IN THE SUPREME COURT STATE OF FLORIDA CASE NO. SC04-2097 JOY CHATLOS D ARATA, etc., Petitioner, v. THE CHATLOS FOUNDATION, INC., et al., Respondents. BRIEF OF RESPONDENTS ON JURISDICTION ON DISCRETIONARY REVIEW FROM A DECISION OF THE FIFTH DISTRICT COURT OF APPEAL I. William Spivey, II, Esq. Florida Bar No. 701076 Dawn Giebler Millner, Esq. Florida Bar No. 856576 Greenberg Traurig, P.A. 450 South Orange Avenue, #650 Orlando, Florida 32801 Telephone: (407) 420-1000 Facsimile: (407) 420-5909 Elliot H. Scherker, Esq. Florida Bar No. 202304 Greenberg Traurig, P.A. 1221 Brickell Avenue Miami, Florida 33131 Telephone: (305) 579-0500 Facsimile: (305) 579-0717 Counsel for The Chatlos Foundation, Inc. and William J. Chatlos
TABLE OF CONTENTS Page TABLE OF CITATIONS...ii INTRODUCTION...1 STATEMENT OF THE CASE AND FACTS...1 SUMMARY OF ARGUMENT...4 ARGUMENT...5 CONCLUSION...8 CERTIFICATE OF SERVICE...9 CERTIFICATE OF COMPLIANCE...9 i
TABLE OF CITATIONS Page Cases Davis & Cox v. Summa, Corp. 751 F.2d 1507 (9th Cir. 1985)...3 De Saad v. Banco Industrial de Venezuela 843 So. 2d 953 (Fla. 3d DCA 2003)...4, 6 Gandy v. State 846 So. 2d 1141 (Fla. 2003)...6 Persaud v. State 838 So. 2d 529 (Fla. 2003)...6 Reaves v. State 485 So. 2d 829 (Fla. 1986)...5 The Chatlos Foundation, Inc. v. D Arata 882 So. 2d 1021 (Fla. 5th DCA 2004)...1 The Florida Star v. B.J.F. 530 So. 2d 286 (Fla. 1988)...6 Statutes/Codes 607.0850(3), Fla. Stat. (2003)... 5, 7, 8 607.1505(2), Fla. Stat. (2003)...7 617.1505(3), Fla. Stat. (2003)... passim 501(c)(3), Internal Revenue Code...2 724(c), New York Business Corporation Law...3 ii
INTRODUCTION Petitioner D Arata seeks discretionary review of the Fifth District Court of Appeal s decision overturning the trial court s order requiring respondents The Chatlos Foundation, Inc., and William J. Chatlos (collectively the Foundation), to pay D Arata s attorney s fees and costs, on an ongoing basis, to fund D Arata s litigation against the Foundation. The Fifth District held: (i) New York law governs the Foundation s internal affairs because the Foundation is incorporated in New York; and (ii) New York law prohibits ongoing indemnification of a plaintiff in an action brought against a New York corporation. No possible conflict can arise from the Fifth District s decision because no Florida case has addressed the question whether indemnification is within the scope of a corporation s internal affairs under Section 617.1505(3), Florida Statutes (2003), and no Florida case has addressed the New York law question whether a plaintiff can obtain ongoing indemnification in an action against a New York corporation. D Arata can make no case for this Court s exercise of its discretionary review jurisdiction. STATEMENT OF THE CASE AND FACTS The Fifth District s opinion sets forth the trial court s ruling as the factual basis for its decision. Appendix (hereinafter A ) at 1-3. The Chatlos Foundation, Inc. v. D Arata, 882 So. 2d 1021, 1022-23 (Fla. 5th DCA 2004). 1 The order 1 D Arata s brief goes far beyond the four corners of the Fifth District s opinion, openly citing to purported facts in the record on appeal and to the (continued...) 1
reflects that the Foundation is a not-for-profit New York corporation, formed in 1953 under Section 501(c)(3) of the Internal Revenue Code as a charitable private foundation. (A:2). D Arata, the grandchild of the Foundation s founder (as is the individual defendant William J. Chatlos), was an officer, employee, and trustee. Id. She brought an action against the Foundation, asserting that she had been wrongfully terminated from her position and that the Foundation had engaged in various illegal acts. Id. D Arata sought indemnification of her legal fees and costs in the action, on an ongoing basis. (A:2-3). The trial court granted D Arata s motion for payment of fees and costs, relying on both Florida and New York corporate law. Id. at 3. The order requires the Foundation to pay D Arata s fees and costs in the litigation and ordered an initial payment of approximately $150,000. Id. On the Foundation s appeal, the Fifth District first addressed the conflict-oflaws issue. (A:4). The court applied Section 617.1505(3), Florida Statutes (2003) (Florida is not authorize[d] to regulate the organization or internal affairs of a foreign corporation authorized to conduct its affairs in this state under the Florida not-for-profit Corporation Act), and set forth its interpretation of internal affairs under that statute as follows: (... continued) dissenting opinion. Petitioner s Brief on Jurisdiction (Petitioner s Brief) at 1-2, 9. In doing so, D Arata flouts the fundamental limitations on discretionary review, as will be addressed further in the argument section of this brief. The Foundation will limit its factual recitation to those facts set forth in the Fifth District s opinion. 2
Claims involving internal affairs of corporations, such as the breach of fiduciary duties, are subject to the laws of the state of incorporation. Here, corporate indemnification involves issues peculiar to the affairs of a corporation. Indemnification of corporate directors, like the fiduciary obligations of corporate directors, is an internal affair of a corporation and is therefore subject to the law of the state of incorporation. Id. at 4-5 (quoting Davis & Cox v. Summa, Corp., 751 F.2d 1507, 1527 (9th Cir. 1985)). The court concluded: [b]ecause the Foundation was incorporated in New York, we find that based upon section 617.1505(3)..., New York law would apply in the instant case. Id. at 5. The court next addressed the question of indemnification under New York law, specifically Section 724(c) of the New York Business Corporation Law, which statute is limited by its own express terms to indemnification of directors and officers in defense of an action. (A:5). The opinion quotes the statute, which provides that attorney s fees may be awarded during the pendency of the litigation as are necessary in connection with [a] defense therein. (A:6) (quoting N.Y. BUS. CORP. LAW 724(c) (McKinney 2002)) (emphasis by the court). The court also cited pertinent New York case law. Id. (statute authorizes indemnification as long as such allowance is necessary in connection with the defense in the litigation ) (citation omitted; emphasis by the court). The court concluded: Due to the statutory requirement of awarding indemnification as necessary in connection with a defense, we find that D Arata, who has filed a cause of action against the Foundation, is not entitled to indemnification under the law of New York. Simply stated, because D Arata is not conducting a defense in this cause, the lower court erred in finding entitlement. 3
(A:6-7). The court accordingly vacated the trial court s award of fees to fund litigation initiated by D Arata. Id. at 7. SUMMARY OF ARGUMENT Ranging far beyond the four corners of the Fifth District s decision, D Arata engages in highly inappropriate merits argument, going so far as to openly cite to the appellate record and even further, relying on the dissenting opinion. This Court, of course, limits its consideration on an application for discretionary review to the four corners of the district court of appeal s decision meaning the majority decision only in the case of a split decision. D Arata obviously goes beyond the constraints of a discretionary review application because she has no valid claim of conflict. The Fifth District first decided that New York law governs indemnification claims against non-profit corporations under Section 617.1505(3), Florida Statutes (2003), when the corporation is incorporated in New York, an issue as to which no Florida court has spoken and D Arata never suggests otherwise. The court, applying New York law, held that D Arata has no right to indemnification. Again, D Arata cites no contrary Florida decision (or, for that matter, no contrary New York decision). Instead, D Arata relies almost entirely on the Third District s decision in De Saad v. Banco Industrial de Venezuela, 843 So. 2d 953 (Fla. 3d DCA 2003), and on the analysis of that decision in the dissenting opinion in the Fifth District. Petitioner s Brief at 6-10. D Arata s reliance on the dissent, of course, is mootless, and her attempt to create conflict with De Saad is equally so. That decision 4
addressed only the question whether an entity that is incorporated in another country is exempt from the mandatory indemnification obligations of Section 607.0850(3), Florida Statutes (2003), under which statute a corporate director, officer or employee who successfully has defended against a civil or criminal action arising from the performance of corporate duties is entitled, as a matter of right, to indemnification. The court neither addressed, nor had any occasion to address, Section 617.1505(3). There is no conflict of decisions. ARGUMENT Petitioner s brief calls to mind this Court s adjuration in Reaves v. State, 485 So. 2d 829 (Fla. 1986): Conflict between decisions must be express and direct, i.e., it must appear within the four corners of the majority decision. Neither a dissenting opinion nor the record itself can be used to establish jurisdiction... * * * This case illustrates a common error made in preparing jurisdictional briefs based on alleged decisional conflict. The only facts relevant to our decision to accept or reject such petitions are those facts contained in the four corners of the decisions allegedly in conflict. As we explain[ed]..., we are not permitted to base our conflict jurisdiction on a review of the record or on facts recited only in dissenting opinions. Thus, it is pointless and misleading to include a comprehensive recitation of facts not appearing in the decision below, with citations to the record. 5
Id. at 830 & n.3 (citation omitted); accord, e.g., Persaud v. State, 838 So. 2d 529, 532-33 (Fla. 2003). 2 D Arata ignores these limitations, citing to the record for irrelevant and inflammatory statements. Petitioner s Brief at 1-2. 3 And she relies on the dissenting opinion s characterization of her claim. Petitioner s Brief at 9. Because, with respect to the actual majority holdings, i.e., that New York law governs indemnification of a nonprofit New York corporation s officers, directors, and employees, and that, under New York law, indemnification may be awarded only when such individual are defendants, rather than plaintiffs, there is no conflict of decisions, this Court has no jurisdiction to review the Fifth District s decision, D Arata s attempts to evade the limitations on discretionary review notwithstanding. The only Florida case that D Arata cites to establish her purported claim of conflict is De Saad v. Banco Industrial de Venezuela, 843 So. 2d 953 (Fla. 3d DCA 2 3 D Arata goes astray in her citations to The Florida Star v. B.J.F., 530 So. 2d 286, 288 (Fla. 1988). Petitioner s Brief at 4. As this Court has since made clear in Gandy v. State, 846 So. 2d 1141 (Fla. 2003), the discussion in Florida Star pertains to the narrow question whether silent per curiam decisions can ever be subject to discretionary review. Gandy, 846 So. 2d at 1143-44. Nothing in Florida Star expands this Court s jurisdiction on discretionary review or even suggests that the Court can go beyond the four corners of a written opinion. It is particularly inappropriate for D Arata to assert, for example, that the Foundation is doing all [it] can, using Foundation funds, to smother [a] whistleblower. Petitioner s Brief at 1. The Foundation, bound by this Court s expressly stated limitations on discretionary review, cannot respond to this sort of character attack. 6
2003). Petitioner s Brief at 6-10. D Arata s rhetoric, e.g., Petitioner s Brief at 10 ( [t]here is no question that a jurist reviewing De Saad or D Arata for guidance concerning the application of Florida indemnification provisions to qualified foreign corporations would reach opposite conclusions ) aside, there is no conceivable conflict between the two decisions. But De Saad addressed whether a foreign corporation is exempt from the mandatory indemnification obligations of Section 607.0850(3), Florida Statutes (2003), under which statute a corporate director, officer, or employee who successfully defends against a civil or criminal action arising from the performance of corporate duties is entitled, as a matter of right, to indemnification. 843 So. 2d at 954-55. The Third District held that the statute creates a liability as contemplated by Section 607.1505(2), Fla. Stat. (2003) (foreign corporation operating under a valid certificate of authority has the same but no greater rights... and except as otherwise provided by this act is subject to the same duties as a domestic corporation), such that the defendant, a Venezuelan bank, was bound by the statute. 843 So. 2d at 955. The court, however, had no occasion to address Section 617.1505(3), which is the controlling statutory provision here, because the defendant in De Saad, unlike the Foundation, was not arguing that its indemnification obligations were governed by the law of another state, but rather was asserting that it was not a corporation within the meaning of Section 607.0850(3) because it was domiciled 7
in another country. 4 D Arata s claim of conflict with De Saad is illusory and fanciful. CONCLUSION Based on the foregoing, the Foundation requests the Court to deny discretionary review. Respectfully submitted, I. William Spivey, II, Esq. Florida Bar No. 701076 Dawn Giebler Millner, Esq. Florida Bar No. 856576 Greenberg Traurig, P.A. 450 South Orange Avenue, #650 Orlando, Florida 32801 Telephone: (407) 420-1000 Facsimile: (407) 420-5909 Elliot H. Scherker, Esq. Florida Bar No. 202304 Greenberg Traurig, P.A. 1221 Brickell Avenue Miami, Florida 33131 Telephone: (305) 579-0500 Facsimile: (305) 579-0717 By: Elliot H. Scherker Counsel for The Chatlos Foundation, Inc. and William J. Chatlos 4 Moreover, there is a clear distinction between the mandatory indemnification created under Section 607.0850(3), which rationally can be seen as a true liability once the corporate employee has successfully defended a civil or criminal action, and the question whether a plaintiff who brings an action against a corporation should have a right to seek discretionary (and, in this case, ongoing) indemnification in the first instance. 8
CERTIFICATE OF SERVICE I certify that a copy of this brief on jurisdiction was mailed on November, 2004 to: Richard L. Brittain, Esq. Wendell R. Bird, Esq. Bird & Associates, P.C. 1150 Monarch Plaza 3414 Peachtree Road, N.E. Atlanta, GA 30326 Frederick H. Nelson, Esq. 1110 Douglas Avenue, Suite 1002 Altamonte Springs, Florida 32714 CERTIFICATE OF COMPLIANCE I hereby certify that this brief was prepared in Times New Roman, 14-point font, in compliance with Rule 9.210(a)(2) of the Florida Rules of Appellate Procedure. \\MIA-SRV01\SCHERKERE\1459298v01\V@0201!.DOC\4/9/03\54438.010100 9