COVID-19 AND THE LIMITATIONS OF FORCE MAJEURE: Mitigating Risk when the “Unforeseeable” is Expected

By: Stuart Goldstein

The Setup: Contracts Matter

Approximately one and a half years into the global COVID-19 pandemic, the first of its scope in our lifetimes, we can no longer reasonably claim that its effects are unforeseeable. Traditional Force Majeure provisions alone cannot protect against this unfortunately — and now unquestionably — “known” phenomenon. The purpose of this article is to provide guidance regarding the negotiation and drafting of production and talent agreements in this new world; a world in which the global COVID-19 pandemic is, despite the FDA’s approval of multiple vaccines, not “disappearing” any time soon. 

We are all sadly familiar with the underlying facts. The World Health Organization (“WHO”) announced a “mysterious disease” in early January 2020.[i] By January 31, WHO issued a global health emergency in light of the swift spread of the novel coronavirus.[ii] The United States declared a public health emergency on February 3,[iii] and by March 11, WHO elevated the novel coronavirus to global “pandemic” status.[iv] On May 28, deaths in the United States exceeded 100,000.[v] Less than one month later, domestic infections exceeded two million.[vi] By July 7, three million.[vii] Death and unemployment rates rose as restaurants and schools shut down, and weddings, sporting events, Broadway productions, feature films and television projects were canceled or indefinitely postponed. Appropriately, March through July saw no shortage of client alerts and journal articles focused on applying fine-print Force Majeure provisions just as producers, studios and talent scrambled to determine if or how they, or their co-parties, might escape contractual obligations.[viii] Force Majeure was rightly thrust into the spotlight.

That was then.

By August 17, COVID-19 had become one of the three leading causes of death in the United States, taking its ignominious place behind only heart disease and cancer.[ix] By mid-October, global cases exceeded 40 million,[x] and while the first vaccines were approved in mid-December,[xi] by year’s end the United States was approximately 18 million inoculations short of its “20 million vaccinations” goal.[xii] By late December, Colorado reported its first case of an even more aggressively transmissible variant of COVID-19[xiii] which, as of this writing, is on pace to become the dominant strain in the United States by March 2021.[xiv]

 In other words, we are all fully aware that we are not out of the woods. Therefore, we must now shift focus from traditional Force Majeure analysis and embrace a broader contractual — and non-contractual — approach to account for the ebbs and flows of the incessant, disruptive and tragic COVID-19 pandemic.

Traditional Application of Force Majeure Analysis

For the reader’s convenience, a brief recapitulation of the principle of Force Majeure follows. Force Majeure clauses are intended to excuse a party’s non-performance when faced with unforeseen, extraordinary events.[xv] By design, they add specificity and contour to the common law concept of “Impossibility.” The Impossibility doctrine excuses a party from contractual obligations if performance is made impossible due to unforeseen, extraordinary events outside of the parties’ control.[xvi] Given the narrow application of the Impossibility doctrine (“impossible” is a tall hurdle to clear, as with enough money and time, few things are “impossible”), Force Majeure provisions are designed to “protect the parties in the event that a part of the contract cannot be performed due to causes which are outside the control of the parties and could not be avoided by exercise of due care,”[xvii] and often set thresholds that fall short of “impossible.” As stated in a recent Stanford Law Review article, “. . . parties routinely include . . . a Force Majeure clause to ‘contract around’ the [Impossibility doctrine],”[xviii] to drill it down to a set of rules and a level of risk tolerance that the parties are willing to bear.

A typical Force Majeure provision may specify (a) what events would trigger the provision; (b) whether and how long a suspension of obligations might last; (c) whether and under what conditions such suspension, if applicable, might result in an actual termination of the agreement and the obligations therein; (d) whether, under what conditions, and how production might resume post-suspension; and (e) whether there may be multiple suspensions relating to a single Force Majeure event. Force Majeure provisions also tend to specify that a suspension or termination might not begin until the event has lasted a certain number or weeks or months, perhaps consecutive, perhaps not. In addition, a party may insist that the Force Majeure provision not be applied against it unless it is likewise applied against other similarly situated, specified entities or individuals.

 As Force Majeure provisions tend to be heavily negotiated, few are identical. Nevertheless, a typical Force Majeure definition might take a form similar to the following:

The interruption of or material interference with the preparation, commencement, production, completion, or distribution of the Project by any cause or occurrence beyond the control of Company or Lender (and/or Artist as the case may be), including fire, flood, epidemic, earthquake, explosion, accident, riot, war (declared or undeclared), acts of terrorism or mass crime (whether domestic or foreign, whether or not politically motivated, and whether or not directed at Company or its property), blockade, embargo, act of public enemy, civil disturbance, labor dispute, strike (other than by SAG/AFTRA members), lockout, inability to secure sufficient labor, power, essential commodities, necessary equipment, adequate transportation or transmission facilities or death, breach, threatened breach or disability of key personnel rendering services on the Project other than Artist, any applicable law, or any act of God.  As used herein, “strike” shall also include, at Company’s election, a labor dispute which Company reasonably believes is likely to result in an actual strike.

Note that the word “pandemic” does not appear among the enumerated Force Majeure events. Before March 2020, “epidemic,” if it appeared at all, typically flew solo, and the term “pandemic” was virtually absent.[xix] 

In New York, a court will not relieve a party of its contractual obligations without first considering whether the parties have attempted to mitigate the effects of the unforeseen event, whether the intervening event was foreseeable and whether performance is, in fact, impossible.[xx] New York courts also typically require absolute specificity. A New York court is unlikely to relieve a party of contractual obligations due to “pandemic” if the clause does not expressly specify “pandemic” as a Force Majeure event.[xxi] Yes, there is a certain irony to the New York courts’ requirement that the parties foresee the unforeseen event. California courts take a more liberal view and are more apt to consider whether the event of Force Majeure would render performance unreasonably costly regardless of whether a specific disaster could have been imagined, let alone anticipated, by the parties in advance. The moving party must “show ‘that, in spite of skill, diligence and good faith on his part, performance became impossible or unreasonably expensive.’”[xxii]

As of the date of this publication, the global COVID-19 pandemic has been a daily reality for 16 months and counting. Parties entering into new agreements would be hard-pressed to demonstrate that the COVID-19 pandemic, at the time of contract execution, was unforeseeable. Further complicating the matter is the naturally open-ended nature of a pandemic, which has peaks and valleys but nevertheless lingers. Reasonable minds can differ as to whether performance is possible versus impossible, dangerous versus safe. 

Typically enumerated so-called “acts of God” are more concrete. For the most part (though certainly not always), they lend themselves to simpler Force Majeure application. A group of workers is or is not on strike; a building has or has not collapsed; “key talent” is or is not incapacitated — and while a governmental entity may issue an official lockdown or quarantine order, it is not unreasonable for a party to an agreement to nevertheless refuse to render services for fear of contracting the virus. “Fear” lends a frustratingly subjective, yet perfectly reasonable, element to the analysis. Even with no government-mandated lockdown or quarantine in effect, Party A might reasonably insist that it is safe to move forward with production, while Party B might just as reasonably insist that the opposite is true. This is so particularly when the party in question is in a high physical risk category, in which case a court might be more likely to grant relief under the doctrine of Impossibility than if the party in question were young and otherwise healthy.

A Sidenote Regarding “Frustration of Purpose”

 The doctrine of “Frustration of Purpose” could provide an alternative means to negate contractual obligations in the face of a pandemic. “This principal functions similarly to impracticability and impossibility, but focuses on whether the event at issue has obviated the purpose of the contract, rather than whether it has made a party’s contractual performance unviable.”[xxiii] To avail itself of this doctrine, a party must demonstrate that the principal purpose of the agreement has been frustrated by the event, the event was not foreseen by the parties at the time of drafting and the event was not the fault of the party seeking the benefit of the defense.[xxiv] This doctrine, too, presents challenges: unexpected circumstances alone are not enough to excuse performance, and frustration of purpose must be “near total” for the doctrine to save the day.[xxv] Given those challenges, Frustration of Purpose alone cannot reasonably be relied on to provide adequate protection mid-pandemic. 

Contemplating COVID-19 in Agreements Dated 2021 and Beyond

The first question the practitioner must ponder is whether they would actually be comfortable getting what they wish for. That is, a Force Majeure or similar provision permitting Party A to be relieved of obligations due to increased COVID-19 risk or additional government-mandated lockdowns may be equally effective for Party B, should Party B seek such relief first. A studio that insists on inclusion of a COVID-19-applicable Force Majeure provision as a hedge against its risk might find the buyer, two months after contract execution, attempting to cancel the contract, and thus the project itself, citing that very provision. Whether one party has more leverage than another and whether that party has the obligation to perform (as opposed to the expectation of the other party’s performance) must be taken into consideration.

The ongoing pandemic is not an elephant in the room. It’s the entire herd. If indeed the parties elect to include a Force Majeure provision, COVID-19 should be specifically addressed. To do otherwise would be patently irresponsible. The provision should affirmatively state that (a) the ongoing global COVID-19 pandemic can constitute a Force Majeure event, or (b) the ongoing global COVID-19 pandemic cannot constitute a Force Majeure event, regardless of whether cases continue to skyrocket or government-mandated lockdowns continue. A third option, which constitutes a reasonable middle-ground, is to specify that COVID-19 shall not constitute a Force Majeure event for the first few months of the term.

If the parties choose not to include the ongoing pandemic as a specified Force Majeure event, they nevertheless should consider specifying that incapacity of key talent (e.g., a principal actor, a director, a showrunner) for whatever reason, COVID-19 included, would still qualify as a Force Majeure event. Likewise, a government-ordered shutdown, lockdown or quarantine, for whatever reason, should remain among the enumerated Force Majeure events.

The Punchline: Contracts Don’t Matter[xxvi]

Fine, they matter. Just not nearly as much, nor as often, as we entertainment-industry lawyers tell ourselves. If a studio and a network have a disagreement regarding a film’s production schedule, one or the other might reference a portion of the contract in their defense. Threats may be made, and indignation may be claimed. Yet far more often than not, the parties find compromise and resolution outside of a courtroom and without the input of an arbitrator. If a studio and an actor disagree over a schedule, over a credit, over creative input, over per diem or over COVID-19 delays, provided both the studio and actor remain enthusiastic about the project, the matter is far more likely to resolve over the telephone or over lunch (virtual lunch, of course), than in court.

Force Majeure provisions are rarely litigated. More often than not, as with virtually every other term and provision of a contract, the parties disagree, argue, debate and ultimately find comprise, agree to terminate or settle outside the purview of a judge. “The point is that while Force Majeure clauses are construed narrowly and rarely successful[ly] in court, they are likely invoked with some frequency outside the public eye. After all, it costs time, money and goodwill to negotiate a Force Majeure clause, yet parties continue to do so.”[xxvii]

 Rather than getting lost in the weeds of the doctrines of Force Majeure, Impossibility and Frustration of Purpose, practitioners should adopt the following as “COVID-19 Guiding Principles” before putting pen to paper: (1) Discover how each of the parties would prefer to address the ongoing pandemic; (2) If the parties are in disagreement, keep communicating; (3) Repeat Step 2 as necessary; (4) Particularly in the context of an individual talent agreement (e.g., actor, director, writer), ask the talent, in advance, about their comfort level regarding the pandemic. If you represent talent, be sure to alert the studio to talent’s COVID-19 concerns, if applicable; (5) Draft a Force Majeure, or similar, provision that takes into account each party’s preferences as discovered through steps 1, 2 and 4 (repeating Step 3 as often as necessary), do what is physically responsible and ethically right, and reach a reasonable compromise regarding the specific language of the agreement.

Consider the following sentence: “If the ongoing global COVID-19 pandemic frustrates the intent and purpose of this Agreement, the parties shall engage in good-faith, meaningful discussion regarding an extension, suspension or other reasonable and practicable resolution.”

 If the parties follow through on that reasonable promise, that should be enough.

END NOTES

[i] Natasha Khan, New Virus Discovered by Chinese Scientists Investigating Pneumonia Outbreak, Wall St. J. (Jan. 8, 2020, 8:30 PM), https://www.wsj.com/articles/new-virus-discovered-by-chinese-scientists-investigating-pneumonia-outbreak-11578485668.

[ii] As Virus Spreads, U.S. Temporarily Bars Foreigners Who’ve Visited China, N.Y. Times (Jan. 31, 2020), https://www.nytimes.com/2020/01/31/world/asia/coronavirus-china.html.

[iii] Tess Dillon Meyer & Nancy E. Taylor, United States Declares Public Health Emergency in Response to Spread of Coronavirus, Nat’l L. Rev. (Feb. 3, 2020), https://www.natlawreview.com/article/united-states-declares-public-health-emergency-response-to-spread-coronavirus.

[iv] Jamey Keaten, Maria Cheng & John Leicester, WHO Declares Coronavirus a Pandemic, Urges Aggressive Action, Associated Press (Mar. 11, 2020), https://apnews.com/article/52e12ca90c55b6e0c398d134a2cc286e.

[v] Four Months After First Case, U.S. Death Toll Passes 100,000, N.Y. Times (May 27, 2020), https://www.nytimes.com/2020/05/27/us/coronavirus-live-news-updates.html.

[vi] Kim Bellware & Jacqueline Dupree, U.S. Eclipses 2 Million Coronavirus Cases, Wash. Post (June 11, 2020, 4:40 PM), https://www.washingtonpost.com/nation/2020/06/11/2-million-coronavirus-cases-us.

[vii] Lateshia Beachum, Meryl Kornfield, Brittany Shammas, Hannah Denham, John Wagner, Felicia Sonmez, Reis Thebault, Marisa Iati & Michael Brice-Saddler, U.S. Surpasses 3 Million Confirmed Coronavirus Cases as Trump Pushes to Reopen Schools, Wash. Post (July 8, 2020, 8:25 PM), https://www.washingtonpost.com/nation/2020/07/08/coronavirus-live-updates-us.

[viii] See Anita Sabine & W. Joseph Anderson, INSIGHT: Coronavirus and Contracts – Force Majeure Redefined, Bloomberg L. (Mar. 12, 2020, 1:01 AM), https://news.bloomberglaw.com/corporate-governance/insight-coronavirus-and-contracts-force-majeure-redefined; UPDATE: Force Majeure Under the Coronavirus (COVID-19) Pandemic, Paul Weiss (Mar. 16, 2020), https://www.paulweiss.com/practices/litigation/litigation/publications/update-force-majeure-under-the-coronavirus-covid-19-pandemic?id=30881 [hereinafter Paul Weiss]; Robert M. Finkel, John A. Trenor & Ariel Soiffer, COVID-19: Drafting Force Majeure Clauses in Light of the COVID-19 Pandemic, WilmerHale (Apr. 14, 2020), https://www.wilmerhale.com/en/insights/client-alerts/20200413-drafting-force-majeure-clauses-in-light-of-the-covid-19-pandemic; Michael I. Rudell & Neil J. Rosini, COVID-19, Force Majeure and the Entertainment Industry, N.Y L.J. (July 31, 2020, 12:30 PM), https://www.law.com/newyorklawjournal/2020/07/31/covid-19-force-majeure-and-the-entertainment-industry/?slreturn=20210014010957.

[ix] Justine Coleman, COVID-19 Now No. 3 Cause of Death in US, Hill (Aug. 17, 2020, 7:43 PM), https://thehill.com/policy/healthcare/512427-covid-19-now-no-3-cause-of-death-in-us.

[x] Bill Chappell, 40 Million Coronavirus Cases Are Now Reported Worldwide, NPR (Oct. 19, 2020, 9:54 AM), https://www.npr.org/sections/coronavirus-live-updates/2020/10/19/925325563/40-million-coronavirus-cases-are-now-reported-worldwide.

[xi] Katie Thomas, Noah Weiland & Sharon LaFraniere, F.D.A. Advisory Panel Gives Green Light to Pfizer Vaccine, N.Y. Times (Dec. 10, 2020), https://www.nytimes.com/2020/12/10/health/covid-vaccine-pfizer-fda.html.

[xii] Rebecca Robbins, U.S. Officials Say Covid-19 Vaccination Effort Has Lagged, N.Y. Times (Dec. 30, 2020), https://www.nytimes.com/2020/12/30/health/covid-vaccines-slow-rollout.html.

[xiii] Lukas I. Alpert, First U.S. Case of Fast-Spreading Coronavirus Strain Reported in Colorado, Wall St. J. (Dec. 29, 2020, 5:10 PM), https://www.wsj.com/livecoverage/covid-2020-12-29/card/mORv4lrfPXjCm38fHpsT.

[xiv] Joel Achenbach, CDC Warns Highly Transmissible Coronavirus Variant to Become Dominant in U.S., Wash. Post (Jan. 15, 2021, 10:00 AM), https://www.washingtonpost.com/health/coronavirus-variant-dominant-us/2021/01/15/4420d814-5738-11eb-a817-e5e7f8a406d6_story.html.

[xv] 4 Am. Jur. 2d Act of God § 13 (2020).

[xvi] Dermott v. Jones, 69 U.S. (2 Wall.) 1, 7 (1864) (“[I]f a party by his contract charge himself with an obligation possible to be performed, he must make it good, unless its performance is rendered impossible by the act of God . . . .”).

[xvii] Force Majeure, Black’s Law Dictionary (6th ed. 1990).

[xviii] Andrew A. Schwartz, Contracts and COVID-19, 73 Stan. L. Rev. Online 48, 54 (2020).

[xix] See id. at 56 (“The term ‘pandemic’ appears to be totally absent from Force Majeure clauses drafted prior to the current outbreak. A recent Westlaw search returned zero cases that involved a Force Majeure clause that include the term ‘pandemic’”).

[xx] Kel Kim Corp. v. Cent. Mkts., Inc., 519 N.E.2d 295 (1987) (holding that Force Majeure excuses nonperformance “only if the force majeure clause specifically includes the event that actually prevents a party’s performance”).

[xxi] See 30 Richard A. Lord, Williston on Contracts § 77:31 (4th ed. 2020) (“What types of events constitute force majeure depend on the specific language included in the clause itself.”).

[xxii] Jin Rui Grp., Inc. v. Societe Kamel Bekdache & Fils S.A.L., 621 F. App’x 511, 511 (9th Cir. 2015) (quoting Oosten v. Hay Haulers Dairy Emps. & Helpers Union, 291 P.2d 17, 21 (Cal. 1955)).

[xxiii] See Paul Weiss, supra note 8.

[xxiv] 8 Robert L. Haig, Business & Commercial Litigation in Federal Courts. § 89:36 (4th ed. 2019).

[xxv] E. Allan Farnsworth & Zachary Wolfe, Farnsworth on Contracts § 9.09 (4th ed. 2019).

[xxvi] Relax, keep reading.

[xxvii] Schwartz, supra note 18, at 56.

About The writer…

Stuart Goldstein is Senior Vice President, Business & Legal Affairs, Studios & Content for Vice Media, LLC. Since joining Vice in 2019, he has overseen all business and legal affairs matters relating to the global development, production, sale, and distribution of film and television content. Stuart served as Associate General Counsel and head of Business and Legal Affairs for BuzzFeed Entertainment from 2016-2019. Prior to BuzzFeed, he served as a Vice President at NBCUniversal from 2005-2011. During his years at NBCUniversal, in additional to conducting collective bargaining with the various film and television guilds, Stuart oversaw Legal Affairs for a number of NBCUniversal’s Cable Entertainment networks, such as E! and Bravo. From 2000-2005, Stuart was a Labor & Employment Associate at the NYC-based office of Proskauer. He graduated from Seton Hall University School of Law in 2000, where he served as Editor-in-Chief of the law review, and as intern to the Honorable Judge Samuel A. Alito, Jr., then on the Third Circuit Court of Appeals. In an alternate parallel life, Stuart is a professional voice actor, musician, and diver. He lives in Los Angeles.