One by one as sporting events and seasons were cancelled and postponed the coronavirus pandemic became “real” to Americans. And what became real to Sports Lawyers are the innumerable amount of contracts that relate to these events. Advertising, Sponsorship, Employment, Rental . . . . The list goes on and on. Companies are now trying to determine what their responsibilities are under existing contracts. Below are some questions to consider when determining your responsibilities under existing contracts in the age of coronavirus.
1. Does the contract have a force majeure clause? Many contracts will include a “force majeure” clause, which attempts to deal with unforeseeable circumstances that prevent a party from fulfilling its obligations. But even if your agreement has a force majeure clause, it may not be applicable depending on your jurisdiction. Jurisdictions treat force majeure clauses differently. For instance, under New York law, force majeure clauses are “construed narrowly and will generally only excuse a party’s nonperformance if the event that caused the party’s nonperformance is specifically identified.” In re Cablevision Consumer Litig., 864 F. Supp.2d 258, 264 (E.D.N.Y. 2012). In contrast, other states – like California – recognize force majeure as a common law doctrine that applies to all contracts governed by the state’s laws. See Watson Labs, Inc. v. Rhone-Poulenc Rorer, Inc., 178 F.Supp.2d 1099, 110 (C.D. Cal. 2001) (recognizing “the common law ‘doctrine’ of force majeure,” though holding that it “should not supersede the specific terms bargained for in the contract”).
2. What does the force majeure clause include? Force majeure clauses often list a variety of events that excuse performance. Examples of events include acts of God, natural disasters, labor strikes or lockouts, terrorism, acts of “the public enemy,” war, governmental action, curtailment of transportation facilities, etc. Whether the events listed in the force majeure clause apply to your specific circumstances will depend on your jurisdiction and fact scenario. For instance, rulings on whether “act of God” provisions apply to infectious diseases and pandemics vary from jurisdiction to jurisdiction. In addition, the applicability of a “government regulation” event in a force majeure clause will depend on the specific local orders in the relevant area.
3. Does your force majeure clause have limiting or qualifying language? Some force majeure clauses contain qualifying language that limits when the clause can be invoked in connection with certain enumerated events. For example, a contract might provide for nonperformance if the listed events are deemed “impossible,” “illegal,” and/or “inadvisable.” Depending on what qualifying language is included, it is not sufficient that a particular event be listed within the force majeure provision; the event must also impact performance in the manner expressly required by the clause. For instance, if a team or an athlete does not want to travel based on coronavirus travel advisories, performance may be “inadvisable” but not “impossible.” Under these circumstances, the team or athlete would not be able to invoke a force majeure clause if the clause is limited to “impossible” events.
4. Does your force majeure clause contain a notice provision? Force majeure clauses may contain notice provisions, meaning that a party invoking the provision in an attempt to avoid performance must inform other parties to the contract within a specified period of time from the event excusing performance that it plans to invoke the force majeure clause or else nonperformance may still be in breach of duty. If you are contemplating invoking a force majeure provision, pay careful attention to any applicable notice periods.
5. Do any common law doctrines apply in your jurisdiction? In addition to force majeure, common law doctrines such as frustration of purpose, impossibility, and impracticability may permit a party to avoid performance on the terms of a contract due to events outside of its control. These doctrines are applied narrowly and, in contrast to force majeure clauses, invoking these doctrines may terminate the contract entirely, rather than merely excuse performance.
Additionally, although common law rules typically govern the interpretation of a contract, these rules may not apply where the contract evinces an intent by the parties to supersede or limit those common law rules.
6. Consider the implications of nonperformance or termination. Even if your agreement allows you to terminate, suspend or “make good,” consider the implications of exercising these rights. How will this affect the rest of the business? The company’s relationship with the other party? The company’s relationship with other third parties? If you terminate your sponsorship of a sporting event, will that organization ever want you as a sponsor in the future?
One last piece of advice, do not only consider your existing contracts. Also consider the impact on terms of offers you have made or are planning to make to the public such as sweepstakes, contests and other promotional offers. Sweepstakes winners probably do not want to travel to a non-existent Opening Day or Kentucky Derby!
Nerissa Coyle McGinn
Partner, Chief Diversity Partner
Loeb & Loeb LLP
You must be logged in to post a comment.