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An Update on Pandemic-Related Contract Litigation

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Earlier this year, we wrote about “acts of God” and force majeure clauses. At the time, we anticipated that the Covid-19 pandemic and resulting shutdown orders would lead to significant litigation regarding these terms. While the pandemic is now in its eighth month, courts have begun rendering opinions on whether the pandemic will excuse performance with a contract.

As one might expect, the primary types of cases involving “act of God” or force majeure clauses are lease defaults and cancelled events. The following cases are just a sample of what has been decided to date, but there will doubtless be many more cases in the months and years to come.

For instance, in Palm Springs Mile Associates, Ltd. v. Kirkland’s Stores, Inc., No. 20-21724-CIV-RNS (S.D. Fla.), a landlord sued the defendant for nonpayment of rent. The defendant argued that Miami-Dade county’s shutdown orders required it to close its doors, so the defendant ceased paying its rent. The defendant reasoned that the county shutdown order suspended its obligation to pay rent by virtue of a force majeure clause in the lease. The defendant moved to dismiss the landlord’s complaint on this basis. The court rejected this ground for dismissal, noting that the defendant failed “to explain how the governmental regulations it describes as a force majeure event resulted in its inability to pay its rent.” The court explained that “restrictions on non-essential activities and business operations must directly affect [the defendant’s] ability to pay rent” in order to trigger a force majeure clause.

In NetOne, Inc. v. Panache Destination Management, Inc., No. 20-cv-00150-DKW (D. Hawaii), the plaintiff sought to recover a deposit it paid to hold a promotional event on the Big Island in late March 2020. On March 19, as a result of the Covid-19 pandemic, the plaintiff notified the defendant that it was terminating the contract pursuant to a force majeure clause. Prior to the termination, however, the defendant had incurred substantial costs in planning for the event. The plaintiff sued for breach of contract to recover its deposit. On the plaintiff’s motion for summary judgment, the court noted, however, that the force majeure clause did not require the defendant to return the deposit – the clause was “simply silent” in that regard. The court ultimately granted judgment on the pleadings on the breach of contract claim to the defendant, concluding that the plaintiff’s only conceivable remedy is a claim for unjust enrichment.

(As an aside, unjust enrichment is a common law claim allowing a plaintiff to seek restitution from a defendant who has wrongfully received or retained a benefit. In Florida, the plaintiff must directly confer a benefit on the defendant, and if a contract governs the same relationship and subject matter as the “unjust enrichment,” the plaintiff may not be able to use this alternative remedy. Thus, one should not assume that unjust enrichment is a fail-safe in the event a force majeure or impossibility of performance claim fails.)

In Zhao v. CIEE, Inc., No. 20-cv-00240-LEW (D. Me.), a college student sued a study abroad provider for cancelling her spring 2020 study abroad program in Amsterdam as a result of the pandemic. After suspending the “on-site” portion of the program, the defendant offered online classes. The plaintiff alleged that the provider breached its contract, which required payment of a refund “[i]n the unlikely event a program is cancelled.” The court concluded that the provider was not liable for a refund, based in part on language limiting its liability for “acts of God, force majeure” or “epidemics or the threat thereof.” Similarly, under the terms of the contract, the plaintiff agreed to “assume all risk” of “perceived or actual epidemics.” The court found this language sufficient to dismiss the plaintiff’s complaint.

Many more cases are currently percolating through the legal system, raising these and similar issues. In general, courts seem willing to entertain the notion that the Covid-19 pandemic is an “act of God,” though the language of a specific contract may control this general proposition. Indeed, given other disease outbreaks in the last two decades – like Ebola, SARS, and the H1N1 influenza pandemic – many contracts have been negotiated and written to account for disease outbreaks. Thus, it is important to have skilled counsel review your contract before embarking on pandemic-related litigation.

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