LITIGATION ALERT: FORCE MAJEURE IN THE TIMES OF COVID-19
Due to the Covid-19 pandemic, 2020 has been the year for a relatively obscure legal term, force majeure.
The doctrine of force majeure is literally derived from the French word "force" which when translated to English literally means "strength." And, the French word "majeure" means "major" in English. In other words, force majeure is the English way of talking about a "major strength" or “superior force.” In legal terms, this "major strength" can sometimes discussed as an "Act of God."
Generally “force majeure” contractual language describes unanticipated events that occur outside the control of either of the parties that prevents either party from performing its obligations under the contract. However, in order to be considered an “unanticipated event,” certain criteria must be met. First, the event must be external to the contract and the parties. Second, the event must such that the circumstances for a party’s performance is dramatically different from what the parties originally contemplated. Third, the event must have been unforeseeable. Finally, the occurrence of the event must be beyond the control of the party seeking to use force majeure as an excuse for non-performance. Unanticipated events that fall within force majeure clauses tend to include occurrences that are considered “acts of God,” such as floods, major fires, wars, riots, explosions, windstorms, and earthquakes.
A typical force majeure contractual provision might read:
"[e]ither Party shall be excused from any delay or failure in performance required hereunder if caused by reason of any occurrence or contingency beyond its reasonable control, including, but not limited to, acts of God, acts of war, fire, insurrection, strikes, lock-outs or other serious labor disputes, riots, earthquakes, floods, explosions, or other acts of nature."
Based upon the “unanticipated event” criteria, one would expect Covid-19 to fall squarely category of event that force majeure clauses were intended to cover. Not surprisingly, a surge of litigation cases seeking to enforce the force majeure clause have flooded the courts since March. However, parties are quickly coming to learn that enforcement is not that simple.
Despite being commonly used in contracts to protect parties from events unknown, force majeure provisions are rarely exercised in practice. This is due, in part, to the dramatic remedy afforded to parties utilizing force majeure clauses. The general rule in contract law is parties entering into an agreement are held to that agreement and courts are resistant to providing outside interpretation of what the parties intended. As such, courts interpret force majeure clauses narrowly, limiting enforcement to those occurrences specifically mentioned in the contract clause.
That being said, the immense nature of the Covid-19 pandemic has created a ripple effect that goes beyond the virus itself. Covid-19 has restricted movement of individuals, forced businesses to close, and created an atmosphere of tension that has caused civil unrest. It has touched upon every aspect of daily living, which, in turn, has led to differences in the circumstances under which jurisdictions will enforce the force majeure clause.
In the case of In re Hitz Rest. Grp., 616 B.R. 374 (Bk Ct. No. Dist. Ill. 2020), a bankruptcy judge in the Northern District of Illinois found that the Illinois Governor's Executive Order closing "in person" dining "unambiguously triggered" the force majeure clause in a restaurant's lease allowing the restaurant to delay paying its rent. In re Hitz Rest. Grp, id at 378.
However in the case of Palm Springs Mile Assoc., Ltd. v. Kirkland’s Stores, Inc., 2020 WL 5411353 (S.D. Fla. 2020), A federal judge found that county governmental restrictions on business operations would not excuse Kirkland Stores, a retail chain specializing in home-décor items and gifts, from paying rent because the lease's force majeure language did not specifically cover the Covid-19 pandemic.
It's important to note that even if it were to apply, force majeure is not a panacea to escape all payments. In Future St. Ltd. v. Big Belly Solar, LLC, Lexis 136999 (Mass. Dist. Ct. 2020), a federal district court judge in Massachusetts was unimpressed by Future Street, Ltd.'s attempt to avoid "minimum purchase requirements" because of the Covid pandemic saying " [e]ven assuming arguendo that the pandemic and effects of same are a force majeure under the Agreement, Future Street has not shown that its failure to perform its obligations under the Agreement were caused by same as required [by the force majeure provision in the applicable contract.] Future St. Ltd. v. Big Belly Solar, LLC, id.
So what do these few case decisions show? They demonstrate that the legal impact of force majeure in 2020, and probably going forward for quite some time, is unpredictable, fickle and will likely depend on the specific contractual language, the good faith of the parties, and especially the skills and experience of counsel to assess the risks, to examine the causal element, and to analyze the intimate details of each contract's relationship to the business.