Background Information.
On March 11, 2020, the World Health Organization declared COVID-19 (herein, the "Coronavirus") a global pandemic as this novel coronavirus, which was unknown to world health officials just three (3) months ago, had rapidly spread to more than 121,000 people from Asia to the Middle East, Europe, and the United States. This past Friday, President Trump said he was declaring a national emergency – "two very big words" – to free up $50 billion in federal resources to combat the Coronavirus. Further, earlier today, Governor Jon Bel Edwards announced aggressive measures to curb the spread of the Coronavirus, further limiting the size of gatherings to fewer than fifty (50) people, closing casinos, bars, and movie theaters, and limiting restaurants to delivery, take-out, and drive-through orders only.
Already, the Coronavirus has had a nearly unprecedented effect on the global economy and the American way of life, and it is impossible to predict the extent of this disruption.
Butler Snow attorneys are advising clients on numerous legal issues relating to the Coronavirus and its consequences including, among others, the invocation and enforceability of force majeure provisions in contracts. While Butler Snow attorneys are well-versed in all states where our firm is present, this article is intended to address the interpretation of contractual force majeure provisions in Louisiana as well as the scheme for addressing "fortuitous events" in the Louisiana Civil Code.
Contractual Force Majeure Provisions in Louisiana.
Generally speaking, force majeure provisions in a contract excuse a party's nonperformance when an "act of God" or other extraordinary event prevents a party from fulfilling its contractual obligations.
As a matter of course, contractual force majeure provisions are enforced by Louisiana courts, which look to several elements when considering the applicability of a force majeure provision: (1) whether the event qualifies as a force majeure under the contract; (2) whether the risk of nonperformance was foreseeable and able to be mitigated; and (3) whether performance is impossible.
Louisiana courts primarily focus on whether the force majeure provision at issue encompasses the type of event a party to a contract claims is causing its nonperformance. At this juncture, a provision identifying "national emergency" or "government action" as an event constituting force majeure may well be satisfied by President Trump's declaration of national emergency and recent measures decreed by Governor Jon Bel Edwards. Similarly, a provision identifying "health emergencies" or "epidemics" or "disease" appear to be implicated given the World Health Organization's determination that this is a "pandemic," and the disease-fighting actions of Louisiana's state and local governments. However, even when a force majeure provision is triggered, such provisions are interpreted narrowly; that is, excusing performance only where performance is rendered impossible due to the event of force majeure.
Fortuitous Events in Louisiana.
If a contract subject to Louisiana law does not contain a force majeure provision or the contractual provision does not cover the Coronavirus, a party may nonetheless seek relief under the Louisiana Civil Code. Under Louisiana Civil Code articles 1873 to 1879, a buyer or seller is not liable for a breach caused by a "fortuitous event." Louisiana courts have discussed fortuitous events as an "irresistible force" or "that which happens by a cause which we cannot resist." Mark Investments, Inc. v. Motwane's Am., Inc., 482 So. 2d 1187, 1189 (La. App. 4 Cir. 1986). This concept is analogous to the common law concept of impossibility. While there does not appear to be any Louisiana jurisprudence addressing whether an epidemic or pandemic constitutes a fortuitous event, Louisiana doctrine indicates that "[d]anger to the health or life of the obligor, rather than his actual illness, may be of such a nature as to incline a court to regard that danger as an insurmountable obstacle that makes performance practically impossible." 5 La. Civ. L. Treatise, Law of Obligations, § 16.36 (2d ed.) (noting conclusion by French courts that epidemic of typhoid fever in a particular city was force majeure that prevented an actor from giving performance in that city).
Similar to the law in other states, price adjustments to a contract are not allowed, and a party cannot avoid liability if it guaranteed delivery or acceptance of delivery. Unlike courts in other states, however, Louisiana courts have the right to dissolve the contract or reduce the other party's obligations proportionately. Louisiana courts determine contract dissolution on a case-by-case basis, but that remedy it is more likely when part performance is of no value to the other party or the remaining performance becomes impossible.
As a final note, Louisiana has not adopted the Uniform Commercial Code and, in turn, has not adopted the concept of "commercial impracticability" set forth in Section 2-615.
Proactive Steps.
It is not too soon for you to take the following proactive steps to mitigate your risk or maximize your rights, and prepare for interruption to your operations, or those of your suppliers, in connection with this outbreak:
- Review your commercial contracts to assess what force majeure rights, remedies, and requirements may apply if your or your counterparty's operations are disrupted;
- Review the notice and response requirements in your commercial contracts to ensure timeliness, content, and proper delivery method of any invocation of, or response to, a force majeure notice;
- Secure alternate supply streams in the event a supplier's operations are impacted;
- Obtain and retain as much information as possible about any potential force majeure claim;
Finally, even if your business is unable to avoid the need to declare force majeure, any attempt to mitigate your risk in advance will be material to whether a Louisiana court determines that you took reasonable steps to continue your contractual obligations and whether performance was, in fact, impossible.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
