Tour de Force: Tracking the Evolution of COVID-19 as a Force Majeure Event

This issue offers a primer on the basic contours and purpose of the force majeure doctrine.

Force Majeure Generally

“Force majeure. An event or effect that can be neither anticipated nor controlled.” BLACK’s.

The doctrine of force majeure excuses nonperformance, or delayed performance, by one or both parties to a contract due to the occurrence of an unforeseeable event. It is most often raised as an affirmative defense or in connection with a declaratory judgment claim. A successful force majeure defense may result in contract rescission or termination, suspension of performance, renegotiation of commercial terms, or nonperformance being permanently excused.

Force majeure is a creature of contract. In common law jurisdictions, the doctrine is only available when a contract contains express language (a “Force Majeure Clause”) that excuses performance due to an event beyond the party’s control that prevents performance. In this sense, it is different from other excuse doctrines—such as frustration of purpose—which exist at common law (and, in some jurisdictions, are enshrined in statutes). For this reason, it is critical to consider the precise language of the Force Majeure Clause in question when analyzing the viability of a force majeure defense/claim. Indeed, in most cases, a Force Majeure Clause only excuses performance where (i) the event preventing performance falls within the scope of the Force Majeure Clause (“Force Majeure Event”); (ii) the Force Majeure Event is the proximate cause of nonperformance; and (iii) the Force Majeure Event was not reasonably foreseeable or was unforeseeable at the time of contracting (unless applicable law or an express clause permits foreseeable events to qualify).

Typical Force Majeure Events included in contracts vary by industry, but often include:

• Severe acts of nature or weather: hurricanes, floods, earthquakes, fires, epidemics
• Events related to warfare: battle, terrorism, explosions, insurrections
• Governmental orders: regulations, decrees, restrictions, or certain changes in law
• Labor disputes: riots, strikes, walkouts, union disputes
• Catch-all provisions: “acts of God,” “catastrophes,” “other similar events” beyond the party’s reasonable control

Catch-all provisions are construed narrowly and limited to occurrences of the same kind as those specifically listed in the Force Majeure Clause.

The most frequently litigated issues in force majeure cases concern the scope of the Force Majeure Clause (namely, does the clause cover the event in question); whether the clause covers the obligation in question (it is not uncommon for clauses to expressly exclude coverage of payment obligations like rent); and whether the event was foreseeable. For example, when considering whether a global pandemic is a Force Majeure Event, the parties may dispute whether: (i) the Force Majeure Clause at issue covers the pandemic; (ii) the Force Majeure Clause excuses the particular obligation at issue; or (iii) the pandemic proximately caused the delay/nonperformance.

Force Majeure and COVID-19

The unprecedented business disruption caused by COVID-19 implicates a significant question for many: Is COVID-19 a Force Majeure Event that excuses contract performance? A simple question with an increasingly complex answer.

This client alert series is devoted solely to exploring this question, while assessing cases where litigants and courts are developing new law (or more nuanced interpretation) in this area. Specific topics we will cover in upcoming issues include, for example:

• Is COVID-19 an “Act of God”? A look at the scope of “catch-all” provisions and what language might qualify COVID-19 as a Force Majeure Event.
• If a COVID-19 government order prevents performance, is the Force Majeure Event COVID-19 or the government order, and does it matter?
• Is a pandemic (like COVID-19) an anticipated risk under certain contracts? What constitutes a foreseeable event?
• What does it mean for a Force Majeure Event to “actually” prevent performance? Or for nonperformance to be “due to” or “on account of” a Force Majeure Event? Analyzing causation under specific contract provisions.
• How to craft Force Majeure language going forward to ensure the desired result can be achieved and to avoid interpretational risks and potentially divergent judicial treatment of Force Majeure across different jurisdictions.

Developing COVID-19 Force Majeure Case Law:

Federal

Southern District of Florida

Palm Springs Mile Assocs. LTD. v. The Men's Wearhouse Inc., No. 20-cv-21965 (S.D. Fla. 2020) (Men’s Warehouse invokes force majeure defense against breach of contract claim, alleging its obligation to pay rent was excused by COVID-19.) (05/11/2020 Complaint)

Southern District of New York

E2W LLC v. Kidzania Operations S.A.R.L., No. 1:20-cv-02866-ALC (S.D.N.Y. 2020) (Franchisee invokes force majeure clause in franchise agreement, alleging that government shutdown orders excuse its payment obligations and obligation to open an additional franchise location.) (04/06/2020 Complaint) 

Hunter Commc’ns. Inc. v. Panasonic Avionics Corp., No. 20-cv-03434 (S.D.N.Y. 2020) (Defendant asserts force majeure defense against breach of contract claim brought by satellite communications provider, alleging that COVID-19 excused payment obligations under master service agreement for satellite bandwidth capacity services.) (05/01/2020 Complaint)

Viamedia Inc. v. WideOpenWest Finance LLC, No. 1:20-cv-04064-VM (S.D.N.Y. 2020) (Plaintiff seeks preliminary injunction enjoining defendant from terminating television advertising management agreement, alleging that plaintiff’s late payments under agreement are excused based on “COVID-19 and the attendant economic crises prompted by government ordered lock downs and stay at home orders, which qualify as both acts of God and/or events beyond the reasonable ability of [plaintiff] to control.”) (05/27/2020 Plaintiff’s Memorandum of Law in Support of Motion for Preliminary Injunction) 

Northern District of Texas

W.L. Petrey Wholesale Co. Inc. v. V2 Incentives, LP, No. 20-cv-00447-A (N.D. Tex. 2020) (Plaintiff seeks refund of amounts paid to travel broker for corporate trip to Scotland; defendant asserts force majeure defense.) (05/19/2020 Amended Complaint)

Southern District of Texas

Khan v. Cinemex USA Real Estate Holdings Inc., No. 4:20-cv-01178 (S.D. Tex. 2020) (Plaintiff seeks, inter alia, specific performance ordering defendant to close on cinema chain purchase transaction, arguing that defendant’s reasons for refusing to close that relate to COVID-19 are invalid because the contract was negotiated after the pandemic was declared and the Material Adverse Effect clause expressly excludes pandemics; case automatically stayed because defendant filed for chapter 11 bankruptcy.) (04/02/2020 Complaint)

State

California

Pacific Collective LLC v. Exxonmobil Oil Corp., No. 20STCV13294 (Cal. Sup. Ct., Los Angeles Cty. 2020) (Commercial real estate buyer seeks to extend closing date of real estate purchase on basis that Safer-At-Home orders constitute force majeure as defined in purchase agreement.) (04/03/2020 Complaint)

Delaware

Forescout Technologies Inc. v. Ferrari Grp. Holdings L.P., No. 2020-0385 (Del. Ch. 2020) (Plaintiff asserts breach of contract and specific performance claims against Ferrari affiliate, Advent, for failure to close merger deal worth $1.9 billion, on ground that COVID-19 does not constitute a Material Adverse Event permitting Advent’s termination of merger agreement.) (05/19/2020 Complaint)

Florida

LFG Acquisitions LLC v. CSPS Hote Inc., No. 107048560 (Fla. Cir. Ct. Hillsborough Cty. 2020) (Plaintiff seeks to delay closing of real estate sale pursuant to force majeure provision in purchase agreement.) (05/05/2020 Complaint)

New York

1248 Assoc. Mezz II LLC v. 12E48 Mezz II LLC, No. 651812/2020 (N.Y. Sup. Ct. N.Y. Cty. 2020) (Plaintiff sought preliminary injunction enjoining defendant from conducting sale of plaintiff’s membership interest in Manhattan property on ground that New York Governor’s Executive Order temporarily prohibiting foreclosure of commercial property was a force majeure event; Court denied plaintiff’s motion for preliminary injunction, reasoning that “Plaintiff’s anticipation of economic damage resulting from the . . . sale, particularly in light of the current economic shutdown and restrictions on travel as a result of the COVID-19 pandemic, is merely speculative.”) (05/18/2020 Decision and Order)

N888JK Ltd. v. Equiom (Isle of Man) Ltd., Index Number Pending (N.Y. Sup. Ct. N.Y. Cty. 2020) (Plaintiff seeks declaratory relief that it may keep a deposit paid pursuant to a used aircraft purchase agreement on the grounds that defendant unilaterally terminated the agreement; defendant asserted COVID-19 as a force majeure event permitting termination and demanded return of deposit.) (05/28/2020 Complaint)

Pillsbury’s experienced, multidisciplinary COVID-19 Task Force is closely monitoring the global threat of COVID-19 and providing real-time advice across industry sectors, drawing on the firm’s capabilities in crisis management, employment law, insurance recovery, real estate, supply chain management, cybersecurity, corporate and contracts law and other areas to provide critical guidance to clients in an urgent and quickly evolving situation. For more thought leadership on this rapidly developing topic, please visit our COVID-19 (Coronavirus) Resource Center.