COVID-19 Meets Force Majeure at the Edison Ballroom: Was Equitable Relief Warranted to Postpone Birthday Party?

This was originally posted on the SGR Blog.

The law reports are replete with contract disputes arising out of the pandemic. But, as a recent case illustrates, a force majeure clause in an agreement may be conclusive.

Adam and Randi Sanders sued to recover money deposited for an event at defendant Edison Ballroom, LLC’s facility, which did not occur due to the COVID-19 pandemic.

The parties entered into an agreement dated May 25, 2018, for the Sanders’ use of the Edison Ballroom to host an event that was to take place on April 25, 2020, to coincide with their daughter’s age-related birthday.

The Agreement stipulated as consideration for the venue and services for the event, the payment of $50,243.63, and required the following payments: (i) $10,048.73 on May 30, 2018, (ii) $15,073.09 on January 20, 2020, (iii) $10,048.73 on February 17, 2020, (iv) $10,048.73 on March 17, 2020, and (v) $5.024.23 on April 23, 2020. The Sanders paid $45,219.28 in accordance with the Agreement .

The Agreement contained a clause entitled “Acts of God, Force Majeure,” which provided that:

Neither party shall be responsible for failure to perform [the Agreement] if circumstances beyond its reasonable control, including, but not limited to, acts of God, … [or] governmental authority … make it illegal or impossible for the affected party to hold [the event]. For the Avoidance of Doubt, in the event of any such acts of God, Edison Ballroom shall refund all payments made by [the Sanders] to [Edison], and [they] shall have no further obligation to [Edison].

On March 7, 2020, before the final deposit of $5,024.23 was due, the Governor of the State of New York issued Executive Orders limiting the number of individuals allowed to lawfully gather and the maximum occupancy of facilities like the Edison ballroom. On March 16, 2020, the parties entered into an agreement to postpone the event to October 2, 2020. But as of October 2, 2020, the Governor’s Executive Order limiting capacity was still in effect.

The Sanders subsequently demanded a refund of their deposit payments. When Edison failed to return the money, they sued for breach of contract seeking the return of their deposit of $45,219.28, together with attorneys’ fees and interest. Edison answered the complaint and asserted a counterclaim for a declaration that the parties’ rights and obligations under the Agreement were not canceled but suspended until the passing of the COVID-19 emergency.

In the meantime, on January 4, 2021, the Sanders’ credit card company refunded the payments they made on January 20, 2020 ($15, 073.09), February 17, 2020 ($10,048.73), and March 17, 2020 ($10,048.73). Accordingly, there remained $10,048.73 in dispute.

The Sanders moved for summary judgment on their single cause of action for breach of contract, arguing that under the Force Majeure clause, they were entitled to the remaining deposit, together with attorney’s fees, expenses, and interest.

Edison opposed the motion and sought summary judgment on its counterclaim seeking the suspension of the Agreement until it could be performed, arguing that the Court should use its equitable powers to fashion this or another remedy since the COVID-19 emergency was not within the contemplation of the parties at the time they entered the Agreement. And also argued that the Sanders were not entitled to recover the payment of attorneys’ fees, as the indemnity clause in the Agreement permitted the recovery of such fees arising only from Edison’s negligence or that of their agents.2

The Sanders argued that the Agreement was unambiguous; it should be enforced in accordance with its terms; it did not require the event to be rescheduled or allow Edison to retain their money until governmental restrictions were lifted. They also asserted that the event’s objective was to celebrate their daughter’s significant birthday in April 2020, rendering the performance of the Agreement impracticable.

Edison argued that the Court had the authority to invoke equitable remedies where, as was claimed in this case, a legal remedy was inadequate.

A party asserting a claim for breach of contract must establish the existence of a contract, the party’s own performance under the contract; the other party’s breach of the contract; and resulting damages. Courts have interpreted force majeure clauses according to their function of relieving a party from its obligations when expectations are frustrated due to an event that is an extreme or unforeseeable occurrence and beyond the parties’ control and without its fault or negligence.

When there is an unambiguous written agreement, courts must enforce the plain meaning of the agreement by its terms without creating ambiguities not present in the document itself.

Under these principles, the Sanders met their burden on summary judgment. First, there was no dispute as to the existence of the Agreement or as to their performance, including the timely making of the required payments. Next, the Sanders showed that Edison breached the Agreement by refusing a refund under the Force Majeure clause, which provided for such a refund in the event performance of the Agreement became “illegal or impossible” because of “acts of a governmental authority.” Here, it was undisputed that the Agreement’s performance, including after the agreement to postpone the event was made, was illegal or impossible as a result of “acts of a governmental authority,” such as the Governor’s Executive Orders.

Accordingly, the burden shifted to Edison to raise a triable issue of fact. In opposition, Edison asserted that the parties did not envision a government shutdown at the time they entered into the Agreement, and the Court should invoke its equitable powers to suspend performance of the Agreement until performance was possible. The Court found the argument to be without merit. When, as here, an agreement on its face was reasonably susceptible to one meaning, the Court was not free to alter the contract to reflect its personal notions of fairness and equity. Thus, notwithstanding the deleterious economic impact of the COVID-19 emergency on Edison’s business, in light of the unambiguous contract, the Court did not have the authority to exercise its equitable powers to rewrite the Agreement to temporarily suspend performance until the event was permitted to occur.

The Sanders were entitled to summary judgment on their breach of contract claim to the extent of the $10,048.73, paid and not refunded, and Edison’s counterclaim was dismissed.

Comments are closed.