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MY FORCE MAJEURE CLAUSE COVERS THIS, RIGHT?

PAUL J. KOZACKY, SHAREHOLDER PKOZACKY@KWMLAWYERS.COM

I Declare FORCE MAJEURE!

A “force majeure” is “[a]n event or effect that can be neither anticipated nor controlled[, is] unexpected [and which] prevents someone from doing or completing something that he or she had agreed or officially planned to do.” ̶ Black’s Law Dictionary (10th ed. 2014). A “force majeure clause” is “[a] contractual provision allocating the risk of loss if performance becomes impossible or impracticable . . . as a result of an event or effect that the parties could not have anticipated or controlled.” ̶ Black’s Law Dictionary (10th ed. 2014).

Boilerplate Force Majeure Clause

Shipper/Carrier shall not be liable for any failure or delay in the performance of this Contract during the period that such failure or delay is due to unforeseeable causes beyond its reasonable control, including, but not limited to, acts of God and of the public enemy, war, strikes or labor disputes, embargoes, fires, floods, acts of government, or any other unforeseen event that renders performance impossible or impractical.

Pay attention if this looks like yours!

“Well that’s an ACT OF GOD, so we’re good, right?” • An “act of God” is “a ‘loss happening in spite of all human effort and sagacity.’”

The MAJESTIC, 166 U.S. 375, 386 (1897) (emphasis added) • “[E]vents in nature so extraordinary that the history of climatic variations and

other conditions in the particular locality affords no reasonable warning of them.” Warrior & Gulf Navigation Co. v. U.S., 864 F.2d 1550, 1553 (11th Cir. 1989) (emphasis added)

• “An overwhelming, unpreventable event caused exclusively by forces of nature,

such as an earthquake, flood, or tornado.” Black’s Law Dictionary (10th ed. 2014) (emphasis added)

• “[A]n act of God requires an ‘act’ . . . which could properly be attributed to a higher power.” R & B Falcon Corp. v. Amer. Exploration Co., 154 F. Supp. 2d 969 (S.D. Tex. 2001) (if you cannot explain the “act,” there is no “act of God”)

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Hypothetical #1

If a hurricane prevents your contractual performance, does your force majeure clause protect you if it lists “acts of God”?

No! Texas & Gulf S.S. Co. v. Parker, 263 F. 864 (5th Cir. 1920) (carrier knew hurricane was approaching and was negligent to leave port) Yes! Skandia Ins. Co., Ltd. v. Star Shipping AS, 173 F. Supp. 2d 1228 (S.D. Ala. 2001) (container yard had no flooding history and lacked sufficient warning to protect the cargo from approaching hurricane and tidal surge)

Image courtesy of http://www.clker.com/cliparts/b/1/4/0/1195436473952372872wind_cefa_01.svg.hi.png

Hypothetical #2 If another seemingly natural event, such as a tornado or lightning strike, prevents your contractual performance, does your force majeure clause protect you if it lists “acts of God”? Yes! Compania de Vapores Insco, S.A. v. Missouri Pac. R. Co., 232 F.2d 657 (5th Cir. 1956) (carrier’s warehouse storing vehicles awaiting ocean transport was in reasonably good condition prior to small tornado)

No! Loc-Wood Boat & Motors, Inc. v. Rockwell, 245 F.2d 306 (8th Cir. 1957) (charter boat owner knew of severe storm warning and possibility of tornado, and was negligent to undock), overruled on other grounds sub nom. Three Buoys Houseboat Vacations U.S.A. Ltd. V. Morts, 921 F.2d 775 (8th Cir. 1990) No! Norfolk Southern Ry. Co. v. Moran Towing Corp., 718 F. Supp. 2d 658 (E.D. Va. 2010) (barge owner failed to show that lightning strike, and not its negligence, caused barge to break free from moorings resulting in allision); see also Bright v. U.S., 149 F. Supp. 620 (E.D. Ill. 1956) (air carrier negligent in not going around the storm)

Images courtesy of http://www.fordesigner.com/maps/7088-0.htm and http://picture.webspier.com/lightning_bolt_pictures_clip_art.html

Hypothetical #2 Continued

No! Complaint of Magnolia Marine Transport Co., Inc., 1986 WL 15674 (D. Kan. Dec. 10, 1986) (tugboat owner failed to show that eddy, and not its negligence, caused allision) No! British West Indies Produce Inc. v. S/S Atlantic Clipper, 353 F. Supp. 548 (S.D.N.Y. 1973) (carrier’s negligence, and not severe freezing weather, caused damage to yams being transported) Yes! J. Aron & Co. v. Cargill Marine Terminal, Inc., 998 F. Supp. 700 (E.D. La. 1998) (carrier excused from liability for deterioration and infestation of barge loads of corn since river was impassable due to flood) No! R & B Falcon Corp. v. Amer. Exploration Co., 154 F. Supp. 2d 969 (S.D. Tex. 2001) (a seabed anomaly is not an act of God because there is no “act,” like a tornado or hurricane, to which to point)

Images courtesy of http://www.clker.com/clipart-snow-clouds.html, http://www.southampton.ac.uk/oes/research/projects/mesoscale_ocean_eddies_and_climate_predictability.page, http://www.usgs.gov/blogs/features/usgs_top_story/real-time-view-of-flood-conditions/

“Acts of God” Do Not Have To Be Natural, But . . .

Hypothetical #3

If a power outage prevents your contractual performance, does your force majeure clause protect you if it lists “acts of God”? Maybe, if it looks like this:

“Snuffy’s will be excused from performance under this contract if it is prevented from doing so by an act of God (e.g. flood, power failure, etc.), or other unforeseen events or circumstances.” Facto v. Pantagis, 915 A.2d 59 (N.J. Super. Ct. App. Div. 2007).

Images courtesy of http://img2.cliparto.com/pic/s/184253/3911412-silhouette-of-high-voltage-power-lines-.jpg and https://www.colourbox.com/preview/5976219-silhouette-of-high-voltage-power-lines.jpg

Hypothetical #4

If a the stock market crashes or some other financial crisis prevents your contractual performance, does your force majeure clause protect you if it lists “act of God”?

http://www.memeaddicts.com/trending/stock-market-crash-1929-political-cartoons/cdn.cagle.com%5Eworking%5E010313%5Eramirez.gif/imgarcade.com%5E1%5Estockmarketcrashpoliticalcartoon%5E/

No! Elavon, Inc. v. Wachovia Bank, N.A., 841 F. Supp. 2d 1298 (N.D. Ga. 2011) (economic downturn, such as the 2008 financial crisis, is not an “act of God” or otherwise a force majeure event*)

*“A force majeure clause does not excuse performance for economic inadvisability, even when economic conditions are the product of a force majeure event” unless the clause specifically contains language to that effect. OWBR LLC v. Clear Channel Comm’ns, Inc., 266 F. Supp. 2d 1214, 1223-24 (D. Haw. 2003)

All Issues Are NOT Covered

An intentional “work slowdown” likely is not a “labor dispute” unless defined as such in the contract

• Murdock & Sons Construction, Inc. v. Groheen General Construction, Inc., 461 F.3d 837, 841 (7th Cir. 2006) (“work slowdown” did not fit in dictionary’s definition of “labor dispute,” requiring a trial to determine reach of the clause)

A “work stoppage” may not even be a “work stoppage” if the term is undefined in the contract

• Teco Coal Corp. v. Orlando Utilities Commission, No. 07-CV-444-KKC, 2010 WL 8750622, at *14 (E.D. Ky. Sept. 17, 2010) (was mining company’s abandonment of operations a “work stoppage”?)

A labor dispute may excuse you only partially unless your contract definitively states otherwise

• Aquila, Inc. v. C.W. Mining, 545 F.3d 1258, 1263-65 (10th Cir. 2008) (only that portion of non-performance attributable to labor dispute was excused, not non-performance attributable to company’s operational problems)

Image courtesy of http://www.streetwisesubbie.com/dummy-pages/cartoons-2

Not Every Act Of Government Is Covered By “Acts of Government”

Yes! Eastern Air Lines, Inc. v. McDonnell Douglas Corp., 532 F.2d 957 (5th Cir. 1976) (aircraft manufacturer excused by performing more than 20 years late due to government’s priority policy during Vietnam War) No! Seaboard Lumber Co. v. U.S., 308 F.3d 1283 (Fed. Cir. 2002) (government policies affecting interest rates rendered timber contact unprofitable to perform, but not impossible to perform) No! Watson Laboratories, Inc. v. Rhone-Poulenc Rorer, Inc., 178 F. Supp. 2d 1099 (C.D. Cal. 2001) (Food and Drug Administration’s shutdown of drug supplier’s plant was not encompassed by “regulatory, governmental . . . action” in force majeure provision because clause was “vague and boilerplate”

Image courtesy of http://www.city-data.com/articles/U-S-Capitol-Capitol-Hill-Washington-D-C.html

Government Must First “Act” Before Force Majeure Clause May Be Invoked

The governmental act, itself, must prevent performance, not your interpretation or understanding that it will prevent performance

• Perlman v. Pioneer Ltd. P’ship, 918 F.2d

1244 (5th Cir. 1990) (lessee not entitled merely to speculate it would not obtain required government permits)

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Drafting Your Force Majeure Clause: DO’S and DON’TS

Don’t:

• Simply plug in phrases like “acts of God,” “labor disputes” and “acts of government” and think that’s sufficient to assure your protection

• Leave an important term to be interpreted by a court utilizing the dictionary;

define what you mean in your contract • Rest your hopes on a “catch-all” provision (good to have, but recognize this is a

position of last resort that might not prevent you from having to litigate the meaning)

DO’S

Tailor your clause to YOUR UNIQUE SITUATION—one size does not fit all • Avoid the situation in Sun Pacific Marketing Co-op., Inc. v. DiMare Fresh, Inc., 2010 WL

3220301 (E.D. Cal. Aug. 13, 2010) (finding heat wave to be an act of God, but unable to determine as a matter of law if the resulting tomato shortage was encompassed by the phrase “product shortage” in the parties’ force majeure clause—the contract contained no definition)

Define your terms and/or provide several examples of what you are most worried about

• The doctrine of ejusdem generis applies to force majeure clauses, which means that courts

will require the party seeking protection under the clause to show that the event causing nonperformance, if not explicitly listed, is “of the same general character” as the listed events. Matador Drilling Co., Inc. v. Post, 662 F.2d 1190, 1198 (5th Cir. 1981).

Synopsis

• Force Majeure Clauses never cover your own negligence • Procure insurance to cover for negligence • Tailor your clause to the things beyond your control that particularly

jeopardize your unique transactions

• Anticipate calamities and, most importantly . . .

BE PREEMPTIVE!