Is the COVID-19 Pandemic a "Natural Disaster"? An Analysis of the SDNY's Force Majeure Ruling in JN Contemporary Art, LLC v. Phillips Auctioneers LLC
A force majeure clause is a common contract provision that excuses a party’s performance if an extraordinary event or circumstance beyond the control of the party prevents the party from fulfilling its obligations under the contract. The contract will define certain force majeure events, which may include events such as wars, strikes, riots or “acts of God”.
Historically, New York courts would excuse performance under a contract based on the contract’s force majeure clause only if the clause explicitly cited the event preventing the party’s performance. Kel Kim Corp. v. Cent. Mkts., Inc., 519 N.E.2d 295, 295 (N.Y. 1987). Taking into account the COVID-19 pandemic (the “Pandemic”), Courts have wrestled with the question of whether the Pandemic qualifies as an “act of God”, “natural disaster” or otherwise falls within the scope of general force majeure clauses. Now, a recent decision in the United States District Court for the Southern District of New York may have answered the question.
In JN Contemporary Art, LLC v. Phillips Auctioneers LLC, 2020 WL 7405262 (S.D.N.Y. Dec. 16. 2020), the Defendant agreed to consign two pieces of art from Plaintiff ahead of an art auction scheduled for May 2020 in which one piece would be auctioned. After New York Governor Andrew Cuomo declared a state disaster emergency and shut down all non-essential business, including art galleries, the Defendant terminated the contract for the May 2020 auction, citing the force majeure clause in the contract. Plaintiff sued Defendant in federal court with multiple claims for damages. Much of the Court’s analysis focused on whether the force majeure clause in question was applicable since it did not specifically contemplate “pandemics” or “epidemics”. The Court ultimately held that the Pandemic was a “natural disaster” and fell within the scope of the force majeure clause, thus excusing Defendant’s performance under the contract.
In ruling that the Pandemic qualified as a natural disaster excusing performance under the contract, the Court analyzed Black’s Law Dictionary, Pennsylvania case law and Governor Cuomo’s Executive Orders. The Court reasoned as follows:
Under Black’s Law Dictionary, “natural” is defined as “brought about by nature as opposed to artificial means” and “disaster” is defined as “calamity; a catastrophic emergency.”
The Pennsylvania Supreme Court held in Friends of Danny DeVito v. Wolf, 227 A.3d 872, 889 (Pa. 2020) that the Pandemic was “unquestionably” a catastrophe resulting in hardship, suffering or loss of life, as it fit within the definition of “natural disaster” under Pennsylvania’s Emergency Code.
Governor Cuomo’s Executive Orders declared a “state disaster emergency”.
The implications of this ruling are noteworthy and immediate. Now, under JN, general force majeure clauses that contain the term “natural disaster”, without specifically stating “pandemic”, may excuse performance under a contract if the non-performing party could not perform due to the Pandemic, related government orders or any future public health crises.
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