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Have Force Majeure Defenses Based on COVID-19 Been Successful This Year?
Have Force Majeure Defenses Based on COVID-19 Been Successful This Year?

As a reminder, a “force majeure” event is one that excuses a party’s legal obligation to perform an obligation under a contract. We wrote on it in an earlier post on the pandemic. A contract must contain a force majeure provision in order for the Court to consider this defense – otherwise, the Court will analyze the parties’ defense under the more difficult theory of “impossibility of performance.” This post shares how federal courts around the country have ruled on the pandemic.

1. COVID-19 will not excuse a party’s failures to comply with deadlines or properly plead their case. Judges have criticized litigants that have attempted to use the pandemic for leverage in litigation while failing to comply with court rules or pleading requirements.

In the context of a service contract, a party claimed it was entitled to a return of deposits due to a force majeure clause. A federal court in Hawaii denied the claim on summary judgment, noting that the contract was silent about the deposits in the event of force majeure and plaintiff had failed to allege a claim for breach of contract. NetOne, Inc. v. Panache Destination Mgmt., 2020 U.S. Dist. LEXIS 99089, at *9 (D. Haw. June 5, 2020).

In a federal case in Florida, a tenant (Kirkland) failed to pay rent and the landlord brought suit. Kirkland argued that the pandemic excused its failure to pay rent. The Court rejected Kirkland’s argument, holding that Kirkland had failed to properly link the force majeure defense to its inability to pay rent. Palm Springs Mile Assocs. v. Kirkland's Stores, Inc., 2020 U.S. Dist. LEXIS 163880, at *6-7 (S.D. Fla. Sep. 8, 2020).

In the context of a business reorganization, a bankruptcy court held that while the pandemic would explain impacts on the Debtor’s business, it would not excuse a late filing. In re Seven Stars on the Hudson Corp., 618 B.R. 333 (Bankr. S.D. Fla. 2020).

2. Courts carefully review the facts of the case and narrowly construe force majeure provisions. Recognizing that the pandemic is a unique event, Courts have carefully parsed the facts and legal arguments to arrive at decisions the parties may not have contemplated or briefed.

In the context of a restaurant-tenant, an Illinois bankruptcy court held that the Pandemic clearly constituted a force majeure event and partially excused the restaurant’s obligation to pay rent. Even though the parties had not made this specific argument, the Court reduced the Debtor’s obligation in proportion to its reduced ability to generate revenue, noting that take-out and curbside options remained available. In re Hitz Rest. Grp., 616 B.R. 374, 379 (Bankr. N.D. Ill. 2020).

In an Ohio federal case, a defendant argued that impacts from the pandemic were foreseeable on March 12, 2020, before state restrictions were in place. Because the defendant did not include a force majeure provision in its settlement agreement, the Court could not consider whether the “force majeure” defense was available and the defendant could not meet the high burden of proof required for the defense of “impossibility of performance.” Belk v. Le Chaperon Rouge Co., U.S. Dist. LEXIS 117985, at *32 (N.D. Ohio July 6, 2020).

In a Louisiana federal suit, a landlord attempted to evict Bed Bath and Beyond for its failure to pay rent. The Court eventually held that the Pandemic excused the tenant’s failure to pay rent.  The Court carefully reviewed the factual background and lease, granting Bed Bath and Beyond relief because it had attempted to cure and the lease default did not prejudice the landlord.  Clearview v. Bed Bath & Beyond, Inc., 2020 U.S. Dist. LEXIS 160078, at *24 (E.D. La. Sep. 2, 2020).

Contact the experienced construction attorneys at Hirschler with any force majeure questions.

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