Takeaways

The aviation and commercial real estate industries have been hard hit by COVID-19, resulting in a significant amount of force majeure-related litigation and pre-litigation disputes.
As the pandemic and stay-home orders drag on, other industries may soon find themselves in a similar position.

COVID-19 is affecting businesses and industries across the board. Certain industries, however, are seeing more force majeure litigation than others. The travel industry, for example, is seeing an influx in force majeure litigation:

  • N888JK Ltd. v. Equiom (Isle of Man) Ltd., 652122/2020 (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.
  • Banco Santander (Brasil) S.A. v. American Airlines Inc., No. 20-cv-3098 (E.D.N.Y. 2020): Plaintiff seeks declaration that it is entitled to terminate agreement pursuant to force majeure clause that covers “act of God” and “act of government” because cessation of air travel between the United States and Brazil was due to “the COVID-19 pandemic and the resulting government-imposed measures and unprecedented decline in demand for air travel.”
  • 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.

Likewise, COVID-19 has significantly affected the real estate industry. Many buyers and sellers are seeking to terminate or modify the terms of purchase agreements due to the inability to use and/or develop property in the foreseeable future. See, e.g., Gomel Capital Partners LLC v. 601 NE 29 Drive LLC, et al., No. 1:20-cv-01922-FB-JO (E.D.N.Y. 2020); Pacific Collective LLC v. Exxonmobil Oil Corp., No. 2:20-cv-03887-ODW-RAO (C.D. Cal. 2020); LFG Acquisitions LLC v. CSPS Hotel Inc., No. 107048560 (Fla. Cir. Ct. Hillsborough Cty. 2020).

In addition, many commercial tenants are seeking relief from their lease obligations due to their inability to occupy their premises, conduct business from those premises and generate revenues. See, e.g., Palm Springs Mile Assocs. LTD. v. The Men’s Wearhouse Inc., No. 20-cv-21965 (S.D. Fla. 2020); In re Hitz Rest. Grp., No. 1:20-br-05012 (Bankr. N.D. Ill. 2020); Williamsburg Climbing Gym Co. LLC and Fifth Concerto Holdco Inc. v. Ronit Realty LLC, No. 1:20-cv-02073 (E.D.N.Y. 2020); The Gap Inc. v. Ponte Gadea New York LLC, No. 1:20-cv-04541 (S.D.N.Y. 2020); Hibbett Sporting Goods Inc. v. Weatherford Dunhill LLC c/o Dunhill Prop. Mgmt. Services Inc., No. 4:20-cv-00607-O (N.D. Tex. 2020).

In a recently filed action in New York, for example, the law firm of Simpson Thacher alleges that it is entitled to breach of contract damages in the amount of $8 million because its NY landlord has refused to acknowledge the law firm’s rights to rent abatement. Simpson Thacher Bartlett LLP v. VBGO 425 Lexington LLC, No. 653415/2020 (N.Y. Sup. Ct. N.Y. Cty. 2020). The lease provides Simpson with a right to rent abatement when, through no fault of its own, the premises are unusable for sixty (60) consecutive days as a result of “force majeure.” The lease defines force majeure, in relevant part, as “governmental preemption of priorities or other controls in connection with a national or other public emergency… or any other cause, whether similar or dissimilar, beyond Landlord or Tenant’s reasonable control[.]”

Simpson alleges that, pursuant to governmental orders, it vacated its premises on March 22, 2020 and that, due to Governor Cuomo’s phased approach to reopening, it has been unable to “continue the reasonable operation of its business” to the present day. When Simpson submitted its rental payments under protest and “demanded both an acknowledgement of its rights to full rent abatement under the Lease,” the defendant “denied both requests”—leading to the initiation of this action.

Given that, with the resurgence of COVID-19 cases, businesses in many states are being forced to close their doors again, there may be a groundswell of rent abatement actions in the near term. Likewise, the continuation of global travel restrictions—and the tightened restrictions being imposed against states experiencing new spikes in COVID-19 cases—may further impact the travel industry. Accordingly, businesses and stakeholders in these industries should be prepared to consider the implications of force majeure provisions in their contracts and the potential impact on their commercial relationships as the COVID-19 pandemic rages on.

Developing COVID-19 Force Majeure Case Law
(updates since the last issue in bold below)

FEDERAL

Central District of California (Extension of closing date)

Pacific Collective LLC v. Exxonmobil Oil Corp., No. 2:20-cv-03887-ODW-RAO (C.D. Cal. 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. Removed from California state court on April 29, 2020. Case transferred from Judge John A. Kronstadt due to self-recusal.) (04/03/2020 Complaint; 04/30/2020 Order to Reassign Case; 05/05/2020 Order Returning Case for Reassignment upon Recusal)

Southern District of Florida (Excuse from rent payment)

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. Suit voluntarily dismissed on June 1, 2020.) (05/11/2020 Complaint; 06/01/2020 Notice of Voluntary Dismissal)

Northern District of Illinois (Excuse from rent payment)

In re Hitz Rest. Grp., No. 1:20-br-05012 (Bankr. N.D. Ill. 2020) (Restaurant-group tenant invoked “governmental action” phrase of force majeure clause to argue rent obligation was excused by the Illinois Governor’s Coronavirus Order shutting down on-premises dining, theorizing that the Order prevented it from operating its business. Court agreed in part, holding tenant’s rent obligation would be reduced on a pro rata basis in accordance with the decrease in revenues from its inability to offer on-premises dining.) (04/27/2020 Creditors’ Motion for Relief from Automatic Stay; 05/12/2020 Debtor’s Response; 05/26/2020 Creditors’ Reply; 06/02/2020 Memorandum Opinion) (See our prior article on this decision and a recent in‑depth analysis of this decision here.)

Eastern District of New York (Excuse from transaction closing; Excuse from contract performance)

Gomel Capital Partners LLC v. 601 NE 29 Drive LLC, et al., No. 1:20-cv-01922-FB-JO (E.D.N.Y. 2020) (Plaintiff seeks to terminate real property purchase contract and to recoup $275,000 deposit, alleging that the “outbreak of the COVID-19 global pandemic is a force majeure event, a quintessential ‘act of God’,” and invoking contractual provision that permits termination when a force majeure event prevents performance of the contract for “more than 30 days beyond the Closing Date.” Defendant’s Answer was due on May 20, 2020 but to date has not been filed. Court ordered that no later than July 3, 2020, one of the following events must occur: (a) the defendant must file an answer, (b) the parties must file a stipulation extending the defendant’s time to answer, or (c) the plaintiff must file a request for a certificate of default.) (04/27/2020 Complaint; 07/13/2020 Letter Motion by Plaintiff Informing Court of Settlement; 07/13/2020 Notice of Voluntary Dismissal with Prejudice)

Williamsburg Climbing Gym Co. LLC and Fifth Concerto Holdco Inc. v. Ronit Realty LLC, No. 1:20-cv-02073 (E.D.N.Y. 2020) (Tenant seeks rescission and declaration that it lawfully terminated lease pursuant to common law doctrines of impossibility and frustration of purpose because COVID-19 pandemic and Governor’s executive orders mandated business closure and stoppage of construction; landlord asserts breach of contract counterclaim on basis that that lease’s force majeure clause expressly carves out rent payment obligations; landlord seeks judgment on the pleadings; tenant argues that force majeure clause is inapplicable because pandemic is not an enumerated event and frustration/impossibility are separate doctrines.) (05/06/2020 Complaint; 06/24/2020 Answer and Counterclaims; 06/24/2020 Defendant’s Pre-Motion Letter to the Court Re: Judgment on the Pleadings; 07/01/2020 Plaintiff’s Pre-Motion Response Letter to Court re: Judgment on the Pleadings)

Banco Santander (Brasil) S.A. v. American Airlines Inc., No. 20-cv-3098 (E.D.N.Y. 2020) (Plaintiff seeks declaration that it is entitled to terminate pursuant to force majeure clause that covers “act of God” and “act of government.”) (07/10/2020 Complaint)

Southern District of New York (Excuse from contract performance; Excuse from payment obligation)

D’Amico Dry D.A.C. v. McInnis Cement Inc., No. 1:20-cv-03731-VEC (S.D.N.Y. 2020) (Shipping company alleges breach of contract against cement supplier and seeks maritime attachment of assets pending arbitration on the basis that supplier defaulted prior to COVID-19 and then invoked force majeure clause as a pretense to terminate. Court entered ex parte order of attachment and denied cement supplier’s motion to vacate same.) (05/14/2020 Complaint; 05/25/2020 Defendant’s Motion to Vacate the Process of Maritime Attachment; 06/03/2020 Plaintiff’s Opposition to Defendant’s Motion to Vacate the Process of Maritime Attachment; 06/30/2020 Opinion Order Denying Motion to Vacate the Process of Maritime Attachment)

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. Court, without any reasoning, granted franchisee’s application and compelled the parties to maintain the status quo during the pendency of their arbitration; parties arbitrating claims in the ICC.) (04/06/2020 Complaint; 05/11/2020 Order Granting Preliminary Injunction; 05/22/2020 Answer)

The Gap Inc. v. Ponte Gadea New York LLC, No. 1:20-cv-04541 (S.D.N.Y. 2020) (Tenant seeks, inter alia, rescission/cancellation of lease, arguing that COVID-19 crisis and civil orders constitute a “casualty” within the meaning of the force majeure clause causing a permanent abatement of rent and the lease to terminate. Landlord counterclaims alleging breach of contract and argues that COVID-19 and civil orders are not within the scope of the force majeure clause and that the force majeure clause does not excuse contractual rent payment obligation.) (06/12/2020 Complaint; 07/07/2020 Answer and Counterclaims)

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; 06/26/2020 Answer)

JN Contemporary Art LLC v. Phillips Auctioneers LLC, No. 1:20-cv-04370-DLC (S.D.N.Y. 2020) (Plaintiff seeks preliminary injunction preventing defendant from invoking clause that allowed it to terminate consignment agreement if performance were delayed due to “circumstances beyond [the parties’] reasonable control,” and argues that defendant’s decision to terminate was not caused by the pandemic but rather was the result of a deliberate business decision. Defendant argues that the pandemic is within the scope of the force majeure clause because it is a “natural disaster” and that performance is excused because the specific auction noted in the contract was postponed.) (06/09/2020 Complaint; 06/12/2020 Plaintiff’s Memorandum of Law in Support of Motion for Preliminary Injunction; 06/23/2020 Amended Complaint; 06/23/2020 Plaintiff’s Amended Memorandum of Law in Support of Motion for Preliminary Injunction; 07/02/2020 Defendant’s Memorandum in Opposition to Plaintiff’s Order to Show Cause for Preliminary Injunction and Temporary Restraining Order; 07/09/2020 Plaintiff’s Reply in Further Support of Motion for Preliminary Injunction; 07/15/2020 Order Denying Temporary Restraining Order and Preliminary Injunction; 07/31/2020 Plaintiff’s Second Amended 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; 06/19/2020 Amended Complaint; 06/22/2020 Order Denying Temporary Restraining Order and Preliminary Injunction)

Northern District of Texas (Excuse from refund obligation, Excuse from lease obligations)

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; 06/16/2020 Answer; 06/22/2020 Order)

Hibbett Sporting Goods, Inc. v. Weatherford Dunhill LLC c/o Dunhill Prop. Mgmt. Services, Inc., No. 4:20-cv-00607-O (N.D. Tex. 2020) (Tenant seeks declaratory judgment that rental and payment obligations and any obligation to continuously operate within mall were excused while Governor’s order mandated closure of the mall.) (06/10/2020 Complaint; 07/20/2020 Motion to Dismiss)

Southern District of Texas (Excuse from transaction closing)

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; 06/01/2020 Order Staying the Case due to Defendant filing bankruptcy)

Eastern District of Virginia (Grounds for contract termination)

Sodexo Operations LLC v. Va. Aquarium & Marine Sci. Ctr. Found. Inc., No. 2:20-cv-00309-AWA-RJK (E.D. Va. 2020) (Food services provider exercised right to terminate contract pursuant to “act of God” and “governmental policy” terms in force majeure clause and alleges defendant’s refusal to reimburse plaintiff for unamortized portion of capital investments is a breach of their contract.) (06/16/2020 Complaint)

STATE

Delaware (Excuse from transaction closing)

Forescout Technologies Inc. v. Ferrari Grp. Holdings L.P., No. 2020-0385 (Del. Ch. 2020) (Plaintiff/target asserts breach of contract and specific performance claims against defendant/buyer for failure to close merger deal worth $1.9 billion, on ground that COVID-19 does not constitute a Material Adverse Event permitting buyer’s termination of merger agreement. Buyer asserts declaratory judgment counterclaims that, inter alia, target’s financial troubles caused by COVID‑19 constitute a Material Adverse Event because, notwithstanding the explicit exclusion of “epidemics” and “pandemics” as Material Adverse Events, target’s financial troubles are disproportionate in comparison to other similar companies and therefore fall within the “materially disproportionate adverse effect” savings clause; trial is scheduled to start on July 20, because equitable relief will not be possible after August 6.) (05/19/2020 Complaint; 06/05/2020 Counterclaim; 07/14/2020 Letter Opinion re: Interlocutory Appeal)

Florida (Extension of closing date)

LFG Acquisitions LLC v. CSPS Hotel 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; 05/29/2020 Answer)

New York (Grounds for contract termination, Excuse from default)

Bath & Body Works LLC vs. 304 PAS Owner LLC Successor, No. 651836/2020 (N.Y. Sup. Ct. N.Y. Cty. 2020) (Plaintiff seeks rescission of commercial property lease and declaration the lease is unenforceable because COVID-19 and related government mandated shutdowns frustrated the purposes of the lease. Defendant argues plaintiff tenant recognized that a variety of “force majeure” events might occur, including those forming the bases of plaintiff’s claims, but specifically agreed in a lease rider that such events would only permit delayed performance, not excuse payment of any monetary sums due under the lease and its supplemental rider.) (06/08/2020 Complaint; 06/29/2020 Answer and Counterclaims)

D2 Mark LLC v. OREI VI Investments LLC, No. 652259/2020 (N.Y. Sup. Ct. N.Y. Cty. 2020) (Hotel group sought, inter alia, to preliminarily enjoin junior creditor from foreclosing after hotel group missed one payment obligation due to COVID-19, arguing that loan agreement expressly excused defaults occurring “in connection with” a force majeure event. Court enjoined junior creditor from holding a sale before July 23 and ordered junior creditor to issue new, commercially reasonable notice of sale.) (06/06/2020 Complaint; 06/23/2020 Decision and Order on Plaintiff’s Order to Show Cause; 08/03/2020 So-Ordered Stipulation Discontinuing the Action with Prejudice)

N888JK Ltd. v. Equiom (Isle of Man) Ltd., No. 652122/2020 (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; 06/16/2020 Stipulation to Extend Time to Answer; 07/22/2020 Answer with Counterclaims)

Victoria’s Secret Stores v. Herald Square Owner LLC, No. 651833/2020 (N.Y. Sup. Ct. N.Y. Cty. 2020) (Plaintiff seeks to annul commercial property lease under doctrines of frustration of purpose and impossibility resulting from COVID-19 and related government mandated shutdowns. Defendant argues the lease explicitly allocated the risk of plaintiff tenant being unable to occupy the premises in the absence of a force majeure clause in the lease.) (06/08/2020 Complaint; 06/29/2020 Answer and Counterclaims; 06/29/2020 Defendant’s Memorandum of Law in Support of Motion for Summary Judgment; 07/29/2020 Plaintiffs’ Memorandum of Law in Opposition to Motion for Summary Judgment)

Valentino U.S.A. Inc. v. 693 Fifth Owner LLC, No. 652605/2020 (N.Y. Sup. Ct. N.Y. Cty. 2020) (Plaintiff/tenant seeks a declaration that the lease of its commercial property has been frustrated by the COVID-19 pandemic and related Executive Orders, and in the alternative, seeks a declaration that its performance under the lease agreement has been rendered impossible; defendant/landlord seeks dismissal of the Complaint on the grounds that the lease agreement contains a clause allocating the risk of closure to the plaintiff/tenant in the event of “unavoidable delays”, defined to include “restrictive governmental laws or regulations . . . acts of God . . . or other reason of a similar or dissimilar nature.”) (06/21/2020 Summons and Complaint; 07/27/2020 Defendant’s Memorandum of Law in Support of Motion to Dismiss)

Simpson Thacher & Bartlett LLP v. VBGO 425 Lexington LLC, No. 653415/2020 (N.Y. Sup. Ct. N.Y. Cty. 2020) (Plaintiff/tenant seeks a declaration that it is entitled to rent abatement under force majeure provision of commercial lease, alleging that it was forced to vacate its premises for a period of sixty (60) days due to a government order and a “national or other public emergency”) (07/27/2020 Complaint)

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