A Force to Reckon With: Force Majeure in the Age of Covid-19
| Publication year | 2020 |
| Author | Natasha S. Chee and Jeffrey T. Thayer |
Natasha S. Chee and Jeffrey T. Thayer
Natasha S. Chee is the principal at the Law Offices of Natasha S. Chee. Her practice focuses on Entertainment, Intellectual Property, Business and Tech Law. She works with filmmakers, producers, talent, and video game companies. She graduated from Santa Clara University School of Law and UCLA. To learn more: www.natashachee.com.
Jeffrey T. Thayer is a Partner at Hawkins Parnell & Young LLP. His practice focuses on Complex Litigation, Automotive Liability, Intellectual Property and Business Law. He is a graduate of the University of California at Berkeley School of Law (Berkeley Law) and UCLA. To learn more: www.hpylaw.com/attorneys-jeffrey-thayer.html.
Force majeure in French literally translates to "superior strength" and COVID-19 surely has flexed its muscles—completely disrupting our way of life, including commercial activity around the world. The effects and legal ramifications of the COVID-19 pandemic will continue to be felt even long after a vaccine is developed. Arguments are already being made in various arenas that public health orders and similar measures are disrupting or preventing entirely the performance of material contractual obligations. As a result, many are pulling out their contracts to examine the potential impact of force majeure on those deals. Many attorneys are trying to navigate this new post-COVID-19 pandemic world of business deals, and the implications of force majeure are at the forefront of these discussions.
Going forward, there is an expectation the impact of force majeure provisions on parties' duties to perform will be hotly contested. No California court has yet ruled on the issue of force majeure in the context of COVID-19; however, the available body of statutory and case law on force majeure can provide useful insight into how courts might rule.
Force majeure is a doctrine that has long been recognized in California. Civil Code section 3526, enacted in 1872, puts it succinctly: "No man is responsible for that which no man can control." Even in the absence of an explicit force majeure provision, an argument can be made regarding the impossibility of performance due to an act of God:
The want of performance of an obligation, or of an offer of performance, in whole or in part, or any delay therein, is excused by the following causes, to the extent to which they operate:
. . .
2. When it is prevented or delayed by an irresistible, superhuman cause, or by the act of public enemies of this state or of the United States, unless the parties have expressly agreed to the contrary[.]1
To trigger force majeure, an event typically must be beyond the reasonable control of the contracting parties and have been unforeseeable at the time of contracting, unless it was specifically accounted for in the contract.2
In Watson Laboratories, the defendant, a pharmaceutical manufacturer, allegedly breached its contractual obligation to supply the plaintiff, a pharmaceutical distributor, with a hypertension drug. The parties were aware at the time of contracting that shutdown of the plant producing the drug was a possibility given the results of previous Food & Drug Administration (FDA) inspections, and specifically included in the force majeure provision contract language indicating that regulatory and other governmental action could be considered an event excusing performance.
After the contract was signed, the FDA did in fact conduct further inspections and shut down the plant in question. The defendant pointed to the specific language in the force majeure clause regarding excusing events. The court stated, while it was unclear whether the parties intended to apply the common law doctrine of force majeure or supersede it with the contractual language, that did not matter because in either case the qualifying event must be beyond the reasonable control of either party.3 This case came before the court on a summary judgment motion. The court denied the motion and left the question of whether the plant shutdown was beyond the reasonable control of either party for the jury.
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Watson Laboratories also addressed a "separate proposition that a foreseeability requirement may be read into a contractual force majeure provision that does not expressly contain any such requirement."4 The court noted two problems for the defendant: first, the plant shutdown was entirely foreseeable due to the parties' knowledge of previous issues with the FDA at the time of contracting; and second, the language in the force majeure clause referencing regulatory and other governmental action was boilerplate and not sufficiently specific.5
[W]hen parties expressly contemplate a known risk of a regulatory prohibition, they should be expected to allocate that risk expressly, rather than rely upon a boilerplate clause enumerating a parade of horribles that are so unlikely to occur as to make them...
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