Griffin v. ARX Holding Corporation

NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING

MOTION AND, IF FILED, DETERMINED

IN THE DISTRICT COURT OF APPEAL

OF FLORIDA

SECOND DISTRICT

NICHOLAS GRIFFIN, )

)

Appellant, )

)

v. ) Case No. 2D15-1616

)

ARX HOLDING CORPORATION, )

)

Appellee. )

)

Opinion filed October 14, 2016.

Appeal from the Circuit Court for Pinellas

County; Anthony Rondolino, Judge.

S. Douglas Knox, Paul E. Parrish, and

Kelli A. Edson of Quarles & Brady LLP,

Tampa, for Appellant.

Sylvia H. Walbolt, Steven C. Dupré, Kevin

P. McCoy, and Nicholas A. Brown of Carlton

Fields Jorden Burt, P.A., Tampa, for

Appellee.

LaROSE, Judge.

Nicholas Griffin appeals a final summary judgment, a judgment entered

after jury trial, and several post-trial orders entered in favor of his former employer, ARX

Holding Corporation, a company that operated several insurance businesses in Florida.

We have jurisdiction. Fla. R. App. P. 9.030(b)(1)(A).

Mr. Griffin sued ARX for compensation due under the terms of an

employment contract. ARX contended that the contract was void, illegal, and

unenforceable. ARX counterclaimed for payment due on a promissory note executed

and delivered by Mr. Griffin. The trial court entered a final summary judgment on Mr.

Griffin's compensation claim. A jury found for ARX on its counterclaim. After careful

review of the record, and with the benefit of oral argument, we affirm on all issues raised

by Mr. Griffin.

Background

Mr. Griffin is the former chief financial officer of United Insurance Holdings

Corp. Sometime in 2009, he began discussions with John Auer, ARX's chief executive

officer. Mr. Auer wanted to hire Mr. Griffin as ARX's CFO. During their discussions, Mr.

Griffin told Mr. Auer that he had a felony conviction. 1 As we will see, that conviction

hampered Mr. Griffin's ability to serve as the CFO of insurance-related businesses

under federal and state law. Nevertheless, Mr. Griffin advised Mr. Auer that the

conviction would not prevent him from serving as ARX's CFO. As further assurance,

Mr. Griffin told Mr. Auer that he would seek a waiver from Florida insurance regulators

of any statutory disqualification caused by his conviction. Apparently minimizing any

concern that the conviction would impact his employment, Mr. Griffin told Mr. Auer that

the Florida Office of Insurance Regulation (FOIR), aware of his conviction, allowed him

1In 1998, Mr. Griffin pleaded guilty to and was convicted of extortion. See

18 U.S.C. § 1952(a)(3). "Extortion is generically defined as 'obtaining something of

value from another with his consent induced by the wrongful use of force, fear, or

threats.' " Cintas Corp. v. Unite Here, 601 F. Supp. 2d 571, 578 (S.D.N.Y. 2009)

(quoting Scheidler v. Nat'l Org. for Women, Inc., 537 U.S. 393, 410 (2003)).

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to serve as United's CFO; he expected no objection from FOIR to his employment by

ARX. Reality proved less rosy.

In 2002, while Mr. Griffin worked for United, FOIR notified United that Mr.

Griffin's conviction barred him from serving as an officer of a United subsidiary engaged

in the insurance business. In an effort to cure FOIR's concern, United maintained Mr.

Griffin as the CFO of only the holding company; it appointed him controller of the related

insurance companies. Apparently, the controller was not an officer level position within

United's group of companies.

Sometime in 2008, United sought FOIR approval to merge with another

company. Under the terms of a 2009 consent order with the insurance regulator, United

agreed to replace Mr. Griffin as CFO. FOIR's Deputy Insurance Chief, Belinda Miller,

testified that the consent order barred Mr. Griffin from being an officer of United or of its

insurance subsidiaries. Mr. Griffin testified at the trial on ARX's counterclaim that United

and FOIR reached an accommodation that would allow Mr. Griffin to continue as

United's CFO. Our record belies that assertion. Indeed, after further discussions

between FOIR and United, FOIR formally denied a waiver that would have allowed Mr.

Griffin to work as an officer of an insurance business. Apparently, Mr. Griffin continued

to serve as an officer of United's nonpublicly traded holding company. Mr. Auer was

unaware of the extent of Mr. Griffin's problems with FOIR, specifically the consent order

requiring United to remove Mr. Griffin as CFO.

By early June 2009, ARX extended, and Mr. Griffin accepted, an offer of

employment as ARX's CFO. Because ARX was a holding company and not an

insurance company, Mr. Griffin assumed that FOIR would not object to this new

employment. The distinction, however, has little meaning. First, Mr. Griffin conceded in

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the trial court that his position with ARX involved the business of insurance. 2 Second,

ARX's Board of Directors appointed Mr. Griffin as the Vice President and CFO of ARX

and of its subsidiary insurance businesses.

Mr. Griffin's compensation package provided for an annual salary of

$150,000. He would also "participate as an officer in the employee bonus plan . . .

subject to a monthly minimum of $12,000 for 24 months." ARX also offered Mr. Griffin

stock and stock options that would vest over several years, contingent upon his

continued employment. No one disputes that Mr. Griffin was an at-will employee.

The stock and stock option components of Mr. Griffin's compensation

terms presented potential tax liabilities for Mr. Griffin. Against the recommendation of

his accountant, Mr. Griffin filed an election under section 83(b) 3 of the Internal Revenue

2[B]usiness of insurance means—

(A) the writing of insurance, or

(B) the reinsuring of risks,

by an insurer, including all acts necessary or incidental to

such writing or reinsuring and the activities of persons who

act as, or are, officers, directors, agents, or employees of

insurers or who are other persons authorized to act on

behalf of such persons . . . .

18 U.S.C. § 1033(f)(1).

3Election to include in gross income in year of transfer.—

(1) In general.--Any person who performs services in connection

with which property is transferred to any person may elect to

include in his gross income, for the taxable year in which such

property is transferred, the excess of--

(A) the fair market value of such property at the time of transfer . . . , over

(B) the amount (if any) paid for such property.

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Code. By doing so, Mr. Griffin incurred an immediate $182,000 tax liability, although he

had not acquired any stock or exercised any of the stock options.

Mr. Griffin explained to Mr. Auer that he could not pay the tax liability. Mr.

Griffin claims that Mr. Auer told him that ARX would loan him the money and later

forgive the debt. Mr. Auer claimed otherwise. Nevertheless, again, against the advice

of his accountant, Mr. Griffin drafted, signed, and delivered a promissory note in favor or

ARX in order to get the funds needed to satisfy his tax debt. The promissory note

allowed ARX to demand payment upon written notice. Seemingly consistent with Mr.

Auer's recollection of events, the note did not obligate ARX to forgive the debt.

Mr. Auer attempted to help Mr. Griffin in his efforts to obtain a waiver from

FOIR so that he could serve as ARX's CFO. He contacted several regulators on Mr.

Griffin's behalf. Ultimately, FOIR would not yield; it would not grant Mr. Griffin a waiver.

As the waiver story unfolded, however, it does not appear that ARX's Board of Directors

knew about Mr. Griffin's conviction or any statutory restrictions on his position until

sometime in March 2010. In the meantime, Mr. Griffin performed his duties for ARX.

As a result, he received his salary and employee bonuses. On March 1, 2010, the

Board approved an additional $215,000 bonus for Mr. Griffin, based on his 2009 job

performance. The bonus was payable immediately. Mr. Auer, however, withheld the

bonus pending a final decision from FOIR concerning a waiver. Mr. Griffin never got his

bonus. He never got the waiver. As a result, Mr. Auer terminated Mr. Griffin's

employment.

26 U.S.C. § 83(b).

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Summary Judgment and Trial

To summarize a lengthy procedural history in the trial court, we note that

the trial court granted ARX a summary judgment on the compensation issue. The trial

court found the employment contract illegal and unenforceable. Consequently, Mr.

Griffin could not collect his $215,000 bonus.

ARX's counterclaim on the promissory note went to jury trial. The jury

found in favor of ARX. The jury found that Mr. Griffin owed ARX $200,150.13. Ample

evidence supports the jury's verdict and the trial court's subsequent judgment on this

claim. We need say nothing more on this issue.

Mr. Griffin's claim for the unpaid bonus is more problematic. We review

the grant of summary judgment de novo. See Volusia Cty. v. Aberdeen at Ormond

Beach, L.P., 760 So. 2d 126, 130 (Fla. 2000). "Summary judgment is proper only if

there is no genuine issue of material fact and the moving party is entitled to a judgment

as a matter of law." Dewar v. Dough Boy Pizza, Inc., 184 So. 3d 1169, 1170 (Fla. 2d

DCA 2015) (citation omitted).

Statutes Restricting Mr. Griffin's Employment

Under federal law, "[a]ny individual who has been convicted of any

criminal felony involving dishonesty or a breach of trust, . . . and who willfully engages in

the business of insurance whose activities affect interstate commerce or participates in

such business" shall be punished by fine or imprisonment of up to five years, or both.

18 U.S.C. § 1033(e)(1)(A). 4 The federal statute continues: "Any individual who is

4Although Florida has not specifically ruled on this issue, many states

consider extortion to be a crime of dishonesty. See Com v. Cascardo, 981 A.2d 245,

254 (Pa. Super. Ct. 2009) ("Given that theft by unlawful taking, retail theft, receiving

stolen property, theft by extortion, and robbery are crimes involving dishonesty . . . .")

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engaged in the business of insurance whose activities affect interstate commerce and

who willfully permits the participation described in subparagraph (A) shall be fined as

provided in this title or imprisoned not more than 5 years, or both." 18 U.S.C. §

1033(e)(1)(B). The parties have pointed us to nothing in § 1033(e) that would impose

criminal liability on a corporate entity that hires someone like Mr. Griffin. Regardless, on

its face, § 1033(e) exposes Mr. Griffin to criminal prosecution for serving as CFO of

ARX or its insurance subsidiaries. Of course, a person like Mr. Griffin "may engage in

the business of insurance or participate in such business if such person has the written

consent of any insurance regulatory official authorized to regulate the insurer, which

consent specifically refers to this subsection." 18 U.S.C. § 1033(e)(2). Reading (e)(1)

and (e)(2) together, we find it obvious that criminal exposure continues until the

convicted felon "has"—obtains—a waiver from the appropriate insurance regulator.

Anticipation is not enough.

Florida law imposes a similar statutory disqualification for some felons.

[FOIR] may deny, suspend, or revoke the authority to

transact insurance in this state of any insurer if any person . .

. who exercises or has the ability to exercise effective control

over the insurer, or who influences or has the ability to

(citations omitted); Wilcher v. State, 697 So. 2d 1087, 1117 (Miss. 1997) (Sullivan, J.,

dissenting) ("Extortion is a dishonest crime . . . ."); State v. Brodene, 493 N.W.2d 793,

796 (Iowa 1992) ("[W]e think extortion is clearly an example of dishonesty."); State v.

Prutting, 669 A.2d 1228, 1236 n.6 (Conn. App. Ct. 1996) (holding that extortion is a form

of larceny and noting that "crimes involving larcenous intent imply a general disposition

toward dishonesty"); State v. Musto, 454 A.2d 449, 454 (N.J. Super. Ct. Law Div. 1982)

("The crimes of extortion and bribery are clearly crimes which involve dishonesty.");

Lawyer Disciplinary Bd. v. Moore, 591 S.E.2d 338, 355 (W. Va. 2003) (Starcher, C.J.,

concurring) (explaining that extortion involved dishonesty). "In common human

experience acts of deceit, fraud, cheating, or stealing, for example, are universally

regarded as conduct which reflects adversely on a man's honesty and integrity."

Gordon v. U.S., 383 F.2d 936, 940 (D.C. Cir. 1967). We see no reason to think that

Florida would not follow this prevalent view.

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influence the transaction of the business of the insurer, has

been found guilty of, or has pleaded guilty . . . to, any felony

or crime punishable by imprisonment of 1 year or more

under the law of the United States or any state thereof or

under the law of any other country which involves moral

turpitude, 5 without regard to whether a judgment of

conviction has been entered by the court having jurisdiction

in such case. However, in the case of an insurer operating

under a subsisting certificate of authority, the insurer shall

remove any such person immediately upon discovery of the

conditions set forth in this paragraph when applicable to

such person or upon the order of the office, and the failure to

so act by said insurer shall be grounds for revocation or

suspension of the insurer's certificate of authority.

§ 624.404(3)(c), Fla. Stat. (2009). Section 624.15, Florida Statutes makes "each willful

violation of this code or rule of the department, office, or commission . . . a

misdemeanor of the second degree." The statute does not identify a waiver

contemplated by 18 U.S.C. § 1033(e)(2). However, the testimony of FOIR witnesses

demonstrated that such a waiver process was available in Florida.

As a matter of law, Mr. Griffin was statutorily barred from serving as CFO.

He never obtained the waiver contemplated by 18 U.S.C. § 1033(e)(2). On this basis,

alone, ARX was within its right to fire Mr. Griffin and end any right to compensation

going forward. The more puzzling question is whether Mr. Griffin was entitled to an

earned bonus. The answer to that question hinges on whether his statutory

disqualification stripped him of the right to enforce the employment contract.

5See note 4, supra. Extortion is a crime of moral turpitude. Pearl v. Fla.

Bd. of Real Estate, 394 So. 2d 189, 191 (Fla. 3d DCA 1981) ("[Moral turpitude] has also

been defined as anything done contrary to justice, honesty, principle, or good morals . .

. ." (quoting State ex rel. Tullidge v. Hollingsworth, 146 So. 660, 661 (Fla. 1933))). The

trial court ruled that the employment contract between ARX and Mr. Griffin was illegal

and unenforceable. Implicitly, the trial court had to conclude that Mr. Griffin's prior

conviction was for (1) a crime of dishonesty or breach of trust, (2) a crime punishable for

more than one year involving moral turpitude, or (3) both.

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The Employment Contract Was Illegal as Against

Public Policy; Mr. Griffin Could Not Enforce Its Terms

Mr. Griffin argues that ARX breached its implied covenant of good faith

and fair dealing by failing to pay his bonus. He also argues that federal and state law

did not automatically prohibit him from serving as an ARX officer. The law seems clear,

however, that his conviction fell within the ambit of 18 U.S.C. § 1033(e)(1) and section

624.404(3)(c). Although Mr. Griffin argues that he was the CFO of only the holding

company, the record reflects that he served as CFO of ARX's insurance subsidiaries, as

well. He also conceded that he was involved in the insurance business. Thus, absent a

waiver from an insurance regulator, Mr. Griffin was in violation of the law by serving as

ARX's CFO. See Beamer v. Netco, Inc., 411 F. Supp. 2d 882 (S.D. Ohio 2005).

The result may seem harsh, but we are persuaded by ARX's argument

that the employment contract was void ab initio. Thus, Mr. Griffin was unable to enforce

its terms. Our record discloses that Mr. Auer would not have employed Mr. Griffin had

he known the seriousness of the conviction and its bar to Mr. Griffin's employment. 6

To determine whether a contract is voidable or void, courts

typically ask whether the contract has been made under

conditions that would justify giving one of the parties a

choice as to validity, making it voidable, e.g., a contract with

an infant; or whether enforcement of the contract would

violate the law or public policy irrespective of the conditions

in which the contract was formed, making it void, e.g., a

contract to commit murder.

Oubre v. Entergy Operations, Inc., 522 U.S. 422, 431 (1998) (Breyer, J., concurring).

"For a contract to be deemed unenforceable as illegal or contrary to public policy, its

6An employment contract may be void as so "abhorrent to public policy"

where "the worker had been guilty of making a material, false and fraudulent

representation without which he would not have been employed." Still v. Norfolk & W.

Ry. Co., 368 U.S. 35, 40-41 (1961).

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purpose or object must be contrary to a law or policy of the state." Alliance Metals, Inc.,

of Atlanta v. Hinely Indus., Inc., 222 F.3d 895, 899 (11th Cir. 2000); see also Beamer,

411 F. Supp. 2d 882.

"[A] contract is not void, as against public policy, unless it is injurious to

the interests of the public or contravenes some established interest of society." Atl.

Coast Line RR. Co. v. Beazley, 45 So. 761, 785 (Fla. 1907) (quotations omitted). "The

public policy of a state or nation should be determined by its Constitution, laws, and

judicial decisions . . . ." Id. at 786 (quotations omitted). A contract of this nature may be

against public policy and be rendered void. That is what the trial court concluded in our

case.

Beamer, 411 F. Supp. 2d 882, is most on point. The district court applied

Florida law to resolve a case with facts quite similar to those before us. Mr. Beamer

was engaged in the business of insurance but had a qualifying felony conviction under

18 U.S.C. § 1033(e)(1)(A). Beamer, 411 F. Supp. 2d at 889. It does not appear that

Mr. Beamer held a high-ranking financial position like Mr. Griffin. Yet, relying on Florida

law, the district court observed that "a contract is against public policy when it cannot be

performed without violating a statutory or other legal provision." Id. (citing Local No. 234

v. Henley & Beckwith, 66 So. 2d 818, 821 (Fla. 1953)). The district court held that Mr.

Beamer's employment contract was void under 18 U.S.C. § 1033(e)(1)(A). Id. As a

result, Mr. Beamer could not pursue a claim for tortious interference with contract.

Mr. Griffin argues that Beamer is inapposite because the district court did

not consider 18 U.S.C. § 1033(e)(2), the waiver provision. Nothing in Beamer, however,

indicates that Mr. Beamer held a waiver from an insurance regulator. Here, there can

be no dispute that Mr. Griffin had none. Beamer is undeniably similar to our case. Like

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Mr. Beamer, Mr. Griffin could not be an officer of ARX or its insurance subsidiaries

"without violating a statutory or other legal provision." See id. at 889 (citing Local No.

234, 66 So. 2d 818, 821 (Fla. 1953)).

Gamble v. Mills, 483 So. 2d 826, 827 (Fla. 4th DCA 1986), too, is

instructive. There, the Fourth District affirmed a final order of the School Board

declaring a teacher's employment contract to be null and void. Id. The contract

provided that it "shall be null and void . . . if, at the beginning of the school fiscal year,

the teacher does not hold a valid regular Teacher's certificate . . . which shall continue in

force and effect through the school term." Id. Mr. Gamble argued that the lapse of his

regular certificate did not prevent him from fulfilling his teaching duties. However,

pursuant to section 231.36, Florida Statutes (1983), the teacher "must hold a regular

certificate." Similarly, at no time during his employment with ARX did Mr. Griffin hold

the "written consent" required by 18 U.S.C. § 1033(e)(2). He was in violation of the law.

In Umbel v. Foodtrader.com, Inc., 820 So. 2d 372 (Fla. 3d DCA 2002), the

Third District held that a partnership agreement violated Florida securities law and was

unenforceable. The partners formed the partnership to "obtain[] investors for

companies, in exchange for a fee or commission." Id. at 374. The partners were not

registered securities dealers; therefore, the partnership violated securities law. Id.

Although the partners argued that several statutory exemptions potentially rendered

performance of the contract legal, the "exemptions would [not] redeem the partnership

agreement from the illegality realm." Id. The court concluded that "[i]t [was] of no

moment that [the partners] could have obtained registration before consummating the

contemplated transactions" because they had already violated the law and securing the

registrations after would not have cured this. Id. at 375.

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Mr. Griffin advances an equally unpersuasive position. He argues that

because 18 U.S.C. § 1033(e)(2) provides for a waiver, his employment contract is not

illegal. He ignores the fact, however, that despite the efforts of Mr. Auer as well as his

own, he never received a waiver from FOIR. Absent the waiver, Mr. Griffin could not

engage in the business of insurance.

Section 489.128(l), Florida Statutes (2016), is also helpful by analogy.

Under that statute, a "contract [] entered into . . . by an unlicensed contractor shall be

unenforceable in law or in equity by the unlicensed contractor." Id. The other party to

the contract, however, retains its rights to enforce the contract against the contractor.

See Earth Trades, Inc. v. T & G Corp., 42 So. 3d 929, 930 (Fla. 5th DCA 2010). Like an

unlicensed contractor, Mr. Griffin, lacking a waiver, lacked the ability to enforce the

terms of his employment contract against ARX.

We are mindful that our decision may seem unjust to Mr. Griffin. After all,

he now foregoes any right to the bonus approved by ARX's Board. But, Mr. Griffin took

the position with ARX, without a waiver, and, thus, as a matter of law, was in violation of

the applicable statutes. Despite his history at United, Mr. Griffin assumed the risk that

FOIR would not grant him a waiver. Without a waiver in hand, Mr. Griffin, in violation of

18 U.S.C. § 1033, began serving as the CFO of ARX and its subsidiary insurance

businesses. We cannot ignore the fact that "an agreement that is violative of a

provision of a constitution or a valid statute, or an agreement which cannot be

performed without violating such a constitutional or statutory provision, is illegal and

void." Local No. 234, 66 So. 2d at 821 (citing Lassiter & Co. v. Taylor, 128 So. 14 (Fla.

1930)). Congress and our Florida legislature have set limits on those who may engage

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in the insurance business. Those terms seem designed to protect the public welfare.

We cannot lightly ignore these legislative dictates.

Conclusion

We affirm the grant of summary judgment as to Mr. Griffin's compensation

claim as it relates to his bonus. We also affirm the final judgment entered on ARX's

counterclaim to enforce the promissory note signed by Mr. Griffin. As to all other issues

raised by Mr. Griffin, we affirm without further comment.

Affirmed.

CASANUEVA and MORRIS, JJ., Concur.

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