing, Lauren Kyle Holdings, Inc. v. Heath-Peterson Constr. Corp., 864 So. 2d 55, 58 (Fla. 5 th DCA 2004). The sublease in this case was effectively an assignment. As this Court has twice ruled, regardless whether the parties characterize a transaction as a sublease or an assignment, if the sublease is for the entire term, it is treated as an assignment, and the "sublessee" steps into the shoes of the original lessee. See C.N.H.F. v. Eagle Crest Development Co., 99 Fla. 1238, 128 So. 844 (1930); Drawdy v. Leonard, 145 Fla. 562, 1 So. 2d 178 (1941). As this Court held, the question focuses on the term being conveyed: "the criterion for determining whether a transfer in the form of a lease constitutes an assignment or a sublease is whether the entire interest in the term is transferred without a reversion being retained by the original lessee." C.N.H.F., 128 So. at 845. Thus, when the full term is conveyed, the sublessee has the right to enforce the agreement against the original landlord because the sublease was for the full term. Thus, the sublease was treated as an assignment and the sublessees "took with all rights of the original lessees against the owner." Drawdy, 1 So. 2d at 180. There is nothing in the record or the opinion to suggest that Real Estate Associates retained any interest in the property other than its status as a "pass 6
through" of the Cancer Center's rent payments. 2 Thus, the "sublease" was actually an assignment and the right to enforce the non-compete automatically passed to the Cancer Center. The decision below conflicts with this important principle of law. The second principle is equally dispositive. Florida courts have recognized that restrictive covenants not to compete are real covenants running with the land. This principle was articulated as long ago as this Court's 1878 decision in Dunn v. Barton, 16 Fla. 765, 1878 WL 2257 (Fla. 1878) and as recently as September, 2007 in Winn-Dixie Stores, Inc. v. Dolgencorp., Inc., 964 So. 2d 261 (Fla. 4 th DCA 2007). In Dunn, Barton and Dunn agreed that Barton would not use the premises or allow the premises to be used in competition with Dunn's bar next door. Barton then subleased the premises to Hazelton who promptly opened a bar in competition with Dunn. Even though there was no privity of contract between Dunn and Hazleton, this Court held that Dunn could enforce the non-compete against Hazleton, because it ran with the land. 1878 WL 2257 at **4-5 ("Such a covenant as existed between Mrs. Barton and Dunn would run with the land, affecting, as it does, the mode of enjoyment of the premises"). 2 No case holds that the fact that the assignee or sublessee pays the rent through the original lessor converts the transaction from an assignment to a sublease. To the contrary, the only cases we have found on the subject suggest the opposite. See In re O.P.M. Leasing Servs., Inc., 21 B.R. 993, 1010 n.26 (S.D.N.Y. 1982) (assignment not waived by a rent pass-through) Ottman v. Albert Co., 192 A. 897, 898, 901 (Penn. 1937) (holding a transaction to be an assignment even though additional rent was paid to the original lessee the retention of the right to collect rent does not detract from the fact that the entire estate has been conveyed). 7
Similarly, in the recently decided Winn-Dixie case, the landlord of a shopping center agreed that Winn-Dixie would have the exclusive right to sell groceries at the shopping center. Another tenant (The Dollar Store) began to sell groceries in violation of the covenant. Once again, even though there was no privity of contract between Winn-Dixie and the Dollar Store, Winn-Dixie could enforce the covenant against The Dollar Store because the agreement not to compete was a covenant running with the land. Winn-Dixie, 964 So. 2d at 264. The Fourth DCA's holding leaves no doubt: "Winn Dixie's grocery exclusive was a real property covenant that ran with the land and not a personal contract obligation." Id. There is no distinction between this case and the Dunn and Winn-Dixie cases. Each hold unequivocally that, regardless of the language of the assignment or sublease, a restrictive covenant not to compete is a real covenant that runs with the land and is enforceable regardless of privity of contract. Simply put, the agreement between Real Estate Associates and the Cancer Center automatically conveyed the right to enforce the covenant not to compete. Unable to contest these long-settled principles of law, the Hospital will likely respond that there is no conflict because the district court did not acknowledge nor cite to these conflicting principles. But this Court has made clear that an opinion that ignores a conflicting legal principle, in fact, creates a conflict. 8
For example, In Robertson v. State, 829 So.2d 901 (Fla. 2001), this Court reviewed an en banc decision of the Third District in which the majority based its decision on an issue not raised in the trial court. The majority decision gave no hint that the legal principle was not raised, nor did the majority cite to the relevant precedent on the application of the "tipsy coachman" principle articulated in Dade County School Board v. Radio Station WQBA, 731 So.2d 638, 644 (Fla. 1999) and Rochell v. Morris, 736 So.2d 41, 42 (Fla. 1 st DCA 1999). This Court accepted jurisdiction based on the Third District's failure to follow WQBA and Rochell, even though neither case was cited by the majority. Robertson, 829 So.2d at 904. This case presents precisely the same sort of conflict. Had the district court applied either principle, both of which have been clearly articulated by this Court, the result would have been different. The district court's failure to do so creates a conflict that should be resolved. This case is worthy of this Court's attention. Obviously, the economic stakes are high. Moreover, as will be demonstrated in the merits brief, an injustice has been done here. The Cancer Center was lured into making an investment based on a non-compete that it can no longer enforce, even though the district court has held that the Hospital may enforce all of the provisions in the lease to its benefit against the Cancer Center, including, presumably, the original lessee's agreement not to compete. In other words, according to the district court, the Cancer Center is 9
bound by every provision in the lease and may not compete against the Hospital, but the Hospital may ignore its obligations under the lease, including the promise not to compete that lured the Cancer Center into developing the outpatient cancer treatment center (A. 6-7). There is no support for such a one-sided interpretation of this transaction. Most importantly, the case presents an important question on Florida noncompete law. Florida businesses need to know when covenants not to compete are enforceable by successors-in-interest. Although the law seemed clear before the district court's opinion, the opinion below has created a live controversy. Any counselor reading the district court decision below in conjunction with Dunn and Winn Dixie will be unable to advise his or her client whether a non-compete agreement is enforceable by a transferee. Any counselor reading this decision along with Drawdy and C.N.H.F. will be hard pressed to determine whether a conveyance is treated as an assignment or sublease. This Court should review this case and resolve the uncertainty created by the district court on these important questions of law. CONCLUSION For all the foregoing reasons, this Court should exercise its discretionary jurisdiction and order briefing on the merits. 10
Respectfully submitted, Steven L. Brannock Florida Bar No. 319652 David C. Borucke Florida Bar No. 039195 HOLLAND & KNIGHT LLP P.O. Box 1288 Tampa, FL 33601-1288 Tel: (813) 227-6462 Fax: (813) 227-0123 and Michael J. Bittman Florida Bar No. 0347132 Montery Campbell Florida Bar No. 011387 GRAYROBINSON, P.A. P.O. Box 3068 Orlando, FL 32802-3068 Tel: (407) 843-8880 Fax: (407) 244-5690 Counsel for Appellant/Petitioner CERTIFICATE OF SERVICE I HEREBY CERTIFY that on this 3rd day of March, 2008, a true and correct copy of the foregoing Amended Jurisdictional Brief was furnished via U.S. Mail to: Philip S. Smith, Esq. Matthew D. Black, Esq. McLin & Burnsed, P.A. P.O. Box 491357 Leesburg, FL 34749-1357 Attorney 11
CERTIFICATE OF TYPEFACE COMPLIANCE Counsel for Appellant/Petitioner, Leesburg Community Cancer Center, certifies that this Amended Jurisdictional Brief is typed in 14 point (proportionately spaced) Times New Roman, in compliance with Rule 9.210 of the Florida Rules of Appellate Procedure. Attorney 110674-10000 # 5137398_v1 12