Saturday, September 19, 2020
Friday, September 18, 2020
Selling out the ordinary citizen: COVID-19 Limitation of Liability
Benjamin G. Davis, University of Toledo College of Law
I. The Wisdom of Fixing My Wisdom Teeth in a Pandemic
This is a dental story about wisdom teeth.
This past July I had my son over with a couple of friends to grill steaks. When it got dark, we went inside to finish the meal. 15 days later I learned that one of those friends might have been exposed to COVID-19. So I immediately set up to be tested three days later. And I called my dentist to reschedule my upcoming appointment because I was not sure if I had been exposed and was getting tested. Fortunately, another week later the test came back negative.
So I went to my rescheduled dentist appointment in early September and one of the conclusions was that my wisdom teeth needed to be removed. And I was referred to a maxillo-facial surgeon for that. In the first meeting I was asked to sign a document entitled COVID-19 PANDEMIC DENTAL TREATMENT AND ACKNOWLEDGEMENT OF RISK FORM. I posted that document to the Contracts listserv.
That document – as a contractual matter was saying that I was assuming the risk of contracting COVID-19 in this treatment.
III. Enter State Limitation of Liability Law
On Friday, September 19, 2020, I am to have the first of two wisdom teeth surgeries under general anesthesia.
And today I learn that the governor has signed Ohio legislation that would grant employers state law immunity from COVID-19 related civil lawsuits. As reported in the National Law Review,
Ohio employers will likely soon enjoy greater legal protections when it comes to their efforts to stem the spread of COVID-19. Acknowledging the legal uncertainties faced by essential workers and businesses in the wake of reopening, the Ohio Senate on September 2, 2020, passed House Bill (H.B.) 606, a measure which, if signed into law (and it is expected that Governor Mike DeWine will sign the bill very quickly), would grant state-law immunity from civil lawsuits for “injury, death, or loss” related to “the transmission or contraction” of the novel coronavirus. The bill specifically provides that public health orders issued by the executive branch (i.e., the governor and the Ohio Department of Health), as well as public health orders issued by federal government agencies, counties, local municipalities, and boards of health or public health agencies, do not create new legal duties for purposes of tort liability. The bill and its corresponding protections will be retroactive to the date of the declared state of emergency in Ohio, March 9, 2020, and will expire on September 30, 2021.
The bill significantly limits legal exposure to Ohio businesses, which, absent a showing of reckless, intentional, or willful or wanton misconduct, would not be liable to customers, employees, or others for actions or omissions resulting in the exposure to, or transmission or contraction of, COVID-19. The bill, which is expansive, extends protections to all Ohio entities, including schools, nonprofit and for-profit entities of any size, governmental entities, churches, colleges, and universities.
Subject to limited exceptions, the new law would also shield health care providers from liability in tort actions arising from the “provision, withholding, or withdrawal” of health care services resulting from the coronavirus pandemic. The bill does not provide total protection; plaintiffs who can prove a health care provider acted with “reckless disregard for the consequences” of their actions, or engaged in “intentional misconduct or willful or wanton misconduct” could still recover.
In addition to the above protections, the bill would flatly bar class actions based in whole or in part on allegations that a health care provider, business, government entity, or person caused “exposure to, or the transmission or contraction of” COVID-19.”
As reported on Patch.com, Andrew Doehrel, president and CEO of the Ohio Chamber of Commerce said, "Ohio businesses stepped up when asked to help with this pandemic crisis and we are pleased that the Senate and House, along with the governor, have acted to help protect jobs and our economy,"
The story continues:
Health care providers are also protected from liability in tort actions related to COVID-19 care and services under the law. Again, anyone looking to sue a health care provider would have to prove they were acting recklessly or displaying intentional misconduct.
IV. What if I were to get COVID-19 in this wisdom tooth operation?
As the form I signed was prior to the operation, I would imagine that if I could prove I got COVID-19 during the operation on Friday, I would have to face a question as to whether I had assumed that liability and therefore a breach of contract claim would fail.
If I were to assert a breach of contract or tort claim, given that the operation is two days after the passage of the above law, the bar for my getting any relief for COVID-19 illness contracted in that operation and even for a death from it (I hope not, egads) has been significantly raised by this law.
And there will be a second wisdom tooth operation in the future where the same issue would arise for that operation too.
I could walk into the operation wearing my “Everybody Say, Corona Virus Don’t Play” t-shirt as a kind of new offer that if they operate on me and I contract COVID-19 from it, the surgeon is assuming that risk. But, that might be a bit too ambiguous. So maybe I should make up a t-shirt like Ian Ayres once suggested in Guerilla Consumerism that says, “Notwithstanding any other document or legislation, by serving me in any manner you waive any rights or defenses that you may have with respect to any legislation or contractual or other document that limits your liability to anything below the liability that you would have had before the COVID-19 pandemic.”
That is a bit long to put on a t-shirt but maybe I could get it done in very small print that was big enough for them to see, but small enough that they skip over reading it. Maybe I could put the words NOTICE in big letters to attract their attention.
V. Been warning about this kind of thing since April.
Pernicious contractual waivers to address a systemic risk that is a pandemic, I have warned, are not a solution to risk. Nor is this type of legislation. All these things do is shift the risk to the individual and away from employers. They do nothing to address the underlying problem, which is the COVID-19 pandemic.
So we have a combination of market failure and state government failure in betraying the public trust by getting employers off the hook for COVID-19 liability.
It is all of a pattern of repression and weaponizing COVID-19 that I have described in a number of articles since April
- We Should Be Concerned with COVID-19 Vaccine Corner-Cutting, JURIST – Professional Commentary, September 1, 2020
- Force Drift: Thuggery in Portland with Toxic Mission Creep using Mystery Men, JURIST – Academic Commentary, July 23, 2020
- The Business of Reopening Colleges and Universities in a Pandemic, JURIST – Academic Commentary, July 7, 2020
- The Insanity of Using Riot-Control Chemical Agents on Peaceful Protesters in the Middle of a Pandemic, JURIST – Academic Commentary, June 9, 2020
- More Worker Endangerment: Pernicious COVID-19 Contractual Waivers, JURIST – AcademicCommentary, June 2, 2020
- An Open Letter to the Congressional Leadership on COVID-19 Limited Liability for Universities, JURIST – Academic Commentary, June 1, 2020
- How Covid-19 Human Endangerment Might Be Approached as a Domestic Crime or an International Crime Against Humanity, JURIST – Academic Commentary, May 20, 2020
- Worker Endangerment in the Meat Industry During COVID-19, JURIST – Academic Commentary, April 30, 2020
- (With William H. Widen), No Market Solution for Black Death: COVID-19 Guidelines As Crime, JURIST – Academic Commentary, April 18, 2020
VI. So what does one do?
A state constitutional, federal constitutional, or international law challenge of these kinds of approaches are something that I think I should think about. But, in the meantime, I have to get this wisdom tooth out.
The systemic failures of the federal, state, and business communities to do what was and is needed to protect the ordinary citizen are appalling and criminal. And, ordinary citizens, like me are left to the dogs of COVID-19 – air-borne, relentless, and many times deadly.
No wonder the United States is the butt of jokes around the world such as the following:
Q: What borders on insanity?
A: Canada and Mexico.
Rounding out the second week of symposium, we are delighted to have as a guest blogger Ben Davis. We have noted Ben's Davis's work on this blog as early as 2006 and as recently as May. We have covered his other activities going back fifteen years! But this is his first post on our blog, and we are happy to have him on board.
Professor Benjamin Davis is a graduate of Harvard College (B.A.), Harvard Law School (J.D), and Harvard Business School (M.B.A.), where he was articles editor of the Harvard International Law Journal. Professor Davis teaches in the areas of Contracts, Commercial Law, Alternative Dispute Resolution, Arbitration, Public International Law, International Business Transactions, and 3L Extended Bar Preparation. He is a former Chair of the ABA Section of Dispute Resolution and a Former Member of the ABA Standing Committee on Law and National Security. Professor Davis has given numerous presentations and speeches around the world. He is a contributing editor at Jurist. He has published dozens of articles on topics related to international and domestic arbitration, online and offline dispute resolution, and international law.
We look forward to his contribution to the blog to be posted later today!
Part III: Non-performance Related to the COVID-19 Crisis Under UCC Article 2: The Role of Repudiations and Adequate Assurances
Jennifer S. Martin
In Part I, I discussed the lessons from Steves and Sons, Inc. v. Jeld-Wen, Inc., 2020 WL 1844791 (E.D. Va. Apr. 10, 2020), and how it might be instructive to others asserting breach related to COVID-19, particularly where an injunction is desired. In Part II, I highlighted Volga Dnepr UK Ltd. v. Boeing Company, 2020 WL 2850572 (W.D. Wash. June 2, 2020), where a party who repudiated the aircraft wanted to retract the repudiation due to an increase in business arising from COVID-19. Here, I would like to look at the problem of repudiation and §2-609 adequate assurances and how that might affect parties affected by COVID-19. In particular, how might parties seek to “get it right” and what have courts said recently when faced with repudiations and requests for adequate assurances.
Recall that in Volga, the buyer, Volga Dnepr UK Ltd. (Volga), a cargo transport operation, contracted with the seller, Boeing Company (Boeing), for the purchase of five aircraft in 2006, with delivery of the aircraft occurring over multiple years, with the parties amending the contract multiple times. Volga initially notified Boeing on January 22, 2020, of the “impossibility to fulfill our obligations,” though it later claimed this was an invitation to work cooperatively and to alert Boeing of its difficulties. Boeing’s initial response on January 28, 2020, which it confirmed on February 5, 2020, clearly considered there to be a repudiation and requested retraction. Yet, the parties held meetings and on April 13, 2020, Boeing again restated its position that Volga had repudiated.
The decision of the trial court takes up these matters only in the context of Volga’s motion for a temporary restraining order. Does that necessarily mean that Boeing will prevail in the end? Perhaps not. Section 2-610 provides actions that a contracting party can take in the event that there has been a repudiation, but it does not permit a party to unilaterally characterize a communication as a repudiation. Of course, comment 1 does suggest that an “overt communication of intention or an action which renders performance impossible or demonstrates a clear determination not to continue with performance” is a repudiation. And, Volga did state it was “impossible to fulfill” its obligations concerning the aircraft. Yet, the parties’ continued discussions and meetings might undercut Boeing’s position in this case on the certainty that Volga had in fact repudiated, especially given the uncertainties of COVID-19, which were becoming apparent during the early months of 2020 while the parties were having their discussions about aircraft.
It might be questioned during court proceedings why Boeing did not access the available rights to request adequate assurances under §2-609. Boeing had at its disposal the means to avoid this issue in litigation and to make sure that Volga would either “fish or cut bait” by demanding a thirty day (30) response in light of Volga’s clear communications that performance would be challenging at the least. As Spring 2020 progressed, Boeing was still working with Volga and COVID-19 was spreading, making it obvious that the demand for freight aircraft might increase, thereby increasing the likelihood that Volga would perform under the contract. Of course, further complicating matters, in March 2020, Boeing notified Volga that it was suspending its own operations due to COVID-19. We might wonder if Boeing itself wasn’t ready to provide the aircraft or that it was simply able to sell the aircraft at a higher price to another customer once the demand increased. In any event, it does not appear that Boeing availed itself of its ability to request adequate assurances, which the communications of Volga and the pandemic would have given it the legal right to do.
It is worth noting, though, that accessing adequate assurances during COVID-19 does not provide a party a certain route toward declaring a repudiation. However, it might clear up some of the uncertainties that will now need to be litigated by Boeing. As to how adequate assurances might play out, the case of AMG Vanadium LLC v. Global Adv. Metals USA, Inc., 2020 WL 1233752 (Sup. Ct. Del. Feb. 6, 2020) is instructive. In that case, the court found that a fire in a mine in Brazil was enough of an event to entitle the buyer to request adequate assurances under §2-609. The sourcing of the tantalum pentoxide at issue was important due because it would be classified a “conflict” mineral if improperly sourced. Yet, the court found, at least at the summary judgment stage, that the response by the seller to the buyer’s request for adequate assurances created questions of material fact as to sufficiency, such that the buyer might not have been entitled to claim a repudiation.
The biggest takeaway from these cases is that parties have recourse under §2-609 (assurances) and §2-610 (repudiation). The ongoing pandemic would seem to be a trigger for adequate assurances under §2-609, just as the fire was such an event in AMG Vanadium. There is uncertainty for parties that claim repudiation due to COVID-19 outright, especially if their own ability to perform might be at issue. Recall that after Volga had sent their initial letters to Boeing, Boeing itself sent out notices that it was suspending its own operations due to COVID-19. COVID-19 clearly affects many participants in a commercial marketplace, buyers and sellers, as is demonstrated in the Boeing case. A seller that wants to preserve its rights against a “shaky buyer” like Volga and make decisions regarding other potential customers, is better served by making the request for adequate assurances. It is not known why Boeing did not do this, but there might have been problems with Boeing’s own ability to deliver during COVID-19. My last point here, though, is that even where a party does request such assurances due to uncertainties from COVID-19, it does not necessarily equate with a right of cancellation, as the other party has the ability to respond with the required assurances.
Thursday, September 17, 2020
Non-performance Related to the COVID-19 Crisis Under UCC Article 2: Impracticability and a Role for Injunctions? Part II
Jennifer S. Martin
In Part I, I discussed the lessons from the Steves and Sons, Inc. v. Jeld-Wen, Inc., 2020 WL 1844791 (E.D. Va. Apr. 10, 2020) case and how it might be instructive to others asserting breach related to COVID-19, particularly where an injunction is desired. Here, I would like to highlight another case involving injunctions and a transaction for aircraft affected by COVID-19.
The case of Volga Dnepr UK Ltd. v. Boeing Company, 2020 WL 2850572 (W.D. Wash. June 2, 2020) presents another approach to a request by a buyer for an injunction, but in the context of a repudiation by the buyer. The buyer, Volga Dnepr UK Ltd. (Vulga), a cargo transport operation, contracted with the seller, Boeing Company (Boeing), for the purchase of five aircraft in 2006, with delivery of the aircraft occurring over multiple years, with the parties amending the contract multiple times. Volga initially notified Boeing that it would not be able to take the promised aircraft. Then in March 2020, Boeing notified Volga that it was suspending its own operations due to COVID-19. When global freight demands then increased on account of the pandemic, Volga requested the aircraft as promised and to retract its repudiation. Volga brought suit May 2020 and requested a temporary restraining order (TRO) to prevent Boeing from selling the aircraft at issue and requesting specific performance.
While Steves and Sons turned on both impracticability and a preliminary injunction, the Volga Dnepr UK decision takes up only the TRO. In sharp contrast to the buyer in Steves and Sons, the court concluded that Volga had not demonstrated a likelihood of success on the merits of its case where the facts indicated that it repudiated at least part of the contract (see §2-610). The court noted that while intention to repudiate must be unequivocal, Volga had written to Boeing “In this regard we hereby inform you of the impossibility to fulfill our obligations under the Purchase Agreement.” Even if there was doubt to that statement’s intention, Boeing clearly considered it a repudiation and told Volga as much and requested retraction. Yet, rather than retract at that point, Volga reaffirmed its position. Moreover, the court found that a party has a “limited window to retract their repudiation” or the retraction may be too late. The court, after rejecting other arguments made by Volga, found that the window for retraction closed when Volga failed to make required payments under the contract.
With this in mind, the court considered Volga’s argument that is would lose an important opportunity during an “international health crisis wherein [Volga] needs additional aircraft to fulfill customers’ air freight delivery needs.” Despite the potential truth to Volga’s assertion, the court was unwilling to use a TRO to assist a party that had repudiated of “its own accord” and “inflicted harm upon themselves.” As such, the balance of equities did not favor Volga and could actually damage Boeing’s “goodwill and reputation with other customers and reasonably impair its ability to market aircraft in the future.” Lastly, the court concluded that despite rising needs for freight worldwide due to COVID-19, there was no indication that the public was better served by Volga having the aircraft, as opposed to other buyers, or that granting Volga the relief it sought would have any impact in the “public’s ability to battle COVID-19.” As such the court denied the TRO.
The biggest takeaway from Volga Dnepr UK Ltd. v. Boeing Company would surely be that courts will not employ their power in equity to aid a perceived wrongdoer, even in a pandemic. The commercial nature of purchases still prevails in a world with COVID-19, such that contracting parties who do not help themselves will not find a receptive court. Moreover, COVID-19 affects many participants in a commercial marketplace. A contracting party that wants to assert that it is a more favored beneficiary of receiving goods should be able to prove it, or, as in the case of Steves and Sons, not be a breaching party. Both cases also demonstrate that while courts will entertain arguments regarding the impact of COVID-19 on performance of contracts, commercial parties are still expected to perform the deals they have made. A contracting party desiring to argue that it has been affected by COVID-19 or that it should be otherwise favored in litigation as a result of the pandemic better provide proof of such.
Wednesday, September 16, 2020
Non-performance Related to the COVID-19 Crisis Under UCC Article 2: Impracticability and a Role for Injunctions? Part I
The challenges of the COVID-19 crisis have created issues of nonperformance and enforcement of contracts. Parties simply may be unable (or unwilling) to fulfill their contractual obligations. While these issues arise across many types of contracts, it is worth looking at particular issues arising in cases arising under Article 2. Without much deliberation, one can predict that there will be arguments that reference COVID-19 in connection with modifications (§2-209), adequate assurances (§2-609), casualty to identified goods (§2-614) and excuse to failure of presupposed conditions (§2-615). We might expect for the time being that parties might argue the effects of COVID-19 in many cases for breach of contract. While breach cases might seem routine, at least two courts in interesting cases have already taken up whether the court should grant an injunction due to COVID and one takes up an allegation of impracticability that is relevant to COVID-19 related breach arguments.
The first of these cases is Steves and Sons, Inc. v. Jeld-Wen, Inc., 2020 WL 1844791 (E.D. Va. Apr. 10, 2020), which concerned a claim of breach of contract brought by the buyer (“Steves”) against the seller (“Jeld-Wen”) for the purchase of eighty percent (80%) of Steves requirements of interior door skins (see §2-306). The dispute between the parties arose from Jeld-Wen’s allocation of door skins, during a shortfall of supply that arose when the two largest providers of door skins, which included Jeld-Wen, announced substantial price increases would take place in 2020. After buyers, including Steves, increased orders in 2019, Jeld-Wen did not fill Steves’ orders in full, claiming the orders were disproportionate to Steves’ forecasts and prior orders. In February 2020, Steves brought suit for breach and sought a preliminary injunction in the case, which the court granted.
This might appear to be a routine, but interesting, dispute in a requirements contract where there is a dispute arising from alleged shortages created by the seller’s own announcement of dramatic price increases to hit in the near future and an argument that Steves’ orders were disproportionate to stated estimates. The court found that Steves’ increases in its orders to Jeld-Wen were minor, only 7.11%. Moreover, the contractual provision for allocation in the event of “shortage in production capacity” was not triggered where Jeld-Wen actually had excess capacity. Two aspects of this case, though, are notable in a COVID-19 marketplace: (i) Jeld-Wen’s claim of impracticability under §2-615 and (ii) Steves’ request for a preliminary injunction.
As to the claim of impracticability under §2-615, it is important to note that Jeld-Wen’s alleged shortages began before COVID-19. However, the court’s consideration of contract language regarding potential shortfalls may have implications in other cases where parties desire access to §2-615 allocations due to COVID-19-related shortages. Jeld-Wen claimed that §2-615 supported its allocation of door skins where there was a production shortage in two styles of the door skins, as that provision permits a seller to “allocate production and deliveries among his or her customers but may at his or her option include regular customers not then under contract as well as his or her own requirements for further manufacture.” The court rejected application of this provision, finding that Jeld-Wen could not demonstrate any contingency the “non-occurrence of which was a basic assumption on which the contract was made.” Instead, the parties’ contractual language that addressed shortages precluded Jeld-Wen’s argument that shortages were not contemplated as anticipated under §2-615(a). The court also rejected Jeld-Wen’s argument that increases in market price themselves can be a contingency under §2-615 where there was no expectation that prices would remain level, such that its allocation was supportable.
In considering whether to grant the preliminary injunction to Steves’, the court found a likelihood of irreparable harm to Steves and took up the balancing of hardships and, in particular COVID-19. The court noted that “[i]n balancing the hardships, it is necessary to assess what impact, if any, the coronavirus (COVID-19) spread has, or reasonably may be expected to have, on the parties and on the public interest.” While not requested by the parties, the trial court, sua sponte, asked the parties to submit briefing on the question. The court recognized that COVID-19 has affected businesses and will be challenging in terms of operations in light of government restrictions. Of course, that does not mean that a party is (or is not) entitled to an injunction in a transaction occurring in a COVID-19 environment. Instead, the court concluded that Jeld-Wen did not have any reduction of capacity due to COVID-19 or that the spread of the disease was considered in the allocation of capacity made by Jeld-Wen. Moreover, any “possible future damage” arising from COVID-19 and any volatility in the marketplace from it did not “change the analysis,” and the court granted the preliminary injunction to Steves. Not surprisingly, Jeld-Wen has appealed to the 4th Circuit in this case.
Jeld-Wen may be instructive as to other cases arising due to non-performance during the pandemic. First, the inclusion of contract language that addresses pricing issues, product shortages and allocations of supply would seem to be applicable to other transactions affected by COVID-19. Parties will be bound by the language that they had the foresight to include. Second, while the court did not believe that Jeld-Wen could access the allocation provisions of §2-615 due to price increases, it may be that price escalations and product demand might be unforeseen circumstances in other cases due to COVID-19. Finally, in cases where an injunction is requested, it is clear that if a contracting party can demonstrate a COVID-19 impact, the court will consider it in balancing hardships. In short, COVID-19 is not a license for breach, and contracting parties are still expected to fulfill their obligations.
This post continues in Part II.
Our symposium continues today with a series of posts from Jennifer Martin. Over the years, we have had many occasions to take note of Jennifer Martin's contributions to contracts scholarship, both in written form and in the form of her participation in the annual KCON conferences. She and her institution hosted KCON IX in 2014.
Jennifer S. Martin joined the law faculty at St. Thomas University in 2010. She teaches courses in contracts, transactional skills, business associations and commercial law. She is an elected member of the American Law Institute where she is part of the Members Consultative Group for Uniform Commercial Code Issues and the Restatement of the Law, Consumer Contracts, as well as being a Fellow of the American Bar Foundation. In addition to her regular gig at St. Thomas, Jennifer has also visited at Drexel University Kline School of Law, University of Oregon School of Law, University of Louisville and University of Pittsburgh. Before entering the legal academy, Jennifer was a Principal Attorney for Houston Industries Incorporated (now Reliant Energy), working on power generation transactions domestically and internationally.
Jennifer has published many articles and given lectures on subjects such as contract and commercial law remedies, wartime and conflict contracting, consumer rights, and lender liability. She is a co-author of CONTRACTS: A CONTEMPORARY APPROACH (West Academic 3d ed. with Chomsky, Kunz and Schiltz) and LEARNING SALES (West Academic 1st ed. with Chomsky, Kunz and Schiltz). She is also the author of the American Bar Association’s Annual Survey on Sales Law published annually in THE BUSINESS LAWYER and prepares the annual update to COMMERCIAL AND CONSUMER WARRANTIES (Lexis).
We are grateful to Jennifer for her willingness to join us in the Symposium.
Tuesday, September 15, 2020
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Individual Employee Rights and COVID-19
Part II (What we really want to know):
Can faculty be terminated for refusing to teach in person?
Part I of this symposium contribution addressed the general public and private law rules bearing on whether an employer can lawfully terminate an employee who refuses to return to work because of COVID. This Part focuses on a specific example of considerable interest to our community: tenured university faculty members seeking to teach remotely. But first, one brief (and final) digression . . .
I. Unforeseen circumstances
Those who focus primarily on B2B contracts may think that I gave short shrift to the unprecedented nature of a global pandemic in Part I. Much of the commercial world is consumed with the question of whether contractual obligations can be set aside due to catastrophic circumstances. But excuse doctrines are of less significance in the employment context where, under employment at will, the law imagines that parties have no long-term obligations to one another.
In the case of employees with contract rights, however, concepts like impracticability could conceivably be brought to bear. If this were an actual exam question rather than a real-life dilemma, I would expect students to invoke doctrines of excuse. I would also expect them to begin their invocation with two mantras that I force then to incant in class:
Contract liability is strict liability. It does not matter why a party fails to perform, only that the contract terms have not been satisfied. If we were to imagine that the contract clearly obligated the employee to work in person, then her failure to do so is a breach even if she is acting justifiably. The same holds for the employer: if it is contractually obligated to provide a safe work environment, it is liable for its failure to do so despite its inability to fully contain the risks that make the workplace unsafe.
Changed circumstances do not excuse contract performance. Rather, they are the reason we contract in the first place. In entering a contract, parties obtain a degree of security in the face of an uncertain world: whatever happens, the other side is obligated to perform. The tradeoff is that come “hell or highwater,” they must perform too.
Of course, those are baseline principles. There are exceptions, and COVID-19 would appear to be a textbook example. Doctrines like impracticability exist to absolve a party from breach when an event so outside the norm of what either party expected makes performance virtually impossible. A global pandemic surely fits the bill for an unforeseen event – one so extraordinary that neither party can be blamed for failing to anticipate it at the time of drafting.
Whether the employee’s performance is indeed impracticable is a more nuanced question. Coming to work is not physically impossible. Its practicability or impracticability depends on a number of fact-driven considerations ranging from the contact-intensiveness of the work, to the employer’s mitigation efforts, to the employee’s underlying health issues. But such matters need not detain us. At this point I hope students recall the difference between recission and breach. Impracticability generally operates as a shield not a sword, meaning the employee could use the doctrine to relieve herself of any continued commitment to serve the employer. But what the employee wants is either to continue the relationship on her terms (remotely rather than in person) or access the remedies associated with breach of contract. Recission is not the outcome anyone is seeking.
Or maybe it is. If any party is going to make a successful COVID-based impracticability argument, it is likely to be the employer, and not with regard to the safety or feasibility of in-person work. Rather an employer might be inclined to argue that the dire economic fallout from the virus has made it all but impossible to retain the employee for the duration of her contract. This argument may sound eerily familiar to readers whose universities have begun or threatened to lay off faculty pursuant to exigent financial circumstances provisions in their appointment and tenure policies. Such language is the faculty-employment-contract counterpart to a force majeure clause, and the prospect of its deployment is sobering. For present purposes, though, we will stick with the question of remote versus in-person work, rather than the dreaded scenario of no work at all. But word of warning to otherwise job-secure employees seeking to draw on excuse doctrines in the fight to obtain remote work: be careful what you wish for.
II. Are faculty a special case?
And now to the much-awaited question: what are the possible job consequences to faculty who decline to teach in person?
Tenured faculty members are similar to corporate executives. True, they earn less. But they have the equivalent of an individual written contract precluding termination absent specific grounds in the form of the university’s promotion and tenure policy. Unlike individual written contracts, it never ends. An executive at the top of the corporate hierarchy generally has a fixed term of employment. If the employer does not have the grounds or the stomach to terminate her during the life of the contract, it can wait it out and refuse to renew. The same goes for so-called “contract” faculty, whether or not they are on a tenure track. These employees can be terminated upon contract expiration absent any presumption of renewal. Not so with tenured faculty. If the university wishes to terminate a tenured professor for refusing to teach in person, it must establish that her conduct satisfies the narrow and exclusive criteria under which tenure may be stripped for performance-related cause.
In some cases, these causes may be even narrower than the already pro-employee definitions found in the high-level employment contracts of the corporate world. Consider the following publicly posted example from the tenure policy of a large public university in the southeast (that is not my employer):
Cause for termination must directly and substantially affect the fitness of the faculty member to function … in an academic community, or be related to a serious failure of a faculty member to discharge his or her obligations to [the University]. Examples include, but are not limited to, serious professional or personal misconduct, serious failure to perform academic duties in accordance with generally accepted norms, conviction of a serious crime and serious violations of [University] policy.
Just count the number of times the word “serious” appears to qualify the grounds for removal, and you see which way the deck is stacked. It will be extremely difficult for this university to revoke the tenure of a faculty member for refusing to teach in person but still genuinely seeking to fulfill those obligations in a different modality. This is particularly so if the faculty member is still fully performing her other “academic duties” – scholarship and institutional service.
In addition to having exceedingly narrow justifications for removal, university personnel policies on tenure revocation guarantee affected faculty a robust form of internal review. Depending on the type and culture of the institution (public or private, large or small, strong or weak traditions of faculty governance), this process will vary. It may be styled as a disciplinary proceeding or a grievance, it likely involves review by a particular faculty committee or governing body, and it probably concludes with an appeal to the university’s board of regents or trustees. Universities not being known for their institutional efficiency, this process can take a very, very long time. In addition, any failure to comply with the required procedural steps can itself create a breach of contract, potentially giving the professor another bite at the apple.
In sum, even if a university is confident that it has substantive grounds to remove a tenured faculty member, it may lack the ability to execute on it. By the time it dots and crosses every “i” and “t” of its procedures, the pandemic will surely be over. At that point one can imagine a simple resolution under which the university drops its charges and the professor quietly returns to the classroom.
Let us return to the not-so-hypothetical question that began Part I. I end all of my exams with the same instruction: Advise the client. If a colleague who fears both for her safety and her job asks me what to do about institutional pressure to teach in person, I need to provide a coherent response, not the meandering intellectual analysis we subject ourselves to grading (or which I have imposed on you here). This is where the true teaching moment lies: students learn that lawyers do not make decisions, but merely lay out the likely results of different scenarios. Ultimately the client must weigh the strength of her convictions against her tolerance for risk. All things considered, tenured faculty are well positioned to take the risk of refusing to return to in-person work. Most employees -- including many elite workers who enjoy just cause protection -- are not.
Monday, September 14, 2020
Individual Employee Rights and COVID-19
Part I: The Basics
For those fond of mining current events for exam questions, the present moment makes a fitting hypothetical. Consider:
An employee declines to come to work for fear of serious or deadly illness. The employer has attempted to mitigate the risk, but cannot ensure the employee’s safety. The employee asks to perform her job from home, but the employer refuses. What are the parties’ rights and obligations?
Or, to make it acutely personal: If we refuse to teach in person out of a justifiable fear for our health, could we lose our jobs?
Like all COVID-related legal matters (and all law school exam questions), there are no definitive answers only arguments on each side. Unfortunately for most employees, those arguments largely favor the employer. Tenured professors, we will see, are a rare exception.
I. Default rules and public law considerations
A. It all begins with employment at will
Ordinary employees are hired at will. They can be terminated for a good reason, a bad reason, or no reason, as the saying goes. Firing someone for not coming to work would seem like a good reason if one were needed. The employee has a good reason for not showing up too, but sadly that is worth little: a contract requires the assent of both parties, and in the workplace, the employer is usually the party who dictates the terms. The employee’s bargaining power, such as it is, lies in her ability to walk away from the deal. It is true that current working conditions are wildly different from how they were at the start of employment. This distinguishes the current situation from one in which an employee knowingly takes an inherently risky job (such as an infectious disease physician who will be exposed to biohazards). But no matter. In courts’ absurdly formalistic conception, each moment of an at-will employment relationship is treated as a “new” contract. The employer is free to terminate the employee and insist on her acceptance of the new normal in exchange for reemployment. In other words, whatever the agreement was before COVID as to safety, location, work format, and all other conditions of the job, the offer now on the table is for work amidst a global pandemic.
B. The search for an exception
That is the contractual baseline. There are various public law “hooks” that can protect the employee in specific circumstances, even allowing an employee who wishes to stay at home some job-protected paid leave. These include Congress’s temporary expansion of the Family/Medical Leave Act (FMLA); the Occupational Health & Safety Act (OSHA), which protects workers who report dangerous working conditions; and state public policy and whistleblower laws that protect workers who refuse to engage in unlawful behavior at work or object to conduct that creates a public safety risk.
Yet none of these quite do the trick for the employee who wants to work from home. OSHA and other whistleblower-type protections make it illegal for an employer to terminate or otherwise retaliate against a worker for objecting to or reporting unsafe conditions or wrongful behavior. They do not protect a refusal to come to work even if for the same reasons. Congress’ pandemic-related legislation comes closer. Qualifying workers can take partially paid, job-protected leave for a maximum of 12 weeks (just a few weeks shy of a typical law school semester). But these apply only to small employers with fewer than 500 employees, which excludes most universities. Plus, the employee must have a qualifying COVID-related reason for leave, such as the need to quarantine due to exposure, not a general fear of contracting the virus.
In any event, leave from work is not the same as working from home. Employees wishing to perform their job remotely are effectively requesting an accommodation, much like what the Americans with Disabilities Act (ADA) guarantees disabled workers. Indeed, some employees might qualify for ADA protection, such as those who have immune disorders or other conditions that would make contracting COVID especially grave. But employees who are at risk due merely to age are not disabled, nor are accommodations available to employees living with or caring for a family-member who is disabled. Finally, ADA-qualifying employees are entitled to an accommodation, not necessarily the one they want. A court could find that an employer’s implementation of social distancing and sanitization protocols are a reasonable, and consequently sufficient, accommodation for the employee’s disability.
II. Contract-Based Job Security Rights
The questions, and in some cases the results, are different when the employee has some form of contractual job security. Teachers, for instance, regardless of tenure, usually are hired under a written contract for one academic year; top executives, multiple years from the date of hire. Other employees have implied contract rights to job security, meaning that the court treats the relationship as one that can be terminated only for just cause based on the reasonable expectations of the parties despite the absence of a formal agreement. Assuming the parties’ contract does not contain any express terms regarding the employee’s ability to work from home, their rights depend on whether a refusal to work in person constitutes cause for termination. If not, firing the employee is a breach of contract.
A. What is cause to terminate?
With a written contract, the “cause” question is often answered by express language. Some contracts simply state that the employee may be terminated upon just cause, but others contain a definition delineating the precise and exclusive grounds for termination. Failure to show up at work, or what the employer might describe as excessive absenteeism, would seem on its face to be “just cause,” at least in the usual course of things (more on COVID in a moment). But where the contract contains what I refer to as an “enumerated just cause provision,” ordinary cause to terminate usually will not suffice.
For instance, high-level executives often have contracts that define cause to include narrow performance-related grounds such as “incompetence,” “misconduct,” “failure to perform,” or “material breach,” none of which is quite on point for the remote work scenario. The employee is not incompetent (one might say that insistence on working from home demonstrates the opposite). If she is keeping up with work – completing tasks at home, meeting deadlines, interacting with colleagues virtually – then she is not failing to perform, which consequently means she is not in material breach. There is an argument for misconduct: the employer might say it ordered the employee to return to the office and she refused, an act of insubordination. But “misconduct” in this context is generally understood to mean intentionally wrongful behavior or violations of policy: misusing corporate assets, stealing trade secrets, or, of recent note, engaging in sexual harassment. An employer that relies on such language to terminate a worker who is still performing, albeit from home, is on shaky legal ground.
In contrast, employees with implied just-cause contracts or written agreements that do not define the term have less job security. The common law meaning of “cause” in such cases is any reasonable, good faith basis for terminating. Certainly, the employee can argue forcefully that cause is lacking: She is willing and able to perform and her reasons for avoiding the workplace are sound. But the suitability of working from home is a classic area of managerial discretion, and the legal standard, particularly in implied contract cases, is highly deferential to employers. Unless the employee is able to establish that the parties intended “just cause” to have a specialized meaning, neither the soundness – nor, in some jurisdictions, the accuracy – of the employer’s judgment is subject to review. Should the question prove a close one, the burden of proof lies with the employee to demonstrate breach of contract.
B. Wait…which breach came first?
But why begin with cause? As a practical matter it is always termination that triggers a lawsuit, but other aspects of the employer’s behavior bear scrutiny. How can the employer demand that the employee work under conditions that compromise her health? Might not the employer’s failure to provide a safe work environment itself constitute a breach of contract? If so, that could mean that the employee is within her rights to withhold performance altogether, stay at home, and sue for damages.
The answer turns on whether the employer has any contractual duties with regard to safety and whether it has materially breached. The parties’ contract is presumably silent as to COVID, as it is on so many terms of the relationship. Employment agreements, even written ones, are notoriously incomplete. In some unionized workplaces, however, the collective bargaining agreement requires that employers provide a safe work environment. It would not be hard to imply a similar obligation in an individual employment contract based on OSHA’s general duty clause or grounded in the implied duty of good faith.
The question then becomes what constitutes a breach of that obligation, one that is material in the context of the whole agreement. Clearly there is no way to fully eliminate the risk of contracting COVID for employees who physically interact with large groups of people, like teachers in the classroom. The employer that fails to take basic steps (like instituting social distancing and requiring masks) or that flagrantly fails to enforce their rules might be in material breach. But an employer that adopts measures consistent with existing medical protocols, limited though they may be, probably is not. This is especially so if the employee is not being deprived of the “principal benefit” of the contract – namely, her salary.
* * * *
Reader, you have waited patiently for an assessment of your personal employment rights. But the customary law of the blogosphere forbids posts in excess of 1500 words. Please see Part II of this symposium contribution.
Our virtual symposium on Contracts and COVID continues today with a contribution from Rachel Arnow-Richman. When we contracts profs have a question about employment law, we hope that Rachel will return our calls. We are grateful to her for sharing her thoughts on the impact of COVID in the employment law context.
Rachel Arnow-Richman is the Gerald A. Rosenthal Chair in Labor & Employment Law. She earned her JD from Harvard Law School and her BA from Rutgers University. She also holds an LLM in Legal Education from Temple University School of Law, where she was an Abraham L. Freedman Fellow. Prior to joining the University of Florida faculty, Professor Arnow-Richman was the Chauncy Wilson Memorial Research Professor and Director of the Workplace Law Program at the University of Denver, Sturm College of Law. She has also held faculty appointments at the University of Colorado Law School, Fordham Law School, Temple University School of Law, and Texas A&M Law School (formerly Texas Wesleyan). Before entering law teaching, she served as a judicial clerk to the New Jersey Supreme Court and practiced employment and commercial law at Drinker, Biddle and Reath LLP in Philadelphia. Professor Arnow-Richman teaches and publishes in the areas of employment law and contracts. She is known widely known for her work on the #MeToo movement and the rights of accused harassers, as well as a series of articles proposing mandatory advance notice and severance pay for terminated employees. She is a past chair of the American Association of Law Schools Committee on Labor & Employment Law and currently serves on the executive committee of the Committee on Contracts & Commercial Law.
Sunday, September 13, 2020
It is important in these times to remember all that we have to be grateful for. In this case, I'm grateful for talented, snarky young people who can celebrate and parody this uniquely American fusion of patriotism, religiosity, and sports. Also, I can't get the song out of my head.
Friday, September 11, 2020
Kim Krawiec has launched Taboo Trades, a podcast about things we weren't supposed to sell but do anyway. The most recent episode is an interview with Nancy Kim about her book Consentability: Consent and Its Limits.
Congratulations to Kim on the launch of her podcast and to her excellent taste in choosing her guests!
Thursday, September 10, 2020
The economic devastation caused by the Covid-19 pandemic is global, but the effects are magnified in poorer countries. There is an urgent need to divert resources away from debt service and towards pandemic mitigation. Countries that mostly owe money to official lenders—i.e., the poorest countries—can get some short-term relief courtesy of the Debt Service Suspension Initiative (although few have taken advantage of this opportunity). But countries with significant private-sector debts—especially the so-called emerging markets—are in a different kind of bind. Tourism revenue, remittances, tax collection… all are down sharply, while spending needs have increased. Even a small contraction in global liquidity will push many countries into unsustainable debt situations. Some are already there.
Unfortunately, no mechanism exists to coordinate the orderly restructuring of debts on this scale. Official creditors can coordinate their response to a debt crisis—not without friction, but with relative ease. Not so for dispersed private creditors. Here, the restructuring landscape consists of flawed contractual mechanisms that require each country to negotiate restructuring terms with creditors with diverse incentives, debt instruments, and legal rights. It is a recipe for disaster. Lawyers and financial advisors will do well; everyone else will suffer.
We start from the premise that, as in bankruptcy, a stay on creditor enforcement activity will reduce the chaos surrounding restructuring talks. More important, in the present context, a stay will allow countries to divert funding to deal with the combined economic and health crisis of the pandemic. A stay may not prove necessary; most private creditors would prefer not to be seen suing a country mired in a pandemic. But creditors are heterogeneous and, as time goes on, cohesion will break down. When this happens, is there a legal basis for imposing a stay?
One possibility is the doctrine of economic necessity. This is a doctrine of customary international law and might have purchase in jurisdictions that generally incorporate international law dictates into domestic law, such as the United States and United Kingdom. As a caution, sovereigns have occasionally raised economic necessity in prior debt cases, almost always without success. And to our knowledge, the doctrine has never been successfully asserted in a U.S. or U.K. municipal court (and the courts and law of New York and England are the ones that matter for almost all emerging market foreign borrowing). Indeed, because the defense evolved in the context of “international obligations,” it is not even clear that the doctrine excuses non-performance of private contractual obligations of the sort that concern us here. But there is reason to think these problems can be overcome and that the defense might be available in the present context (discussed in this paper).
Under Article 25 of the International Law Commission’s (“ILC”) draft Articles on Responsibility of States for Internationally Wrongful Acts, a state may invoke necessity to excuse its non-performance of an “international obligation” if non-performance is the only way to address “a grave and imminent peril,” as long as non-performance does not seriously impair an essential interest of the “State or States towards which the obligation exists.” As the wording suggests, the scope of the doctrine is narrow. The peril must be grave and must outweigh the risks to other states. Even then, a state may not invoke necessity to excuse the violation of an international obligation that “excludes the possibility of invoking necessity.” Nor, for that matter, may it invoke the defense if has contributed to the state of necessity. Finally, non-performance is excused only while the threat persists. The state must resume performance when the crisis ends, and it may have to pay compensation.
Local mismanagement has contributed to almost every sovereign debt crisis in our lifetimes—probably to every sovereign debt crisis there has ever been. So one might think that the necessity defense would never be available (in much the same way that borrowers are essentially never able to raise the contract law excuse of impracticability). This has mostly been the reaction of tribunals when a sovereign has raised necessity in the context of a debt default.
As we understand these decisions, they are primarily concerned with the difficulty of verifying the existence of a state of necessity. Tribunals understand that a doctrine that excuses nonperformance also creates room for opportunism. How can judges or arbitrators tell whether conditions in a debtor state are so bad that failure to ameliorate them will cause a humanitarian disaster? How can they tell whether the debtor state is blameless for the conditions? If tribunals cannot accurately answer these questions, their errors will disrupt the smooth functioning of debt markets. And in the cases thus far, the tribunals have not been confident of the answers, and the defense has failed.
But the Covid-19 pandemic may be the exception. It is hard to blame any emerging market nation for the economic and humanitarian fallout of the pandemic. To be sure, some have worsened the situation (as have some very rich countries). And there is always second guessing of government policies. But in most or all cases, the pandemic itself will swamp other contributing factors. Moreover, unlike in other settings, here there is reason to think that official sector actors can effectively certify that a state of necessity exists—this is the clear implication of the G-20’s Debt Service Suspension Initiative, and the official sector can take other steps to make clear that there is an international consensus to this effect. These steps should ease concerns about the verifiability of the present state of necessity. Likewise, their absence in future cases will provide an easy way for tribunals to limit the precedential value of recognizing the necessity defense in the context of Covid-19.
We do not mean to suggest that the defense will be available to every country. Nor will every country wish to make the argument. However, for those in dire need, who want to avoid a debt default, this could be an option. A related argument—although not the defense itself—has been raised in a U.S. sovereign debt case involving Venezuela, Casa Express v. Republic of Venezuela. Perhaps the case will shed some light on the applicability of the doctrine in the U.S. But if a sovereign state must choose between paying international creditors or paying for a vaccine, the case for a necessity defense strikes us as clear. In such cases, the sovereign’s non-payment should be excused during the period of necessity, and bondholders should not be allowed to use non-payment as a basis for accelerating the debt.
A week or so ago, we discussed the doctrine of economic necessity with Eric Posner on our Clauses and Controversies podcast. Rightly, we suspect, he cautioned that it will be a heavy lift to persuade a municipal court to apply the doctrine. As Eric pointed out, the doctrine is vague with undefined contours. And no judge in these two jurisdictions wants to take steps that might devalue their status as financial capitals. One implication is that judicial decisions may be heavily shaped by the views expressed by the U.S. and U.K. governments. (We suppose it would also help if government officials cared about the real domestic economy and about people in poorer countries. Also: we each want a pony.)
A final note: As others have pointed out, there are other legal techniques that judges have used to deal with related situations. Dave Hoffman and Cathy Hwang discuss a fascinating set of public health cases from the late 1800s and early 1900s (here and discussed in this previous post; and also listen to the Hoffman & Wilkinson-Ryan podcast on the Hanford baby exhibition here, discussed in this previous post). Jonathan Lipson looks to the equally interesting depression era cases, some of which directly deal with our favorite topic of sovereign debt contracts (here). And Emily Strauss has written about courts taking fairly radical steps in reforming certain contracts in the aftermath of the 2007-08 crisis (here).
Today, the Blog's virtual symposium on Contracts and COVID continues with a contribution from two authors who have been very active, separately and together, in the field.
Mitu Gulati is on the faculty of the Duke Law School. His research focus these days is in thinking of solutions to the (possibly) coming global sovereign debt crisis. That said, his fervent hope is that such a crisis, where dozens of countries default simultaneously, will not happen. He often writes with Mark Weidemaier of the University of North Carolina at Chapel Hill. Although we have written about Mitu's work on the blog before, this is his first stint with us as a guest blogger. Welcome!
Mark Weidemaier is the Ralph M. Stockton, Jr. Distinguished Professor of Law at the University of North Carolina at Chapel Hill. His research examines the intersection between contracts and dispute resolution in domestic and international settings, as well as issues related to the structure and enforcement of sovereign debt. Mark's last post on the blog came ten years ago in the context of a roundtable on the Rent-A-Center decision. Welcome back!
For those who have not been following, we recommend Mark and Mitu's current collaboration project, the podcast Clauses and Controversies, available here and which Nancy Kim previously blogged about here.
Wednesday, September 9, 2020
Is Covid19 a Force Majeure Event Within Our Supply Chains?Stephen Wilks
Most of us who teach contracts or sales are familiar with the role force majeure clauses serve as risk allocation devices. The current pandemic has reinforced the importance of these provisions, given the widespread impact on carrying out enforceable obligations. COVID-19 has dramatically upended our lives, reconfiguring behavioral patterns and forcing us into various forms of isolation pending the development of a vaccine. Public health imperatives – such as lockdowns, wearing masks in public, and “social distancing” requirements – have also reached into business operations across most sectors, with some industries closing entirely. The resulting commercial impacts warrant revisiting contract law norms that operate where a mix of governmental and market forces frustrate performance.
COVID-19’s impact on contract performance has become most apparent in supply chains – the infrastructure that sources and transforms raw materials into intermediate or end products for sale in commercial or consumer markets. Now the subject of training and research across a wide variety of institutional settings, supply chains are complex, highly dynamic, and carefully coordinated to account for the range of potential disruptions that complicate domestic and international production, discussed here, here, and here—or so we thought.
In the wake of COVID-19’s arrival, some supply chain disruptions reflect changes in our consumptive patterns, such as declines in dine-in restaurant traffic due to state-imposed lockdowns. Inflexible food supply systems cannot easily redirect restaurant-bound goods to grocery stores. By contrast, other disruptions have originated from more intrusive expressions of state power. In May of 2020, for example, President Trump invoked provisions under the Defense Production Act, which forced The 3M Company (“3M”) to divert goods bound for its clients to the U.S. This decision was especially controversial because it entailed using power to control a private actor’s supply chain in ways that transcend merely prioritizing government orders over all others and mandated interfering with contractual obligations owed to third parties. 3M was also forbidden from exporting masks made in its American factories. The contract breaches resulting from such events will undoubtedly trigger disputes as to whether barriers to performance should relieve parties of their contractual obligations.
Do these dramatic upheavals relieve parties of otherwise enforceable obligations? The short answer is, “it depends.” Contracting parties who turn their minds to this question during negotiations will determine what constitutes a force majeure event – commonly understood as an occurrence beyond a party’s reasonable control and which prevents performance of an obligation. Force majeure events must be beyond the affected party’s reasonable control; must prevent, impede or otherwise hinder the affected party’s performance; and must have occurred despite the affected party’s reasonable efforts to mitigate or ovoid its occurrence. Covid19’s effects do not change the fundamental legal doctrines limiting excuse from otherwise enforceable contract terms. But they demonstrate how parties may be exposed to losses as a result of inadequate business planning or shortsighted drafting since force majeure language will therefore determine whether a non-performance constitutes a breach or triggers relief.
Force majeure clauses will often distinguish political events (such as civil unrest, armed insurrection, or the nationalization of assets) from non-political or natural events (such as extreme weather, earthquakes, wildfires or accidents). Depending on the parties’ wishes as expressed in any resulting agreement, these distinctions can trigger different options for claimants seeking relief – ranging from extended deadlines and changes in contract price to other deviations from original performance terms and relief from performance. Additionally, the sweeping language in “catch-all” provisions will typically address “Acts of God” or “government action” which might capture the kinds of scenarios claims left unaddressed elsewhere in the agreement.
In the supply chain context, government’s role in shaping COVID-19’s business impact will combine with affected parties’ mitigation efforts to figure prominently in the resolution of COVID-related contract disputes. This calculation will turn on a mix of context, market conditions and industry norms. For example, dairy distributors who normally provision now-shuttered restaurants or college dormitories may repudiate supply agreements with farmers who dump their milk instead of seeking entry into other distribution networks that service grocery stores. Absent some effort to mitigate or explain why mitigation is futile, force majeure arguments relying on governmental action alone may not suffice.
Domestic and global business communities must also anticipate globalized scrutiny of foreseeability as they pertain to fore majeure claims. Prior to the pandemic, for example, there were several western firms operating in Wuhan—the Chinese city widely thought to be the site of the first major Covid-19 outbreak and a major manufacturing hub. The city of 11 million boasts factories producing goods for General Motors, Nissan, Honda, IBM, HSBC, Siemens, Walmart, Ericsson, and other well-known companies. In an interesting parallel to labor patterns in segments of the U.S. economy, migrant workers travel into Wuhan from inland provinces like Hubei, Shaanxi, Anhui, Hunan, and elsewhere to work in factories, where they live in cramped dormitories for much of the year until returning home to celebrate the Lunar New Year.
According to media reports, the U.S. military’s National Center for Medical Intelligence (NCMI) issued an internal report warning that an unknown virus was sweeping through the Wuhan region. The report’s precise date of authorship is unclear, but its release came sometime between November of 2019 and January of 2020. The result of covert surveillance, the NCMI report described wholesale changes to life patterns and business activity in the Wuhan region. The notion that western firms operating in Wuhan during this period were unaware of these wholesale “life quakes” occurring the city towards the end of 2019 warrants scrutiny, given the effects on local workforces toiling in their factories. How much did executive leadership at these firms know about the outbreak’s early phases in Wuhan? To the extent such knowledge can be discerned, what kinds of mitigation should management have undertaken, given the risks to international production?
The foregoing examples demonstrate two of the many ways force majeure disputes will test the duty to mitigate in domestic and international contexts. They also raise questions about how lawyers might draft force majeure clauses in the future. Will phrases like “government acts” form part of “catch all” language or will they be narrowly tailored in the wake of current events? As COVID-related performance issues continue rippling through domestic and international production, the cascading series of contract breaches will incentivize parties to re-evaluate the role of contract terms in allocating risk.
Today, our virtual symposium continues with a guest post from my friend and former colleague Stephen Wilks.
Stephen Wilks is Associate Professor of Law at the Detroit Mercy School of Law, where he teaches courses related to his areas of expertise: contracts, sales, business associations, secured transactions, payment systems and comparative commercial law. His cross-disciplinary research interests explore themes of governance and regulation within transactional spaces. He has examined government use of private payment networks to facilitate various forms of financial surveillance; the role of transnational networks in harmonizing critical segments of the world’s financial system; and the politicization of migrant remittance flows between developed and developing economies. Future projects will focus on digital currency adoption and the legal anthropology of money.
Stephen holds a B.A. in history and a J.D. from Queen’s University; an M.S.W. from the University of Toronto; and an LL.M. and Ph.D. from York University’s Osgoode Hall Law School. His student-edited and peer-reviewed writings have appeared in the Supreme Court of Canada Law Review, the Harvard Journal of Racial and Ethnic Justice, the Cornell International Law Journal, and other publications.
It is a special pleasure for me to have the opportunity to work with Stephen again. Stephen and I taught together for two years at the Valparaiso University School of Law. I remember well sitting in his office as he skillfully bubble wrapped his wall hangings. He was off for a two-year visiting stint at Case Western, while I stayed behind, going down with the ship. I was happy for him, but it was one of many very sad partings. It is fantastic that we both have landed safely and that we can continue to collaborate from different law schools. Stephen brings a sophisticated methodological apparatus to the intellectual space at which international banking and finance law meet intersectionality analysis. I always learn tremendous amounts from the small percentage of his work that I can grasp.
Tuesday, September 8, 2020
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