Navigating contractual nonperformance Guide to U.S. force majeure September 2020 Navigating contractual nonperformance Guide to U.S. force majeure The information in this guide is accurate as of August 2020. Navigating contractual nonperformance Guide to U.S. force majeure Examining the law Disputes regarding whether a party’s contractual obligations are effectively excused are inevitable given the COVID-19 pandemic’s ongoing disruptions to commerce. When is contractual performance excused? We have attempted to review all U.S. cases involving force majeure disputes and similar common law defenses to nonperformance. This guide cites to more than 1,000 decisions and aggregates the governing caselaw within each U.S. state, the District of Columbia, and Puerto Rico. We focus on cases involving: the enforceability of contractual force majeure provisions including a focus on causation, 1. mitigation, and foreseeability requirements; common law concepts such as impossibility where no contractual force majeure provisions 2. exist; and application to the sale of goods context, including demands for adequate assurances, 3. commercial impracticability, and substitute performance. Should you need to discuss any issue in more detail please feel free to contact us. Matt Gatewood Meghana Shah Partner Partner Principal Author and Editor T: +1 202 383 0122 T: +1 202 389 5077 mattgatewood meghanashah @eversheds-sutherland.com @eversheds-sutherland.com 3 Navigating contractual nonperformance Guide to U.S. force majeure Contents Alabama .......................................................... 6 Nebraska .....................................................105 Alaska .............................................................. 9 Nevada ........................................................107 Arizona .......................................................... 12 New Hampshire ........................................109 Arkansas ....................................................... 15 New Jersey .................................................111 California ...................................................... 18 New Mexico ............................................... 115 Colorado ......................................................24 New York .................................................... 118 Connecticut ................................................. 27 North Carolina...........................................126 Delaware ......................................................30 North Dakota .............................................130 District of Columbia ...................................35 Ohio ............................................................ 132 Florida ...........................................................38 Oklahoma ................................................... 137 Georgia .........................................................42 Oregon .......................................................140 Hawaii ...........................................................46 Pennsylvania ..............................................143 Idaho .............................................................48 Puerto Rico ................................................148 Illinois ............................................................ 51 Rhode Island ..............................................150 Indiana ..........................................................56 South Carolina .......................................... 153 Iowa ...............................................................60 South Dakota ............................................. 157 Kansas ...........................................................63 Tennessee...................................................159 Kentucky .......................................................67 Texas............................................................163 Louisiana ...................................................... 72 Utah ..............................................................171 Maine.............................................................76 Vermont ...................................................... 173 Maryland .......................................................78 Virginia ........................................................ 175 Massachusetts .............................................82 Washington ................................................180 Michigan .......................................................86 West Virginia ..............................................183 Minnesota.....................................................90 Wisconsin ...................................................186 Mississippi ....................................................94 Wyoming ....................................................189 Missouri ........................................................97 Montana .....................................................102 Our team .................................................... 191 4 Navigating contractual nonperformance Guide to U.S. force majeure 5 Navigating contractual nonperformance Guide to U.S. force majeure Alabama Alabama common law recognizes force majeure, though the case law interpreting force majeure disputes is limited. Disputes are unlikely to be resolved via summary judgment. Alabama courts recognize only a limited impossibility argument and rarely apply the defense of frustration of purpose. The key cases are broken down as follows: I. Force Majeure II. Common law remedies A. General requirements A. Impossibility B. Causation B. Frustration of purpose C. Mitigation/beyond a party’s control D. Foreseeability I. Force majeure majeure clause. Id.; see also Monsanto Co. v. Tenn. Valley Auth., 616 F.2d 887, 888 (5th Cir. 1980) (finding A. General requirements summary judgment precluded where the force The defense of force majeure exists under Alabama majeure clause was ambiguous as to whether common law. Specifically, “when loss is proximately negligence constituted a force majeure event). caused by an act of God which is not foreseeable, [a party] may not be liable for failure to effectuate the B. Causation performance of a contract.” Ala. Dep’t of Pub. Health To be considered an “act of God,” the force majeure v. Lee, 236 So. 3d 863, 872 (Ala. Civ. App. 2017). event causing the injury must have been the Alabama courts have had few occasions to interpret proximate cause of the injury, such that no other act the enforceability of contractual force majeure could have prevented the result. See Ala. Dep’t of Pub. provisions. At least when applying New York law, one Health, 236 So. 3d at 869. Alabama federal court explained that “performance In Alabama Department of Public Health v. Lee, the will only be excused if the contract includes the Alabama Court of Civil Appeals affirmed the finding of specific event that actually prevents performance.” an administrative agency that declined to apply a force See Drummond Coal Sales, Inc. v. Kinder Morgan majeure defense after a flood destroyed the records of Operating LP “C”, No. 2:16-CV-00345-SGC, 2017 one of the contracting parties. Id. The agency found WL 3149442, at *8 (N.D. Ala. July 25, 2017). that because the party had misplaced her records When force majeure is disputed, courts will rarely before the flood, her negligence—and not the flood— grant summary judgment, particularly when the was the proximate cause of her injury. Id. force majeure provision is ambiguous. See Breland Where a party’s business decision not to perform is v. Levada EF Five, LLC, No. CV 14-00158-CG-C, 2015 the reason for nonperformance, the party’s force WL 7572339, at *6 (S.D. Ala. Nov. 24, 2015). majeure argument likely will not be successful. See For example, in Breland, the U.S. District Court for the Drummond Coal Sales, 2017 WL 3149442, at *9–10 Southern District of Alabama held that where the force (finding the party “seeks to be excused from its majeure clause excused performance if the six-month contractual duties due, at least in part, to financial moving average price of natural gas fell below a certain considerations caused by environmental regulations”) dollar amount but failed to identify the controlling (relying on Macalloy Corp. v. Metallurg., Inc., 728 price index for natural gas, the court could not grant N.Y.S.2d 14, 14–15 (N.Y. App. Div. 2001)). summary judgment on the applicability of the force 6 Navigating contractual nonperformance Guide to U.S. force majeure C. Mitigation/beyond a party’s control examined the parties’ contract under New York law, In Alabama, a party seeking to rely on a force majeure the court surveyed cases across the country to provision must act in good faith to mitigate the effects conclude that regulatory changes were foreseeable of the force majeure event. See Corona Coal Co. v. as a matter of law, which precluded the company’s Robert P. Hyams Coal Co., 9 F.2d 361, 361–62 (5th defenses for nonperformance based on impossibility Cir. 1925). and frustration of purpose. 2017 WL 3149442, at *5 (collecting cases and citing Sabine Corp. v. ONG W., In Corona Coal, the Fifth Circuit held that a party Inc., 725 F. Supp. 1157, 1177 (W.D. Okla. 1989)). could not rely on labor strikes and car shortages as a defense against delivering goods under a contract Because, however, the parties’ force majeure provision where the evidence showed that the party could have did not require unforeseeability, the foreseeability of delivered some of the goods under the contract and the regulatory changes