Tour de Force: What Constitutes an “Act of God,” and Other Developments in Force Majeure Law

Today, “Act of God” is defined as an “overwhelming, unpreventable event caused exclusively by forces of nature, such as an earthquake, flood, or tornado.” Act of God, Black’s Law Dictionary (11^th ed. 2019). There is a dearth of recent case law addressing whether the phrase “Act of God” covers a pandemic or epidemic (for example, H1N1 in 2009 or Ebola in 2014). On the one hand, courts may find that the occurrence of these prior global health crises made COVID-19 foreseeable which, in many jurisdictions, puts it outside the scope of a force majeure clause. On the other hand, courts may conclude that COVID-19’s sweeping impact puts it on a different scale than prior health crises and therefore is covered by catch-all language. What is clear, however, is that the term “Act of God” will take on heightened significant in the post-COVID-19 world. 

Important COVID-19 Case Law Development

A recent decision out of Illinois suggests that courts may find payment obligations excused due to COVID-19 when the language of the force majeure clause does not expressly preclude it, notwithstanding that in many jurisdictions, force majeure clauses often do not excuse failure to perform payment obligations. In In re Hitz Rest. Grp., No. 1:20-br-05012 (Bankr. N.D. Ill. 2020), the parties’ lease agreement included the following force majeure clause:

Landlord and Tenant shall each be excused from performing its obligations or undertakings provided in this Lease, in the event, but only so long as the performance of any of its obligations are prevented or delayed, retarded or hindered by act of God, . . . laws, governmental action or inaction, orders of government or civil or military or naval authorities, or any other cause, whether similar or dissimilar to the foregoing, not within the reasonable control of the party . . . . Lack of money shall not be grounds for Force Majeure.

The tenant, a restaurant group, invoked the “governmental action” phrase of the clause to argue that its 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. In a June 2, 2020 decision, the court agreed in part, holding that the 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. The court refused, however, to excuse tenant’s entire rent obligation on the basis that the Coronavirus Order permitted carry-out and delivery services, thereby enabling the tenant to operate in a limited capacity.

Developing COVID-19 Force Majeure Case Law:

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.) (04/03/2020 Complaint)

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) )

Northern District of Illinois (Excuse from rent payment)

In re Hitz Rest. Grp., No. 1:20-br-05012 (Bankr. N.D. Ill. 2020) (see above discussion) (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)

Southern District of New York (Excuse from payment obligation)

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 (Excuse from refund obligation)

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 (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)

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.) (05/19/2020 Complaint; 06/05/2020 Counterclaim)

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)

New York (Grounds for contract termination)

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.