On September 19, 2012, the Third District Court of Appeals decided that a first party plaintiff could not prosecute a claim against a third party defendant in Brady v. P3 Group (LLC) and Hypower, Inc.

The Facts

In Brady, a non-lawyer Charles Brady used his step-father’s law clients to perpetuate a fraud by making misrepresentations regarding procurement of property in Pompano Beach, Florida. Brady essentially told Bernard Paul-Hus, managing member of P3 Group and Hypower, Inc. that Paul-Hus could make a quick profit selling five acres of land for $19 per square foot after acquiring the property for $16.50 per square foot. At $2.50 per square foot, potential profit (were Brady making factual statements) stood at $544,500. Paul-Hus quickly signed the “contract” presented by Brady (that Brady acquired from his father’s law firm) to execute the deal and purchase the property from Lord Corporation in the name of P3 Group. Unfortunately the “seller” (Lord Corporation) already had a buyer (CFMT of FL, LLC) lined up prior to Brady engaging in this activity. CFMT was affiliated with or represented by Michael W. Skop (“Brady’s Attorney”).

Brady then had his step-father execute an assignment and agreement (the “AAA”) of CFMT’s Property interest to P3 Group and Hypower, Inc., as assignee and guarantor respectively, in exchange for $800,990 to CFMT. CFMT was represented by Brady’s Attorney, Michael W. Skop. In the interim, Brady persuaded Paul-Hus to deposit $560,112.50 into Brady’s Attorney’s trust account toward purchase of the property. Brady’s fraudulent activity was eventually uncovered, and Brady went to state prison for thirty months.

An Exercise in Civil Procedure

Here is where the case turns into an exercise in civil procedure. While Brady was in prison, Brady’s Attorney filed a claim against P3 Group and Hypower contending that Brady’s Attorney was the intended beneficiary under a joint venture agreement with CFMT of any money allegedly owed under the AAA. P3 Group and Hypower counterclaimed against Brady’s Attorney, and a third party claim against CFMT and Lord Corporation, asserting either:

(1) that the AAA was void as executed without authority; or

(2) for rescission of the agreement, return of the monies paid into Brady’s Attorney’s trust account, and damages.

P3 Group and Hypower also added Brady, Brady’s step-father and Brady’s step-father’s law firm as additional third party defendants, seeking damages for breach of fiduciary duty, legal malpractice, and unjust enrichment.

Brady did not file an answer, and was defaulted out of the case. Brady’s Attorney decided to move for a final default judgment against Brady, even though Brady’s Attorney had absolutely no standing because Brady’s Attorney never sued Brady. The trial court entered the final default judgment (over all other parties’ objections) and an appeal to the 3rd DCA followed. The 3rd DCA stated that this maneuver was improper both because Florida Rule of Civil Procedure 1.100 explicitly lists a third party claim as a separate and distinct action from other claims (including claims found in the complaint) and also because under the “case or controversy” general standing requirement requires a claim to be prosecuted by the “real party in interest” or “the person in whom rests…the claim sought to be enforced.” Here the real party in interest on any third party claim was P3 Group and Hypower.

No Standing = No Claim

But this case should have never been decided, and Brady (along with P3 Group and Hypower) should have never had to waste valuable resources arguing this issue. One of the first tenants of law is standing and in no state can one prosecute a claim without suing an individual. Attorneys attempting to argue anything different is laughable, because the result would literally be the ability to prosecute a claim against any party, at any time, without recourse.

Sanctions for Unsupported Claims

Fortunately, in 1999, Florida’s legislature considered the inherent problems with allowing attorneys to make absurd argument, and decided to broaden the times when arguments were sanctionable. The legislature changed §57.105 so that instead of assessing whether, over the course of an entire case, their exists “a complete absence of a justiciable issue of either law or fact”, a court of competent jurisdiction could now award attorneys’ fees “on any claim or defense at any time during a civil proceeding or action” where an attorney knew or should have known that the claim or defense when initially presented to the court or any time before trial:

(1) was not supported by the material facts necessary to establish the claim or defense; or

(2) would not be supported by the application of then-existing law to those material facts.

These principles explicitly apply to arguments made by parties and their counsel. At the time of this posting, the case was back in the hands of the trial court. Whether P3 Group and Hypower’s attorneys will take the action of moving for sanctions remain to be seen, but it is not beyond the realm of possibility considering the circumstances.

For any individual involved in litigation, costs can be a considerable issue. If an opposing party creates arguments (and consequently legal fees) that are not supported by any contractual considerations, rules or case law (such as here), your attorneys should be quick to present the correct concepts to the court, and just as quick to move for attorney’s fees under §57.105. Those making the types of arguments presented in this article should take note of the possible ramifications, which include an award of attorney’s fees as sanction.