Hurricane Katrina: a Greater Force Hurricane Katrina Is Recognized As the Most Governmental Acts
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PolymerAdvisorywww.polymerlaw.com A Publication of the Benesch Polymer Law Group for the Polymer, Plastics and Packaging Industries Vol. 2, October 2005 Hurricane Katrina: A Greater Force Hurricane Katrina is recognized as the most governmental acts. An event does not In This Issue… severe natural disaster in the United States need to be catastrophic in order to fall since 1900. It will be remembered for its within the scope of a force majeure clause. Hurricane Katrina: devastation of the Gulf Coast Therefore, without a natu- ▲ regions, and especially for “Hurricane ral disaster, the failure of A Greater Force the massive flooding of the third parties, such as sup- historic city of New Orleans. Katrina is pliers and subcontractors to Control Your Own Destiny: perform their obligations, ▲ recognized Protect Trade Secrets and Resin makers throughout can be a force majeure the U.S. Gulf Coast are Customer Relationships as the most event. Courts generally dealing with the aftermath uphold the contracting of Hurricane Katrina, resulting severe natural Mother Nature Strikes Again parties’ definition of force ▲ in increased resin prices and majeure. In Kentucky decreased availability. Within disaster in the Upcoming Events Utilities Company v. South ▲ the first week of September, United States East Coal Company et al., many major producers of since 1900.” the court stated that the certain plastics resins have parties were free to set declared force majeure, which forth the terms of their agreement. If the literally means “greater force,” announc- parties agreed that electric power failures ing that their supply of products has been constituted a force majeure event, the hindered or halted by the aftermath of court would not construe such language Hurricane Katrina in the Gulf. to require an “overpowering force” in the It is expected that many businesses along nature of an Act of God. the Gulf Coast will invoke force majeure B. Causation clauses to excuse required contract performance. However, whether a force Causation deals with the causality that majeure clause can excuse the invoking connects the impact of an event to the party from its performance of a contract nonperformance of the contract. Force depends on: (i) who invokes the force majeure clauses are intended to excuse a majeure clause, (ii) how carefully it is party only if the force majeure event is drafted and (iii) what effect Hurricane reasonably beyond the invoking party’s Katrina had on the performance that is control and the failure to perform could Cleveland: sought to be excused. not be avoided by the exercise of due 2300 BP Tower care by that party. As a result, courts will 200 Public Square The analysis of a force majeure clause not permit a supplier to invoke a force Cleveland, OH 44114-2378 always requires an examination of four majeure clause where the delay or inabili- Phone: 216.363.4500 elements: (i) the force majeure event, ty to perform was caused by the supplier. Fax: 216.363.4588 (ii) causation, (iii) the effect of a force Similarly, a force majeure defense may not majeure event on the performance that is be available where the delay or inability Columbus: sought to be excused, and (iv) the proce- to perform could have been prevented 88 East Broad Street dural requirements that must be followed through the exercise of diligence. In Steel Suite 900 by the invoking party. Industries, Inc. v. Interlink Metals & Columbus, OH 43215-3506 A. Force Majeure Events Chemicals, Inc., one of a steel vendor’s Phone: 614.223.9300 sources was affected by a force majeure Fax: 614.223.9330 Typically, force majeure clauses cover event, however, the contract did not natural disasters or other “Acts of God” require the steel vendor to obtain the steel www.bfca.com such as earthquakes, and some man-made from this particular source. As a result, the events, such as strikes, lockouts, riots, and Continued on page 2 Benesch, Friedlander, Coplan & Aronoff LLP 2 Continued from page 1 court held that a force majeure clause did If a force majeure is declared, a supplier D. The Procedural Requirements not excuse the steel vendor and the steel should be alert to any statute or regulation vendor was required to fulfill its obligation that requires it to allocate its diminished Generally, a force majeure clause contains to procure the steel from other sources. products among its customers. For example, a notification clause. Such clause requires in the event of force majeure, a supplier a party that wishes to be excused from C. The Effect of a Force Majeure Event of residual fuel oil must comply with the performance under the force majeure clause to give prompt notice of its inten- The effect of a force majeure event deals Emergency Petroleum Allocation Act to allocate its scarce products among its tion to the other party. Failure to comply with whether the invoking party can be with the procedural requirements of a excused from the performance. Some users. Absent any statutory and regulatory requirements, a supplier should review notification clause may invalidate a force contracts provide that an event of force majeure claim. majeure will terminate the contract, while its contract to see whether it carries any others may provide that a force majeure contractual obligation to allocate on a Before invoking a force majeure clause, event will only postpone the performance. pro rata basis to all of its customers. businesses impacted by Hurricane Katrina If a contract provides that force majeure Moreover, even without a specific alloca- should carefully review the terms and does not terminate the contract entirely, tion clause, if the related manufacturing conditions of its contracts to determine then the party invoking the force majeure or supply agreement contains a clause what relief is available under the force clause cannot be completely excused from which provides that a buyer cannot be majeure clause, whether it should allocate performance. In Distribution Services treated by a supplier in less favorable products or production capacity among its Limited v. Hong Kong Islands Line America terms than those extended to supplier’s customers, and how to carefully follow the S.A., the force majeure clause only sus- other customers, then the supplier may procedural requirements in order to obtain pended the contracting party’s obligation still have a contractual obligation to the appropriate relief. to ship the contracted goods during the allocate its available products among period of force majeure. After the period its customers. As a practical matter, this For more information, contact Yanping Wang of force majeure was over, the contracting may simply be good business practice to at 216.363.4664 or [email protected], party was required to resume performance maintain supplier-customer relationships. or Megan Mehalko at 216.363.4487 or of its obligations under the contract. [email protected]. Control Your Own Destiny: Protect Trade Secrets and Customer Relationships Trade secrets and customer relationships ments, pricing, profit margins, special The Uniform Trade Secrets Act (“UTSA”) are some of, if not the most, critical assets needs and preferences, and more. In the defines a “trade secret” to include any a business possesses. But are these assets case of polymer manufactures and others information which: adequately protected from theft? The law having sophisticated production proce- in virtually every state establishes the dures, these information systems in all a) derives independent economic value, framework for protecting these assets, but likelihood also contain technical infor- actual or potential, from not being gener- it is up to each business entity to take the mation such as recipes, formulae, produc- ally known to, and not being readily steps necessary to obtain the benefit of tion procedures, operations parameters ascertainable by proper means by, other these laws. The failure to take these steps and sequences, and other detailed infor- persons who can obtain economic value can render the existing legal safeguards mation regarding how compounds are from its disclosure or use; and absolutely meaningless. Unfortunately, produced. All of this information is in a b) is the subject of efforts that are businesses often wait too long before form which most likely can be printed, reasonable under the circumstances seriously addressing this vital issue. emailed, or otherwise transferred with to maintain its secrecy. the touch of a button. Technological advances have enabled The type of information which can qualify businesses to capture, categorize and uti- The Uniform Trade Secret Act (“UTSA”), as a trade secret is essentially limitless. lize a wealth of business information, far adopted in Ohio and 44 other states, pro- If the information is not generally known beyond what anyone could have antici- tects this and other information from use outside your business and there is value pated a few short years ago. The negative or disclosure outside the business, provided to the information because it is not side to these advances is that employees the business has taken reasonable steps to generally known, the information can now have ready access to information maintain the secrecy of that information. be recognized as a trade secret. The that could cause the business great com- At its core the UTSA protects any infor- courts have expressly recognized many petitive harm were it to fall in the hands mation that derives economic value by types of information as trade secrets, of a competitor.